Q1 2025 Cadence Design Systems Inc Earnings Call
[music].
Tina: Good afternoon. My name is Tina, and I will be your conference operator today.
Good afternoon, My name is Tim and I'll be your conference operator today at this time I would like to welcome everyone to the cadence first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask that.
Tina: At this time, I would like to welcome everyone to the Cadence first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.
Tina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Thank you.
Question. During this time simply press Star then the number one on your telephone keypad.
Richard Gu: I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead. Thank you, operator.
I will now turn the call over to Richard <unk>, Vice President of Investor Relations for cadence. Please go ahead.
Speaker Change: Thank you operator I.
Anirudh Devgan: I would like to welcome everyone to our first quarter of 2025 earnings conference.
Speaker Change: I would like to welcome everyone to our first quarter of 2025 earnings Conference call.
Anirudh Devgan: I'm joined today by Anirudh Devgan. President and Chief Executive Officer. and John Wall, Senior Vice President and Chief Financial Officer.
Speaker Change: I'm joined today, but on your desk.
John Wall: President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our web site cadence dot com.
Anirudh Devgan: The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain four looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10-K and 10-Q.
John Wall: Today's discussion will contain forward looking statements, including our outlook on future business and operating results.
John Wall: The risks and uncertainties actual results may differ materially from those projected or implied in today's discussion.
John Wall: Information on factors that could cause actual results to differ please.
John Wall: Please refer to our SEC filings, including our most recent forms 10-K and thank you.
Anirudh Devgan: CFO Commentary, 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. In addition, all financial measures discussed on this call are non-GAAP unless otherwise specified. The non-gap measures should not be considered in isolation from, or as a substitute for, gap results. Reconciliations of gap to non-gap measures are included in today's earnings release.
John Wall: CFO commentary and today's earnings release.
John Wall: All forward looking statements. During this call are based on estimates and information available to us as of today.
John Wall: We disclaim any obligation to update them.
In addition, or financial measures discussed on this call are non-GAAP unless otherwise specified.
John Wall: The non-GAAP measures should not be considered in isolation from or is it a substitute for GAAP results reconciliations of GAAP to non-GAAP measures are included in today's earnings release.
Anirudh Devgan: For the Q&A session today, we would ask that you observe a limit of one question only. if time permits. you can requeue with additional questions.
John Wall: For the Q&A session today, we would ask that you observe a limit of one question only.
John Wall: If time permits you can re queue with additional questions now I'll turn the call over 200.
Anirudh Devgan: Now I'll turn the call over to Anirudh. Thank you, Richard. Good afternoon, everyone. And thank you for joining us today. I'm pleased to report that Cadence delivered excellent results. for the first quarter of 2025. There's robust ongoing customer demand for innovative technology. We exceeded our guidance on all key financial achieving 23% year-over-year revenue growth and 34% increase in non-GAAP EPS. Given this outperformance and the continuous strength of our business, we are raising our financial outlook for the year.
Richard: Thank you Richard good afternoon, everyone.
Speaker Change: Thank you for joining us today.
Speaker Change: I'm pleased to report that cadence delivered excellent results.
Speaker Change: The first quarter of 2025.
Speaker Change: As robust ongoing customer demand for innovative technologies.
Speaker Change: We exceeded our guidance on all key financial metrics.
Speaker Change: Achieving 23% year over year revenue growth and 34% increase in non-GAAP EPS.
Speaker Change: Given this outperformance and the continued strength of our business.
Speaker Change: We are raising our financial outlook for the year.
Anirudh Devgan: John will provide more details in a moment. Before diving in, I would like to share my perspective on the prevailing macroeconomic uncertainty. Semiconductors remain foundational to realizing transformative technologies such as hyperscale computing, 5G, and autonomous systems. all fueled by the AI megatron. We haven't seen any shifts in customer behavior at this time. as they continue investing in their next generation design. recognizing that today's R&D efforts are critical to deliver the groundbreaking products of tomorrow.
Speaker Change: John will provide more details in a moment.
Speaker Change: Before diving in I would like to share my perspective on the prevailing macroeconomic uncertainty.
Speaker Change: Semiconductors remain foundational to realizing transformative technologies.
Speaker Change: It says Hyperscale computing, five G and autonomous systems.
Speaker Change: All fueled by the AI Mega trend.
Speaker Change: We haven't seen any shifts in customer behavior at this time.
Speaker Change: As they continue investing in their next generation designs.
Speaker Change: Second Nizing that today's R&D efforts.
Speaker Change: Critical to deliver their groundbreaking products of tomorrow.
Anirudh Devgan: Additionally, our rideable software business model. Strong Queue and Exit Backload. and a predominantly recurring revenue maker. provide resilience and excellent visibility. Customers are increasingly relying on our product. as we execute our intelligent system design strategy. and expand our differentiated end-to-end portfolio to serve a growing and diversified customer base. As the fast evolving AI landscape expands the market opportunities. and reshapes the entire chip and system development process. Our Cadence AI portfolio delivers unparalleled PPA, productivity, and time-to-market benefits.
Speaker Change: Additionally, our ratable software business model.
Speaker Change: Strong Q and exited backlog.
Speaker Change: And it predominantly recurring revenue mix.
Speaker Change: Wide resilience and excellent visibility.
Speaker Change: Customers are increasingly relying on our product.
Speaker Change: As we execute our intelligent system design strategy.
Speaker Change: And expand our differentiated end to end portfolio.
Speaker Change: To serve a growing.
Speaker Change: And diversified customer base.
Speaker Change: As the fast evolving.
Speaker Change: Landscape expands the market opportunities.
Speaker Change: And reshaped the entire chip and system development process.
Speaker Change: Our cadence AI portfolio.
It delivers unparalleled BPA productivity and time to market benefit.
Anirudh Devgan: at GTC. We announced an expanded partnership with NVIDIA. on their latest Grace Blackwell Architect. In addition to enabling up to an 80x acceleration of cadence solvers. We are collaborating on developing a full stack agentic AI solution. for Engineering and Science. using the new Lama and Nemotron reasoning model. We are also one of the first adopters of NVIDIA Omniverse Blueprint. for AI Factory Digital Twins. Advancing Data Center Design and Operational Excellence. In Q1, we expanded our footprint at several top-tier customers and furthered our relationship with key ecosystem partners.
Speaker Change: At GTC.
Speaker Change: We announced an expanded partnership with Nvidia.
Speaker Change: On the latest Grace Blackwell architecture.
Speaker Change: In addition to enabling up to an 80 X acceleration of cadence solvers.
Speaker Change: We are collaborating on developing a full stack adjourn take AI solution.
Speaker Change: Engineering and science.
Speaker Change: Using the new Lama Nemo Tron reasoning model.
Speaker Change: We are also one of the first adopters of Nvidia numerous blueprint.
Speaker Change: AI factory digital twins.
And one thing data center design and operational efficiency.
Speaker Change: In Q1, we expanded our footprint at several top tier customers.
Speaker Change: And further our relationship with key ecosystem partners.
Anirudh Devgan: Last quarter, we announced a collaboration with Rapidas. on two nanometer IP development. And this quarter, we are pleased to share that Rapido's has made a wide-ranging commitment to our core EDA software portfolio. across digital, custom analog, and verification solutions.
Speaker Change: Last quarter, we announced the collaboration with rapid.
Speaker Change: On two nanometer IP development.
Speaker Change: And this quarter, we are pleased to share that rapid does.
Speaker Change: <unk> has made a wide range and commitment to our core EDA software portfolio.
Speaker Change: Across digital custom analog and verification solutions.
Anirudh Devgan: In Q1, we deepened our partnership with Socionex. through a broad expansion of our EDA software, particularly AI-driven digital solutions, along with our system software.
Speaker Change: In Q1, we deepened our partnership with socio next.
Speaker Change: Through a broad expansion of our EDA software, particularly AI driven digital solutions.
Speaker Change: Along with our system software.
Anirudh Devgan: We furthered our partnership with the Marquis Hyperscaler. through a broad proliferation of our digital and verification software. particularly our AI-driven Cadence Cerebras and Verisiem solutions.
Speaker Change: We further our partnership with the marquee hyper scaler.
Through our broad proliferation of our digital and verification software.
Speaker Change: Particularly our AI driven cadence city Bruce.
And very <unk> solutions.
Anirudh Devgan: We expanded our collaboration with Intel Foundry. by officially joining the Intel Foundry Accelerator Design Services Alliance. from systems on chip to advanced IP for AI and HPC applications. Cadence's inclusion in the alliance helps Intel foundry customers remain at the forefront of innovation.
Speaker Change: We expanded our collaboration with Intel foundry.
Speaker Change: But officially joining the.
Speaker Change: The Intel foundry accelerator design services lines.
From systems on chip Baird ones <unk> for AI and <unk> applications.
Cadence is inclusion in the airlines helps Intel foundry customer.
Speaker Change: Remain at the forefront of innovation.
Anirudh Devgan: Now let's talk about key product highlights for Q1. Our IT business grew 40% year over year in Q1. as we continue to benefit from the strong market opportunities offered by AI, chiplet-based architectures, and the Foundry ecosystem build-out.
Speaker Change: Now, let's talk about key product highlights for Q1.
Speaker Change: Our IP business grew 40% year over year in Q1.
Speaker Change: As we continue to benefit from the strong market opportunities offered by AI.
Speaker Change: Chip led based architectures.
Speaker Change: And the foundry ecosystem build out.
Anirudh Devgan: We secured a major expansion at a global marquee system company. for our AI HPC design IP. and deepened our partnership with a major foundry through their commitment to our memory and interface.
