益華電腦 (CDNS) 2008 Q4 法說會逐字稿

Good afternoon.

At this time, I would like to welcome everyone to the Cadence Design Systems fourth quarter 2008 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.

(Operator Instructions).

Thank you.

I will now turn the call over to Jennifer Jordan, Corporate Vice President of Investor Relations for Cadence Design Systems.

Please go ahead.

Thank you, Kara, and welcome to our earnings conference call for the fourth quarter of 2008.

The webcast of this call can be accessed through our website, www.cadence.com, and we'll be archived for one week.

With me today are Lip-Bu Tan, President and CEO, and Kevin Palatnik, Senior Vice President and CFO.

Please note that today's discussion will contain forward-looking statements and that our actual results may differ materially from those expectations.

For information on the factors that could cause a difference in our results, please refer to our Form 10K for the period ended December 29, 2007, our Form 10Q for the period ended September 27, 2008, the Company's future filings with the Securities and Exchange Commission, and the cautionary statements regarding forward-looking statements in the earnings press release issued today.

In addition to financial results prepared in accordance with generally accepted accounting principles or GAAP, we will also present some certain non-GAAP financial measures today.

Cadence management believes that in addition to using GAAP results in evaluating our business, it can also be used to measure results include certain non-GAAP financial measures.

Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results, including those set forth in our press release of February 4th, 2009, for the quarter ended January 3rd, 2009.

A copy of this press release and financial tables can be found in the investor relations portion of our website at www.cadence.com.

Lip-Bu?

Thank you, Jennifer.

Good afternoon, everyone.

Let me begin by saying I am delighted to be speaking to you as President and CEO of Cadence.

And I am looking forward to getting out and meeting many of you this month.

Let me first comment on the semiconductor environment.

Even the strongest of our customers are facing challenges in this economy.

Despite this, I believe the challenges in the environment present opportunities for those who are best positioned, and Cadence is on solid ground.

We have $568 million of cash and cash equivalents on our balance sheet, a strong, committed executive team, talented employees, and a stable and solid base.

In 2008, we refreshed each of our major software platforms.

Cadence is unique in the breadth and depth of the solution its supplies.

Furthermore, we have made significant changes last year which are already beginning to benefit our business.

First, the transition to a 90/10 license mix is well on its way.

In the fourth quarter, the ratable mix exceeded 85%.

Second, as announced in November, we initiated a reduction in force that is expected to lower total costs and expenses by at least $150 million on the annualized basis.

Finally, we realigned our strategy to leverage the strengths of our core business and streamlined the research and development organization accordingly.

When I visit customers across the board they have told me that Cadence is a crucial technology partner, and they are relying on us to help to maximize the productivity of their design teams, particular in this environment.

These customer [comments] supports my experience working with our sales, marketing and engineering teams and gives me a high degree of confidence in our competitive position.

For example, one of our new customers recently made the decision to go with Cadence for their next design floor on the recommendation of a leading foundry partner, who told the customer, "Cadence has the most stable and mature digital design floor for 45nm and 40nm." This is the best kind of endorsement.

Cadence offers the most complete solution for low-power design.

Our leadership is based on the customer's success and the expertise of the Cadence team.

Cadence customers have reported more than 100 successful [tapeouts] using the Cadence low-power solution.

Indicative of the interest of our solution, there has been over 3,500 downloads of power forward initiated low-power [guide].

Our expert methodology service team plays a vital role in helping customers get up to speed on low-power design.

[Saturday] collaborated with Cadence to build low-power mobile platform design methodology based on the new encountered digital implementation system.

They successfully [taped] out chips on this floor in 2008 and in 2009 intends to run 300 chip designs through it.

Recent product upgrades are driving momentum for our digital floor.

ST Microelectronics, for example, has significantly increased their usage of the Encounter digital implementation system and is the applying it for 55nm, 40nm, 32nm SoC.

In addition to upgrading the installed base, the Encounter power system has had 16 competitive wins since the release in October 2008.

During the fourth quarter, a major graphic processor company replaced another EDA vendor's solutions with the Encounter power solution system.

In addition, we continue to gain traction in front-end design.

This represented opportunity for Cadence to grow its business over the next few years.

Our [TL] compiler, our synthesis product, now has over 440 customers.

While the Encounter timing system has over 150 customers.

Conformer ECO adoptions is also growing.

This differentiated product allows customers to capture engineering change order information given the design process and helps reduce design cycle time.

Vertification continues to be number one risk for customer both in terms of direct costs and opportunity costs.

