益華電腦 (CDNS) 2017 Q4 法說會逐字稿

Good afternoon.

My name is Jessie, and I will be a conference operator today.

At this time, I would like to welcome everyone to the Cadence Design Systems Fourth Quarter 2017 Earnings Conference Call.

(Operator Instructions)

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

Please go ahead.

Thank you, Jessie, and I'd like to welcome everyone to our Fourth Quarter 2017 Earnings Conference Call.

I am joined by Lip-Bu Tan, CEO; and John Wall, Senior Vice President and CFO.

The webcast of this call is available through our website, cadence.com, and will be archived through March 16, 2018.

A copy of today's prepared remarks will also be available on our website at the conclusion of today's call.

Please note that today's discussion will contain forward-looking statements and that 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 filings with the Securities and Exchange Commission.

These include Cadence's most recent reports on Form 10-K and on Form 10-Q, including the company's future filings, and the cautionary comments regarding forward-looking statements in the earnings press release we 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 review 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.

The reconciliations are available at the Investor Relations section of cadence.com.

Copies of today's press release dated January 31, 2018, for the quarter ended December 30, 2017, related financial tables and the CFO commentary are also available on our website.

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

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

Through the execution of our System Design Enablement Strategy and delivery of our innovative solutions, Cadence delivered strong performance for our shareholders.

John will go through our results in a few minutes.

The transition to the data-driven economy based on creation, storage, transmission and analysis of data is transforming virtually every industry and driving strong demand for semiconductors.

It is being propelled by key technology waves, including mobile, cloud/datacenter, edge computing and automotive.

And machine learning is further transforming all of them.

We are well positioned for growth and value creation as we provide the solutions that fuel these technology waves.

Let me begin by highlighting our progress and successes during the year for several key vertical markets, starting with cloud/datacenter.

High-speed SerDes technology is essential for next-generation hyperscale data center.

In Q4, we acquired nusemi, which is developing ultra high-speed connectivity solutions, and we are thrilled to have a very talented team onboard.

The trend of system houses building their own silicon continues, with the chip design group at premier hyperscale web service provider adopting our software and hardware solutions for 7-nanometer designs.

As we reported in Q3, we are collaborating with Xilinx, ARM and TSMC to build the industry first test chip for Cache Coherent Interconnect for Accelerators or CCIX, incorporating Cadence IP and using Cadence tools on the TSMC 7-nanometer FinFET process.

2017 was a year of rapid advancements for Automotive.

We made steady progress with our EDA, IP and services solutions for this market.

In Q4, we entered into a strategic relationship with a market-shaping automaker that will include software, hardware and IP and services.

Earlier in the year, we signed a large design IP deal with a major customer in our automotive semiconductor sector.

We had several key wins for our safety, test and reliability EDA solutions.

Our IP business had great traction.

Tensilica is now in 2 of the top 3, and Design IP is in 4 of the top 5 automotive semiconductor companies.

The third vertical that I want to highlight is aerospace and defense.

We have successfully built on our initial engagement with customers like GE Aviation and Northrop Grumman to further our footprint with both defense contractors and governmental agencies.

During the year, we strengthened our existing relationships and won new customers for software and hardware services.

System Design Enablement also requires expanding our investments and partnerships to provide increasingly integrated system solutions for mutual customers.

There's a strong interest in our PSpice networks integrated solution, which bridge the system-level design and chipboard implementation domains.

Earlier adopters include customers in the automotive, aerospace and defense, and medical segments.

In Q4, we acquired SFM Technology, an innovative company that accelerates advanced ECAD-MCAD library creation, and it's an important step towards expanding our System Design Enablement Strategy into mechatronics.

It was another strong year for innovation, which is the heart of our success.

We introduced 8 new products in 2017, and we have now introduced more than 20 significant products in the last 3 years.

Now I will move on to product highlights for both Q4 and 2017.

Digital and signoff revenue grew 10% for the year, driven by increasing proliferation with market-shaping customers and broadening adoption by other semi and system customers.

Broadcom continue to increase its investments in our digital platform, which proliferated throughout many advanced node projects.

During the year, a global marquee company and a key IP partner expanded and deepened their investments in Cadence technology, including our digital solutions.

More than 100 customers have now deployed our digital and signoff products for advanced node designs.

About 40 customers are using Cadence at the 7-nanometer nodes and have taped out over 30 designs.

Demonstrating the strength across our product line, we had 20 full flow wins for the year.