Speaker Change: We secured a major expansion at a global marquee system company.
Speaker Change: For our AI HBC design IP and.
Speaker Change: And deepened our partnership with a major foundry.
Speaker Change: Through their commitment to our memory and interface IP.
Anirudh Devgan: Following our pending acquisition of Secure IC last quarter. We continue to build out our design IP portfolio and earlier this month.
Speaker Change: Following our pending acquisition of secure IC last quarter.
Speaker Change: We continue to build out our design IP portfolio and.
Speaker Change: And earlier this month.
Anirudh Devgan: We entered into a definite agreement. to acquire arms, artisan foundation IP business. A tensiliga DSP is the de facto choice for automotive ADAS. and Infotainment Systems. and continued being widely integrated into vision, radar, lidar, and audio systems. for the autonomous driving as well as emerging robotics use cases. our core EDA revenue grew 16% year-over-year in Q1. with further proliferation of our digital full flow at the most advanced note. Cadence Cerebrus AI Solution continue this strong momentum. with nearly 50 new logos in Q1. and well over 1,000 tape outs till date. Engineering change orders, or ECOs, are a critical part of any design process.
Speaker Change: We entered into a definite agreement.
Speaker Change: To acquire arms Artisan Foundation IP business.
Speaker Change: <unk> silica DSP is the de facto choice for automotive Adas.
Speaker Change: And infotainment systems.
Speaker Change: And continued being wildly integrated.
Into vision.
Speaker Change: Radar Lidar and audio systems.
Speaker Change: For the autonomous driving as well as emerging robotics use cases.
Speaker Change: Our core EDA revenue grew 16%.
Speaker Change: Year over year in Q1.
Speaker Change: With further proliferation of our digital full flow at the most advanced nodes.
Speaker Change: Cadence Cerberus AI solution.
Speaker Change: Continued its strong momentum.
With nearly 50, new logos in Q1.
Speaker Change: And well over housing tape outs till date.
Speaker Change: Engineering change orders or <unk> is a critical part of any design process.
Anirudh Devgan: AI is particularly suitable to dramatically improve ECOs. using the new Cadence Conformal AI ECO flows. Media Tech saw early positive results. generating 83% smaller ECO patches. in nearly half the run. MediaTek also improved runtime and memory by 100x. through its deployment of conformal AI low power. Our collection of new smart ECO technologies has sped up Renesas' automotive functional ECO runtimes by more than 50% while improving quality.
Speaker Change: AI is particularly suitable to dramatically improve E seals.
Speaker Change: Using the new cadence conformal AI ECL flows.
Speaker Change: Mediatek saw early positive results.
Speaker Change: Rating, 83% smaller easier patches.
Nearly half the run time.
Speaker Change: Mediatek also improved run time and memory by hundred eggs.
Speaker Change: <unk> deployment of conformal AI low power.
Speaker Change: Our collection of new smart easier technologies.
Speaker Change: As better premises automated.
Speaker Change: <unk> run times by more than 50%, while improving quality.
Anirudh Devgan: Our flagship virtuoso platform, the industry's gold standard for advanced node, custom, analog, and mixed signal design. continue to expand into new areas, such as photonics. and Circuit and Yield Optimization. Ever-increasing complexities in system verification and software bring up continue to drive secular demand for a market-leading Palladium Z3 and Proteum X3 platform. Demand for hardware was broad based. with particular strength driven by AI, HPC, and hyperscaler customization. Our hardware products continue to proliferate at existing customers. especially top hyperscalers. while gaining notable competitive wins, including a market-shaping semiconductor company. our verification software suite. that includes Verisium, Excelium, and Jasper, leverages big data and AI to optimize verification workload.
Speaker Change: Our flagship virtuoso platform the industry's gold standard for advanced node custom analog and mixed signal design.
Speaker Change: Continue to expand into new areas such as photonics.
Speaker Change: And circuit and yield optimization.
Speaker Change: Ever increasing complexities and system verification and software bring up.
Speaker Change: Continue to drive secular demand for our market, leading <unk> and Protium X three platforms.
Speaker Change: Demand for hardware was broad based.
Speaker Change: Particular strength, driven by AI, HBC and Hyperscale customers.
Speaker Change: Our hardware products continued to proliferate at existing customers.
Speaker Change: Especially top hyper scaler.
Speaker Change: While gaining notable competitive wins, including your market shaping.
Speaker Change: Semiconductor company.
Speaker Change: Our verification software suite that.
Speaker Change: That includes very see them.
Speaker Change: Excel Liam.
Speaker Change: And Jasper.
Speaker Change: Leverages big data and AI to optimize verification workloads.
Anirudh Devgan: and saw continued expansion across aerospace and defense, electronics, and automotive segments.
Speaker Change: And saw continued expansion across aerospace and defense electronics and automotive segments.
Anirudh Devgan: our system design and analysis business. delivered more than 50% year-over-year revenue growth in Q1. as our AI-driven optimization solution. integrated with our physics-based simulation platform. continue to deliver superior results across multiple end markets. Our digital twin reality data center product gained momentum, signing multiple deals with large hyperscaler and cloud service providers in Q1. Beta CAE delivered a strong quarter. and is opening up tremendous opportunities for us in the automotive vertical. Allegro X's omniverse integration was highlighted at GTC. with photorealistic 3D views of a full multi-board system designed in Allegro X. Our AI-driven substrate router, the industry's premier solution for full-package routing of complex 3D IC designs.
Speaker Change: Our system design and analysis business.
Speaker Change: Delivered more than 50% year over year revenue growth in Q1.
Speaker Change: As our AI driven optimization solutions.
Speaker Change: Integrated with our physics based simulation platforms.
Speaker Change: Continued to deliver superior results across multiple end markets.
Speaker Change: Our digital twin reality datacenter product.
Speaker Change: Gained momentum.
Speaker Change: Mining multiple deals with large hyperscale and cloud service providers in Q1.
Speaker Change: <unk> delivered a strong quarter.
Speaker Change: And it's opening up tremendous opportunities for us in the automotive vertical.
Hello grow exit omni was integration was highlighted at GTC.
Speaker Change: Good photo realistic three D views of a full multi board system designed in our legwork.
Speaker Change: Our AI driven subset router the industry's premier solution for full package routing of complex <unk> IC designs.
Anirudh Devgan: saw strong customer interest and engagement during the early adopter program.
Speaker Change: The strong customer interest and engagement during the early adopter program.
Anirudh Devgan: In summary, I'm pleased with our Q1 results. and the continued momentum of our business. the growing complexity of chip and system design. coupled with the transformative potential of AI-driven automation. creates significant opportunities for our products to enable and empower our customers. in addition to a strong business result. I'm proud of our high-performance, inclusive culture. and thrilled that Cadence was recently named by Fortune and Great Place to Work yet again as one of the 100 best companies to work for. Ranking number 11.
Speaker Change: In summary, I am pleased with our Q1 results.
Speaker Change: And the continued momentum of our business.
Speaker Change: The growing complexity of chip and system design.
Speaker Change: Coupled with the transformative potential of.
Speaker Change: AI driven automation.
Speaker Change: Create significant opportunities for our products to enable and empower our customers.
Speaker Change: In addition to our strong business results.
Speaker Change: I am proud of our high performance inclusive culture.
Speaker Change: And through that cadence was recently named by Fortune and great place to work yet again as one of the 100 best companies to work for.
Speaker Change: Ranking number 11th.
John Wall: Now I will turn it over to John to provide more details on the Q1 results and our updated 2025 outcome.
Speaker Change: Now I will turn it over to Jon to provide more details on the Q1 results and our updated 2025 outlook.
John Wall: Thanks, Anirudh, and good afternoon, everyone. I'm pleased to report that Cadence delivered excellent results for the first quarter of 2025 with broad-based strength across all of our businesses. Robust design activity and customer demand drove 23% year-over-year revenue growth and 42% non-gap operating margin for Q1. and we are tracking ahead of our original forecast for 2025.
Jon: Thanks, Andrew and good afternoon, everyone.
Jon: I am pleased to report that cadence delivered excellent results for the first quarter of 2025 with broad based strength across all of our businesses.
Jon: Robust design activity and customer demand drove 23% year over year revenue growth and 42% non-GAAP operating margin for Q1 and.
Jon: And we are tracking ahead of our original forecast for 2025.
John Wall: We repurchased more Cadence shares than initially planned in Q1, which reduced our share price. Here are some of the financial highlights from the first quarter, starting with the P&L. Total revenue was $1,242,000,000. Gap operating margin was 29.1%. and non-GAP operating margin was 41.7. and GAP EPS was $1 with non GAP EPS $1.57.
Jon: We repurchased more cadence shares than initially planned in Q1, which reduced our share count.
Jon: Here are some of the financial highlights from the first quarter, starting with the P&L.
Jon: Total revenue was $1 billion and $242 million.
Jon: GAAP operating margin was 29, 1%.
Jon: Our non-GAAP operating margin was 41, 7%.
Jon: GAAP EPS was $1 with non-GAAP EPS of $1 57.
John Wall: Next, turning to the balance sheet and cash flow. Cash balance at quarter end was $2,778,000,000, while the principal value of debt outstanding was $2,500,000,000. Operating cash flow was $487 million.
Jon: Next turning to the balance sheet and cash flow.
Cash balance at quarter end was $2 billion and $778 million, while the principal value of debt outstanding was $2 billion.
Jon: $500 million.
Jon: Operating cash flow was $487 million.
