益華電腦 (CDNS) 2010 Q4 法說會逐字稿

Good afternoon.

My name is Lamont and I will be your conference operator today.

At this time, I would like to welcome everyone to the Cadence Design Systems fourth quarter 2010 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, Lamont.

Welcome to our earnings conference call for the fourth quarter of fiscal 2010.

The webcast of this call can be accessed through our website, www.cadence.com, and will be archived for two weeks.

With me today are Lip-Bu Tan, President and CEO; and Geoff Ribar, 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 10-K for the period ended January 2, 2010, our Form 10-Q for the period ended October 2, 2010, 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 certain non-GAAP financial measures today.

Cadence management believes that in addition to using GAAP results in evaluating our business, it can also be useful to measure results using 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 which can be found in the quarterly earnings section of the Investor Relations portion of our website.

A copy of today's press release dated February 2, 2011 for the quarter ended January 1, 2011 and related financial tables can also be found in the Investor Relations portion of our website at www.cadence.com.

And now I'll turn the call over to Cadence CEO, Lip-Bu Tan.

Lip-Bu?

Good afternoon, everyone.

Thank you for joining us.

I want to take a moment to comment on our progress in the last two years before I turn to the highlights for the quarter.

Following my remarks, Geoff will review the financial results for the period and provide our guidance for the first quarter and fiscal 2011.

Cadence team has been engaged for the last two years on improving operating performance and results and increasing shareholder value.

We transitioned to a ratable license model to reduce our reliance on current quarter orders for current quarter revenue.

We reduced non-GAAP total costs and expenses and capital expenditures.

We leveraged our core technology strengths, aligned our research and development and sales teams, and accelerated our responsiveness to customers.

In 2010, we built on this foundation.

We introduced a bold vision for the EDA industry, called EDA360.

We aligned our Company synergy operation and operating plans to realize the vision.

We defined and delivered new and impactful technologies, products and design flows in each of the EDA areas of Silicon Realization, SoC Realization and System Realization, including the strategic acquisition of Denali to accelerate our road map in IP.

We strengthened key customer and partner relationships to demonstrating our technology leadership and delivering superior solutions to their complex design challenges.

These efforts have led to an expansion of our business with key customers, which is evident in our 2010 financial performance.

Results for the fourth quarter and fiscal year 2010 exceeded guidance.

Revenue for the fourth quarter totaled $249 million, non-GAAP operating margin was 11% and we generated $57 million of operating cash flow.

For the whole year 2010, revenue grew 10% year-over-year to $936 million.

Non-GAAP operating margin improved to 9%.

Operating cash flow totaled $199 million.

Book-to-bill ratio for the year was greater than one.

Total bookings in 2010 were $956 million, resulting in an annual backlog of $1.7 billion.

We ended the year in a strong financial position with $557 million of cash on the balance sheet.

We entered 2011 with good customer momentum, especially at the larger semiconductor companies.

We have a strong pipeline of technology across System, SoC, Silicon Realization that deliver on our EDA360 vision.

Let me review some of the highlights for the fourth quarter.

Silicon Realization, the foundation of our business, is core to enabling EDA360.

We continue to invest and innovate heavily in this product family.

Cadence is the EDA industry's only provider of complete end-to-end analog and digital design, verification, implementation, IC packaging and PCB solutions.

At CDNLive!

Silicon Valley, we announced our Silicon Realization offering.

Over 500 customers saw our demonstration, our unique end-to-end flows for low power, mixed signal, giga-gates/GHz, 3D-IC, Silicon Package [bought] co-design and metric driven verification.

This is our solution to critical challenges that our customers face daily and when the breadth of our technology delivers different (inaudible) value to our customers.

During the fourth quarter, this Silicon Realization solution helped drive expansions in the use of and the consolidation upon our Incisive, Virtuoso, Allegro and Encounter platforms within key North America accounts.

Hewlett-Packard is a good example of a customer that is realizing the benefits of Cadence solutions.

We are also seeing consolidation on Cadence Silicon Realization technology among some of the most rapidly emerging and competitive companies in Asia.

For example, Spreadtrum recently developed the first 40-nanometer 3G baseband chip in China.

The design was completed using an all Cadence Silicon Realization flow and achieved for silicon success.