IP revenue grew 18% for the year as the outsourcing trend continues, and our refined strategy drove strong results.

We booked by far our largest ever Design IP contract.

The agreement includes a broad array of our Design IP, including DDR controllers and PCIe Express.

Tensilica have a strong quarter with increased loyalties.

Tensilica leadership in audio is leading to key wins in smart speakers market, while adoption grows for our DSPs are tuned for vision and neural [sic] (neutral) networks.

Momentum continued to build for the new software products in our Verification suite.

Our overall revenue was down 5% for the year due to hardware.

In Q4, Xcelium, our new parallel logic simulator added more than 25 new customers.

More than 90 customers have adopted Xcelium since its launch in February 2017.

True to lumpy nature of our hardware business, after a slow start to the year, Palladium and Protium ramped up in Q4, and we finished the year with a significant backlog of orders.

For the year, we added 20 new Palladium Z1 customers, 10 of those in Q4.

Sales of the new Protium S1 FPGA-based Prototyping System was strong, as we added 15 new customers and have 9 repeat orders.

Jasper proliferation continued to accelerate.

9 of the top 10 semiconductor companies now use our formal verification solution, and we doubled the number of new customers in 2017.

For our custom and analog design solutions, newer market trends, along with increasing design complexity, drove strong demand for both our advanced node custom design and simulation solutions, leading to revenue growth of 11% for the year.

Two of the top 3 memory companies have now adopted our Spectre XPS FastSPICE simulator and characterization solutions.

System interconnect and analysis solutions grew 8% for the year, with growth across PCB implementation, IC packaging and Sigrity power integrity analysis.

Newly launched Virtuoso design system platform and Allegro DesignTrue DFM products have been very well received.

Our Power-integrity Solution was a key driver for our strong Sigrity results, with interest across multiple verticals.

Now let me quickly summarize my comments.

Consistent execution and broad-based proliferation and adoption of our solution drove excellent financial results for the fourth quarter and for our full fiscal year.

Cadence, along with the semiconductor and EDA space, is benefiting from a number of technology waves centered on machine learning.

Adoption of our digital signoff solutions by market-shaping customers is broadening our reach and customer base.

Our refined IP strategy led to strong mid-teen growth.

We are excited about the acquisition of nusemi, which we expected to add next-generation high-speed SerDes for modern cloud data center applications.

Momentum has continued for our custom and analog solutions as both large and small customers have adding capacity.

We are proud of what we accomplished in 2017 and excited about the opportunities ahead for 2018.

With that, I will turn the call over to John to review our financial results and provide our outlook.

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

I'm very pleased to say that we met or exceeded our key operating metrics and delivered strong financial results for both the fourth quarter and fiscal year 2017.

First, I will go through the key results starting with the P&L.

Total revenue was $502 million for Q4, up 7% over the prior-year period.

For the year, revenue was $1.943 billion, also up 7% year-over-year.

Non-GAAP operating margin was 30% for Q4 and 27.5% for 2017.

On a GAAP basis,

Cadence reported net income of $0.73 per share for fiscal 2017, and a net loss of $0.05 per share for Q4.

These GAAP results reflected total onetime charge of $92 million or $0.33 per share on a provisional basis for U.S. tax reform, of which $67 million or $0.24 per share was for the mandatory repatriation tax and $25 million or $0.09 per share was for the revaluation of our net deferred tax asset, resulting from the U.S. corporate tax rate reduction.

Please note that these provisional amounts may change if Cadence continues to evaluate the impact of the tax act.

Non-GAAP net income per share was $1.40 for the year, up 16% over 2016, and $0.39 for Q4, up 15% year-over-year.

Now turning to the balance sheet and cash flow.

Cash and short-term investments were $693 million at year-end, of which 80% was outside of the U.S.

We had $735 million of debt outstanding at quarter-end, which includes $85 million that we drew down from our revolving credit facility during the quarter.

Operating cash flow was $127 million for Q4 and $471 million for 2017.

During Q4, we used $143 million for acquisitions and repurchased $50 million of Cadence shares.

DSOs were 36 days.

Before I present the outlook for Q1 and fiscal 2018, I'd like to talk a little about the impact of U.S. tax reform and our transition to new revenue rules.

First, the impact of U.S. tax reform.

It has only been 40 days since the U.S. Tax Cuts and Jobs Act was signed into law.

