Q1 2022 Cadence Design Systems Inc Earnings Call
Part of our SEC filings, including our most recent forms 10-K, and 10-Q and today's earnings release.
All forward looking statements. During this call are based on estimates and information available to us as of today.
And we disclaim any obligation to update them.
In addition, we will present certain non-GAAP measures, which should not be considered in isolation from or as a substitute for GAAP results.
Conciliation of GAAP to non-GAAP measures are included in today's earnings release.
Today's earnings release for the first quarter of fiscal 2022.
The related financial tables, and CFO commentary are also available on our website.
The Q&A session today.
I'd ask that you observe a limit of one question and one follow up.
You may re queue, if you would like to ask additional questions and time permits.
Now I will turn the call over to enter it.
Good afternoon, everyone and thank you for joining us today.
I am pleased to report that cadence delivered exceptional results.
For the first quarter of 2022.
With broad based demand for our innovative solutions.
Driving solid double digit growth across all business groups.
In view of the strong start to the year and the continuing momentum of our business.
We are raising our financial outlook for the year.
Don will provide more details on that in a moment.
Generational trends such as the Hyperscale computing five G <unk>.
<unk> is driving an AI ml.
By creating an explosion of data.
That in turn is driving the need for next generation compute.
Connectivity storage and data analytics solutions.
Along with accelerating digital transformation of multiple end markets.
These trends continued to fuel robust design activity.
Creating rich market opportunities for our differentiated end to end.
IP and system solutions.
Now, let's talk about our key highlights for Q1.
A key element of our approach has been to closely collaborate with our ecosystem partners and.
And focus on market shaping customers.
We are very excited to have built upon our successful engagement with a marquee U S semiconductor company.
And in Q1.
One of the largest contracts in company history.
To enable the broad proliferation of our EDA hardware and system solutions.
Additionally, in Q1, we expanded our long standing partnership.
That arm.
Who is using a comprehensive set of cadence EDA solutions.
And cadence was using arm's latest IP.
To jointly provide implementation referenced flows and optimized processor IP to accelerate customer innovation.
Rapidly increasing challenges and system verification and software bring up funding.
<unk> continued to be a strong pull for our verification business.
Which delivered 30% year over year revenue growth.
On the heels of a record year, our hardware business.
<unk> had its biggest quarter by far.
With unabated demand for our best in class Palladium, Z <unk> and proteomics to hardware platforms.
With 10, new customers and over 50 repeat customers.
More than half the orders during the quarter included both the platforms.
Demand for hardware was broad based with particular strength seen in Hyperscale.
<unk> communication and AI ml segments.
Our digital and sign off business had another strong quarter.
With 23% year over year revenue growth.
The deployment of our digital full flow delivering industry, leading quality of results at the most advanced nodes.
Continued to accelerate with more than 15, new wins in Q1.
Our innovative <unk> solution uses unique reinforcement learning ml technology.
To explore the entire design space and intelligently optimize.
The digital full flow in a fully automated manner.
Several market shaping customers have successfully deployed cadence city-bred.
And realized remarkable productivity.
And power performance and area benefits, including.
The marquee Asia Pacific system company used cadence cerebral.
To achieve five ex engineering productivity and nearly 10% power gain.
On a critical advanced node subsystem.
And a leading Asia Pacific Hyper scaler use cadence here Bruce.
With our digital full flow to tape out a chip with nearly 2 billion instances, reducing power by 5%.
On page two the alternative flow.
Our system design and analysis business, which is driving our expansion beyond EDA.
Continued its strong momentum in Q1, delivering 22% year.
Year over year revenue growth.
There is growing interest in our integrity <unk> solution the.
The industry's most advanced multi die platform.
With tightly integrated system planning implementation and analysis technology.
A large U S data infrastructure company successfully deployed integrity to tape out the two and a half the IC.
And light diligent use three D integrity, <unk> IC, which also in <unk> and development of their fully integrated optical computer system.
And system analysis, we continued executing to our strategy of building out our multi physics platform.
Offering best in class engines, delivering superior results compared to legacy solutions.
