Cadence Design Systems Q1 2022 Earnings Call Transcript

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Provided by Quartr
April 25, 2022

Key Takeaways

  • Cadence reported Q1 revenue of $902 million with double‐digit growth across all business groups and raised its FY22 outlook to $3.395–3.435 billion (non‐GAAP EPS $3.89–3.97), targeting over 14% revenue growth and further margin expansion.
  • Signed one of its largest-ever contracts with a marquee U.S. semiconductor customer, covering EDA, hardware platforms (Palladium Z2/Protium X2) and system solutions, and expanded partnership with ARM for comprehensive adoption.
  • Hardware business achieved its biggest quarter to date, driven by broad-based demand in hyperscale, 5G and AI/ML with orders from 10 new and 50+ repeat customers, pushing backlog to over $5.1 billion.
  • System design and analysis revenue surged 22% YoY, bolstered by adoption of Integrity 3DIC, internally developed Clarify and Celsius and newly launched Fidelity CFD, with high-profile wins at Lockheed Martin, Toyota Europe and Emirates Team New Zealand.
  • Received an administrative subpoena from the U.S. Commerce Department concerning sales to certain Chinese entities; Cadence reports its response is mostly complete and it remains in compliance with export controls.
AI Generated. May Contain Errors.
Earnings Conference Call
Cadence Design Systems Q1 2022
00:00 / 00:00

There are 12 speakers on the call.

Operator

Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence First Quarter 2022 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

Call. Thank you. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead.

Speaker 1

Thank you, operator. Call. I would like to welcome everyone to our Q1 of fiscal year 2022 earnings conference call. I'm joined today by Anurud Devgan, President and Chief Executive Officer and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks Call will be available on our website, cadence.com.

Speaker 1

Today's discussion will contain forward looking statements, including our outlook Call on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied and today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, call, including our most recent Forms 10 ks and 10 Q and today's earnings release. All forward looking statements during this call are based on estimates call and information available to us as of today, and we disclaim any obligation to update them. In addition, Call.

Speaker 1

We'll present certain non GAAP measures, which should not be considered in isolation from or as a substitute for GAAP results. Call. Reconciliation of GAAP to non GAAP measures are included in today's earnings release. Today's earnings release for Q1 of fiscal 2022 related financial tables and CFO commentary are also available on our website. Call.

Speaker 1

For the Q and A session today, we would ask that you observe a limit of 1 question and one follow-up. You may re queue if you would like to ask additional questions Call and time permits. Now, I'll turn the call over to Anurag.

Speaker 2

Good afternoon, everyone, Call and thank you for joining us today. I'm pleased to report that Cadence delivered exceptional results Call. For the Q1 of 2022, with broad based demand for our innovative solutions driving solid Double digit growth across all business groups. In view of the strong start to the year and the continuing momentum of our business. We are raising our financial outlook for the year.

Speaker 2

Call. John will provide more details on that in a moment. Generational trends such as hyperscale computing, 5 gs, Autonomous Driving and AIML are creating explosion of data that in turn is driving the need for next generation compute, connectivity, storage and data analytics solutions. Along with accelerating digital transformation of multiple end markets, these trends continue to fuel robust design activity, Creating rich market opportunities for our differentiated end to end EDA, IP and system solutions. Now, let's talk about our key highlights for Q1.

Speaker 2

A key element of our approach has been to closely collaborate Excited to have built upon our successful engagement with a marquee U. S. Semiconductor company and in Q1 Sign one of the largest contracts in company history to enable the broad proliferation of our EDA, hardware and System Solutions. Additionally, in Q1, we expanded our long standard partnership with ARM, We are using a comprehensive set of Cadence EDA solutions and Cadence who is using ARM's latest IP Rapidly increasing challenges in system verification and software bring up Continued to be a strong pull for our verification business, which delivered 30% year over year revenue growth. On the heels of a record year, our hardware business had its biggest quarter by far.

Speaker 2

Call with unabating demand for our best in class Palladium Z2 and Protium X2 hardware platforms. Call. With 10 new customers and over 50 repeat customers, more than half Call. The orders during the quarter included both the platforms. Demand for hardware was broad based with particular strength seen in hyperscale, 5 gs Communication and AIML segment.