Our Silicon Realization products are also winning industrial awards.

In December, Electronic Design Magazine named Cadence's EDI system one of the best new EDA technology of 2010.

In analog design, our Accelerated Parallel Simulator won Elektra Electronic Industry Awards 2010 in Europe.

And our Allegro PCB Signal Integrity 2 was named to the 2010 Hot 100 product list.

And we are not standing still.

We recently introduced our silicon validated end-to-end digital flow for 28-nanometer and 3D-IC technologies packaging high-speed design.

We expect these technologies will create new opportunities for Cadence at the most advanced nodes.

Now, let me turn to SoC Realization.

Last summer, we made a high impact acquisition to accelerate our SoC Realization synergy.

The acquisition of Denali opened a new market segment for Cadence, expanding our product portfolio to include design IP, as well as component modeling, IP integration and SoC verification capabilities.

I am very pleased to report that Denali integration is ahead of schedule and results were [above plan] for both the fourth quarter and the year.

We are rapidly becoming the leader not only for memory modeling, but also for the increasingly important low-power DDR2, DDR3 memory controllers market segments.

Let me give you some customer examples.

One of the largest semiconductor companies in Japan did a memory IP transaction that was larger than the industry norm with us in Q4.

One much Europe's largest semiconductor companies awarded us multiple additional projects for our DDR controllers.

Now let me turn to our System Realization highlights.

In April, we introduced a verification computing platform enabling emulation accelerations and simulation all on one single platform.

Customers that are designing SoC at 40-nanometer and below find this product necessary to meet a time-to-market and quality targets.

The [amount] for this was exceptionally high in the fourth quarter, the result of the expanded orders from the existing customers and new customer who used the platform to bring out some of the -- this year's most extraordinary products.

Imagination Technologies, one of the world's most successful developers of multimedia and communication semiconductor IP [calls], expanded their use of Palladium XP in this quarter.

Our System Realization team has plans to announce other exciting products in the first half of this year.

Finally, the fourth quarter also produced strong results among our ecosystem partners.

We collaborated with IBM, Global Foundries and Samsung to deliver comprehensive 32/28-nanometer reference flow for the common platform advanced node, low-power high-k metal gate process technology.

This reference flow used Cadence's Encounter digital design products end-to-end.

Furthermore, the reference flow was validated using the 32/28-nanometer ARM low-power physical libraries and employs the Common Power Format-enabled Cadence low-power solution to maintain power intent throughout the design process.

We are pleased to have been able to help our common platform partners to achieve this milestone.

In conclusion, the momentum for Cadence solutions continue to build at our key customers, driven by the combination of leading and competitive technology and strong performance from the Cadence team.

Revenue, operating margin and cash flow all improved.

In 2011, we maintained laser focus on executing our strategy and achieving our long-term objectives.

We intend to grow our business and increase shareholder value by providing superior solution for System, SoC and Silicon Realization, strong customer engagements and improving operating results.

Based on our commitment to customer value, superior technology and excellence in execution at all levels of the Company, Cadence is well positioned to build on the success of 2010 in the current year.

Now I will turn the call to Geoff Ribar, who will review the financial results for the fourth quarter and fiscal 2010 and provide guidance for the first quarter and fiscal year 2011.

Geoff?

Thanks, Lip-Bu, and good afternoon, everyone.

Cadence capped a successful 2010 with a strong Q4.

Driven by a larger renewal calendar and the robust semiconductor recovery in 2010, our orders grew 55% to $956 million.

Book-to-bill was greater than one for 2010 and the year-end backlog was approximately $1.7 billion.

Approximately 90% of the orders booked in Q4 were ratable, as well as for the full year.

Weighted average contract life for Q4 was 2.7 years.

During the first half of the year, we ran at the high end of the 2.6- to three-year range so for the full year weighted average contract life was about 2.9 years.

Total revenue for the quarter was $249 million, up 13% year-over-year.

Revenue for 2010 was $936 million, an increase of 10% from 2009.

Product revenue was $133 million.

Maintenance revenue was $90 million and services revenue was $26 million.

Q4 revenue mix for the geographies was 45% for the Americas, 23% for EMEA, 14% for Japan, and 8% for Asia.