John Wall: DSO's were 44 days, and we used $350 million to repurchase Cadence Before I provide our updated outlook, I'd like to share the assumption that is embedded. It contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of time. Our updated outlook for 2025 is revenue in the range of $5.15 to $5.23 billion. gap operating margin in the range of 30.25 to 31.25%. non-gap operating margin in the range of 43.25 to 44.25%. Gap EPS in the range of $4.21 to $4.31. non-GAAP EPS in the range of $6.73 to $6.83.
Jon: Dsos were 44 days, and we used $350 million to repurchase cadence shares.
Jon: Before I provide our updated outlook I'd like to share the assumption that is embedded it contains the usual assumption that export control regulations that exist today remained substantially similar for the remainder of the year.
Jon: Our updated outlook for 2025.
Jon: As revenue in the range of $5 152, $5 billion to $3 billion.
Jon: GAAP operating margin in the range of 35 to 31, 5%.
Jon: non-GAAP operating margin in the range of $43 five to 44, 5%.
Jon: GAAP EPS in the range of $4 21.
To $4 31.
Jon: non-GAAP EPS in the range of $6 73.
Jon: To $6 83.
John Wall: operating cash flow in the range of 1.6 to 1.7 billion dollars. and we expect to use at least 50% of our annual free cash flow to repurchase Cadence.
Jon: Operating cash flow in the range of one six to $1 7 billion and.
Jon: And we expect to use at least 50% of our annual free cash flow to repurchase cadence shares.
John Wall: With that in mind, for Q2, we expect revenue in the range of $1,250,000,000 to $1,270,000,000. GAAP Operating Margin in the range of 27.5 to 28.5%. non-GAAP operating margin in the range of 41.5% to 42.5%. Gap EPS in the range of $0.89 to $0.95. and non-GAP EPS in the range of $1.55 to $1.61.
Jon: With that in mind for Q2, we expect revenue in the range of $1 billion and $250 million to $1 billion and $270 million.
Jon: GAAP operating margin in the range of 27 five to 28, 5%.
Jon: non-GAAP operating margin in the range of 41, five to <unk> 42, 5%.
Jon: GAAP EPS in the range of 89 to 95.
Jon: Our non-GAAP EPS in the range of $1 55 to.
Jon: <unk> to $1.61.
John Wall: And as usual, we published a CFO commentary document on our investor relations website, which includes our outlook for additional items, as well as further analysis and gap to non-gap reconciliation.
Jon: And as usual we.
Jon: We published a CFO commentary document on our Investor Relations website, which includes our outlook for additional items as well as further analysis and GAAP to non-GAAP reconciliations.
John Wall: In conclusion, Cadence is off to a strong start to the year. We are raising our 2025 revenue in EPS outages. Our technology platform is essential to customers R&D investment and our resilient software model positions as well in navigating today's dynamic macro environment.
Jon: In conclusion cadence is off to a strong start to the year.
Jon: We are raising our 2025 revenue and EPS outlook.
Jon: Our technology platform is essential to customers R&D investments and a resilient software model positions us well in navigating todays dynamic macro environment.
John Wall: I'd like to close by thanking our customers, partners and our employees for their continued support.
Jon: I'd like to close by thanking our customers partners and our employees for their continued support.
Tina: And with that, operator, we will now take. At this time, I would like to remind everyone who wants to ask a question to press star, then the number one on your telephone keypad now. As a courtesy to all participants, we do ask that you limit yourself to one question. We will pause for a moment to compile the Q&A roster.
Jon: Operator, we will now take questions.
Speaker Change: At this time I would like to remind everyone who wants to ask a question to press Star then the number one on your telephone keypad now.
Speaker Change: As a courtesy to all participants we do ask that you limit yourself to one question, we will pause for a moment took a poll of the Q&A roster.
Harlan Sur: Your first question comes from Harlan Sur with J.P. Morgan. Please go ahead. Good afternoon. Thank you for taking my question. Good to see the strong mid-teens percentage year-over-year growth in the core EDA business. On your China business in particular, the team did continue to see year-over-year growth acceleration, right, to plus 13% in the March quarter versus 10% back in the December quarter. On top of this, you know, tariff, trade, regulatory dynamics are, I think, driving more focus on domestic China chip design programs, especially in AI. Like, we've heard, for example, ByteDance engaging on new custom AI chip programs. We've heard Alibaba as well in automotive.
Speaker Change: Your first question comes from Harlan sur with Jpmorgan. Please go ahead.
Speaker Change: Good afternoon, and thank you for taking my question good to see the strong mid teens percentage year over year growth in the core.
Speaker Change: <unk> business.
Speaker Change: On your channel business in particular.
Speaker Change: Just continuing to see year over year growth acceleration right to plus 13% in the March quarter versus 10%.
Speaker Change: Back in the December quarter on top of this tariff trade regulatory dynamics are I think driving more focus on domestic China chip design programs, especially in AI like we've heard for example by dancing engaging a new custom AI chip programs for Alibaba as well as in automotive.
Harlan Sur: You know, there continues to be more domestic China design programs firing both analog, power management, and digital.
Speaker Change: You know there continues to be more domestic China design program is firing both analog power management and digital so is this a domestic focus and design activity a potential tailwind for your China business are you getting more optimistic on our growth profile for your China business this year versus the team's prior view of flat.
Harlan Sur: So, is this domestic focus and design activity a potential tailwind for your China business? Are you getting more optimistic on a growth profile for your China business this year versus the team's prior view of Platinum?
Speaker Change: Yes.
Anirudh Devgan: Yeah, Harlan, great question. So first, I would like to say I'm pretty pleased by our performance in Q1. And the strength is coming in all the various product groups and also all the various geographies, like you mentioned. And the reason is, you know, even in this kind of dynamic macro environment, you know, the customers are investing for the future, and these, you know, R&D investment takes months to years. And as you know, we are tied to the design activity, which is strong. Now, in China, or actually in multiple countries, the AI development is taking multiple, you know, cycles, I mean, not just, as you know, not just the development of data centers.
Speaker Change: Yeah, Great question. So first I would like to say I'm pretty pleased by our performance in Q1.
Speaker Change: And the strength is coming.
Speaker Change: And all the various product groups and also all the various geographies like you mentioned.
Speaker Change: And the reason is even in this.
Speaker Change: A dynamic macro environment the customers are investing for the future in these R&D investment takes months two years and as you know we are tied to the design activity, which is strong.
Speaker Change: Now in in China are actually in multiple countries the AI era.
Speaker Change: <unk> is taking multiple.
Speaker Change: Cycles, I mean, not just as you know not just the development of data centers, but I've said for a while now that also the development of a physical AI systems, which is are those in.
Anirudh Devgan: But, you know, I've said for a while now that also the development of physical AI systems, which is autos and and, you know, robots and drones. And, you know, China is particularly strong in that as well. So overall, I think we are pleased with the silicon and system development driven for AI.
Speaker Change: Robots and drones and you know China is particularly strong in that as well. So overall I think we are pleased with the.
Speaker Change: With the Silicon and system development, driven for AI I'm pleased with the performance of the.
Anirudh Devgan: I'm pleased with the performance of the We are still prudent to assume China will be flat for the whole year Joining us Well, thank you very much.
Speaker Change: China business and the start of the year, but we still prudent assuming China flat for the whole year, John do you want to comment.
Speaker Change: That's the important point design activity remained strong in China, but we're continuing to be prudent with the guide for the year and continue to assume that China revenues flat year over year at the midpoint of that guidance.
Speaker Change: Well, thank you very much.
Lee Simpson: Next question comes from Lee Simpson with Morgan Stanley. Please go ahead. Great. Thanks for putting me in and great quarter to everyone. Thanks. I mean, as we all know, your main offering is a software and services product, which may not have the same risk from reciprocal tariffing regimes that other parts of the semiconductor ecosystem does. And I think if you look at your hardware chip, it's an ASIC fabbed at TSMC. So I guess one assumes this is only limited exposure to tariffing into China.
Speaker Change: Next question comes from Lisa Thompson with Morgan Stanley. Please go ahead.
Lisa Thompson: Great. Thanks for fitting me in and great quarter.
Speaker Change: Everyone. Thanks.
Speaker Change:
Speaker Change: I mean as we.
Speaker Change: We all know your main offering as a software and services products, which may not have the same risk from reciprocal counterfeiting regimes, but other parts of semiconductor ecosystem does.
Speaker Change: If you look at your hardware chip, it's it's an ASIC fabs at TSMC.
Speaker Change: I guess one assumes this is only limited exposure to kind of our thinking to China.
Lee Simpson: And I guess what I'm asking more generally is, Can you confirm, if at all at this point, where you think you do have any exposure to the tariffing regime announced by the U.S. government, at least as you currently understand things? Thanks.
Speaker Change: I guess, what I'm asking more generally is can.
Speaker Change: Can you confirm if at all at this point, where you think you do have any exposure to the tariff regime announced by the U S government at least as you currently understand things. Thanks.
Anirudh Devgan: Yes. So, with respect to tariffs, I mean, there are two parts to it. Like, one is the customer behavior, which I mentioned, we don't see any change at this time. The second is, you know, our own product. And like you said correctly, you know, software and services are not, you know, subject to tariffs. Now, in terms of our hardware business, just to remind everyone, we do have multiple manufacturing lines in U.S. and outside U.S., and this was something we did as part of COVID a few years ago. So, that's paying off well. So, at this point, we don't believe that, you know, given our diversified supply chain, the tariffs will have an effect on our hardware business as well.
Speaker Change: Yes, so with respect to guidance I mean, there are two parts to it one is the customer behavior, which I mentioned, we don't see any change at this time.
Speaker Change: It is in our own product and like you said correctly, you know software and services.
Speaker Change: Not subject to tariffs now in terms of our hardware business just to remind everyone. We do have multiple.