Consequently, we see a strong demand for our differentiated solution, and well continue to invest to grow our business.

Now open verification methodology or OVM has built momentum with over 6,200 registered users, more than 50 industry partners and nearly 15,000 downloads as of the fourth quarter.

OVM helped drive 36 replacements of competitive solutions in 2008.

Cadence has also taken the lead in enabling design and IP reuse by providing the broadest portfolio of vertification IP in the industry.

The use of verification IP to validate both standard IP and proprietary designs increased designer productivity and reduced design costs significantly.

During the fourth quarter, we further expanded our verification IP for portfolio offering support for the USB 3.0, PCI Express 3.0 high-speed protocols, as well as the emerging mobile industry processor interface, MIPI.

Related to IP, our chipestimate.com IP ecosystem was recognized with the 2009 design vision award in the semiconductor IP category by the International Engineering Consortium.

The design vision award recognizes technology, application, products, and solutions judged to be the most unique and beneficial to the semiconductor industry.

Chipestimate.com brings together IP and manufacturing process information from more than 200 IP suppliers and foundries.

More than 20,000 users access to this affirmation in conjunction with Cadence tools to do their early chip planning and include 80,000 estimations of performance and cost for potential designs.

High capital budgets impacted hardware emulation sales of the latter part of 2008.

Even so, Cadence added 20 new customers during the year, including several in the fourth quarter.

Engineers are finding the need for earlier debug and earlier software development and the demand for predictable, reliable verification are outpacing the capabilities of alternative methodologies.

For the increasing number of customers, hardware regulation is the most cost effective and productive means to address these challenges.

For example, [novafola] a start-up company working on the video processor with several landscapes are able to bring up their design of palladium and discover significant architectural bugs before even committing to silicon, doing it in two to three weeks with palladium, what would takes two to three months with [mpga] prototyping.

Other customers include leading data storage and hardware manufacturers and Q4 are finding that using incisive software extensions with palladium for hardware and software debug dramatically improves their productivity and reducing the debug time again from months to weeks.

Palladium Dynamic Power Analysis solution and Silicon compiler were each named finalists in their respective categories of design analysis and design creation for the 2008 EDM Design Innovation Awards.

Turning to custom market segment, Cadence leads the [analog mixer] segment domain.

Be expect to expand our leadership position with innovative new solutions.

The latest release of the Virtuoso six series is receiving excellent reviews from the customer.

45 customers are using the latest generation Virtuoso in full production today with over 70 reported tapeouts.

And more than 20 of these customers are working at 45nm and beyond.

A major European semiconductor company reported a 33% increase in gain in productivity using Virtuoso 6.1, compared to older Virtuoso 5.4.1 platform.

We also have made good progress with our foundry partners on the process development kits, or PDKs, for Virtuoso six.

Currently there are 29 PDKs available for a full range of processors down to the 32nm.

This level of ecosystem support is indicative of our unparalleled experience in the custom design.

In circuit simulations, we added new technology to our Virtuoso multi-mode simulation solution, generating excellent customer response.

Over 100 customers have adopted [spector] with turbo technology for circuit simulation since its release.

Terminal technology speeds stimulation run time while preserving spy accuracy.

Customers are also reporting significantly increasing their productivity with our new accelerated simulator parallel simulator, or APS as for multi-call computer platforms.

APS improves conversion and capacity for designs with hundreds of thousands of transistors, reducing design and verification time from weeks to hours in most cases.

In summary, while the environment is extremely difficult for our customers, this also represents an opportunity for Cadence.

Customers increasingly rely on Cadence products and see us as an extension of their own teams.

There is a growing demand for us to provide complete solutions to help our customers improving productivity, predictability and reliability of their design process in order to compete more effectively in today's market.

I believe that when we do the right things for our customers, we do the right things for our business, and consequently, for our shareholders.

Now Kevin will take you through the financials.

Thanks, Lip-Bu.

First I will provide our results for Q4 and the full year 2008 and then provide our outlook for 2009.

Results for the company's key operating metrics for Q4 were total revenue, of $227 million, non-GAAP operating margin of a negative 9%, an operating cash flow of $33 million.

For the full year 2008, total revenue was $1.039 billion, non-GAAP operating margin was a negative 3%, and operating cash flow was $70 million.

Orders total approximately $790 million for 2008 and year-end backlog was approximately $1.8 billion.

We are making good progress with the transition to a 90/10 ratable mix.

As Lip-Bu said over 85% of orders booked in Q4 were ratable.