Speaker 2

Our digital and sign off business Deployment of our digital full flow, delivering industry leading quality of results at the most advanced nodes, Our innovative Cadence Cerebras solution uses unique reinforcement learning ML technologies to explore the entire design space and intelligently optimize the digital full flow in a fully automated manner. Several market shaping customers have successfully deployed Cadence Cerebras and realized remarkable productivity and Power Performance and Area Benefits, including a marquee Asia Pacific System Company Call. Used Cadence Cerebras to achieve 5x engineering productivity and nearly 10% power gain Call on a critical advanced node subsystem. And a leading Asia Pacific hyperscaler used Cadence Cerebras With our digital full flow to tape out a chip with nearly 2,000,000,000 instances, reducing power by 5% Call compared to the alternative flow. Our system design and analysis business, Which is driving our expansion beyond EDA, continued its strong momentum in Q1, delivering 22% year over year revenue growth.

Speaker 2

There is growing interest in our Integrity 3DIC solution, Call. The industry's most advanced multi die platform with tightly integrated system planning, Implementation and Analysis Technology. A large U. S. Data infrastructure company successfully deployed Integrity To tape out the 2.5D IC and LightElegant use 3 d Integrity 3dIC, which shows so and Innovus in development of their fully integrated optical computer system.

Speaker 2

In System Analysis, we continued executing to our strategy of building out our multi physics platform, offering best in class engines delivering superior results compared to legacy solutions. We are pleased with the new wins and growing repeat orders for our organically developed Claroty and CELSIUS products, as well as our recently acquired CFD Technologies. Over the past year, call. Our CFD solutions have continued to proliferate, especially in the aerospace and defense arena with market shaping customers such as Lockheed Martin. In Q1, Juniper Networks renewed their commitment to Cadence Technology, including comprehensive access to our systems portfolio across PCB, Packaging and System Analysis Solutions.

Speaker 2

And last week, we introduced Fidelity CFD, A comprehensive CFD platform that includes enhanced meshing technologies as well as a next generation Massively parallel high order solver that dramatically improves the performance and accuracy of complex CFD application Conference across multiple vertical end markets. Fidelity CFD software meshing capabilities call have been used by Toyota Motor Europe to be the standard workflow for CSD preprocessing And the winning America's Cup team New Zealand relies on Fidelity Marine Solver for their hull hydrodynamic modeling. Lastly, in addition to our outstanding business results, I'm also proud of our high performance inclusive culture and thrilled that we have been selected by Fortune and Great Place TO Work as 1 of the 20,200 Best Companies to Work For, Call for the 8th consecutive year. Now, I will turn it over to John to provide more details on the Q1 results and our updated 2022 outlook.

Speaker 3

Thanks, Anurud, and good afternoon, everyone. Call. I'm pleased with the results we achieved for the Q1 of 2022, driven by broad based strength across our technology portfolio and record demand for our leading hardware products. We continue to execute to our intelligent system design strategy, making further significant strides with our innovation roadmap and most importantly, we continue to delight our customers. Here are some of the financial highlights from the Q1.

Speaker 3

Total revenue was $902,000,000 GAAP operating margin was 35% Call. And non GAAP operating margin was 44%. GAAP EPS was 0 point 8 $5 Call. And non GAAP EPS was $1.17 Cash balance was 1.135 $1,000,000,000 Operating cash flow was $337,000,000 Call and we repurchased $250,000,000 of Cadence shares. Call.

Speaker 3

Before we provide our updated outlook for fiscal 2022, I'd like to highlight that it contains our usual assumption that the export limitations that exist today call remain in place for the remainder of the year. With that in mind, our updated outlook for fiscal 2022 Call. Is revenue in the range of $3,395,000,000 to $3,435,000,000 GAAP operating margin in the range of 28.5% to 30% Non GAAP operating margin in the range of 38.5% to 40%. Non GAAP EPS in the range of $3.89 to $3.97 Operating cash flow in the range of $1,190,000,000 to $1,290,000,000 and we expect to use at least 50% of our free cash flow to repurchase Cadence shares in 2022. For Q2, we expect revenue in the range of $825,000,000 to $845,000,000 GAAP operating margin in the range of 29% to 30%, non GAAP operating margin Call of 39% to 40%, GAAP EPS in the range of $0.59 to $0.63 of Cadence Shares in Q2.