Speaker Change: Manufacturing lines in U S and outside the U S. And this was something we did as part of Covid few years ago. So that's paying off well. So so at this point, we don't believe that given our diversified supply chain.
Speaker Change: This will have effect on our hardware business as well okay. Now on the other hand, we continue to monitor the situation.
Anirudh Devgan: Okay. Now, on the other hand, we continue to monitor the situation, you know. It's a dynamic situation. But I feel that we are more resilient for multiple reasons. One is One is that, you know, we are tied to the design cycle, we don't see that much change. Second is we are very diversified, both in terms of products and geographies. And third, we have a, you know, our business model is a writable business model.
Speaker Change: It's a dynamic situation, but I feel that we are more resilient.
Speaker Change: For multiple reasons one is.
Speaker Change: One is that we have.
Speaker Change: Tied to the design cycle is don't see that much.
Speaker Change: <unk>.
Speaker Change: Secondly, we are very diversified both in terms of products and geographies and third we have a you know our business model.
Ratable business model. So even in these uncertain times, we feel that we have enough confidence and visibility to raise our outlook for 2025.
Anirudh Devgan: So even in these uncertain times, we feel that we have enough, you know, confidence and visibility to to raise our outlook for 2025. That's great.
Speaker Change: That's great. Thanks.
Gary Mobley: Your next question comes from the line of Gary Mobley with Loop Capital. Please go ahead.
Speaker Change: Your next question comes from the line of Gary Mobley with loop capital.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
Gary Mobley: Gary, you might be on mute. Yep. Sorry, guys. Thanks for taking my question.
Speaker Change: Gary you might be on mute.
Speaker Change: Yeah.
Speaker Change: Yep, sorry, guys. Thanks for taking my question.
Anirudh Devgan: This question might be more for Anirudh, and, you know, the question is, you know, is more and more tools that you sell, like simulation, synthesis, place and route, etc., run on generation-based compute and run on GPU-based servers? How does this impact your licensing model? And more specifically, how does it potentially affect your annual contract value? Okay, that's a good question. I think you mean that as we as we enrich our hardware, the hardware that our software runs on, how does it affect our business model? So I think, first of all, you know, I've talked about this three layer cake for a while, right, which the bottom lake, bottom layer of the cake being accelerated compute.
Speaker Change: This question might be more for air route.
Speaker Change: And the question is there's more and more tools that you sell like simulation synthesis place and route.
Speaker Change: Et cetera run on generation based compute and running GPU based servers.
Speaker Change: How does this impact your licensing model and more specifically how does it.
Speaker Change: It's actually affect your annual contract value.
Speaker Change: Okay. That's a good question I think you mean that as we as we enrich our hardware the hardware that our software runs on how does it affect our.
Speaker Change: Our business model.
Speaker Change: So I think first of all you know what I've talked about the three layer cake for a while right. It's the bottom lake.
Speaker Change: Bottom layer of the cake being accelerated compute so in the old days.
Anirudh Devgan: So in the old days, we used to run on CPUs, mostly x86 CPUs. But now we run on all kinds of CPUs, including ARM. And then, you know, GPUs. especially with our collaboration, very strong collaboration with NVIDIA. And then for hardware, we have our own kind of Boolean processor because GPUs are excellent for numerical calculation, like circuit simulation or CFD or electromagnetics. But for zero-one kind of Boolean calculation, we make a special chip in Palladium, which is a Boolean supercomputer. So as a reason, we have a very rich kind of set of offerings on the hardware side.
Speaker Change: So Ron on Cpus, mostly X 86 abuse.
We run on all kinds of Cpus, including arm and then you know Gpus.
Speaker Change: Basically with a collaboration.
Speaker Change: Very strong collaboration with Nvidia and then you know for hardware, we have our own kind of Boolean processor, because GPU that excellent for numerical calculation you know like so good simulation or our cfd or electromagnetics, but for zero, one kind of Boolean calculation you know, we make a special chip in palladium, right, which is a boolean super.
Speaker Change: Computer so as the reason we have a very rich kind of set of offerings on the hardware side now on the <unk>.
Anirudh Devgan: Now, on how we go to market, we maintain our previous model in which you can subscribe to our, like the traditional licensing model, which is typically yearly licensed over a three-year term. But also we are offering more and more cloud solutions. And there is an uptake in cloud offering. Now, sometimes the cloud could be on public clouds. So then, you know, the access to CPUs, you know, just like AW has ARM CPUs and other cloud vendors and also GPUs. But we also have our own cloud offering through outsource data centers, which are actually seeing good availability.
Speaker Change: We go to market, we maintain our previous model in which you can subscribe to our you know like the traditional licensing model, which is typically early license over a three year term, but also we are offering more and more cloud solutions, Okay, and there is an uptake in cloud offering.
Speaker Change: Times, the cloud could be on on public clouds. So then you know the access to Cpus.
Just like AWS has arm Cpus and other cloud vendors and also Gpus, but we also have our own cloud offering through outsource.
Speaker Change: Data centers, which are actually seeing good availability so in our own cadence all the cloud we also our packaging hardware and software together.
Anirudh Devgan: So in our own cadence, all the cloud, we also are packaging hardware and software together. You know, a good example is Millennium, you know, just like we do with Palladium for our own chips. So I think this is a new kind of a business model to see how the customers will react. So we have the existing business model of software only, and then this cloud SaaS model, especially as the hardware gets more rich in its offering.
Speaker Change: Good example is the millennium you know just like we do with Palladium for our own chips. So I think this is a new kind of a business model to see how the customers will react. So we have the existing business model of software only and then there's cloud SaaS model, especially as the hardware gets more more rich in its offering.
Thank you.
Vivek Arya: Your next question comes from Vivek Arya with Bank of America. Please go ahead. tools.
Speaker Change: The next question comes from Vivek Arya with Bank of America. Please go ahead.
Vivek Arya: Hey tools and I don't know what I wanted to check what the cadence is a share gain opportunity because when I look at your main peer they had double digit exposure at Intel and I'm curious what is cadence.
Vivek Arya: And Anirudh, I wanted to check what is Cadence's share gain opportunity? Because when I look at your main tier, they have double digit sales exposure at Intel. And I'm curious, what is Cadence's exposure? You know, how soon can we start to see any potential share gains? Because, you know, these kind of relationships tend to be sticky. Just how large is the opportunity and how soon can it start to show up tangibly for Cadence?
Speaker Change: Exposure.
Speaker Change: How soon can we start to see any potential share gains because you know these kind of relationships tend to be sticky just how large is the opportunity and how soon can it start to show up tangibly for cadence. Thank you.
Anirudh Devgan: I have a very great question. I think your question is on Intel, because I missed the beginning part of the question. But first of all, you know, I'm very pleased by Libu's appointment as CEO of Intel. And, you know, for Cadence, you know, for a while, I think our, you know, Intel has been a, I would say, you know, a weak spot, relatively speaking, for Cadence. And this goes back, you know, 10, 15 years. It's not an, it's a new issue. And then the other thing has been, you know, our investment in IP. So in general, I'm pleased with the, so both of these two areas has been the main kind of areas to improve for Cadence, IP and Intel.
Great question I think your question is on Intel.
Speaker Change: I missed the beginning part of the question, but first of all you know I'm very pleased by.
Speaker Change: Liberals appointment as CEO of <unk>.
Speaker Change: And for cadence.
Speaker Change: For a while I think our you know Intel has been a.
Speaker Change: I would say a weak spot relatively speaking.
For for cadence and this goes back 10 15 years, it's not a new issue.
Speaker Change: And then the other thing has been you know are.
Speaker Change: Our investment in IP. So in general I am pleased with the so both of these two areas has been the main kind of areas to improve our cadence IP and Intel. So IP I think I'm pleased to see improvement last year and also in Q1 and I feel good about our IP business in general.
Anirudh Devgan: So IP, I think I'm pleased to see improvement last year, and also in Q1, and I feel good about our IP business in general. And on Intel, I mean, this is a great opportunity, as they have to, of course, reformulate their strategy and how they work with, you know, their ecosystem partners. And we look forward to engaging with Intel in a lot more detail. And those discussions have already started, and we'll keep you updated as they progress.
Speaker Change: And on Intel I mean, this is a great opportunity as they have to of course reformulated their strategy and how they work with.
Speaker Change: The ecosystem partners and we look forward to it.
Speaker Change: Engaging with Intel in lot more detail and those discussions have already started and we'll keep you updated as they progress.
Okay.
Gianmarco Conti: Your next question comes from the line of Gianmarco Conti with Deutsche Bank. Please go ahead. Yes, thank you. Congratulations on another great quarter. I guess, could you perhaps share some detail into your hardware delivery this quarter, and whether you're seeing the demand for the third generation in line with what was expected, especially on customers accepting the high pricing in this environment? And also, I know that you've briefly mentioned about it not having any impacts from tariffs, but could you share a few words on your Mexico plans where you assemble your hardware, and whether that could be a potential issue from a capacity production standpoint, were tariffs being enacted on that front?
Speaker Change: Our next question comes from the line of Jim marker contact with Deutsche Bank. Please go ahead.
Speaker Change: Yes. Thank you.
Speaker Change: Congratulations on another great quarter.
Speaker Change: I guess could you perhaps share some detail into your hardware deliveries this quarter and whether you're seeing the demand generation in line with what was expected, especially on customers except in the high pricing in this environment.
Speaker Change: Also I know that you briefly mentioned about not having any impacts from patent spot could you could you share a few words on your Mexico plans, where you assemble your johan and whether that could be a potential issue.
Speaker Change: Capacity production standpoint, and work with tennis being enacted on on that front. Thank you.