Weighted average contract life was consistent with our target range of three to four years.

In Q4, we recorded a GAAP capital loss per share of $6.57.

Included in this result was a charge of $5.47 related to the impairment of goodwill, intangible assets and fixed assets.

For the full year 2008, we recorded a GAAP loss per share of $7.29.

On a non-GAAP basis, which excludes the impairment charges among other items, we recorded a loss of $0.04 per share in Q4 2008.

For the year 2008, we also recorded a non-GAAP loss per share of $0.04.

Total revenue for the fourth quarter was $227 million.

Product revenue was $94 million, maintenance revenue was $98 million and services revenue was $35 million.

Revenue for the year 2008 totaled $1.039 billion.

Revenue mix by geography for Q4 was 45% for the Americas, 22% for Europe, 18% for Japan and 15% for Asia.

Total cost and expenses on a non-GAAP basis for Q4 were $247 million, a decrease of 14% when compared with Q4 of 2007.

Non-GAAP operating margin for Q4 was a negative 9%.

Quarter-end headcount was approximately 4,900.

Keep in mind, though, that due to regulatory requirements, the previously announced reductions did not become effective for our San Jose workforce until after the close of the fourth quarter.

Operating cash flow for Q4 was $33 million and $70 million for the year 2008.

Total DSOs for Q4 increased to 182 days from 174 days in Q3, as a result of higher receivables balance and lower revenue.

However, the quality of receivers continues to remain high with less than 1% of receivable more than 90 days past due.

Capital expenditures for 2008 totaled $97 million.

This amount includes the completion of our new engineering building in San Jose.

Cash and cash equivalents were $568 million at year end, but the majority of our cash and cash equivalents invested in AAA rated money-market funds with over 50% allocated to money-market funds that invest exclusively in government obligations.

Now I will turn to our outlook for Q1 '09 and the full year 2009.

For Q1 2009 we expect revenue to be in the range of $200 million to $210 million.

Q1 non-GAAP operating margin is expected to be in the range of the negative 20% to a negative 18%.

GAAP EPS for the first quarter is expected to be in the range of a loss of $0.33 to a loss of $0.31 and non-GAAP EPS in the range of a loss of $0.13 to a loss of $0.11.

Operating cash flow for Q1 is expected to be in a range of a negative $20 million to a negative $15 million.

However, it includes severance payments in the amount of [$30 million].

For the full year 2009, we expect revenue to be in the range of $830 million to $870 million.

Order levels for 2009 are expected to be in the range of $800 million to $850 million, resulting in a year and 2009 backlog of approximately $1.8 billion.

For 2009, we expect weighted average contract life to be in the range of three to four years.

For the seasonal revenue pattern in 2009, we expect to generate 23% to 25% of annual revenue in Q1, 23% to 26% in Q2, 24% to 27% in Q3, and 24% to 28% in Q4.

GAAP EPS for 2009 should be in the range of a loss of $0.99 to a loss of $0.87, and non-GAAP EPS in the range of a loss of $0.36 to a loss of $0.24.

We expect non-GAAP operating margin to be in the region in negative 12% to a negative 10% on an annual basis for 2009.

Non-GAAP other income and expense for 2009 is expected to be in the region of negative $5 million to negative $3 million, primarily due to lower interest income.

For the full year 2009, we expect to be break-even for operating cash flow, including severance payments of approximately $40 million.

We expect DSOs to be approximately 150 days at year end 2009.

Capital expenditures for 2009 are expected to be in the range of $40 million to $50 million, a decrease of the approximately $30 million from our historical run rate.

In summary, the global economic crisis in which we now operate is unprecedented in recent history and is affecting nearly all sectors of the economy.

While it was a tough environment for our customers, we believe that we are taking the right steps to position Cadence for the future.

We believe our competitive position and financial position are sound, our transition to a 90/10 ratable mix is the right move for long-term value, and we are highly focused on operating efficiency.

Operator, we will now take questions.

Thank you.

(Operator Instructions).

We will pause for just a moment to compile the Q&A roster.

Your first question will come from the line of Rich Valera with Needham & Company.

Thank you.

Good afternoon, and welcome aboard, Lip-Bu.

If you could give me the revenue signature of your backlog, Kevin, you talked about expecting -- you have $1.8 billion in backlog and during 2009.

Can you give us a sense of how you expect to recognize it or the next couple of years or how much to expect to recognize in 2009, specifically?

Rich, at this time we are really waiting for the model to be a bit more stable, more mature, before we start disclosing coverage for the following year.