We are pleased with the new wins and growing repeat orders for our organically developed clarity and Celsius product.
As well as our recently acquired Cfd technology.
Over the past year, our Cfd solutions have continued to proliferate.
Especially in the aerospace and defense Arena with.
With market shaping customers such as Lockheed Martin.
In Q1, Juniper networks renewed their commitment to cadence technology.
Including comprehensive access to our systems portfolio across PCB packaging and system analysis solutions.
And last week, we introduced fidelity CSD.
A comprehensive cfd platform.
It includes enhanced meshing technologies as well as in next generation massively parallel high order solver.
That dramatically improves the performance and accuracy of complex Cfd application.
For us multiple vertical end market.
Fidelity CSD software meshing capabilities have been used by Toyota Motor Europe .
To be their standard workflow for CSC preprocessing.
And the winning America's Cup team New Zealand.
Lies on fidelity marine solver, or the Hull hydrodynamic modeling.
Lastly, in addition to our outstanding business results.
I'm also proud of our high performance inclusive culture.
And thrilled that we have we have been selected by fortune.
And great place to work.
As one of the 2020 to 100 best companies to work for Us.
For the eighth consecutive year.
Now I will turn it over to Jon to provide more detail on the Q1 results and our updated 2022.
Yeah.
Thanks, <unk> and good afternoon, everyone.
I am pleased with the results we achieved for the first quarter of 2022, driven by broad based strength across our technology portfolio and record demand for our leading hardware products.
We continue to execute to our intelligence system design strategy, making further significant strides with our innovation roadmap and most importantly, we continue to delight our customers.
Here are some of the financial highlights from the first quarter.
Total revenue was $902 million.
GAAP operating margin was 35%.
Our non-GAAP operating margin was 44%.
GAAP EPS was <unk> 85.
Our non-GAAP EPS was $1 17.
Cash balance was $1 $135 billion.
Operating cash flow was $337 million.
And we repurchased $250 million of cadence shares.
Before we provide our updated outlook for fiscal 2022.
I'd like to highlight that it contains our usual assumption that the export limitations that exist today remain in place for the remainder of the year.
With that in mind, our updated outlook for fiscal 2022 as revenue in the range of $3 $3 95 to.
The 3.435 billion.
GAAP operating margin in the range of 28 five to.
To 30%.
non-GAAP operating margin in the range of $38, 5% to 40%.
GAAP EPS in the range of $2 51.
To $2 59.
non-GAAP EPS in the range of $3 89.
To $3 97.
Operating cash flow in the range of $1 one nine.
Q1, two 9 billion.
And we expect to use at least 50% of our free cash flow to repurchase cadence shares in 2022.
For Q2, we expect revenue in the range of $825 million to $845 million.
GAAP operating margin in the range of 29% to 30%.
non-GAAP operating margin of 39% to 40%.
GAAP EPS in the range of 59 to 63.
non-GAAP EPS in the range of 95 to 99.
And we expect to repurchase at least $200 million of cadence shares in Q2.
Our CFO commentary, which is available on our website includes our outlook for additional items as well as further analysis and GAAP to non-GAAP reconciliations.
In conclusion.
All our businesses had a strong start to the year.
I am pleased that revenue growth and profitability continued to accelerate.
We are on track to exceed 50% incremental margin for 2022, which contributes to our continued operating margin expansion.
Also with the increase in our outlook at the midpoint, we now expect revenue growth for the year to exceed 14% driving acceleration in our three year revenue CAGR to over 13%.
As always I'd like to close by thanking our customers partners and our employees for their continued support.
And with that operator, we will now take questions.
At this time I would like to remind everyone who wants to ask a question. Please press Star then the number one on your telephone keypad. We do please ask that you limit yourself to one question and one follow up question well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Gary Mobley with Wells Fargo Securities.
Hey, guys. Thanks for taking my question and let me extend my congratulations to a strong start to the fiscal year I wanted to start out by asking about backlog.
Had roughly a 16% sequential increase and I was wondering.
To what extent.
<unk> has emulation and prototyping hardware tools contributed to that increase as well as IP and.