We've done a lot of work and we have a lot more to do, but as of today, here's what I can tell you about its impact on Cadence.

Based on our analysis of the act, our non-GAAP tax rate will fall from 23% to 16% for 2018.

As mentioned earlier, in Q4, we recorded a $67 million charge for the mandatory repatriation tax and $25 million for the revaluation of our net deferred tax assets resulting from the U.S. corporate tax rate reduction.

We do not expect a meaningful impact on cash used for taxes in 2018.

We expect to repatriate international cash, but given the logistics involved, we are still determining the timing and amount of repatriation.

In the first half of this year, we plan to review our overall tax position in light of the new tax act.

As of now, that's about as much as we can say about the impact of the new tax act, but we are continuing to work on it and we plan to provide further information in our Form 10-K when it is filed in a couple of weeks.

Now we'll discuss the changing revenue rules.

Cadence has adopted the new revenue accounting standard known as ASC Topic 606 for fiscal 2018.

For ease of communication over the course of the next few minutes, I plan to refer to the new revenue accounting standard simply as the new revenue rules or the new rules, to contrast it with the former standard, ASC Topic 605, which I will refer to as the old revenue rules or the old rules.

The first thing to mention about our transition to the new revenue rules is there will be no impact to our cash flows or to how we operate our business.

The impact on our expense line is minimal and the portion of our revenue recognized over time will remain approximately 90% under the new revenue rules, just as it was under the old revenue rules.

However, there is a difference in our revenue guidance for 2018 under the old and new revenue rules, and I'll explain now why this difference exists.

In the recast process on transition to the new revenue rules, some of our contracts that had upfront revenue recognition under the old rules shift to recognition over time, and some contracts that were recognized over time become upfront.

Cadence is using the modified retrospective transition method to adopt the new revenue accounting rules.

Under this transition method, only a subset of orders are recast and recognized as revenue under the new revenue rules, specifically those orders that were in our backlog at the end of 2017.

During this recast process, we expect to take approximately 3% of our backlog that would have primarily been recorded as revenue over the next 2 years under the old revenue rules, and included immediately as an adjustment to our opening retained earnings on the balance sheet for 2018.

As a result, we estimate that our revenue under the new rules in 2018 will be approximately 2% lower than it would've been under the old rules.

We expect the difference between revenue under the new rules and old rules to gradually decline over time and be de minimis within 2 years.

Guidance for the year will be provided under both the new and old rules, while quarterly guidance will only be provided on the basis of the new rules.

We will report revenue under both sets of rules for every quarter in 2018.

Now I will provide our guidance.

For fiscal 2018, we expect revenue in the range of $2.015 billion to $2.055 billion under the new revenue rules.

That range would be $2.055 billion to $2.095 billion under the old rules or growth of approximately 7%.

We expect non-GAAP operating margin of approximately 27% under the new rules.

Adjusting for the difference in revenue, this implies a non-GAAP operating margin of 28.4% under the old rules.

We expect GAAP EPS in the range of $0.80 to $0.90, which would be $0.93 to $1.03 under the old rules.

Non-GAAP EPS of $1.50 to $1.60, which would be $1.62 to $1.72 under the old rules.

We further expect operating cash flow to be in the range of $480 million to $530 million.

And we expect to repurchase Cadence common stock at the rate of $15 million per quarter during 2018.

For Q1, our guidance based on the new revenue rules is as follows: Revenue in the range of $500 million to $510 million; non-GAAP operating margin of approximately 26%; GAAP EPS in the range of $0.20 to $0.22; and non-GAAP EPS in the range of $0.36 to $0.38.

We expect our DSOs for Q1 to be approximately 40 days.

You will find guidance for additional items in the CFO commentary available on our website.

I want to leave you with the following points.

Cadence had a strong finish to 2017, and we're excited about our prospects for 2018.

We will continue to improve our operating profitability in 2018.

Our guidance implies an operating margin of 28.4% for 2018 under the old rules, which is up from 27.5% we achieved in 2017.

And I'm delighted to finish 2017 with 7% revenue growth for Q4, 7% revenue growth for 2017 and a projection for 7% revenue growth for 2018 on an apples-to-apples basis under the old revenue rules.

And with that, operator, we'll now take questions.

(Operator Instructions) Your first question comes from Gary Mobley with Benchmark.

I want to start with the question about the contribution from the nusemi acquisition.

You mentioned you paid about $142 million for the acquisition.

