益華電腦 (CDNS) 2013 Q1 法說會逐字稿

Good afternoon.

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

At this time I would like to welcome everyone to the Cadence Design System first quarter 2013 earnings conference call.

All lines have been placed on mute to prevent any background noise.

(Operator Instructions)

I will now turn the call over to Alan Lindstrom, Group Director of Investor Relations for Cadence Design Systems.

Please go ahead.

Thank you, Madison, and welcome to our earnings conference call for the first quarter of fiscal year 2013.

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

With us today are Lip-Bu Tan, President and CEO; and Geoff Ribar, Senior Vice President and CFO.

Please not that today's discussion will contain certain forward-looking statements and that our actual results may differ materially from those expectations.

For information on those factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission.

These include Cadence's most reports on form 10-K and form 10-Q, including the Company's future filings and the cautionary comments 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 present certain non-GAAP financial measures today.

Cadence management believes that in addition to using GAAP results in evaluating our business, it could 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 April 24, 2013 for the quarter ended March 30, 2013 and related financial tables, can also be found in the Investor Relations portion of our website.

Now I'll turn the call over to Lip-Bu.

Good afternoon, everyone, and thank you for joining us.

Cadence delivered strong results in Q1.

Total revenue was $354 million.

Non-GAAP operating margin was 24% and operating cash flow was $75 million.

The environment is challenging with macro uncertainty and softness in semiconductors.

Despite that, many of our customers continue to innovate and invest in new design activities.

They are looking to Cadence to collaborate more closely with them and their ecosystems to help build great products that drive their success.

Today I will highlight our progress in IP, advanced node design and verification.

Expanding our IP business is the strategic focus for Cadence.

Recently we took several important steps.

The acquisition of Tensilica significantly expands the scope of our IP business by adding comparable data plan processing units.

Tensilica has an attractive loyalty model and serves fast-growing end-markets by mobile wireless, network infrastructure, audio entertainment and home applications.

In February, we announce our intent to acquire Cosmic Circuits, which will add significant silicon proven analog and mixed signal IP to our portfolio.

This includes IP for USB, [nipi], audio and WiFi standards.

We expect that transaction to close soon.

Last month we acquired a talented team of approximately 25 analog IP designers that are specialized in development of SerDes blocks for high-speed interfaces.

Last year we shifted a significant number of highly skilled analog designers from our service business into R&D to develop commercial IP and accelerate delivery on our IP log map.

Many of these designers have more than a decade of experience developing high-speed interfaces such as SerDes.

Along with high-quality IP, an impressive customer list, each of these acquisitions add very talented and experienced developers to the growing IP R&D team at Cadence.

When all these acquisitions close we will have over 600 engineers in our SoC Realization Group.

We see a natural synergy between our IP and call EDA business.

We intend to optimize our EDA 2s to our IP and our IP to our 2s.

In addition, we will use our worldwide channel to sell IP to the same customers who buy EDA 2s.

Our investment in IP will enable customers to focus on developing different sharable technology while leveraging proven Cadence IP to complete the advance SoCs.

Given the industry trend towards more outsourcing of standards base IP, we expect strong growth in our IP business.

Next I want to highlight our capabilities and progress in products for advanced node design.

Cadence is collaborating with ARM and leading Foundry Partners to help extend more [slow] by enabling both FinFET base and 3D IC base design through our industry leading design flows and IP.

Since that technology is now being used at 16 nanometer and 14 nanometer process nodes will help deliver the power, performance and area advantages and the economics needed to extend more slow.

Cadence has developed unique expertise in FinFET technology through deep collaboration with industry-leading IP providers and foundries.

Recently we announced a successful collaboration with ARM to implement the industry's first Cortex-A57 64 bit processor on TSMC 16 nanometer FinFET process and a multi-year agreement with TSMC to develop the design infrastructure for 60-nanometer FinFET technology targeting advanced node designs for mobile, networking, servers and FEGA applications.

Beginning earlier in the design process than usual, we will collaborate with TSMC to address the design challenges specifically to FinFETs to enable ultra low power, high-performance chips.

Our encounter digital platform, Virtuoso customer analog platform and sign-off solutions are all FinFET enabled and foundry qualified.

Our investment in preparing for FinFET technology is providing new opportunities for Cadence to engage with the leading semiconductor companies.

Now let us review our progress in verification.