I went to as well ask you about the diversity of the backlog increase was largely driven by that marquee customer win that you highlighted in your prepared remarks.
Yes, Gary Great question. This is John yes.
Yes, we're very pleased that backlog is now up to over $5 $1 billion in it mainly.
Mainly came from broad based strength across all of the different business groups.
There was a substantial uptick in terms of hardware demand that you saw some of that come through in the revenue number in the quarter.
But also I think you referred to we had a large records contract with a marquee U S semiconductor company that we booked in Q1.
This was a big extension and expansion to replace an existing deal.
That was expected to expire at the end of 'twenty two.
And that contributed significantly to backlog growth as well.
Great. Thank you thanks, John I wanted to.
Ask you about the disclosure in your SEC filings about the subpoena that you received from the U S Commerce Department or base.
And I was wondering if you can give us any update in in.
What that entity is asking for and perhaps what it relates to and your take on.
Ill.
What specifically is motivating them to ask you for more information.
Yes, Gary.
We mentioned previously that this is an administrative subpoena.
And the focus of the subpoena is information about sales to certain Chinese entities. Our response to the subpoena at this stage is mostly complete and cadences in compliance with all export control regulations, but other than that I really don't have anything else to say.
Okay, Alright, well, thank you guys.
Your next question comes from the line of Charles <unk> with Needham <unk> Company.
Hi, Good afternoon. Thank you for taking my question.
Maybe the first question I wanted to follow up quickly on the U S. A key semiconductor customers.
I was wondering you mentioned about record contract you signed is that.
A reflection of expanded scope.
Our collaboration with that customer or a I mean, a longer contract duration with this particular customer or maybe a combination of both.
Some color on that.
Yeah, Hi, Thank you for the question. This is Daniel so.
Like you mentioned key approach a key element of our strategy is to focus on market shaping customer.
And Im very happy with this new arrangement with the marquee U S semiconductor company.
You May know, we have been working with this particular customer.
While.
And now we are excited to build upon these successes.
With this new contract.
And it's a broad ranging contracts like we mentioned so it includes our EDA solution.
But it also includes our hardware platforms and our new system solution. So it's a fairly comprehensive.
Arrangement, and we look forward to continuing deployment with this very important customer.
And to give you example, I think last time. We also mentioned for example in EMEA, we have lot of.
Successful engagement on our digital full flow.
<unk>.
For example, <unk>.
Dave.
Good results.
Several key blocks on our recent tape out.
About five X productivity improvement.
At the same time, we also have engagement in analog with virtuoso inspector.
And of course verification that the key element with hardware and system solutions. So overall, we are happy with the progress.
And we look forward to wider deployment as we go forward.
Thanks Aaron.
On Europe .
Maybe a second question I wanted to follow up on.
China definitely I understand you don't have any new news on the subpoena crowd.
But your competitor recently I mean, maybe not recently they received a subpoena and the main news.
With a walk the walk the press, they're just not really asking you to provide more lingo comments on that but from a business standpoint are you seeing any changes in terms of behavior among Chinese customers, who are not really subject to the export control.
<unk>, but may see whats the new development as a sign of potential escalation between U S and China on the semiconductor.
Any just.
Wanted to point out that that your China revenue did see a little bit tick up in the first quarter.
Maybe I'm not making a raw correlation here, but any color on this front would be great. Thank you.
Yes. Thank you Charles So we are pretty pleased with our business in China.
I think you May know, we had some tough compare in 'twenty, one versus 'twenty to fiscal 'twenty one versus.
Versus fiscal 'twenty, but we're that's behind US now so I think we expect China business to be strong.
And to continue to grow and we're seeing that trend across our product portfolio.
So John you want to comment yeah, I would add that yes.
Customer demand is strong and it continues to present, a growing opportunity for us out in China.
One thing that benefited us in China. In Q1 was we did pick up some software revenue and custom IC and digital IC.
From some license compliance transactions are they benefited benefited us in Q1 as well as the strong hardware in the quarter.
Thank you very much.
Your next question comes from the line of Joe <unk> with Baird.
Okay.
Alright, great Hi, everyone.
Maybe just going back to the backlog development.
When you think about how.