Just given market multiples, I'm assuming, maybe nusemi was operating with about $25 million annual revenue and maybe adding about 100 basis points to your fiscal year '18 outlook.

Am I doing that analysis correctly?

I don't think so, Gary.

You're right in terms of we use $143 million of cash for acquisitions in Q4.

We're not disclosing any more details at this time, but we don't expect those acquisitions to become accretive until 2019.

Okay.

Okay.

So because of purchase accounting, it's flowing into the income statement in 2018?

Any impact on 2018 is included in our guidance, and we'll provide more information on our Form 10-K when we file in a couple of weeks.

Okay.

All right.

And did you mention that the emulation backlog increased year-over-year despite having a down year for emulation in 2017?

Yes.

I mentioned earlier this is a lumpy business and we have a slow start in the first 3 quarters.

We'll have a strong finish and we are very excited that we have significant backlog of orders going to 2018.

Okay.

Great.

I just have one follow-up question, on this ASC 606 issue.

I'm assuming you're going to start recognizing emulation revenue more ratably versus upfront.

And correct me if I'm wrong, if that's not the component that's moving upfront.

No, Gary, that's not the case.

We have a slight difference, with some of our revenue goes from upfront over time, and that's mainly software, perpetual revenue.

But it's a small portion of our business.

And the piece that's mainly moving from previously ratable to upfront is some of our IP business.

Hardware, we recognized upfront, and that's partly why it's been inherently a lumpy business for us.

Okay.

Help me understand how this balances out over time, the difference between ASC 606 and 605.

Is this just the way you're booking the revenue as we annualize this issue?

Oh, sure.

So like I said in the prepared remarks, during the recast process, we expect to take approximately 3% of our backlog that would have primarily been recorded as revenue over the next 2 years under the old rules and then include it immediately as an adjustment to our opening retained earnings.

Now about 1/3 of that, we never get back.

About 2% of that backlog becomes the timing difference.

And then we will gradually grow that revenue-over-time layer over the next 2 years, so that ASC 606 and 605 revenue will be the same.

We believe if you take the difference in our guidance, there's about a $40 million difference in revenue in 2018 between both sets of revenue rules.

That's around 60% of the total difference.

We expect the difference in revenue under the new rules and old rules to gradually decline over time and be essentially de minimis within 2 years.

And, Gary, just to go back to the first question.

That the nusemi acquisition plus SFM Technology acquisition, so we did 2 acquisitions that we used $143 million cash.

Your next question comes from Jay Vleeschhouwer with Griffin Securities.

Lip-Bu, let me start with you on an EDA market question.

To what extent are you seeing that the frequency of inter-contract, new or expansion, business is perhaps increasing, reflecting the positive in reflection that we've been seeing in semi-R&D?

In other words, customers are coming back for additional business, notwithstanding that they may not actually be out for renewal?

Or are you seeing more of that kind of walk-in business for any part of the business?

Yes.

So good question.

And as you recall, and we are very disciplined in some of our agreement with our customer, we have this average 2.5-, 2.6-year durations, and that is a contract we have in place.

But from time to time, we also have customer come back to us to add on some of this, we call it, add-on business that is not part of the agreement because some of the new product and new technology will come out in the new advanced nodes.

And those are -- we keep track of that very carefully because that is where you should grow for the future.

And we are very excited that this add-on business is coming strong, and I mean, that's an indication of strong growth.

And like what I described earlier, this data-driven economy, some of the 3 of the vertical market we are focusing on and a system company, they are building their own silicon team to differentiate their products.

And also that demand for the advanced nodes and more complicated design, and they come to us, and we are really excited about it.

Okay.

I have just 2 more questions.

I'll ask them both at the same time.

For John, on the last conference call a quarter ago, we talked a bit about the customer concentration, and you mentioned that you have no customers at more than a single-digit percentage of revenue.

The question is, is there some upward trend, however, for any customers beyond that?

In other words, that was a snapshot, but have you seen any customers in fact increasing from perhaps low single digit to mid-single digit on their way to high single digit perhaps.

Just as, for example, in the case of Synopsys, Intel has grown from 10%, 11% of their business to 16%, 17% of Synopsys.

Is there some similar trend for any customers in your case?

And then just to wrap up on the product side for Lip-Bu.

You mentioned some of the early momentum for Protium.

My question is, how do you see the addressable market developing for FPGA prototyping?

It's much smaller to date than emulation.