Higher complexity, increased integrations of IP blocks into a SoC and strengthening time-to-market windows are driving rapid growth in the demand for verification solutions -- analog, digital, mixed signal all hardware-assisted.

Palladium XP has been one of our most successful products ever thanks to its rapid adoption since it was introduced in 2010.

Palladium XP today has more than four times the install capacity worldwide than the last two generations of Palladium combined.

This shows the rapid growing needs for emulation to develop, verify and validate complex SoCs and systems.

In addition to new users, a substantial portion of Palladium XP sales have been repeat orders from top tier customers as they continue to deploy more systems to accelerate hardware, software, code development to meet a aggressive time-to-market goals for their products.

In Q1 our Palladium XP business was categorized by a number of significant repeat orders with leading semiconductor companies, including Calcom.

Another customer has expanded its footprint by 35 systems over the past 18 months through multiple orders.

In summary, Cadence is innovating in multiple areas in collaborations with ecosystem partners and customers to help meet the needs of our customers to build great products.

We are continuing to attract the best talent to our engineering community, both through hiring and acquisitions.

We continue to drive excellent financial and operational performance.

Now I will turn the call to Geoff to review financial results and provide our outlook.

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

I will review the results for the first quarter, present our outlook for Q2 and update the outlook for 2013, including our recently closed acquisition of Tensilica.

Cadence continued to do strong operating results in Q1, outperforming guidance in all key metrics.

Total revenue was $354 million compared to $346 million for Q4 and $316 million for the year-ago quarter.

Year-over-year growth was 12%.

Product and maintenance revenue was $328 million and services revenue was $26 million.

The revenue mix for the geographies was 44% for the Americas, 22% for EMEA, 19% for Asia and 15% for Japan.

Total cost and expenses on a non-GAAP basis for Q1 were $270 million compared to $265 million for Q4 and $250 million for the year-ago quarter.

Head count -- Q1 headcount was 5,312 compared to 5,189 for Q4.

The increase was primarily due to hiring in R&D and technical field positions.

Non-GAAP operating margin for Q1 was 24% compared to 23% for Q4 and 21% for the year-ago quarter.

For Q1 we recorded GAAP net income per share of $0.27.

This included a $0.12 benefit for the reversal of a tax reserve, which was no longer required.

Non-GAAP net income per share was $0.21 compared to $0.20 for Q4 and $0.17 for the year-ago quarter.

Operating cash flow for Q1 was $75 million compared to $96 million for Q4 and $61 million for the year-ago quarter.

Total DSOs for Q1 were 20 days compared to 27 days for Q4 and 25 days for the year-ago quarter.

In Q1 revenue, collections and the timing and billings all contributed to lower DSOs.

We are revising our DOS target to approximately 30 days to reflect further improvements in our operations.

Capital expenditures for Q1 were approximately $7 million.

Cash and short-term investments were $911 million at quarter-end.

About half of the cash was in the US.

In April we drew down $100 million on a revolving credit facility, which will give us $200 million of cash in the US after the closing of Tensilica.

More than 90% of all orders booked in Q1 were [radable].

Weighted average contract life was 2.5 years.

On a weighted average basis, run rates on Q1 renewals increased over the prior contracts.

Before I get into the outlook I want to provide some additional information and color on Tensilica.

Total consideration of $380 million, which is subject to certain adjustments, consisted of cash of approximately $351 million and an assumption of certain Tensilica options.

Approximately $326 million was paid at closing, which is net of Tensilica's estimated $25 million cash balance.

In addition, Cadence will make payments to certain employees that are continued on continued employment and performance.

We estimate that 2013 revenue on a stand-alone basis would have been approximately $57 million prior to merger accounting.

So the revenue multiple on a forward basis is approximately 6.1.

We like to value an IP by looking at the split of license and royalty revenue.

We expected Tensilica would have generated approximately $13 million of royalties for 2013.

If you apply a 3.5 multiple-to-license revenue and a 15 multiple-to-royalty revenue, the purchase price is in the ballpark and we expect royalties to grow over time.

Cadence also receives approximately $130 million of NOLs with the acquisition, which will further benefit the economics.

Revenue growth for Tensilica for 2013 on a stand-alone basis would have been about 30% with a non-GAAP operating margin in the high-teens.

We expect that for 2014 Tensilica will contribute a non-GAAP operating margin close to our corporate average and will be accretive to non-GAAP EPS.

Now let's address our outlook for the second quarter of 2013 and our update for fiscal 2013.

