1/ Cadence creates applications used to design semiconductors and other electronic systems, referred to as Electronic Design Automation, EDA

EDA acts like a tax on the semiconductor industry’s R&D spend

Needham Conference, 8/13/2020, highlights:

https://twitter.com/bizalmanac/status/1267543120910188544?s=20

2/ Cadence is the second largest EDA business behind Synopsys with $2.4B and $3.3B of TTM sales respectively

Together, they represent ~60% of EDA revenues globally

The mission critical nature of their products allow them to not compete on price

3/ Lip-Bu Tan joined as CEO 11+ years ago and CDNS stock has compounded at 35% under his watch

He credits a culture of innovation, customer obsession and their ability to build and rebuild business lines into market leaders

4/ Intellectual Property (“IP”) integration is a common use for EDA software

Cadence did not offer any IP tools in 2009

Tan responded to customer requests by purchasing Denali in 06/10 for $296.8mm and Tensilica in 04/2013 for $319.3mm

IP generates 14% of Cadence’s revenue

5/ Cadence hired Anirudh Devgan away from IBM in 2012 to revitalize their Digital Design and Sign-off functions.

Digital represents 29% of revenues currently

Cadence is entering the systems simulations market

Customers have grown from 30 to 125 in the half year

6/ The semiconductor industry is benefiting from 5 macro trends

1) 5G
2) Cloud Computing
3) AI / ML
4) IoT
5) Electrification of Cars / AV

7/ Cadence has responded well to the challenges posed by Covid

Employees are prepared to work remotely

Customer engagement remains high through video chatting

Financial impacts are very minor and guidance is for business as usual

8/ China has stated their intention of transitioning to a fully local semiconductor value chain

Cadence's China business continues to do well even as they navigate tariffs

The risk is known but mitigated by the quality of CDNS and SNPS software compared to substitutes