Anirudh Devgan: Hi Gianmarco, great questions. Generally our hardware revenue is limited by our production capacity because demand continues to outstrip our ability to supply the hardware products and as Anirudh mentioned earlier, we have a very resilient and agile supply chain capability and that lessens the direct impact of tariffs. We produce and build hardware for the U.S. market and for the international market outside the U.S. so that gives us kind of an optimized setup for hardware so we're not seeing any real direct impact of tariffs on our numbers right now.
Speaker Change: Hi, Jen Marco great questions.
Speaker Change: Generally our hardware revenue was limited by our production capacity as demand continues to outstrip, our ability to supply either the hardware products and as.
Speaker Change: As Andrew had mentioned earlier, we have a very resilient and agile supply chain capability and that lessens the direct impact of tariffs, we we produce and build hardware for the U S market in the U S and for the international market outside of the U S.
Speaker Change: So that gives us kind of an optimized set up for for hardware.
Speaker Change: We're not seeing.
Speaker Change: Any real direct impact of tariffs on our numbers right now.
Anirudh Devgan: Amazing. Thank you. Also, just to emphasize, you know, we have multiple lines, right, not just the one you mentioned.
Speaker Change: Amazing Thank you.
Speaker Change: Also just to emphasize you know we have multiple lines right not just the one you mentioned so.
Speaker Change: Yeah.
Jay Vleeschhouwer: Your next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Please go ahead. Thank you. Good evening.
Speaker Change: Your next question comes from the line of Jay <unk> with Griffin Securities. Please go ahead.
Jay: Thank you good evening.
Jay Vleeschhouwer: Anirudh, what would you say are the two or three most important technical or product enhancement deliverables this year that may have already occurred or yet to occur this year, even if not with an immediate impact on revenue, but in terms of enhancing your overall technical capabilities or positioning? And then related to that, maybe you could talk about some of the investments you're making in some critical technology areas that may not get a lot of attention, one being, for example, physical verification, your physical verification, maybe the next generation silicon for hardware, Gen 4. And then lastly, maybe talk about some of the incremental investments you're making in your acquired simulation solver product.
Jay <unk>: What would you say are the two or three most important technical or product enhancement deliverables. This year that may have already occurred or yet to occur.
Jay <unk>: This year, even if not with an immediate impact on revenue, but in terms of <unk>.
Jay <unk>: Enhancing your overall technical.
Jay <unk>: Our capabilities are positioning and then related to that maybe you could talk about some of the investments youre, making.
Jay <unk>: A critical.
Jay <unk>: Technology areas that.
Jay <unk>: May not get a lot of attention one being for example, physical verification your physical verification.
Jay <unk>: Maybe the next generation silicon for hardware Gen four.
Jay <unk>: And then lastly, maybe talk about some of the incremental investments you're making in your acquired simulation software products.
Anirudh Devgan: Well, Jay, that's a great question, you know, and it's a multi-part answer. But just to highlight a few key things, you know, I mean, first of all, before I get into specifics, you know, I mean, you know this, but just to emphasize, we have a massive investment in R&D, right? I mean, like 35 to 40% of our revenue is going to R&D. So at a given point, we always have, you know, a lot of exciting projects that are ongoing. Now, in terms of a few things that are critical, so of course, AI is super critical in applying AI to the chip and system design process.
Jay <unk>: Jay that's a great question and I and I said, it's a multipart answer but just to highlight a few key things yeah.
Jay <unk>: I mean first of all before I get into the specifics here, though I mean, you know this but just to emphasize we have a massive investment in R&D right I mean, like 35% to 40% of our revenue is going to R&D. So at a given point, we always have a lot of exciting projects that are ongoing.
Jay <unk>: In terms of few team there are critical so of course, AI is supercritical and applying AI to the chip and system design process. I think we are seeing lot of very good results actually one thing on on something like that.
Anirudh Devgan: I think we are seeing a lot of very good results. Actually, one thing on something like Cerebrus or AI-driven design tools, at this point, we expect that a majority of, you know, more than 50% of the designs are now AI-enabled, you know, our tools are AI-enabled in those designs. And the others, I'm sure, will. We'll catch up as well. So but AI still has a long ways to go with all this new agentic features. And you will see us talk more about it throughout the year. So that's the number one thing I would like to highlight.
Jay <unk>: Like cerebral as our AI driven design tools at this point, we expect that.
Jay <unk>: The majority of more than 50% of the designs and now AI enabled you know our our tools, our AI enabled and those designs and the others I'm sure will.
Jay <unk>: We will catch up as well so but AI is still has a long ways to go with all the new <unk> features and you will see us talk more about it throughout the year.
Jay <unk>: So that's the number one thing I would like to highlight and we have these five major platforms and all kinds of new models can be used in those.
Anirudh Devgan: And we have these five major platforms and all kinds of new models can be used in those. The second thing, which is also a pretty broad team, which make sure we always stay ahead, is 3DIC. Okay, I mean, 3DIC, you know, is, is a big team, another team for next five, 10 years. And you can see that in Blackwell. But, you know, right now the packages can handle like three times reticle size, but they could easily go to 10 times reticle size in the next few years. So, there's massive investment in 3DIC in terms of the tool flow, in terms of analysis of these complex, you know, system, you know, thermal and electromagnetics, warpage analysis.
Jay <unk>: The second thing, which is also a pretty broad team, which make sure we always state.
Jay <unk>: It is three D IC, okay, I mean <unk> it always is.
Jay <unk>: A big team another team for next 510 years.
Jay <unk>: And you can see that in black well, but you know right now the packages can handle like three times reticle size, but they could easily go to 10 times. The reticle size in the next few years, so theres massive investment in in <unk> in terms of the tool flow in terms of analysis of these complex system in a terminal.
Jay <unk>: In electromagnetics Walbridge analysis.
Anirudh Devgan: Of course, IP that is needed for high-speed surges and UCI and other things. So, 3DIC remains as a critical focus for both our chip business, system business and IP business. And last thing is, like, I think, I think Gary asked earlier, is this rich hardware set, you know, this bottom layer of the cake, you know, with ARM CPUs, x86 CPUs, Palladium hardware, and GPUs, and we'll have some, you know, more developments next week at Cadence Live, you know, about that part, you know, this hardware, software co-optimization, I think is going to be critical for our industry.
Jay <unk>: Of course, IP that is needed for high speed, <unk> and <unk> and other things. So <unk> remains as it is a critical focus for both our chip business system business and IP business.
Jay <unk>: And last thing is like I think.
Speaker Change: I think Gary asked earlier of this rich hardware set this bottom layer of the cake.
Speaker Change: With arm CPU, <unk> X 86, Cpus Palladium hardware and Gpus, and we'll have some more development next week at cadence like you know.
Speaker Change: That part is hardware software co optimization I think is going to be critical for for our industry. So those are the three things I would highlight is stopped critical R&D focus area.
Anirudh Devgan: So those are the three things I would highlight as top critical R&D focus areas. Okay.
Speaker Change: Okay. Thanks, Sean.
Anirudh Devgan: Thanks, Anirudh.
Jason Celino: Your next question comes from the line of Jason Celino with KeyBank Capital Markets. Please go ahead. Great, thank you. Keeping to this IP topic, I think you plan to acquire arms artisan IP asset. I know this hasn't closed yet.
Speaker Change: Your next question comes from the line of Jason <unk> with Keybanc capital markets. Please go ahead.
Jason: Great. Thank you keeping to this IP topic I think your plan.
Speaker Change: Acquire arms artisan IP asset and it just hasn't closed yet.
Jason Celino: But when we think about the foundational IP market, just curious You know, why hasn't this been a bigger focus in the past? And, you know, what's changed to make this opportunity more attractive?
Speaker Change: When we think about the foundational IP market just curious.
Speaker Change: Why hasn't this been a bigger focus in the past and you know what's changed to make this opportunity more attractive and then just to clarify what John.
Anirudh Devgan: And then just to clarify with John, this pending acquisition is not included in guidance. Thank you. Yeah, so let me take the second part first, Jason, just to clarify that, that yeah, it's not in our current guide. It's not closed yet. So we haven't put that into the guide. And then, yeah, I'm actually pleased with this partnership and acquisition. In Arm's foundation, IP business has a very rich history. As you may know, it started with Artisan a long time ago and has very good credibility in the market. And also, as our IP position improves, you know, with our kind of performance over the last two years, we also have to expand our portfolio, you know.
Speaker Change: Pending acquisition is not included in guidance. Thank you.
Speaker Change: Yeah.
Speaker Change: Yes, So let me take the second part first Jason just to clarify that that yeah. It's not in our current guide it's not closed yet so we haven't put that into the guidance.
Speaker Change: And then yeah I was actually pleased with this.
Speaker Change: This partnership and acquisition.
Speaker Change: In arm Foundation IP business has a very rich history as you may know and it started with artisan longtime ago and has very good credibility in the market.
Speaker Change: And also as our IP position improve.
Speaker Change: With our.
Speaker Change: Performance over the last two years, we also have to expand our portfolio.
Anirudh Devgan: And I'm pleased with the performance and PP of the current portfolio, but we have to, you know, fill in the gaps in our portfolio. And that's the reason we you know, for example, acquired Rambus's IP business, and then acquired SecureIC a few months ago. And this is a critical piece, you know, foundation IP. And it is becoming more and more critical versus, you know, five, seven years ago, foundation IP became a lot more critical, you know, especially the interaction with the software, you know, with place and route. Also, the more there is a massive, as you know, foundry build out.
Speaker Change: And I am pleased with the performance in PPA of the current portfolio, but we have to you know.