Total costs and expenses on a non-GAAP basis for Q4 were $222 million, an increase of 11% when compared with Q4 of 2009.

The year-over-year cost increase for Q4 was primarily due to the Denali acquisition and higher variable compensation.

Non-GAAP total costs and expenses for 2010 were $854 million, down 2% from 2009.

Today we announced a small restructuring as we continue to optimize our resource allocation.

We expect to eliminate approximately 2% of our work force.

The savings from the restructuring will be reinvested in connection with developing and enhancing our product technologies.

The restructuring charge taken in Q4 was $13 million.

Quarter-end head count was approximately 4,600 people prior to the restructuring.

Non-GAAP operating margin for Q4 was 11%.

For 2010, non-GAAP operating margin was 9% compared to negative 2% for 2009.

For Q4, we recorded a GAAP net loss per share of $0.08.

For 2010, we recorded GAAP net income per share of $0.54.

This included $0.56 recorded in Q3 due to the settlement of the 2000 to 2002 IRS examination and $0.25 recognized in Q2 for a tax benefit associated with the Denali acquisition.

The cash impact of this tax settlement and the acquisition tax benefit was negligible.

Non-GAAP net income per share for Q4 was $0.07, exceeding our guidance range of $0.03 to $0.05.

For 2010, non-GAAP net income per share was $0.20.

Operating cash flow for Q4 was $57 million.

For 2010, operating cash flow totaled $199 million compared to $26 million for 2009.

This improvement was due to higher business levels and better collections.

Total DSOs for Q4 decreased to 78 days from 87 days in Q3.

The quality of the receivables remains high with less than 1% of receivables more than 90 days past due.

Capital expenditures for 2010 were $35 million compared to $41 million for 2009.

Cash and cash equivalents were $557 million at year end.

Approximately one-third of our cash is in the US.

Now let's address our outlook for the first quarter of 2011 and for fiscal 2011.

For Q1 2011, we expect revenue to be in the range of $255 million to $265 million.

First half revenue will be stronger than historical seasonal averages driven by large second half orders for Palladium XP that will ship in Q1 and Q2.

Q1 non-GAAP operating margin is expected to be in the range of 10% to 12%, with non-GAAP total costs and expenses increasing sequentially due to seasonal factors.

GAAP EPS for the first quarter is expected to be in the range of a loss of $0.02 to break-even.

Non-GAAP EPS for Q1 is expected to be in the range of $0.06 to $0.08.

Now for the fiscal 2011 outlook.

Order levels are expected to be in the range of $1.04 billion to $1.08 billion with the weighted average contract life in a range of 2.6 to three years.

We expect to book approximately 90% of our orders under ratable arrangements.

We expect revenue to be in the range of $1.03 billion to $1.07 billion for 2011 with approximately 80% of expected revenue coming from the beginning of the year backlog.

We expect non-GAAP operating margin to be in the range of 12% to 14% on an annual basis for 2011.

Non-GAAP and the other income and expense for 2011 is expected to be in the range of negative $16 million to negative $12 million.

For 2011, we expect a non-GAAP tax rate of 26% and the weighted average shares outstanding of 265 million to 272 million.

GAAP EPS for 2011 is expected to be in the range of $0.00 to $0.10.

Non-GAAP EPS is in the range of $0.30 to $0.40.

We expect operating cash flow in the range of $190 million to $210 million.

We expect DSO to be in the range of 75 to 85 days at year end 2011.

My long-term goal is to see DSOs approach 60 days.

Capital expenditures for 2011 are expected to be in the range of $30 million to $35 million.

So in summary, Cadence made significant improvements in all of our key operating metrics in 2010.

As you can see from our improvement in our outlook, we expect further growth in business levels and improvement in profitability in 2011.

We remain committed to driving non-GAAP operating margin to the mid-20s.

Operator, we'll now take questions.

(Operator Instructions)We'll pause for a moment to compile the Q&A roster.

Your first question comes from the line of Rich Valera with Needham.

Thank you.

Can you hear me?

Yes, we can hear you.

Hi.

First, congratulations on an excellent year.

Really a nice come back year and good execution throughout, so congratulations to the whole team on that.

The question is around the strength you're seeing in emulation right now which obviously looks like it's going to sustain into the first half of this current year, one, why wouldn't that be sustainable?