We probably need a couple more quarters for that maturity to happen.

Okay, this is probably just a differ with asking the same question, but how about the percentage of ratable bookings you would expect for the year?

You said you were at 85% for the fourth quarter.

Do you expect to be at or approaching 90% for all of 2009?

I expect, given the sku of our business, is typically in the back half, I think by that time we should achieve a 90/10 mix.

By the back half, so for the full year maybe not quite seeing that?

Very close to it, but not exactly 90/10, that's correct.

Okay, that's helpful.

And then I just wanted to talk about the expense side of things.

And how you achieve -- you've talked before about a target operating margin at some point I believe up to 25%.

And I just wanted to get a sense of obviously can't predict with any precision maybe when what happens, but what kind of revenue level you think you need to get to hit that and when you could achieve it.

Because it seems if you rolled out the model even to 2011, it's very tough to get to that kind of op margin unless there was another maybe round of expense cuts.

So I just wanted to know how you're thinking about achieving these kind of 20% plus type of op margin targets.

Yes.

So Rich, when we announced the new model in July of last year to the 90/10, a lot of folks did ask about when do achieve a normalized bookings and revenue number.

And the response which it was it's going to take a three to four years to transition through this model.

So, middle of 2011 into 2012, that's when we really believe we can be above the 20% operating margins.

It's going to take that time, if you will, to establish that stable model and achieve those margins.

And you think you can do that with your current cost structure, which presumably would, once you're -- obviously you haven't hit the cost base you're looking for, it will in a couple of quarters, but presumably will actually see some expense growth from that level, just due to the natural inflationary cost increases.

Is the sort of how you are thinking about it?

Yes.

When we announced the restructuring in Q4, which as I mentioned in my prepared remarks were well on track with both headcount and expense, the analysis that supported that did not focus solely on 2009.

It was based on a longer-term view.

And so couple that with achieving some stability in the model, we believe looking get to those margins in the 2011/2012 timeframe.

One more, and I will yield the floor.

Any color on 2010?

You have talked about 2009 being the trough of the booking sort of cycle for you, with 2010 being presumably meaningful stronger.

Is there any kind of color at this point you would be willing to give in terms of how much better 2010 bookings might be relative to 2009?

Yes.

I still believe that the renewal cycle in 2010 is stronger than 2009.

However, I think we both agree that there's a tremendous amount of uncertainty in the economy today, and frankly, our customers also lacked the visibility to go out that far.

So we don't believe it makes sense at this time to give an estimate.

Fair enough.

Okay.

Thank you for taking my questions.

Your next question comes from the line of Raj Seth with Cowen & Co.

Hi, thanks.

First, Lip-Bu, let me offer my congratulations on your appointment.

I'm curious if you sort of abstract away from the details, just philosophically, how you think about M&A here.

Your predecessor had an apparent bias towards internal development, excluding [virisity] didn't do any M&A.

How you think about that in the context of what's going on, weekend start-ups, etc.?

Perhaps a comment or two there.

Raj, thank you so much.

First of all, let me address your question.

We would be very focused on enhancing shareholder value and for me right now the priority is focused on working closely with the customer and then focus on our core competence and then really focus on execution and accountability.

And we are open and are exploring all options and to enhance our product offering.

But I think at this time we kind of really are really focused on the execution.

And conversely, as you think about getting Cadence back on track, are there areas of the business you might consider divesting yourselves of that aren't core?

Have you gone through that exercise yet?

Right.

To answer question, first of all, I am quite heavily involved with the engineering development team to look at our product offerings and portfolios.

And we are going to continue monitoring those developments and then focus on the areas that we are really strong at and that we have leadership, and in the areas that we need to the focus.

At this time, I think we'll let it go, the specific, and I think right now we will continue reviewing and monitoring that.

Okay.

And our last one for Kevin.

Kevin, I know you're asked that this in the previous question, but last quarter you did give some indications about suggesting backlog coverage into '08 without maybe repeating all those numbers.

Has anything changed?

Has there been a material change in whatever you were expecting last quarter to now?

Nothing has changed.

It may have slightly improved a bit.

Okay, thanks.

And you're next question will come from the line of Matt Petkun with Davidson & Co.

Kevin, on the last call I believe you said, and obviously that was a quarter past, but that bookings for this current year 2009 were expected to be $800 million to $900 million.

You're now within that range, but at the lower end.

What has changed in that number?

Matt, that's right.

We did go out with guidance of $800 million to $900 million on a preliminary basis.