As best we can tell, it's a less than $100 million category, predominated thus far by Synopsys.

Do you foresee perhaps that category growing severalfold, eventually the way emulation has over the last decade and thus make it worthwhile for you to be in that market?

So I think, Jay, I think you have 2 questions.

So let me address the first one first in terms of customer concentration topics.

First of all, I think we have a very broad portfolio.

We also have a very, I call it, longtail analog and industrial usage and that are very stable and a good business for us.

And meanwhile, we also have this newly developed digital flow that we have a lot of proliferations and with different accounts.

And the good news is now we have -- all the customer -- most of the customer are growing, and we are delighted to support them.

But we have continued to have that not more than one customer.

They 6% of our business.

So it's very broad, growing diversified, and that something that we like.

And meanwhile, we love that customer continue to grow and buy more of our products.

And in terms of your second question, about the Protium.

And as you recall, we have the hardware emulation product, and that is still the best in the emulation business, and we continue to grow well.

As you mentioned earlier, the Q4, we have a strong finish, we have a strong backlog going forward to 2018.

And we also come out with this Protium and we call it S1.

And that was gaining a lot of traction.

We have 17 new customers and 11 repeat orders.

And this is the -- already pointed out, you said, FPGA-based prototyping system and more software oriented.

And that I think we are delighted.

We're getting a lot of traction, a lot of interest from our customer.

And then, at the end of the day, right now, we are really focused is the whole verification suite, and that consists of Jasper.

The formal verification consists of clearly the hardware, and also we have the simulation, new tool, Xcelium.

We are delighted after the launch.

We have 90 customer adopted.

And then we have the hardware and now we have Protium.

And so we have a complete suite going forward.

Many customer love that solutions.

Great.

And Jay, I wouldn't add any more to that.

I think Lip-Bu has covered it all.

Your next question comes from Monika Garg with KeyBanc.

First question, John.

This 2018, ASC 606 is about $40 million negative impact.

In '19, is it fair to assume -- you are saying 60% of the impact this year.

That means next 2019, it will be close to some $30 million to $35 million negative impact?

Again, like I said, Monica, that we'd expect the difference between revenue under the new and old rules to gradually decline over time and be de minimis within 2 years.

So some in 2019 and then move to 0?

There's a very, very small difference in '20, but it's minimal.

Got it.

Okay.

Then Lip-Bu, IP grew strongly in the year, close to 17%, 18%.

And you made an acquisition also, [which probably helps] '18.

But how to think about IP growth rate going forward?

Do you think it can grow about low double digit sustainably?

Yes.

So I think first of all, I think that Q4, we're excited.

For the whole year, IP grew 18% under the leadership of Babu.

And this also same trend is continue.

And then the other part is clearly, our refined strategy is really working.

And we signed a couple of very important key contracts, the largest, the Design IP.

And then also clearly, we have Tensilica is a really very good for IP that have strong loyalty growth, and that apply into the whole machine learning, deep learning and neutral networks and also the audio, vision, processing, application market.

So I think overall, I think we like what we have.

And meanwhile, this nusemi acquisition is strategically very important to us.

As you all know, the scale out of the data center at high-speed SerDes is essential for the next generation of data center and cloud.

And this is a very, very talented team, and we are very, very happy to have them join us.

And then, we also have this Xilinx and ARM, TSMC using the Cadence IP and Cadence tool for the 7-nanometer, also for the data center market, the server market.

So I think overall, I kind of -- we kind of like our IP portfolio and IP team and also continue to look for the right IP that are really important to our vertical market, the SDE market, in the automotive, in the data center and then also the defense and aviation industry and the market, and that's why we are kind of growing the vertical part, and that's where the growth is going to come from a lot for Cadence.

All right.

John, your non-GAAP taxes went lower.

How about cash taxes?

Any change to that?

Cash taxes, around 11% to 12% is what the cash tax was for 2017.

You'll see that detail in the Form 10-K when we file it in a couple of weeks.

And I would expect that to be maybe slightly lower for 2018.

Got it.

Just the last one, on emulation.

It grew very strongly in '15 and '16, '17 slightly lower given 2 very strong years.

How should we think about emulation given you talked about good backlog also going forward?

Right.

Well, as Lip-Bu mentioned, hardware revenue is down for the year in 2017.

But as we said before, hardware is an inherently lumpy business.

And after a slow start to the year, we are pleased with the way the year turned out, and we had a good finish and exited the year with good backlog of orders.