Your involvement with the Mark key U S. Semiconductor company has evolved do you think that is emblematic of kind of how your relationships across your broader customer base are evolving and maybe at a strategic level can we just discuss how.
That scope of involvement is changing and related to that you introduced quite a few new products over the past 12 months, we've been talking about sounded today are you starting to see those factor into larger suvs or deal sizes.
Yes, Joe that's a good point so what I would say is that we are pretty happy with our.
Product portfolio.
And.
Competitive positioning.
And we are happy that.
We always started we focus on.
The important customers focus on benchmarking focus on adoption.
Information that leads to booking and revenue. So overall I think we feel confident of.
Our product portfolio that includes EDA and IP, and then expansion of that product portfolio into system design and analysis.
As you see that also grew pretty well in Q1, and then the use of AI.
Further differentiate our solutions, whether they are in EMEA or in systems.
So at this point I think we feel good where we are and also we are as you know in a golden era semiconductors and electronic systems. So the market is also growing and we feel we're in a strong position so altogether.
It's a good good tailwind for our solutions and our company and I would just add there Joe that we're very excited about the growth opportunity that this expansion brings us over the next several years.
Okay. Okay, that's great.
And then specifically on your hardware platforms a quarter ago, you discussed how verification had really good visibility and that's what is informing your view on a strong <unk> forecast at that time and also a strong first half, but that you aren't necessarily extrapolating.
The strength in the first half into the second half, you're maybe cannot wait and see a bit more.
The updated forecast are providing today can you just give an update on kind of where youre thinking again forecasting stands with your verification hardware.
Yes, let me.
Talking about verification first and I think John can comment more about the outlook for the year.
And I think verification as you know.
As a key differentiator for our customers I think to really.
<unk> kind of design company this system semiconductor company.
Your ability to do.
Good verification is critical.
It is what can lead to.
Rapid cadence of products and also how fast from silicon to about two product release right. So I think importantly verification becomes critical.
<unk>.
And the importance of hardware platform, especially driven by Palladium and protium.
To do not just.
Our deal verification, but also software brings up is critical. So therefore, we are seeing a strong demand across both the semiconductor companies, but also the system companies generally have software.
Verification products, and we had a record quarter.
Following a record year last year now in terms of going forward I would like John to comment on the rest of the year, Yes, Joe I mean, we're seeing significant demand for all of our hardware products.
As we said in our year end call just a few weeks ago. So we werent comfortable with providing an outlook on extrapolating that demand into the second half of the year.
Until we saw the pipeline kind of closer to the summer and Thats we.
Kind of retain that position for this sky.
Okay. Okay understood. Thank you very much.
Your next question comes from the line of Blair Abernathy with Rosenblatt Securities.
Okay.
Thanks, very much and nice quarter guys.
Just wondering if we could talk a little more about the multi physics simulation side of things I.
Just wanted to get an update on how your.
Our channel partner programs are developing one of the.
Getting traction.
The overall business and just perhaps on the multi physics simulation sort of what would you classify or what do you view as areas, where you've got some competitive strengths.
Okay.
Yes, that's a great question. So first of all as you saw we are growing pretty well in system design and analysis.
And also just to remind you that we take all of our revenue.
<unk>.
Even in this segment compared to some other company. So whenever you have a ratable revenue then.
The bookings.
Growing faster than revenues overall, we are pretty pretty.
Really happy with system design and analysis and especially.
The system analysis portion that is becoming bigger portion of cadence business and our three stent is our computational software expertise. So in EDA over the last 2030 years, we have lot of experience doing very very large systems.
Efficiently and accurately so we applied that computational software expertise to system analysis. So our solutions can be order of magnitude better than what has been these legacy solutions in this space Okay.
And the first always focus on key customers. The top customers, then and the top customers in that space are similar to our traditional top customers. So these are the big system in semi companies also our top customers and system analysis, because we want to make sure your product is differentiated and I think.
That's that's ongoing and you see the strength and clarity and Celsius and now with the introduction of fidelity.
Now beyond that to your point I think we also work on channel expansion and I think we have mentioned in the past that.