Speaker 3

Our CFO commentary, which is available on our website, includes our outlook for additional items as well as further analysis and GAAP to non GAAP reconciliations. In conclusion, all our businesses had a strong start to the year. Call. I'm pleased that revenue growth and profitability continue to accelerate. We are on track to exceed 50% incremental margin for 2022, which contributes to our continued operating margin expansion.

Speaker 3

Also, with the increase in our outlook at the midpoint, We now expect revenue growth for the year to exceed 14%, driving acceleration in our 3 year revenue CAGR to over 13%. Call. As always, I'd like to close by thanking our customers, partners and our employees for their continued support. Call. And with that operator, we will now take questions.

Operator

Call. Your first question comes from the line of Gary Mobley with Wells Fargo Securities.

Speaker 4

Hey guys, thanks

Speaker 5

I wanted to start out by asking about Backlog, you had roughly a 16% sequential increase. And I was wondering, to what extent Has emulation and prototyping hardware tools contributed to that increase as well as IP? And I want to as well ask you about the diversity of the backlog increase. Was it largely driven by that marquee customer win that you highlighted in your prepared remarks?

Speaker 3

Yes, Gary, great question. This is John. Yes, we're very pleased that backlog is now up to over 5,100,000,000 callers and it mainly came from broad based strength across all of the different business groups. There was a substantial uptick in terms of hardware demand and you saw call. Some of that come through in the revenue number in the quarter.

Speaker 3

But also I think you referred to we had a large record contract with a marquee U. S. Semiconductor company That we booked in Q1. This was a big extension and expansion to replace an existing deal That was expected to expire at the end of 2022. And that contributed significantly to backlog growth as well.

Speaker 6

Call. Great.

Speaker 5

Thank you. Thank you, John. I wanted to ask you about the disclosure in your SEC filings about the subpoena that you received from the U. S. Commerce Department or BIS.

Speaker 5

And I was wondering if you can give us any update in what That entity is asking for and perhaps what it relates to and your take on what specifically As motivated them to ask you for more information.

Speaker 3

Yes, Gary, we mentioned previously that this is an administrative subpoena. And the focus of the subpoena is information about sales to certain Chinese entities. Our response to the subpoena at this stage is mostly complete And Cadence is in compliance with all export control regulations. But other than that, I really don't have anything else to say.

Speaker 7

Call. Okay. All right. Well, thank you guys.

Operator

Your next question comes from the line of Charles Shi with Needham and Company.

Speaker 6

Hi, good afternoon. Thank you for taking my question. Maybe the first question, I want to follow-up call. Quickly on the U. S.

Speaker 6

McKee Semiconductor customer. I wonder, you mentioned about record contract you signed. Is that a quarter or maybe a combination of both? Can you

Speaker 7

give us some color on that?

Speaker 2

Yes. Hi, Charles. Thank you for the question. This is Anirudh. So Like we mentioned, key approach, key element of our strategy is to focus on market shaping customers.

Speaker 2

And I'm very happy with this new arrangement with the marquee U. S. Semiconductor company. Call. And you may know we have been working with this particular customer for a while and now we are excited to build upon these successes with this new contract.

Speaker 2

And it's a broad ranging contract like we mentioned. So it includes our EDA solutions, But it also includes our hardware platforms and our new system solutions. So it's a fairly comprehensive arrangement and we look forward to continuing deployment with this very important customer. And to give you example, I think last time we also mentioned, For example, in EDA, we have a lot of successful engagement on our digital full flow. And for example, Cerebras Call.

Speaker 2

Gave very good results at several key blocks on a recent tape out and about 5x productivity improvement. Call. At the same time, we also have engagements in analog with Virtuoso and Spector and of course verification with the key element with hardware and then system solutions. So, overall, we are happy with the progress and we look forward to wider deployment as we go forward.

Speaker 6

Thanks, Irene. So maybe a second question, I want to follow-up on call. China, definitely I understand you don't have any new news on the subpoena front, but your competitor Recently, I mean, maybe not recently, they received a subpoena and they made news with one of the press. Call. Just not really asking you to provide more legal comments on that, but from a business standpoint, Call.

Speaker 6

Are you seeing any changes in terms of behavior among the Chinese customers who are not really subject to the export control measures, but may call. What's the new development as a sign of potential escalation between U. S. And China on the semiconductor? Corp.

Speaker 6

I just want to point out that your China revenue did see a little bit tick up in the Q1. Call. Maybe I'm not making the wrong correlation here, but any color on this front would be great. Thank you.