Speaker Change: Filling the gaps in our portfolio and that's the reason.
Speaker Change: We.
Speaker Change: For example.
Speaker Change: Wired Rambus IP business, and then acquire secure I see a few months ago and this is a critical piece you know foundation IP.
Speaker Change: And it is becoming more and more critical versus you know five seven years ago Foundation IP became a lot more critical, especially the interaction with the software replacement route.
Speaker Change: So the.
Speaker Change: There is a massive as you know foundry buildout.
Anirudh Devgan: you know, not just, you know, there are multiple foundries in multiple countries and they all require foundation IP. So that's the other reason I feel that foundation IP is much more critical now. So it's a combination of foundation IP being more critical, a need to broaden our IP portfolio work with our software tools. And this opportunity came along to acquire a, you know, leading. product in that space. Because we didn't want to enter the space with not a good product, but ARMS Artisanal Business has a good history, great product. So we hope to finish that acquisition later in the year and talk to our customers about it.
Speaker Change: I just.
Speaker Change: Multiple foundries in multiple countries and they all require foundation IP. So that's the other reason I feel that.
Speaker Change: Foundation IP is much more critical analysis of combination of foundation IP being more critical.
Speaker Change: Need to broaden our IP portfolio work with our software tools.
Speaker Change: And this opportunity came along to acquire.
Speaker Change: Leading.
Speaker Change: Product in that space, because we didnt want to enter this space with a not a good product, but arms. Our dinner business has a good history great product. So we will we hope to finish that acquisition really you know later in the year end and talk to customers about that.
Speaker Change: Perfect. Thank you.
Joe Quatrochi: Your next question comes from the line of Joe Quatrochi with Wells Fargo. Please go ahead. Yeah, thanks for taking the question. You mentioned that you were developing a full stack agentic AI solution. I was wondering if you could talk about just the areas of the design workflow you're targeting first with that. Oh, great question. I mean, you know, it could be applied to almost all the design process, but some that are super critical in terms of need, you know, of course, verification is always critical because verification, of course, we have great products with both hardware and software, but you never know when you're done with verification.
Speaker Change: Your next question comes from the line of Joe quite.
Speaker Change: Quite sharply with Wells Fargo. Please go ahead.
Speaker Change: Yes. Thanks for taking my question, you mentioned that you're developing a full stack at Yankee gas solution. I was wondering if you could talk about just the areas of the design work, so you're targeting first with that.
Speaker Change: Great question.
Speaker Change: It could be applied to <unk>.
Speaker Change: Almost all the design process, but some that are super critical in terms of need you know of course verification is always critical because verification because we have great products with both hardware and software, but you never know when you're done with Verifications and be complete problem and so we really look at now in our semi I offering.
Anirudh Devgan: It's like an NP-complete problem. And so if you really look at now, you know, our Sim AI offering, which works with a logic simulator, you know, can improve performance by 5 to 20x. You know, we have all these several customer endorsement, public consumer endorsements for applying Sim AI to verification. So I think verification to me is a great area for agentic AI. And then implementation is always a good area, like things like Cerebrus can be further enhanced, and you will see more and more developments from us on digital design and agentic AI pretty soon. So I would say that's the second area.
Speaker Change: And it works with our logic simulator.
Speaker Change: You know can improve performance by 5% to 20 X. We have all these several customer endorsement public concern endorsements for applying semi to two verification. So I think verification to me there is a great area for.
Speaker Change: For agenda Guy.
Speaker Change: And then implementation is always a good area like things like city, but it can be further enhanced and you will see more and more developments from us.
Speaker Change: Digital design and agenda Guy pretty soon so that I would say that's the second area.
Anirudh Devgan: And then one area that traditionally has not seen that much automation, but is becoming more and more critical is package and PCB design, you know, Allegro and Allegro X and Allegro X AI. Actually, I'm very optimistic that, you know, as pack design becomes super critical, and package is the critical thing in a 3DIC system, you know, 3DIC is another name for system in a package. So there is a more need for automation in packaging and automation in PCB design. So I'm actually pretty optimistic that AI can finally provide automation in packaging. And then I would say analog migration, another big area, and analog is like, you know, art plus science, but AI can also help in analog.
Speaker Change: And then one area that traditionally has not seen that much automation, but it's becoming more and more critical is package in PCB design, Allegro and Allegra <unk> and <unk>.
Speaker Change: Actually I am very optimistic that aspect design becomes supercritical and package is the is the critical thing in a <unk> system <unk>.
Speaker Change: <unk> is another name for system in a package. So there is more need for automation in packaging and automation in PCB design.
Speaker Change: So I'm actually pretty optimistic that Eric and finally provide automation and packaging.
And then I would say analog migration and the other big area in analog is like you know the art plus signs, but AI can also help in analog. So so I think these are the three or four key areas that we will work on but this global agenda Guy is as throughout the product spectrum.
Anirudh Devgan: So I think these are the three or four key areas that we will work on, but the scope of agentic AI is throughout the product spectrum. Very helpful. Thank you.
Speaker Change: Very helpful. Thank you.
Joe Vruwink: Your next question comes from the line of Joe Vruwink with Baird. Please go ahead. Thank you.
Speaker Change: The next question comes from the line of Joe.
Barwick with Baird. Please go ahead.
Joe Barwick: Thank you this might be an overly simplistic question relative to those before me, but your commentary and guidance range strikes me as having greater visibility into strength during the second half of this year than maybe what's a pair and just an RSA when analyzing.
Joe Vruwink: This might be an overly simplistic question relative to those before me, but your commentary and guidance, Ray, strikes me as having greater visibility into strength during the second half of this year, than maybe what's apparent just in our seat when analyzing the size of the 1Q beats or even your quarter-end backlog value. Can you maybe just speak to some of the things that change for the better in the last 60 to 90 days that make you feel better about the 2025 outlook? Yes, Joe, yeah, I'll take that one. Yeah, I mean, we're tracking ahead of our original forecast for 2025 with solid Q1 results.
Joe Barwick: The size of the <unk> or even your quarter end backlog value can you maybe just speak to some of the things that change for the better in the last 60 days to 90 days that make you feel better about the 2025 outlook.
Joe Barwick: Yes, Joe I'll tell I'll take that one.
Joe Barwick: Yeah, I mean, we're tracking ahead of our original forecast for 2025 with solid Q1 results. We only gave you. The guide a few weeks ago for the year. So not a huge amount has changed I think we have had a bit more strengthen our recurring revenue and of course as you know recurring revenue being recurring revenue feeds through the rest of the year. So a small beat in Q1.
John Wall: We only gave you the guide a few weeks ago for the year, so not a huge amount has changed. I think we have had a bit more strength in our recurring revenue. And of course, as you know, recurring revenue, any beaten recurring revenue feeds through the rest of the year. So a small beaten Q1 kind of follows through in Q2, Q3, and Q4. And we were, like I say, ahead of the original forecast, even with including building in an expectation that we'll pick up some slightly higher expenses on the tariff side. But we're still resilient on the tariff side.
Joe Barwick: Follows through in Q2, Q3 and Q4.
Joe Barwick: We were like I say ahead of the original forecast, even with including building in an expectation that.
Joe Barwick: Uh huh.
Joe Barwick: We got some slightly higher expenses on the charter side, but.
Joe Barwick: But we're still resilient on the tire side of it.
John Wall: We felt it was right to raise the price. Okay, thank you.
Joe Barwick: We felt it was right to raise the guidance.
Joe Barwick: Okay.
Joe Barwick: Okay. Thank you.
Joe Barwick: Okay.
Joshua Tilton: Your next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead. Hey guys, can you hear me? Yeah, loud and clear, Josh. Great. Thank you for sneaking me in. I always love it when the guy before you kind of steals your question. But I guess just to put a finer point on things, I think, Anirudh, you mentioned that the guidance still assumes that China's flat for the year. You guys are being prudent.
Speaker Change: Your next question comes from the line of Joshua Tilton with Wolfe Research. Please go ahead.
Joshua Tilton: Hey, guys can you hear me.
Speaker Change: Yeah, loud and clear Josh.
Speaker Change: Great. Thank you for sneaking me in I always love it when the guide before you kind of steals your question.
Speaker Change: But.
Speaker Change: I guess just to put a finer point on things.
Speaker Change: I think Andrew you mentioned that the guidance still assumes that China's flat for the year you guys are being prudent I guess my question to that is I understand there was an easier comp in <unk>, but you know.
Anirudh Devgan: I guess my question to that is, I understand there was an easier comp in 1Q, but, you know, year to date, are you guys seeing anything that suggests that China should actually grow flat for the year? Or, I guess another way of saying it is, is the decision to keep China flat for the year in the guide prudence or more, you know, along the lines of your expectations of how things will shake out by the end of the year? Thanks.
Speaker Change: Year to date are you guys seeing anything that suggests that China should actually grow flat for the year or.
Speaker Change: I guess another way of saying it is.
Speaker Change: Is the decision to keep China flat for the year. The guide Prudence are more along the lines of your expectations of how things.
Speaker Change: We will shake out by the end of the year.
John Wall: Yeah, Josh, I'll take that one as well. I think it's more prudent. We thought it's wise to remain prudent in the current macro environment. I think we're very resilient in this environment. I mean, you know, a company with high gross margin and essential products should do well in this type of environment. But the bookings were really solid in Q1. We had stronger bookings than expected, kind of fed into with more recurring revenue bookings as well. And that fell into us tracking ahead of the original forecast for 2025. So we thought the right thing to do was raise the guys.