And again you're going to hear this common theme about uncertainty.

We experience it, our customers experience it.

So we did tighten the reins to $800 million to $850 million.

Most of that tightening was in the second half of that year, of 2009, obviously.

And therefore from a revenue standpoint, we really didn't change anything in revenue, in the range, in the mid point of the range, if you will.

That we see more uncertainty in the second half, so we did tighten it up a little bit.

Okay.

And the deals that you are signing this year, can you give any rough numbers in terms of the average term of these deals?

Yes.

We still see three to four years, our experience coming out of Q4, we did see some smaller companies contract a bit, but frankly, it was so small it didn't move the needle.

We're still in the three to four range.

Okay.

And then to get back to the previous callers question, not previous but a few callers ago, I think the street is really grappling with a normalizing bookings level for Cadence, even in this more uncertain times.

I think people are trying to understand what normalized bookings look like.

And as you conduct a bit of a post-mortem over of the previous management situation, and a look at the bookings that we enjoyed in 2007, is it safe to say what we all assume, which is that there was a fair amount of the deal pull-ins and that's really what's extending the bookings -- extending the trough for bookings into theoretically 2011?

Matt, so I did talk about a trough in the last call.

I think the best way to approximate a normalized bookings number would be to look back over the last three to five years of implied bookings.

We didn't give that guidance, but you can get there given revenues public and backlog in our K.

That would be a good approximate for a normalize bookings number.

Okay, I guess that's where were hoping for a snap back.

Just finally, the last question would be on the renewals that you are seeing, or deals that are coming up for renewal, are you seeing a lower percentage hit rate of, say term deals that are falling off, or a percentage of customers coming back on, or reducing prices or reducing seats, any specific trends in the business that is out there?

Yes.

I think generally the close rate hasn't changed that much.

Customers are spending a little bit more time qualifying EDA vendors.

But as Lip-Bu described in the prepared comments, our product portfolio is probably the best of has ever been.

And where we are competing head on and doing very well.

So again, from a Q4 to Q1 look ahead, we see close rates about the same.

Okay, thanks a lot.

Thank you.

You're next question comes from the line of Kakkean Rajkumar with RBC Capital Markets.

Hi, guys.

Could you comment on the base of (inaudible) and has the base for 40 picked up?

How are the trends looking?

Yes, Kakkean , you broke up a little bit.

Can you repeat

Yes.

My question was on the base of note transition to 40.

Is the number of (inaudible) per quarter is it increasing, holding flat or dropping off?

Clearly, I think the first of all, Kakkean, in some of the designs in terms of the 40-nanometer and below is the trending down.

And we clearly see a little bit slowing down of that, but I think increasing the design complexity.

So I think that's where we're playing to our strength in terms of providing a solution for them to differentiate their design and make them more competitive.

So we see that as an opportunity for us.

Okay.

Secondly, is it possible to give us a rough idea as to your top lines, exposure to the various notes?

What fraction of your revenues comes from the leading edge, what fraction from the mid notes?

Kakkean, frankly, I don't have that breakout at this point.

It's something I can look forward on and potentially get back to you on.

Okay.

When I look at your cash flow statements, I find that the sale of receivables has apparently gotten slower than last quarter.

Do you expect that trend to continue into Q1 or do you expect the sales to pick up?

No, as we talked about in our Q3 call, and I will repeat it again today, our sale of receivables going forward, I mean, both given the credit markets and our own, if you will, a practice, where it makes sense to sell receivables where there are low discount rates, we will do that, particularly in the Japan region.

But going forward, the numbers are going to come way down.

Okay.

And lastly, there are a couple of large tax items on both your income sheet as well as the cash flow.

Can you explain those items, please?

Kakkean, I'm sorry I didn't hear.

There was a large number of what?

Tax items.

Tax.

Okay.

Do you want to be specific on the balance sheet?

Yes.

There is a tax item on the income sheet as $200 million.

There are items on the cash flow of about $220 million.

Can you explain where they are from?

Yes, sure.

So the $200 million is related to an valuation allowance that we did.

Okay?

The valuation allowance picks up NRLs and tax credits that are called to deferred tax assets, DTAs.

So based on the accounting rules effectively, we had to write those down because we are experiencing cumulative losses.

From an economic standpoint, it doesn't imply that we can use those because those cumulative losses can turn around, but we had to revalue, if you will, those DTAs and write them down.

Okay.

Thank you.

(Operator Instructions).

Your next question comes from the line of Sterling Auty with JPMorgan.