What makes you think this is sort of a bit of a short-term blip?

And then relatedly, as you noted in your prepared remarks, if you hit the high end of your revenue guidance in the first quarter, that would basically take you to your -- and annualize that -- that would take you to your full-year revenue number implying, essentially, no sequential revenue improvement throughout the year which would be pretty -- in stark contrast to what you've seen historically.

So just want to get a sense of the strength in emulation, why might that not continue and how conservative is the revenue number that implies, very little, if any, sequential improvement in revenue throughout the year?

Hi, Rich, this is Geoff.

So I guess a couple of -- a couple of questions you had.

So first on emulation, we took a lot of orders, we introduced Palladium XP last year and we took a lot of orders in the second half of 2010.

Those orders are going to ship in the first half of 2011 and leading to larger than sequential -- typical sequential patterns, historical sequential patterns in growth.

So the first two quarters are going to be stronger than you would traditionally see sequentially.

So I think that's the first thing.

And, again, it's largely a catch-up from the high demand we saw.

And, obviously, that's leading to a little bit flatter growth than normal, but we are still projecting very healthy, we think, double-digit growth in revenue year-over-year.

And, Rich, if I can add on, this is Lip-Bu.

I think Palladium is a very excellent product and any complex SoC and the advanced node 40-nanometer and below, this is an essential product to have to identify the [box] earlier and also can help the company -- the customer in terms of time-to-market and have quality products and this is the best-in-class.

That's great.

Now, do you have any -- or have you had any production constraints in terms of components for building the Palladium systems and has that mitigated at this point?

Yes, I mean, clearly, as any time when there is a good product and there is hot demand, you always have that challenge, but we are working through and with our partners to address that.

Great.

And just one more, if I could, on the model transition that you're going through.

Your average duration back when the transition started was about three and a half years.

Just wondering when you guys view the transition to have actually started, so when we could think about the transition essentially being completed.

I would presume sometime in 2012, but just wanted to get your sense of when we would think about that as being sort of a complete transition and sort of a normalized revenue run rate?

Yes, so obviously, we went through the model transition.

It's going to take some time.

I think about 2012 is probably approximately when the transition is fully complete.

Yes, just to add on, Rich, in terms of -- as a firm, as a Company, we are very focused on the deal quality and we want to mixture that we realize the whole appropriate value to our customer and this 90/10 model is really good for us so that we are very disciplined and very patient to really address the solution that we -- to the customer, and then overall to improve and give a differentiating value to our customer.

Great.

Thank you, and [congrats], again, on a nice year.

Thank you.

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

Yes, thanks.

Hi, guys.

Two areas I want to dive into.

First, is the average contract length.

The fourth quarter, the 2.7 years, towards the lower end of the range that you had for the year, that was the same thing in the third quarter.

Interestingly in the first half of 2010, you were a little bit longer in average contract duration.

Just kind of curious what you're seeing in customers' behavior, why the average contract length seems to be on the shorter side, and what do you think is your expectation -- I know you gave a range for 2011 -- but what do you think are going to be the factors that kind of move it around within that range?

Well, Sterling, this is Geoff.

So I think generally, we want to keep it within that range.

We don't have a specific target, the high end, low end of the range.

We really care about a lot of the deal quality, as Lip-Bu mentioned earlier, duration is clearly one of them and we're going to do what is natural for the customer.

Okay.

That's fair.

And then looking at the fourth quarter, can you give us a sense as to what the renewal run rates were like?

So the run rate was flat to slightly up from history.

Okay.

For the past several quarters.

And when you look at the orders guidance for 2011, how would you -- how would you kind of characterize -- out of that orders guidance, how much of that is just the increase in amount of contracts that are up for renewal versus how much of it is expecting renewal run rate to be positive and if there's any magnitudes that you can give?

Yes, I think, Sterling, this is Lip-Bu.

First of all, I think clearly 2010 is a very good recovery for the industry, and then I think 2011, as we mentioned before, the renewal cycle is stronger than 2010 and then 2012 even stronger than 2011.

And then the other thing is I'm really encouraged with the design engagement from our customers.

Clearly, we have a very good solution that they're looking for.

The engagement level gives me the confidence in terms of the 2012 and 2011, in terms of the visibility to us.