We are expanding our partner network.
And also expanding more and more of these solutions to be available on the cloud, which also naturally reaches more and more customers. So.
So we always want to first focus on the product focus on the top customers and the big customers and then build systematically build out a framework.
To expand the deployment and go to market. So overall, we are pleased with our progress and it is also very synergistic with our overall EDA position in overall intelligent system design strategy.
That's great thanks very much.
Your next question comes from the line of <unk> Rahmani with UBS Securities.
Hi, Thanks for taking my question.
I just had a.
Couple of questions on.
The marquee.
Customer wins that Youre talking about.
Should we think about that as.
A competitive displacement from your side or should we think about it more.
A similar scope or maybe expanded scope, but larger contract value.
How do we think about that.
Yes, I would profile it as an expansion of.
The proliferation of our technology with that customer.
I think that customer has seen the value in and the products that we've provided over the last number of years and it's ready to take the next step I mean typically when were.
Proliferating where costs like this it starts with.
Them using our technology in a number of individual designs and then based on the success of those designs, they proliferate and expand it into other multiple designs.
They may also continue to use.
Although technology.
But it certainly.
It has us very excited about the growth opportunity that this expansion means for us for the next number of years.
Great and as a follow up.
Your IP business in total.
Accelerating as we think about if you look at the last few quarters.
Do you still feel good about.
The low teens type of growth rate for the year or so or should we be thinking about something thats much higher.
Well over the last over the last three years or so I think they've been growing around mid teens, we put in the outlook low teens, it's in the outlook at 13%, we haven't changed that from.
From the end of last year, but you might have noticed that <unk> achieved 17% in Q1, what we find is that when.
When we give them a target for low teens, they focus on the most profitable IP business generally over perform but what the current outlook just represents 13% there may be upside to that.
Okay. Thank you.
Your next question comes from the line of Jay <unk> with shower with Griffin Securities.
Got it thank you and good evening John .
Question number one on the road we've spoken over the last few months.
Of how your semiconductor customers are becoming increasingly like systems customer systems customers are becoming more like semi customers with that in mind, though.
In what way are the two halves of the customer base still different.
Even though they are becoming more like what are the important differences that remain.
In terms of their process or their mix of products.
From a company like Yours, and then any case given the overall a rising tide of your of your business given the strength of the end markets.
How are you seeing the kinds of services and support requirements that you are having to invest in and expand.
For your customer base the second question.
Going back to the marquee customer.
We all think it is.
That company is already by far the largest spender on commercial aviation.
They like many other semi companies have been materially expanding their R&D budget inflicted higher substantially over the last number of quarters. The question is.
Could you foresee that particular customer, becoming a more than 5% customer for you or even perhaps 10%.
And thereby increasing your overall customer concentration.
Thanks.
Yeah, Hey, Jay let me start with your first question, though like you said system companies are becoming doing more semiconductor design and semiconductor becoming company the.
Becoming more system company and this is great for cadence in the industry.
And there are similarities there, but you asked about the differences so some of the differences.
Of course first thing is that as one of the reasons, we expanded into system design and analysis. So naturally to system companies. We are not just engaging with our EDA and IP products. We just silicon centric, we're all seeing engaging with.
System design and analysis products, whether it's <unk> or PCB design, our stimulation and that's a natural synergy of our strategy and then actual center deal what is happening in the customer base. So that's the one big difference I think the second big difference is that the system companies naturally as you know.
Software content. That's why there are system company, so the need for hardware platforms, especially both palladium and protium and software bring them.
As always critical but it is even more critical for these system companies that are doing semiconductors.
So I think I would say these are probably the two big thing and then the third thing that that always helps us.
Lot of times the system companies are new at.
Our sometimes are engaging in new activity in semiconductors. So there is no legacy there so that always helps us because without legacy with the strength of our portfolio, we typically do well in the market.
No.
Now with respect to your second question.
Like you said, we are pretty happy with our engagement with the marquee.
U S semiconductor company.
And.
There is lot of opportunities to grow there over the years and multiple assays EDA hardware and the system solution.
Yes, Jay we have a very diverse customer base.
And the <unk>.