Yes, thanks.

Hi, guys.

Kevin, can you give us some description of the renewal experience in the quarter in terms of the renewals that you got, the dollars that they are signing up for, versus the last contract, especially in light of all the headcount reductions that are going on in the semiconductor industry?

Yes.

So Sterling, Q4 to Q3 from an economy standpoint from a general customer standpoint, I think there are significant differences.

However, in Q4, and these are part of the metrics we are looking at, we did see slight improvements in what I will call run rate.

So that was our experience for Q4.

We will see what happens in Q1.

Okay.

And then on the expense and the restructuring, can you walk us through how we should think about the expenses coming out of the structure?

Because if I look at the guidance, if you are $200 million to $210 million in revenue for the first quarter, 18% to 20% loss on operating margins, it seems to imply that your total expenses are going to be once again somewhere around $240 million or so.

Doesn't seem to be much of a sequential change.

How should we think of the expenses, not only in the first quarter, but as we move forward through the year?

Yes, Sterling.

So whenever we start the new year, Q1, Q2, payroll taxes and the like are somewhat front-end loaded, they start over again.

If you take Q4 expense to Q4 of online expense, you should see another 4% to 5% reduction.

And by that time, we will be fully through the restructuring.

We are about halfway through right now, both in North America and around the world.

As we said in the last call, it will probably take us through the end of the first half to work through all of the work councils around the world, but we should see from an expense benefit another 3% to 5% increase from the Q4 numbers.

Alright, thank you.

Thank you.

You're next question comes from the line of Tim Fox with Deutsche Bank.

Thank you.

Good afternoon.

Lip-Bu, I was wondering if you could give us some of your feedback from early discussions with customers, some are related to what Sterling was asking about, the massive layoffs that we are seeing out of the NACs and others.

What has been the overall view of customers regarding R&D, headcount and design activity?

Do you see any sign that there is going to be an extension of design or product cycles that might actually delay the renewal visibility that you might have into '09?

Tim, thanks so much for your question.

So first of all, I think that by visiting some of the key customers for us and (inaudible) visibility is low for them, especially in the consumer electronics area is hard hit, and the medical and some of the infrastructure side is relatively better.

So I think overall it is a very tough environment and clearly, that is the environment where we are working.

And in terms of the R&D, they tend to be more focused now in terms of their product development, and then more targeted.

And then talking about the headcount, clearly there are some reductions and some are already happening in Japan and the US.

And in terms of the product focus, and it tends to really play into an opportunity for us is that we are more focused on time to market and also the productivity and on first time pass.

And it's why the deep partnerships with the customer becomes critical.

Our engineering and our sales teams are really in front of the customer to help them to identify areas that we can really help them to design better and more quickly and more cost effective to the market.

Okay, thank you.

And for Kevin, two quick ones.

Just circling back to the order guidance for the year.

Is there a way that we can think about what level of that $800 million to $850 million is based on almost entirely renewals at this point?

Are you anticipating any turns business in that number or any share gains, just to give us some kind of sensitivity around the visibility into that order flow?

Thanks, Tim.

So the range as we discussed, $800 million to $850 million, were a little bit more tight in the second half of the year.

Our business is primarily dependent on renewals.

And we have talked about in the past the trough that we are experiencing.

Geez, I think -- yes, let me stop there.

Or could you repeat your question?

I'm sorry, Tim.

Yes.

Essentially what we're looking at, of that $800 million to $850 million, how much of that are saying as coverage of a very visible renewal?

Is there anything on top of that, incremental business that you are looking to do and/or market share gains, or is that kind of a pure renewal view?

It's primarily a pure renewal view.

We don't expect significant market segment share shifts in the near term.

If you look, I think, over history, market segment share shifts have been in the 1% to 3% to maybe 5% range.

So in the short term, it's primarily renewal based.

Okay.

Great.

And lastly, you may have mentioned this, but I don't know if I missed it.

The non-GAAP tax rate for '09, is there anything changing there?

No change.

26%.

26%.

Thank you.

Thank you.

Thank you, everyone, for calling in this afternoon.

I believe that Cadence's technology portfolio and the competitive position are strong.

We have a steady pipeline of new technology in production for 2009.

While it is a tough environment for our customers, we are taking the right steps to position Cadence for the future.

Finally, I am looking forward to meeting many of you in the upcoming weeks.

Thank you.

Thanks, everyone.

Thank you for participating in today's Cadence fourth quarter 2008 earnings conference call.

You may now disconnect.