So overall, I think we are confident.

All right.

Great.

And last question would be on the restructuring.

Is there any sense as to the focus -- I kind of was a little bit lost in there, is the focus more around maybe some of the efficiencies in R&D that you (inaudible) to other areas?

And last year, when you did the restructuring which was a little bit larger, you turned around and you focused some hiring in particular areas.

Would this be a true net reduction or is this kind of the reduction at the beginning of the year and you expect to kind of add back as the year goes on in certain areas?

So you kind of broke up, but I think your question is on the restructuring.

So I think the restructuring was done with a couple of purposes.

First, clearly to position our resources where we want to from our strategy.

The second is, clearly, as you suggested, is inefficiency.

So those were the two major reasons.

We will add resources back as appropriate strategically and to match our strategy.

All right.

Thanks, guys.

Thank you.

Your next question is from the line of Tom Diffely with D.A.

Davidson.

Good afternoon.

First on the orders, it looks like book-to-bill will be roughly a little over one again in 2011.

Does that imply that the only modest growth in revenue is in 2012 or does that imply that maybe we dip into the backlog a bit to grow revenues?

So I think as we've said probably in the past couple of calls, we expect the renewal book in 2011 to be better than 2010 and then 2012 to be better than 2011.

We're obviously not commenting on 2012 revenue at this stage.

Okay.

Looking at your emulation business, as that jumps up a bit in the next couple of quarters, does that include an increase in your costs, then, as well?

Yes.

Yes.

We will see some increase in costs and that's reflected in our Q1 guidance?

Okay, all right.

And then over time, it looks like the service business has been tracking down a little bit.

That was down in 2010 versus 2009.

Is that a trend that you think will continue on here or is there some other factor working there?

So services will fluctuate up and down, down over time.

Business remains strong in services, but we expect quarterly fluctuations to happen now and in the future.

Okay.

So the trend, down in 2009, down in 2010 is just different factors going on, not a long-term impact of business changes?

It's not a long-term impact.

Okay.

And then finally, when you look at the strength in 2012, the 12% growth year-over-year, are there certain geographies that stick out as being either stronger or weaker than average?

No.

It's across the board.

I think as Lip-Bu said in his remarks, we're having very good customer success at a lot of key customers and those are around the world.

Okay.

Thank you.

And also, I think, just to add on, I think clearly our EDA360 vision, we really are very much executing towards that strategy and we have a very strong foundation in the Silicon Realization.

Now with the Denali, we can really provide the IP and design service in a very different [shape and value] to our customers and we can really move up into the system level, the virtualization using our Palladium, the hardware emulation, to move into the virtualization, hardware, software, co-design and integration and verification.

That is really exciting for us.

Okay.

Great.

Oh, actually, would you expect further restructuring charges in the first quarter from your work force reduction?

There will be some minor restructuring charges in the first quarter, more related to facilities.

Okay.

Thank you.

Thank you.

Your next question is from the line of Raj Seth with Cowen and Company.

Lip-Bu, can you talk a little bit about how you see the industry R&D spending in [semis] appears to be back.

I realize that you have some hangover from some less favorable contracts you need to work through, but how do you see industry growth in 2011?

And then I've got a couple of follow-ups, thanks.

Sure, Raj, thank you for the question.

First of all, I think talking to a lot of customers the last two months and clearly the industry has a very strong recovery, as I mentioned, 32% growth based on the last, latest SIA data and clearly the 2011 mid- to high-single-digit.

Clearly, I see a lot of strength in the end markets such as mobile devices and mobile infrastructure, HD video, cloud computing and some of the [green] tech related area.

So I think in those big drivers that design activity increases substantially.

So we are really excited about that overall.

In our R&D spending we will be seeing mid-single-digit and overall is very healthy.

We are excited about it.

And, Lip-Bu, do you see in your major segments among your most important competitors, I guess, do you see meaningful share movement or is everybody benefiting at the edge from this increased level of sort of spending within [semis] and the R&D line?

Any material share movement in the digital space and maybe in particular you could address that?

I think that's an area that you've been working to catch up a little bit and you've made some progress, but maybe you could focus a little bit on that after answering the broader question.

Thanks.

Sounds good.

So let me answer the first question.