We're very very happy that this opportunity.
It means that this particular customer is likely to spend a higher percentage of their dollars with us over the next few years and it sets us up to grow well in that account over the next few years, but we expect to grow well in many many of our accounts if not all of our accounts over the next few years.
So yes.
I wouldn't I'm not expecting a 10% customer.
Thanks.
Yes.
Yes, the other thing Jay.
Already to highlight as you know as we do more of these.
AI based solution.
<unk> and you'll see more from us going forward is the opportunity to provide much more productivity to our customers, whether they're a semiconductor company system company. So what I, what we're hoping is that because as you know the labor market is tight and the need for talent is always growing that as more and more need for automation and higher.
Level automation so.
I think there is opportunity for us to do well in a variety of customer, especially.
Moving to more towards automation and less towards hiring there'll still hire more people, but there is opportunity for EDA and IP to be a bigger percentage of wallet.
As we provide more automation and our solutions.
Understood.
Yes.
Your next question comes from Vivek Arya with Bank of America Securities.
Thanks for taking my question.
Didn't know if you look at the growth acceleration over the last few years.
Does it come from a wider customer base or is that more revenue.
Customer and that if I kind of carry that question forward for the next three years to 40 years.
What do you think is going to be a more important factor in driving the growth is it a wider customer base or is it more revenue per customer.
Yes, that's a good question what I would say there are three big trends that are that are helping us. So first trend is as you know we are in Golden age semiconductors, and it's expected to grow.
To grow for next five to 10 years, so the our core business can do well with the semiconductor companies.
I think the second thing is like was mentioned earlier the system company. They are doing more silicon so that adds like new new.
<unk> kind of opportunities to engage with system companies and that I think is going to continue for the next five or 10 years. Because there are systemic reasons for system companies wanted to do silicon for customization for for differentiation and then the third big trend is we are also expanding our portfolio into system design.
And analysis, which is a growing tam for us and also.
Spend.
As a growing market, it's a profitable area and so that these three trends, which is one is the core semiconductor business is going to do well that helps our EDA and IP second immuno system companies are going to do more silicon and third our portfolio itself is expanding the system design and analysis and all of these three things can be.
With AI and more automation and I don't see that changing in the next 510 years. So I think these are these are fundamental trends for a while that can help us.
Got it and I know this is probably.
Sure.
It might be apples and oranges, but when I look at semiconductor companies.
Theyre benefiting from raising prices on NBC across the board their margins are getting better are you benefiting at all from from raising prices on a like to like basis or is that not a factor when you look at the.
The stronger growth and the acceleration this year like is there a level of price inflation that is benefiting.
In some ways also.
Yes vivek.
Revenue increased always comes from a combination of volume and pricing increases.
And you'll see that happen overtime on all of the accounts.
Yes.
Don't know what else to say to you in terms of all of that.
Everything has been.
We just focus on continuing to provide more and more value to customers and they continue to provide more and more share of the wallet to us.
I guess my question is is the price increase this year different than what you have had historically.
We have increased prices this year, but.
Similar to prior years.
Okay. Thank you.
Your next question comes from the line of Ruben Roy with West Park capital.
Hi, Thanks, I just wanted to follow up on sort of the discussion around the core segments and certainly ultra fast start and some of the other areas. This year and just wondering when you look at especially the custom IC design are you thinking that that's in.
An area of your business that is going to sort of.
Get back to sort of the corporate.
Type of growth rates, or maybe maybe underperformed a little bit relative to some of these newer areas whether its fabrication tools.
System design and analysis tools et cetera, I'm, just wondering I hear you. The core business is still growing along with the semiconductor area, but it seems like some of your other businesses are setup.
So at a faster pace am I thinking about that correctly.
Yes, so I think on the question on the I think your question is on the analog.
Analog mixed signal business.
And if you look back several years, you know that business has performed very well.
Continues to grow.
Because as we go to newer nodes is not just the digital but in the analog has to go to these advanced nodes now we have a pretty good position in the market there and so.
That has grown I think slightly slower than maybe digital verification, but still has done pretty well over the last few years.
And I expect that to.