We are increasing our fiscal 2013 outlook for bookings, revenue, earnings per share and cash flow due to strong Q1 results and the acquisition of Tensilica.

For Q2 we expect revenue to be in the range of $355 million to $365 million, which includes approximately $3 million for Tensilica.

This is netted deferred revenue adjustments due to merger accounting.

Q2 non-GAAP operating margin expected to be in the range of 22% to 24%.

Non-GAAP total costs and expenses will be up sequentially, primarily due to Tensilica.

GAAP EPS for the second quarter is expected to be in the range of $0.10 to $0.12.

Non-GAAP EPS for Q2 is expected to be in the range of $0.19 to $0.21.

We expect Tensilica to be approximately $0.01 dilutive for Q2.

Now for our update on the fiscal 2013 outlook.

Bookings are expected to be in the range of $1.48 billion to $1.53 billion compared to the prior range of $1.425 billion to $1.475 billion.

We expect the weighted average contract life in the range of 2.4 to 2.6 years for 2013 and to book 90% of our business for the year onto rateable arrangements.

We expect revenue to be in the range of $1.44 billion to $1.47 billion for 2013 compared to the prior range of $1.405 billion to $1.445 billion.

The increase is due to Q1 upside and includes approximately $27 million for Tensilica.

This is netted deferred revenue adjustment to $16 million due to merger accounting.

Non-GAAP operating margin is expected to be in a range of 24% to 25% for an annual basis for 2013.

This is below our previous estimate of approximately 25% due to the deferred revenue adjustments associated with Tensilica.

Non-GAAP other income expense for 2013 is expected to be in the range of negative $16 million to negative $10 million.

For 2013 we are assuming a non-GAAP tax rate of 26%, a weighted average shares outstanding of 290 million to 298 million shares.

GAAP EPS for 2013 is expected to be in the range of $0.59 to $0.69.

Non-GAAP EPS is expected to be in the range of $0.81 to $0.91 compared to the prior range of $0.82 to $0.92 because we estimate that for the year Tensilica will be about $0.01 dilutive due to the impact of merger accounting.

For 2013 we expect operating cash flow in the range of $360 million to $390 million.

DSOs for 2013 are projected to be approximately 30 days.

Capital expenditures for 2013 are expected to be approximately $40 million.

So in summary, Cadence continued a strong record of execution in Q1.

I am especially pleased with the IP since we are adding and believe our IP business is attaining the critical mass it needs to meaningfully drive future revenue growth.

And finally, as indicator of progress we've made, we expect to book approximately $1.5 billion of business in 2013.

Operator, we will now take questions.

(Operator Instructions)

And your first question comes from the line of Krish Sankar with BofA ML.

This is Thomas [Yay] calling in for Krish Sankar.

Thanks for taking my questions.

First off, given your focus on growing the IP business, I just wanted to get your perspective on the status of the third-party outsourced IP landscape in general.

And within the segments that you now serve, what is your view on the current penetration of outsourced versus in-house and what's your expected to be going forward?

Yes.

This is Lip-Bu, Tom.

Thomas.

First of all, let me answer a couple of your questions.

So first of all, regarding the trend of outsourcing -- yes, it's happening.

A lot of customer we've talk to, they are prepared to outsource the standard space IP.

That is not as essential for them to their core IP or core products.

And so they're prepared to outsource that.

If it qualifies in a silicon proven IP with good quality, they will prepare to do that.

That's something that we try to do.

So it's sort of a strategic focus for us.

As you know, we are very strong in our VIP business.

In the first quarter we have two orders over $10 million.

Very song.

Now we are building up our design IP with the internal organic growth and also our Denali acquisitions in the memory modeling IP.

And now we add on the Tensilica -- the data -- configurable data [plane] processing units.

And it's very important -- the programmable is a very important features on that.

And, clearly, very strong in the mobile size LTE and all the video and our audio related area.

And then now we also add on the analog mixed signal IP and the high-speed connectivity IP from Cosmic Circuits and then also the talent pool that we pull in for the SerDes -- for high speed SerDes.

Those are very, very important for our customer.

So I think we have a very strong design IP portfolio.

After all this acquisition we have over 600 engineers in that IP design capability.

So I think it's very important for us.

In terms of penetrations, I think we just started with this design IP.

A lot of engaging with customer and customers are very pleased with our portfolio, especially the Tensilica acquisition.

They are very excited about it.

Great.

And with your repeat orders that you mentioned on Palladium XP, are your expectations for emulation revenue to still be lower compared to last year?