I mean, we're very confident in the secular trend, in demand for emulation capacity that, that continues.

Palladium Z1 is still the most advanced -- has the most advanced capabilities of any emulator in the market, and our existing customers continue adding more capacity.

So we feel good about our hardware business for 2018.

Got it.

So we should expect it to kind of return to a good growth going forward?

Monica, at 7% revenue growth, on an apples-to-apples basis, I think we'd expect all product groups to grow in 2018.

Your next question comes from Mitch Steves with RBC Capital Markets.

Just one clarifying question is on the acquisitions, just to be clear here.

So you're essentially messaging that the acquisitions did not contribute anywhere -- or more than 1% to the top line for '18?

We're not disclosing any more details at this time, but we will have further information in our Form 10-K in a couple of weeks.

Okay.

And then secondly, just to make sure on the share side here.

So we should just assume a $50 million buyback every so quarter.

And I'm assuming that's encapsulated in the guidance as well?

Yes.

Okay.

And then one last small one.

Just on the margin front.

Was there any impact from the accounting change on the margins as well?

So of course, yes.

You'll see in our guidance, we've given our guidance.

It's on the CFO commentary, that we're guiding 27% operating margin under the new rules, and that the implied guidance under the old rules will be 28.4%.

Right.

So I guess my question is the margin head is going to go on the ratable subscription piece, not really to the hardware business, correct?

The difference is just that $40 million of revenue, but there's a minimal impact on expenses.

Your next question comes from Farhan Ahmad with Crédit Suisse.

My first question is regarding the nusemi acquisition.

You are entering the SerDes Design IP space.

Now Broadcom is a very important customer.

You highlighted it on your call.

Now they would end up becoming your competitor literally once you enter the market.

Do you see any kind of conflict entering this space?

Yes.

this is a very good IP on a data center, and the demand is so strong.

And we have a lot of respect for Broadcom.

And then meanwhile, there are some opportunity for us also.

And we're only going to license the IP.

Got it.

And then can you just talk about your philosophy around the stock-based comp?

It's risen quite a bit as a percentage of your sales.

It used to be like 3% to 4%.

Now it's about 7% to 7.5% of the sales.

How should we think about stock comp going forward?

And how should we think about stock dilution from employee stock grants going forward?

Farhan, this is John.

I mean, stock is just one part of the overall compensation package, and different companies have different mixes of the package.

And then from Cadence, as I mentioned, the success we have is because we continue to drive innovation.

For that, we attract and retain the best talent we can get, and this so far is working well.

Got it.

And then one accounting question to John.

I'm just trying to reconcile my model.

The cash flow from operation is not going to be impacted because of the accounting change, yet the net income is going to be impacted.

So can you help me just understand like what's the plug that's different now that basically bridges the gap between the net income to that free cash flow, how we should think about it?

So Farhan, the difference between ASC 606 and 605 results is that $40 million of revenue.

That said, I think you need to just -- if you go through your model and apply that, everything else is minimal.

There's minimal impact on expenses.

And you're correct.

It's just an accounting change.

There is no difference to our cash from operations.

There's no difference to how we go to market.

There's no difference to how we bill or contract our business with customers.

Got it.

And then one last question, on the Spectre impact.

Is any of your Tensilica IP impacted by Spectre?

Spectre?

Say it again, your question?

So recently, there was security issues for processors.

Spectre, Meltdown.

I'm just curious if Tensilica core IP, if there's any impact to your processors over there?

Yes.

One thing is now clearly, the security is quite important at this stage.

And then we protect our IP and the data and the system and our customers very religiously, and we are committed to that.

And clearly, the comprehensive design and verification have to be a lot more robust.

And we take good care of that.

And so far, knock on wood, we are okay.

Your next question comes from Rich Valera with Needham & Co.

Lip-Bu, I was wondering if you could give any more color around what sounds like some pretty good, I guess, share gains inside of Broadcom, sort of what's driving that?

Any more specifics in terms of the applications or technologies they're working at, geometries they're working at?

And then, obviously, Broadcom has made overtures towards Qualcomm.

I'm just wondering how you think about that transaction if it were to happen?

Could there be issues around pauses in spending or could it ultimately be, you think, an opportunity?

Presumably having lived through the prior Avago-Broadcom, maybe you have something look back on that.

Yes.

First of all, we have a lot of respect for Broadcom.

It's a very successful company run by Hock.