To continue and there are a few things that are helping it also apart from the traditional analog design I mean, there is more and more RF design. So our recent move into RF with acquisition of <unk> that is well integrated with virtuoso.
And with <unk> and more and more.
A lot of.
Activity is still at add mainstream nodes.
So I think overall, we are pretty pleased with that business and it still has a very healthy growth trade in and continues to be also fairly profitable business for us.
Okay understood as a quick follow up on Earth.
Given what's going on it's great to hear sort of the traction at marquee customers in large deals et cetera is there an update on <unk>.
How to think about your cloud.
The kind of the move to the cloud for some of your products or whether or not youre seeing some of your customers moved to even a hybrid cloud situation or do you think you know as we get more of these larger customers is it still going to be fine.
Majority of your business is going to be on Prem I'm, just trying to figure out if that's still a big initiative for the company as you look out over the next several years.
Oh, absolutely I mean cloud is a key initiative and I think we haven't done this for several years I think will probably the first company to really invest heavily in the cloud and in both from a.
Customer managed cloud or a cadence managed cloud.
And also a variety of business models right. So because primarily cloud cloud allows more flexibility our customers in terms of usage and business model. So we have done this for several years and we are open to all kinds of.
Possibilities and it's important to give choices to our customers in <unk> and.
And in some cases.
They use their own cloud platform. Some cases, they use our kind of <unk>.
<unk> platform that we work with our partners in a more of a SaaS offering.
In some cases like you said they use hybrid.
Especially a really big customers if they have already.
Good data centers internally then they use the hybrid cloud for peak utilization.
Whereas some of the smaller customers are the newest star does make them really go to the cloud So I think.
We'll see how the market evolves, but we are ready with all kinds of <unk>.
Our solutions and business model and how the customers use the solution, but I do see that the smaller or the newer companies go more towards full cloud and more of the traditional companies go towards hybrid cloud, but in any case. We are we are set up to service all of these models for our customers.
Makes sense, okay. Thank you guys.
To have partnerships and we also have partnership with multiple cloud providers.
To provide the best solution to our customer base.
Our final question comes from Devin Au with Keybanc capital markets.
Hi, John Hi, Thanks for taking my questions.
Some double click on that.
Our application in China.
Did you see any of the strength in these areas was mainly due to customers trying to buy ahead of any price increases are perceived inflation, just given the whole macro backdrop.
Yes.
Very strong demands, but we have such strong demand that there is a there's a waiting list right now for our hardware. We're building the hardware is as quickly as we can.
The hardware that we delivered in China in Q1, many of those orders were pre Q1. They were they were from last year. We have many many more orders that we booked in Q1 that will deliver later in the year, but were flat out trying to build our systems as quickly as we can right now demand continues to outstrip our ability.
The supply.
Got it got it John maybe just one more for you.
Nice raise the operating margin for the full year. When you look at first half margin if my math is right.
It's around 41% range the guidance suggest alban license with a little bit lower in the second half.
Remind us on what mainly traveling and mix shift there is it mainly due to timing of investments or maybe hiring that's more backend loaded.
Yeah, I would characterize the second half guide is prudent.
Lots of external factors playing out at the moment and we're very very confident in that second half outlook.
At the start to the year, we highlighted that we expected a strong start to the year with hardware.
We didn't want to extract extrapolate that into the second half of the into the second half of the year until we saw the pipeline.
Sometime in the summer, but we have we're delivering those.
Hardware systems as quickly as we can.
I will take a look at the second half outlook in the summer when we have a better visibility into the pipeline.
Got it got it. Thank you that's super helpful.
Yes.
I'd now like to turn the call back over to cadence for closing remarks.
Thank you all for joining us this afternoon.
It's exciting time for cadence with strong business momentum and a thriving semiconductor and systems industry offering tremendous market opportunity.
We are proud of the innovative and inclusive culture, we have built that cadence.
And on behalf of our employees and our board of directors, we thank our customers and partners for their continued trust and confidence in cadence.
Thank you.
Thank you for participating in today's cadence first quarter 2022 earnings Conference call. This concludes today's call you may now disconnect.