Speaker Change: Yes, Josh I'll take that one as well, but I think it's more prudent that we thought it's wise to remain prudent in the current macro environment I think we're very resilient in this environment. I mean, you know a company with high gross margin and essential products should do well in this type of environment that but the bookings were really solid in Q1, we had stronger bookings and expected.
Speaker Change: Kind of fed into more recurring revenue bookings as well, but I'm not telling to us tracking ahead of the original forecast between 25%. So we thought the right thing to do was raise the guys.
John Wall: Super helpful guys, thank you.
Speaker Change: Super helpful guys. Thank you.
Sitikantha Panigrahi: Your next question comes from the line of Sikhi Panigrahi with Mizuho. Please go ahead. Hi. Thanks for taking my question. Anirudh, if you see there are a lot of news going around, we saw DeepSig, you know, early this year wondering how that's impacting the design velocity or even how you see the compute capacity will change. But at the same time, also, we're seeing hyperscaler, you know, trying to pause their data center, build out. Are you seeing any kind of impact there? So I would love to hear your views on this.
Speaker Change: Your next question comes from the line of sticky panic.
Speaker Change: Please go ahead.
Speaker Change: Right.
Speaker Change: Thanks for taking my question I need to it if you said a lot of news going around we saw deep sick you know oddly this year wondering how that's impacting the design velocity or even audi's cedar compute capacity will change, but at the same time also you're seeing hyper scaler trying to parse it.
Speaker Change: Their data center build out are you seeing any kind of impact there so would love to hear your views on this.
Anirudh Devgan: Yeah, Siri, that's a great question. I mean, this is a big question. Let me try to, you know, I mean, it's a critical thing. for the whole industry. I mean, first of all, I mean, when I talk to customers, DeepSeek is one advancement. I mean, a lot of customers expect multiple advancements like this, you know, the AI. will get more and more efficient, you know, as, you know, and this happened, if you look at even EDA's history, right, when AI started off, it was more like dense computation. And if you look at EDA history in the 70s, we started off with dense computation, and then we have sparse computation, we have partitioning, we have hierarchy, we have latency, there are all kinds of computer science methods that will be applied to AI, okay.
Speaker Change: Yes, Thats a great question.
So that's a big question, let me try to you know I mean this is critical.
Speaker Change: <unk>.
Speaker Change: For the whole industry I mean first of all.
Speaker Change: I mean, when I talk to customers in the deep Sea gives one advancement I mean larger customers expect multiple advancements like this.
Speaker Change: In AI.
Speaker Change: We'll get more and more efficient you know as.
Speaker Change: And this happened if you look at even eds history right. When I started off it was more like dense computation and if you look at <unk> history in the seventies. He started of as dense combination and then we have as far as combination. They have partitioning. We have hierarchy of latency. There are all kinds of computer science methods that will be applied to yeah. Okay. So I believe that there will be more.
Anirudh Devgan: So I believe that there will be multiple deep-seek moments, not just one deep-seek moment. But at the same time, you know, the AI will get more and more prevalent in its use, okay. And this happened in CPUs, I expect same thing will happen with AI and GPUs.
People deep seek moment not just one dipstick moment.
Speaker Change: But at the same time.
Speaker Change: I will get more and more prevalent in its use okay.
Speaker Change: And this happened in Cpus I expect same thing that happened with <unk> and Gpus. So in terms of when.
Anirudh Devgan: So in terms of when we talk to customers, now, first, I have to remind you that we are on the design side, not on the on the production side. But in terms of design, we only see acceleration of more and more designs to do AI, even on the data center side. And of course, NVIDIA is a great partner of ours. And I think NVIDIA is doing exceptionally well. But also a lot of the other hyperscalers, all the four or five major US hyperscalers and then companies in other countries are also investing heavily in their own designs.
Speaker Change: When we talk to customers now first I have to remind you that we are on the design side not on the on the production side, but in terms of design, we only see acceleration of more and more designs to do AI, even on the datacenter side.
Speaker Change: And of course, the Nvidia is is a great partner of ours and I think Nvidia is doing exceptionally well, but also a lot of the other hyperscale or is all of the four or five major U S. Hyperscale other than companies in other countries are also investing heavily in their own designs and we're glad to work with them.
Anirudh Devgan: And we are glad to work with them.
Anirudh Devgan: And then I mentioned before, you know, the physical AI part of it, which is cars, planes and drones is also there's a lot of design activity now, even though the car market may not be as strong, but that's for current products, but they are designing for future products, which will be AI enabled. And then the other thing, as AI gets more efficient, I think there will be more inference used. So there's a lot of design of inference chips to support that. So right now in terms of design activity, I feel pretty good.
Speaker Change: And then like I mentioned before.
Speaker Change: Physical AI part of it just cars planes and drones is also theres lot of design activity now, even though the car market may not be as strong, but that's for current products, but they are designing for future products, which will be AI enabled.
Speaker Change: And then the other thing as AIG is more efficient and I think there will be more influence us. So there's a lot of design of instruments shipped to support that so right now in terms of design activity I feel pretty good and like I was mentioning before.
Anirudh Devgan: And like I was mentioning before, you know, even on the data center side, the 3D IC is going to cause a massive change in complexity. You know, right now we have Blackwell with like two kind of big guys with HBM, but the packaging roadmap is very aggressive by all foundry. So I think that is also going to drive new and new AI designs with putting more kind of big chips in packages. And that should also drive AI performance and efficiency. So right now we don't see any big change in terms of the design activity for AI.
Speaker Change: Even on the datacenter side, the <unk> is going to cause the massive change in complexity right. Now you are black well wed like to kind of big guys with HBM, but the packaging roadmap is very aggressive buy all foundries. So I think that is also going to drive new and new AI designs with putting more kind of a big chip.
Speaker Change: And packages and that should also drive AI performance and efficiency. So right now we don't see any big change in terms of the design activity for you.
Sitikantha Panigrahi: Thanks for that color.
Speaker Change: Okay. Thanks for that color.
Nei So Neng: Your next question comes from the line of Nei So Neng with Berenberg. Please go ahead. Hi, thank you for giving me a question. Mine is on your SDNA segment, please. You know, that's a very impressive quarter in Q1. And I'm just trying to understand, you know, if you could maybe share where the strength is coming from, especially when we put it against the product market and your peers as well, you know, on the last three years, you've been growing at 2 to 3x what your competitors have been able to do. So I was wondering if there were any competitive market wins that's driving your performance?
Speaker Change: Your next question comes from the line.
Speaker Change: With Baird. Please go ahead.
Speaker Change: Hi, Thank you for taking my question at minus on your SG&A segment. Please.
Speaker Change: Very impressive quarter in Q1 and.
Speaker Change: I'm just trying to understand if you could maybe share where the strength is coming from especially.
Especially when we.
Speaker Change: Again.
Yeah.
Speaker Change: Market and your peers and so you know on the last three years, you've been growing at two to three X. What do you guys have been able to do so I was wondering if there were any competitive market when stocks driving your performance at North you know what are the reasons, please and maybe if I could squeeze in a part second part of your question.
Nei So Neng: If not, you know, what are the reasons, please?
Nei So Neng: And maybe if I could squeeze in a part, a second part of this question, the solid performance we've had in the past, does it any chance at all create any headwinds for you or tough comps for you going forward? Thank you.
Speaker Change: Solid performance, we've had in the past because it any chance at all create any headwinds for you have tough comps for you going forward. Thank you.
Anirudh Devgan: Thanks for the question. And you're right to raise the comps, because I think one of the benefits for Q1 is that Q1-24 was a pretty easy comp for us on the SDNA side. I mean, beta performed well in Q1-25, but we only acquired that in the middle of the year last year. So I think the first time beta turned up in our results was Q3-24. And then beta is providing a huge amount of pull-through business for Cadence. So Cadence products are being sold alongside beta products, and that's really helping us for growth. We're expanding reach to longer-tailed customers through our e-commerce model, and we've seen strength in automotive and aero and defense.
Speaker Change: Thanks for the question and you're right to raise the comps because I think one of the benefits for Q1 is the Q1 'twenty four was a pretty easy comp for us on the SG&A side.
Speaker Change: We beta performed well in Q1 25, but we only acquired us.
Speaker Change: In the middle of the year last year. So I think the first time beta turned up in our results for Q3 'twenty four.
Speaker Change: And then beta is its providing a huge amount of pull through business for cadence.
Speaker Change: So cadence products are being sold alongside beta products, and that's really helping us for growth.
Speaker Change: We're expanding reach to a longer tail of customers through our E Commerce model and we've seen strength in automotive and Aero and defense and I don't know Andrew do you want to add anything about beta.
Anirudh Devgan: And Anirudh, do you want to add anything about beta? Beta is performing great, and also it has a pull-through to other parts of our portfolio. One thing we are always confident, and I think you've seen some benchmarks in the industry in the past, that our R&D products are solid. They are rewritten. They have no accuracy loss. They have much better performance because of massive parallelism, whether it is on CPUs or GPUs. So we are always confident on our product side. and we continue to innovate there. I think what beta helps is to increase the reach of those products because they are working with all the auto companies.
Speaker Change: Our beta is performing great and also has a pull through to other parts so far.
Speaker Change: Of our portfolio. One thing we are always confident and I think <unk> seen some benchmark in the industry in the past that our R&D projects are solid they are related and they are you know they have no accuracy laws. They have much better performance because of massive parallelism, but it is on Cpus Gpus, so you're always going to run off.
Speaker Change: On our product side.
Speaker Change: And we continue to innovate there I think what beta helps us to increase the reach of those products because they are working with all the auto companies and so not only we can benefit from performance of beta but also can sell our other products to those customers and then we also improved our cloud offering and go to market with indirect.