In terms of our product area, we see some trends, so clearly the mixed signal, low-power SoC become more and more -- a lot of companies are driving that growth and really playing to our strength in term of the mixed signal.

We have a very strong offering on custom and analog and now our digital side in our setting-to-setting is showing tremendous improvement, especially in the advanced nodes and also somewhat the performance.

And that's why I think you heard my remarks in terms of Spreadtrum, there's a very successful digital replacement.

And then we also have H-P expand our product portfolio, and so I think overall I think the whole mixed signal SoC are big drivers for our growth and the success in the digital replacement.

And then the other thing, Raj, we're a [coming] to the advanced node, especially in the 28/20-nm, we have a lot of engagement with the customer and very active with the foundry partners that we mentioned.

I think that's starting to pay a dividend.

And then, of course, the whole SoC IP integration, very differentiating DDR, DDR2, DDR3 and beyond, and we are very excited about the whole memory modeling.

Clearly, as you know, the high speed [live] video, clearly, the very, very important is the DDR and DDR2 low-power and also the whole high speed protocol, interconnect and we have a lot of strong offering there.

And then, plus -- and then most of the companies right now are very challenging, is the time to integration and time-to-market.

And clearly, our Palladium and also our virtualizations going to be playing big way into helping our customer solving some of the most challenging designs.

So I think we see some major shift to us.

I appreciate that.

Just one quick follow-up.

And I appreciate the comment on Spreadtrum.

You had as an objective when you came in increased share at a number of the top semiconductor companies, where I think you acknowledged your share wasn't at least what you hoped it would be.

I mean, do you see real progress against that objective?

I mean, I know there's a couple of places like PI where you've gained some ground, but any others where there's meaningful share movement, percentage of overall spend to you that you can discuss?

Thanks.

Absolutely.

So I think this is a very good question.

As you know, I am very passionate about engagement with the customer, especially the top 30 customers.

We're making very good progress and I'm very pleased with our team in terms of our engineering capability, our sales organization engaged with the customer, and so is really one team to help winning the customer.

And then very good feedback from the customer.

They would really like to see Cadence win and Cadence strong, and the support from the customer, the engagement, the visibility that we have, as you know, most of the top customers I have a personal relationship with them.

I think that is going to help a lot in the long run to win and as long as we have a good product and we are getting very, very good in our product family.

Thanks.

And just a real quick one, Geoff, the cash flow flat, the guidance, on a nice increase in that income, anything to read in there?

Thanks.

No.

Obviously, we had a great cash collection year in 2010 and we're forecasting to repeat that.

Okay.

Thank you.

(Operator Instructions)We do have a follow-up question from the line of Sterling Auty with JPMorgan.

Yes, thanks.

I want to follow on that a little bit.

First, actually, Geoff, I didn't hear you mention CapEx guidance for 2011?

Yes.

So CapEx will be between $30 million and $35 million in 2011.

Okay.

Great.

And then is there a way for you, if you're willing, to quantify the Palladium orders that fall into revenue for the first half?

Because one of the push backs, or one of the questions, I should say, I'm getting from investors is if I look at the order guidance for the year, I look at the revenue guidance, you kind of get that book-to-bill that's right around one.

You've got kind of the trends moving in your favor in terms of whether it be market share or whether it be just fundamentals in terms of R&D.

Is this just a repeat?

You guys have been very good about under promising and over delivering when I look at where you started the guidance for orders in 2010.

So maybe, how much if you will quantify the order flow on Palladium and maybe that is kind of making the book-to-bill closer to one and how much of this is, hey, listen, 2011, you have a whole year in front of you, you don't want to put the cart in front of the horse?

So, Sterling, obviously, when we introduced Palladium XP, right, it takes a production ramp to get up to speed.

That ramp is slower than the demand was coming in.

We intend on catching up on that in the first two quarters of 2011.

We're not giving, though, any specifics about how much is Palladium XP or not.

I do think the overall year-over-year growth is very strong.

And I think the first half being stronger than seasonal is a good thing.

All right.

Thank you.

At this time there are no further questions.

Thank you, everyone, for calling in this afternoon.

I'm looking forward to speaking with you soon and thank you again for joining us.

Thank you for participating in today's Cadence Design Systems fourth quarter 2010 earnings conference call.

You may now disconnect.