Is that still the case?

Yes.

So let me answer that first.

First of all, I think that clearly we have very strong demand from Palladium XP in 2012.

We expect to be down and we guide down in 2013 because of the uncertainty in the environment.

But meanwhile, we are remaining to do well.

We have good orders coming through.

And so all in all, we have a lot of repeat orders.

And as I mentioned about Calcom, we mentioned about one customer that ordered 35 systems over the 18 months period.

So clearly that's a strong demand.

Any complex chip design and time-to-market pressure we are the premium products.

Thanks so much.

Thank you.

Jay Vleeschhouwer with Griffin Securities.

Thanks.

Good afternoon.

Geoff, a couple questions first for you regarding guidance.

Of the $55 million increase in the bookings range for this year, how much of that is due to Tensilica?

Secondly, can you talk about what you are assuming the guardian -- the license mix for Tensilica in terms of the upfront versus rateable?

And then, thirdly, in terms of the overall revenue outlook for the year, the range went up by about $25 million to $35 million.

Tensilica will be $27 million of that and then you beat Q1, at least versus the mid plane, by about $7 million.

So is there some other part of the business that organically you are perhaps a little less positive about to make all that math work?

Going back to the previous questioner, are you perhaps looking for somewhat less hardware business than you might have before?

Then a follow-up.

Okay.

So, Jay, approximately $40 million of the bookings increase was related to Tensilica.

And that's approximate, of course.

We're two days into that acquisition.

On how we're going to treat the rateability versus upfront nature of the Tensilica business, licenses are going to clearly be considered rateable and are very similar to the rateable business we have.

On just a definitional basis, we're going to call royalties rateable also.

Again, the things that we would call upfront would be, again, generally hardware upfront and perpetual licenses.

As far as the overall guidance, clearly we adjusted guidance based on our Q1 operating performance.

It's very clear to us that the environment remains uncertain and challenging, both in a macroeconomic conditions and the semiconductor conditions.

We're quite comfortable with the guidance and we clearly take that into account when we give the guidance.

As we said, and Lip-Bu said just a minute ago on Palladium, right, we guided Palladium down for the year.

We haven't changed our overall view on Palladium from where we started.

Okay.

Just a follow-up on that and just another product question.

In Q4 our understanding is that your Palladium backlog increased.

Could you say how your backlog looks now for Palladium XP versus Q4?

So, Jay, we're not going to give -- we don't give details on product segments on backlog or bookings or even on revenue.

But it's in line with our guidance.

All right.

Lastly, for Lip-Bu, on the last call you mentioned that the vast majority of your customers, as you put it, had moved to Virtuoso 6.1 and in 2012 your customizing segment did pretty well in terms of revenue growth.

Looks like it was up maybe 20% or so.

How are you thinking about custom IC growth this year or the drivers to what is typically your largest business for this year?

And perhaps as well, if you could talk about your expectations for the system interconnect business.

Sure.

So let me try to explain -- answer your question.

So regarding the Virtuoso 6.1, the proliferation is very good.

We're very happy with that and, clearly, we continue to drive differentiation into the advanced nodes so that our tool can be -- work well at the advanced nodes.

So 20-millimeter and below, we are all qualified and we continue to drive that.

And then secondly, because of our strength in the Virtuoso, a lot of our customer right now, they are also looking at the whole -- our digital floor and help enhance our digital floor and qualify us because they are looking for integrated -- the mixed-signal solutions.

That turned out to be a very big benefit for us.

So I think we continue driving the leadership in the Virtuoso, continue to drive feature performance on that in the advanced node and then that also apply to helping us on the digital side because we are substantially improved in digital development, especially in advanced nodes.

And that all ties in -- most of the design right now is SoC is clearly mixed-signal.

It opens up tremendous door for us.

And your second question, I think the system side -- clearly we continue to drive the whole system verification side and also reaching out to the PCB.

If you recall, we acquired the [SIQUITY].

That is very well received by customers because when they're designing a product they want to really know the power envelope, the signal integrity analysis before.

So it really helped complete our PCB offering as opposed to solutions.

Okay.

Thanks, Lip-Bu.

You're welcome.

Sterling Auty with JPMorgan.

Yes, thanks.

Sorry.

I've been jumping between calls.

But, Geoff, can you just reiterate what is the bookings guide for the full-year?

I heard Jay's comment about $55 million, but what was the actual range?