And we are delighted.

They embrace and invest into the digital platform we have in many of the advanced nodes projects.

We continue to support them for their success.

And in terms of Qualcomm, Broadcom, both are very respected companies and they're a leader in their space.

And I do not want to comment or speculate any of the impacts.

Got it.

And just -- I missed the second acquisition that I think you called out that you made in the system space.

What was that company?

Yes.

So it's called SFM.

It's innovative product, accelerate the advanced ECAD and MCAD and mechanical CAD in the library creations.

And this is one of the very important step for us to expand our SDE into this mechanic-tronics area.

This is kind of part of our very important piece for us to move into the SDE for some of the vertical market we try to address.

Got it.

And then, John, you said they're not accretive until, I think, '19.

Are they actually dilutive in '18?

A little bit, yes.

Okay.

And will you actually have the expected revenue contribution in that K filing?

Or what will you have incrementally on the revenue side in that K?

I don't actually know right now.

But I can say our guidance includes everything that -- we've taken everything into account in our guidance.

But we've been, like I said, it's been 40 days since the U.S. Tax Cuts and Jobs Act, and it's been like 40 days and 40 nights going through the tax reform and dealing with this change over to new revenue rules.

There is additional information going into the Form 10-K, and we're about 2 weeks away from filing.

I would look to that.

Your final question comes from Tom Diffely with D. A. Davidson.

I was hoping to get a little information about some of these traditionally smaller end markets that seem to be growing.

And hopefully, you can provide a little background as to what your exposure is now to advanced packaging and memory.

How you've seen that grow recently?

AND what do you think about the future with some of the new changes that they're going through?

Yes, thank you, Tom, for asking this question.

So clearly, the advanced packaging, it become more and more critical.

We are delighted.

We have a very good offering in the -- besides the IC packaging, we also have the [boat] level packaging.

And on the silicon side, the 2.5D, 3D become more and more adopted by the customer and also the foundry partners.

Especially in some of these, like for example, high-speed SerDes, connectivity and then some of this -- really have to try some of this packaging efficiency.

And we work very close with our foundry partners for some of this 2.5D packaging so that we can provide the overall solutions.

And also, I think some of this 3D NAND, our packaging has become more and more critical.

That part, I think, we look very, very close to that.

And then, I mentioned earlier about the SerDes.

When you move up, every 100 gigs SerDes, the insertion loss is going to be critical.

And again, some of this 2.5D and even photonic packaging going to be very more important.

And then so those are the things that we try to find solution to help enable our customers.

Can you give us some sense as to how fast these markets have grown over the last year or 2?

And what do you think the growth rate is going forward?

Good question.

Sometimes it's very hard to predict the growth rate.

But I can tell you, we are ahead on the 2.5D and 3D a couple of years ago.

And when we talk to the foundry partners and packaging company, they are telling us that well, there's no customer request for it.

But now the customers are starting to request them and coming to us.

So I think people are starting to realize the pinpoint, there all trying to find solution.

We are delighted we have some of the solutions that they need to help them to design and drive packaging efficiency and drive some of the performance they need.

And then finally, do you have technology today that enables them to work on kind of the next generation of memory, the MRAM and the different types of memory that potentially comes up over the next 5 years?

Yes, memory become more and more critical, and this whole data-driven economy has a lot to do with data and storage.

And that's something I pay a lot of attention and we are delighted.

I highlight 2 of the 3 memory company are using our SPICE, FastSPICE simulator and then also the characterizations of solutions.

And also, a couple of them are working closely with us in some of our 2N solution we need.

And we will continue to support our customer with all the -- help them, work closely with them.

Some of them need the IP, the memory IP.

We are supporting them.

And some of them need the tool to drive some of the efficiency performance they need.

And then some, they need that packaging side.

So memory and data storage become more and more critical in this big data and data analytics and the machine learning, deep learning.

We pay a lot of attention to that.

That concludes our question-and-answer session today.

With that, I'll turn the call back over to Lip-Bu for his closing remarks.

In closing, through consistent execution and innovation, we are well positioned to build on the positive momentum of our System Design Enablement Strategy to enable the data-driven economy.

I would like to thank all our shareholders, customers and partners, Board of Directors and very hard working global employees for their continued support.

Thank you all for joining us this afternoon.

Thank you for participating in today's Cadence Design Systems Fourth Quarter 2017 Earnings Conference Call.

This concludes today's call.

You may now disconnect.