Anirudh Devgan: And so not only we can benefit from performance of beta, but also can sell our other products to those customers. And then we also improved our cloud offering and go-to-market with indirect channel. So I think you're seeing some benefits of that, you know, better go-to-market operation on the system side. That's about it. Thank you.
Speaker Change: Channel, So I think youre seeing some benefits of that are you know.
Speaker Change: A better go to market operation on the system side.
Speaker Change: Alright, thank you.
Ruben Roy: And our next question comes from the line of Ruben Roy with Staple. Please go ahead. Thank you for letting me ask the question. Anirudh, I had a similar question to Jason's on IP. And you touched on this in your answer to that question. But just wanted to make sure I understood in terms of, you know, sort of these, I would say, accelerated pace of recent tuck-ins on the IP side, sounds like they're opportunistic rather than, you know, customer driven. Wanted to make sure I got that right.
Speaker Change: And our next question comes from the line of Wilton ROI with Stifel. Please go ahead.
Speaker Change: Thank you for letting me ask a question on <unk> I had a similar question to Jason's on IP and you touched on this in your answer to that question, but just wanted to make sure I understood in terms of sort of these.
Speaker Change: Say accelerated pace of recent tuck ins on the IP side. It sounds like there are opportunistic rather than me and then.
Speaker Change: Customer driven wants to make sure I got that right and then the second part of the question is just maybe if you can update sort of how youre thinking about it.
Anirudh Devgan: And then the second part of the question is just maybe, if you can update, you know, sort of how you're thinking about IP in terms of longer term growth from that segment, you know, given all that's going on with Foundry and customers, etc. Thank you. Yes, great question. So I think in terms of IP, there are multiple factors. So one is, our performance is better, you know, the portfolio we had, especially, you know, the PPA, you know, power performance in area for TSMC, you know, the most advanced foundry, the IP is just much better quality and performance.
Speaker Change: Terms of the longer term growth from that segment, given given all that's going on with foundry and end customers etcetera. Thank you.
Speaker Change: Yes, great question. So I think in terms of IP. There are multiple factors there one is our.
Speaker Change: Our performance is better you know the portfolio, we had especially you know.
Speaker Change: The PPA and a bar performance in the area four four for TSMC you know the most advanced foundry the diabetes, just much better quality and performance and that's driving customer demand. So the customers want us to warn that IP from us and want us to have a bigger portfolio. Okay. So.
Anirudh Devgan: So, and that's driving customer demand. So the customers want us to want to get IP from us and want us to have a bigger portfolio. So, as a result, you know, we do, of course, invest organically and we will do inorganic acquisition if we see a good fit, okay? But it's both a combination of what is available, but the customers are definitely driving us to broaden our portfolio. So, that's one. Second thing is, you know, there's more and more foundry. So, we are glad with our partnership with TSMC, but we highlighted even this time, you know, like Rapidas is making massive investments.
Speaker Change: So as a result, we do of course invest organically and we will do in Oregon acquisition, if we see a good fit okay, but it's both a combination of what is available but the customers are definitely driving us to broaden our portfolio. So that's one.
Speaker Change: Second thing is.
Speaker Change: There is more and more foundry so we're glad with our partnership with TSMC, but we highlighted even this time you know like rapid is making massive investments and of course, Samsung and Intel and we're glad to so there are at least four major foundries add advanced node along with all the foundries like like global and and you know.
Anirudh Devgan: And, of course, Samsung and Intel, and we are glad to. So, there are at least four major foundries at advanced node, along with all the foundries like Global and, you know, UMC at more mainstream nodes. So, I think the foundry ecosystem is rich and that provides more opportunities in IP. And then the third thing, of course, is AI and 3D IC and all this, you know, die-to-die IP. So, for these three reasons, I'm optimistic. You know, we are performing well. We are increasing our portfolio. The market wants more IP from us. So I expect IP to, of course, we had a good year last year.
Speaker Change: UMC at more mainstream nodes. So I think the foundry ecosystem is rich and that provides more opportunities in IP and then the third thing of course is AI and <unk> and all this.
Speaker Change: In day to day IP. So for all these three days I'm optimistic we are performing well we are introducing our portfolio the market bonds more IP from us.
Speaker Change: So I expect IP to of course, we had a good year last year, we had a very good quarter Q1, So I expect IP to grow better than cadence average going forward.
Anirudh Devgan: We had a very good quarter Q1. So I expect IP to grow better than cadence average going forward.
Anirudh Devgan: Perfect. Thank you.
Speaker Change: Perfect. Thank you.
Blair Ebernethy: Our final question comes from the line of Blair Ebernethy with Rosenblatt Securities. Please go ahead. Thanks for squeezing me in, guys, and a nice quarter.
Our final question comes from the line of Blair Abernethy with Rosenblatt Securities. Please go ahead.
Blair Abernethy: Alright, Thanks for squeezing me in guys and nice quarter.
Anirudh Devgan: Anirudh, I'm just wondering if you could give us sort of high level thoughts on the data center digital twins. You know, you bought Future Facilities back in July 22. It seems to be getting some traction out there.
Speaker Change: Auto route.
Speaker Change: Just wondering if you could give us sort of high level thoughts on the data Center digital Twins, you bought future facilities back in July 22 seems to be getting some traction out there.
Anirudh Devgan: I just want to see how you feel about, you know, the size of the TAM, the size of the opportunity there with that asset and sort of, you know, are there expansion opportunities beyond data centers? Absolutely. You know, the two areas that I've been very excited about, especially on the system side, one is, you know, which is very close to the package, like I mentioned, you know, thermal, electromagnetics, you know, warpage, because there's a massive transformation right next to the chip. And we are in a very strong position with Allegro and all the analysis tools.
Speaker Change: See how you feel about the size of the Tam or the size of the opportunity there.
Speaker Change: With that asset and sort of are there expansion opportunities beyond data centers.
Speaker Change: Absolutely you know the two areas that that I've been very excited about especially on the system side. One is you know which is very close to the package like I mentioned in a turmoil electromagnetics webpage, because theres a massive transformation right next to the chip and we are in a very strong position with Allegro and all.
Speaker Change: The analysis tools the.
Anirudh Devgan: The second area is all the way at the data center level. That's why we acquired future facilities. And actually, it had a very strong Q1. And we also have a great partnership with NVIDIA there. NVIDIA is designing their data centers with our Cadence Reality Digital Twin, and also working with joint partners as we go to market with them together on Cadence Reality. And that opportunity is huge. I mean, even we applied it to our own IT group, for example, we have our own data centers, right? So the product is general enough to be used in any data center.
Speaker Change: The second area is all the way at the data center level, that's why we acquired future facilities and actually it had a very strong Q1, and we also have a great partnership with Nvidia there in Nvidia to designing their data centers with our reality cadence reality digital twin and also working with join partners as we go to <unk>.
Speaker Change: Market with them together on on cadence reality and that opportunity is huge I mean, even we applied it to our own <unk> group. For example, we have our own data centers right. So the priority general enough to be used in any data center and we saw like a 10% improvement in power, which is huge and because.
Anirudh Devgan: And we saw like a 10% improvement in power, which is huge. And because typically, that's the area that has not seen a lot of analysis and automation, because typically done in like a typical construction kind of work. Whereas, you know, chip design is very analytical, mathematical. So that area needs more kind of optimization and simulation. So I am optimistic. And then the way Cadence Reality works, there is a design side of it, in which we help customers design the data center. And then there's the operation side of it, in which we can, you know, analyze on the fly, use the digital twin to optimize their operation.
Speaker Change: Typically that's the area that has not seen a lot of analysis and automation because typically done in like a typical construction kind of our work.
Speaker Change: But as you know a chip design is very analytical mathematical so that area needs more kind of.
Speaker Change: <unk> and simulation, so I am optimistic and then the way catering reality work there is a design side of it.
In which we help customers design their data center, and then Theres the operation side of it and which we can analyze on the fly use the digital doing to optimize their operation. So if you include both side I mean, the opportunity is huge so but we are still kind of prudent in our assumptions like we do and everything but I'm very optimistic about these two extreme one is all the way to.
Anirudh Devgan: So if you include both sides, I mean, the opportunity is huge. So but we are still kind of prudent in our assumptions, like we do in everything, but I'm very optimistic about these two extreme one is all the way to data centers. And second is all all the way very close to the chip on the package.
Speaker Change: Data Center and second is all all the very very close to the chip on the package and Thats why you see us investing.
Anirudh Devgan: And that's where you see us Great, thanks very much for the color.
Speaker Change: Great. Thanks, very much for the color.
Anirudh Devgan: I will now turn the call back over to Anirudh Devgan for closing remarks. Thank you all for joining us this afternoon. It's an exciting time for Cadence as our broad portfolio and product leadership ideally positions us to maximize the growing opportunities in the semiconductor and system industries.
Doug: I will now turn the call back over to Doug.
Doug: For closing remarks.
Doug: Thank you all for joining us this afternoon.
Doug: It's an exciting time for cadence as our broad portfolio and product leadership ideally positions us to maximize the growing opportunities in the semiconductor and system industry.
Anirudh Devgan: And on behalf of our employees and our Board of Directors, we thank our customers, partners, and investors for your continued trust and confidence in Cadence.
Doug: And on behalf of our employees and our board of directors.
Doug: We thank our customers partners and investors for your continued trust and confidence in cadence.
Tina: Thank you for participating in today's Cadence First Quarter 2025 Earnings Conference Call.
Doug: Thank you for participating in today's.
Doug: <unk> first quarter 2020 earnings Conference call. This concludes today's call you may now disconnect.
Tina: This concludes today's call. You may now disconnect. Goodbye.
Doug: Goodbye.