Yes.

So we said approximately $1.5 billion is the number.

But the bookings range is $1.48 billion to $1.53 billion.

Okay.

Great.

And then, Lip-Bu, I think you made the comment about just the challenging semiconductor environment.

From 100,000 foot view, I think a lot of us are watching just wondering if there is going to come a point where we start to see OpEx cuts as they start to defend margins, which would impact EDA spending.

Any sense where their heads are at in terms of spend at this point?

Yes.

Good question.

So I think as you hear all the earning calls, and it's a mix in terms of the challenging environment from macro and also semiconductor.

Clearly, PC is challenging.

Some portion of the automotive is challenging.

And so I think it's a mixed bag.

But good news is in terms of design activities, we don't see any slow down.

And so we're not related as much into the manufacturing CapEx area.

Tend to be more in the -- our business tend to be more related to the engineering headcount.

So far, we don't see a lot of changes.

Only a few.

Otherwise, I think this is, as you know, the last portion that you want to cut is the engineering talent, doing design, new products.

So so far, as I mentioned before, we haven't seen any changes in the design activity.

And in fact, on the contrary, because of the advanced node, because of complexity of the design, our engagement with customers have substantially increased in terms of they need us a lot more in terms of closer collaboration, especially in the complex SoC, the IP blog, the digital, the mixed signal, the analog and the power and that integrity -- signal integrity, all with the packaging.

And so frankly speaking, the engagement with our customer has substantially increased.

All right.

Great.

Thanks, guys.

Thank you.

Gus Richard with Piper.

Yes, thanks for taking my question.

In terms of process technology, it looks like most people are going to ship -- skip 20 and go either to 16 or 14 FinFETs.

What impact does that having on design starts?

What impact is that having on your need to spend on R&D?

How is it [hurting] your business model?

Yes, Gus, that's a good question.

So, clearly, we have some customers who engage with us a lot, some of the key customer in the 20 nanometer.

But also some customers decide they're not on 28.

It's going to be long nodes and then jump into 16 and 14, but based on FinFET.

And so I think it's a combination of both.

So I think we will continue our digital custom analog and various tool that we are fully qualified to sign up to or qualify at 20 nanometer.

So we are ready to support a customer decide to continue doing the 20.

And then clearly the advantage from 28 to 20 -- it really depends on the application.

Some of customers still want to do that at 20.

We would definitely support it.

Meanwhile, there are also some customers that decide to skip and go right down to 16 and 14.

And we are ready and we are supporting them.

That's why we emphasize a lot about the FinFET and [TSMC] so that we can really support them in very complex design and those advanced nodes.

All right.

And is -- has that duel part due to pull in any R&D spend in order to support customers with FinFETs?

Sorry.

Can you repeat again?

I can't hear too well.

Sure.

Is that -- has the sort of move to FinFETs required pull in of R&D spending on your part in order to facilitate the transition?

No.

I think the answer is no.

And clearly FinFET is a very challenging technology that's in (inaudible) and the various key area.

And clearly we are executing to our plan.

Okay.

And then the last one from me is just on the pricing environment.

Are you guys able to pass through pricing for this year?

Is that the plan?

Yes.

So I think pricing environments is still very competitive.

But as I mentioned earlier, the chip is getting very complex and a lot of our customer looking to us for deeper collaborations.

And not just for the complexion design and also for the process node and the migrations.

And also I think the two IP and foundry really had to work much closer together and we are delighted.

We are ready for that.

And then also multiple foundries relationship that we had to support.

So this is a very exciting time and I think our customers are looking to us, have a much deeper collaboration and we welcome that.

And that's how we're going to learn, how we're going to provide the solution and I think the quality execution will be key to provide them the IP, the tool, the support that they need for their first-time pass for the time-to-market opportunity.

Got it.

All right.

Thanks so much.

Thank you.

Rich Valera with Needham & Company.

Thank you.

Geoff, I think the math is pretty simple but I just wanted to clarify.

You increased your bookings guidance by $55 million, $40 million of that from Tensilica.

So net about $15 million increase to your sort of organic bookings target, is that correct?

Yes, Rich.

You are very good at math.

Yes, well it isn't that complicated, but thank you for the complement.

(Laughter) So a lot of discussion, obviously, about the environment and I was looking at your word very carefully in how you described the environment a quarter ago and how you describe this quarter.

They seem pretty similar.

I think a quarter ago, you described the environment, Lip-Bu, as challenging with macro uncertainty and so much in semis.

And this quarter I think you talked about it sort of being soft and uncertain.

I just wanted to clarify that the environment is challenging but, essentially, the same as it was a quarter ago.

Would that be a fair statement?

That is correct.

And so clearly it is the same environment.

We have a couple areas that have some softness and some of the areas are very exciting and is growing.

But I think fundamentally, not much impact to us in terms of -- the customers feel very committed to innovate and new design activity.

We didn't see any slowdown.

I think more important right now, because of the complexity -- and our collaboration actually increased.

Our R&D support even increased.

The customer really needed to know and looked up to us for collaborations.

And I think it's our job to provide the best quality people in IP to support them and then that will be good to the whole industry to grow.

That's helpful.

And I'm going to beat the emulation dead horse a little bit here.

But you guys talk about your product being kind of the gold standard, but clearly your biggest competitor in that market has been growing their business quite a bit faster than yours and claiming some functional superiority to Palladium with their latest box.

Leading some to suggest that your box is kind of dated and needs a refresh to sort of be really competitive.

First of all, sort of what's your response to that?

And is there anything you'd be willing to say about the life cycle of the Palladium box and when we might expect any kind of refresher update there?

Thank you.

Sure.

So I think, as I mentioned earlier, the Palladium continues to be strong demands and we have a lot of repeat orders and we continue to grow and in terms of overall market, in terms of capacity that we provide.

Are we standing still doing nothing?

No.

We are top (inaudible) in term of investment, in term of R&D.

And so now we continue -- going to drive success and continue to drive.

Clearly, the customer needs requirement is continuing to increase.

The complexity of the chip and the time-to-market and clearly going to continue to drive the growth.

And so far we have been heavily engaging with the customer.

Some customer you will use the multiple vendors, suppliers.

But we continue to drive the performance, continue to drive the support, continue to drive the performance, scalability and we continue to invest.

And I think, Rich, we match up really pretty well with our top -- the top semiconductor customers match up really well with our customer base.

And based on the overall size of the market that EDAC talks about of $350 million, we believe we're still in a very good position.

Appreciate that color.

And one final one.

Geoff, is there anything you're willing to say about the size of Cosmic, either from an employee standpoint or a revenue standpoint?

We'll talk about that, Rich, more when we actually close the deal and probably with our Q2 earnings call.

We like to waited until we close before we give much more color on that one.

I appreciate that.

Thanks very much for the answers, gentlemen.

Great.

Thank you.

Mahesh Sanganeria with RBC Capital Markets.

Hi.

This is actually (inaudible) for Mahesh.

Thank you for taking my questions.

A couple questions here.

So about the Tensilica acquisition, I understand that you mentioned the $57 million stand-alone revenue for this year.

And it was about 30% of growth and then the past two years the Company has been growing at about 35% range.

What do you envision once Tensilica -- after the acquisition -- well, you already closed the acquisition.

What's your view on the median to longer-term growth rate for the Company?

Yes.

So it's a little bit early for us to give the longer term growth rate for the business.

But, clearly, we think there are synergies with our IP business and with their IP business and synergies also with our tool business that we think can lead to strong growth going forward.

We will talk more about, obviously, the future growth in Tensilica when we get to 2014 guidance.

But again, we think strong synergies with our IP portfolio and strong synergies with our tools.

Sure.

And then you also mentioned that Tensilica acquisition will start become accretive in 2014.

I'm just wondering, because of this $16 million of merger accounting, it's dilutive this year.

Should that go away, what would be accretive to EPS for this year?

So we can't give you the numbers.

But as merger accounting works, right, this is impacting revenue.

It's not impacting expenses.

That $16 million would largely drop to the bottom line if we didn't have deferred revenue.

Great.

Thank you very much.

(Operator Instructions).

And there are no further questions at this time.

I would now like to turn the call back over to Lip-Bu Tan.

In closing, Cadence continues to deliver great technology to our customers and our business results reflect this.

Our IP business is developing critical mass and we expect it to be a strong contributor to future growth and profitability.

While the macro environment remains uncertain, Cadence has made great progress over the past several years in terms of technology, customer relationships, strategic alliance and financial performance.

I believe Cadence is well positioned to continue to execute on all these fronts.

Thank you, everyone, for joining us this afternoon.

We look forward to speaking with you soon.

Thank you for participating in today's Cadence Design Systems first quarter 2013 earnings conference call.

You may now disconnect.