Speaker 2

Yes. Thank you, Charles. So we are pretty pleased with our business in China. I think you may know we had some tough compare in 2021 versus 2022, fiscal 2021 versus fiscal 2020. But we are that's behind us now.

Speaker 2

So I think we expect China business to be strong and continue to grow and we are seeing that strength across our product portfolio. So John, you want to comment?

Speaker 3

Yes, I would add that, yes, I mean, we're seeing customer demand is strong and it continues to present a growing opportunity for us out in China. One thing that benefited us in China in Q1 was we did pick up some software revenue in custom IC and digital IC call from some license compliance transactions and they benefited us in Q1 as well as the strong hardware in the quarter.

Speaker 6

Thank you very much.

Operator

Your next question comes from the line of Joe Rewink with Baird.

Speaker 7

Great. Hi, everyone. Maybe just going back to the backlog development. Corp. When you think about how your involvement with the marquee U.

Speaker 7

S. Semiconductor company has evolved, Corp. Do you think that is emblematic of kind of how your relationships across your broader customer base are evolving? And maybe Call. At a strategic level, can we just discuss how that scope of involvement is changing?

Speaker 7

And related to that, Yes. You introduced quite a few new products over the past 12 months. You've been talking about some today. Are you starting to see those factor into larger ACVs or deal sizes?

Speaker 2

Yes, Joe, that's a good point. So what I would say is that we are pretty happy with our product portfolio Call and competitive positioning. And we are happy that Call. We always start, we focus on the important customers, focus on benchmarking, focus on adoption, proliferation that leads to booking and revenue. So overall, I think we feel confident of our product portfolio that includes EDA and IP call.

Speaker 2

And then expansion of that product portfolio into system design and analysis. As you see that also grew pretty well in Q1. Call. And then the use of AI to further differentiate our solutions, whether they are in EDA or in systems. Call.

Speaker 2

So at this point, I think we feel good where we are and also we are, as you know, in the golden era of semiconductors and electronic systems. So the market is also growing and we feel we are in a strong position. So together, it's a good tailwind for our solutions in our company.

Speaker 3

Yes. And I would just add there, Joe, that we're very excited about the growth opportunity that this expansion brings us over the next several years.

Speaker 7

Okay. Okay. That's great. And then specifically on your hardware platforms, a quarter ago, call. You discussed how verification had really good visibility and this was informing your view on a strong 1Q forecast at that time and call.

Speaker 7

And also a strong first half, but that you weren't necessarily extrapolating the strength in the first half call. Can you just give an update on kind of where you're thinking and forecasting stands with your verification hardware?

Speaker 2

Call. Yes, let me talk about verification first and I think John can comment more about the outlook for the year. Call. I think verification as you know is a key differentiator for our customers. I think to really Be a state of the art kind of design company or a system semiconductor company, your ability to do Good verification is critical.

Speaker 2

That is what can lead to rapid cadence of Your products and also how fast from silicon tape out to product release. So I think importance of verification becomes critical And the importance of hardware platform, especially driven by Palladium and Protium to do not just RTL verification, but also Sasha bring up is critical. So therefore, we are seeing a strong demand across both the semiconductor companies, but also the system companies which inherently have software to our verification products and we had a record quarter following a record year last year. Now in terms of going forward, I would like John to comment on rest of the year.

Speaker 3

Yes, Joe. I mean, we're seeing significant demand call for all of our hardware products. And as we said in our year end call just a few weeks ago, that we weren't comfortable with providing an outlook or extrapolating that demand into the second half of

Speaker 2

the year

Speaker 3

until we saw the pipeline kind of closer to the summer and that's We kind of retained that position for this guide.

Speaker 7

Okay. Okay. Understood. Thank you very much.

Operator

Your next question comes from the line of Blair Abernathy with Rosenblatt Securities.

Speaker 8

Thanks very much and nice quarter guys. Just wondering if we could talk a little more about the multi physics simulation side of things. I just Wanted to get an update on how your channel partner programs are developing, whether they're getting traction To the overall business. And just perhaps on the multi physics simulation, sort of what would you classify or what do you view as areas where You've got some competitive strengths?

Speaker 2

Yes, that's a great question. So First of all, as you saw, we are growing pretty well in system design and analysis. And also just to remind you that we take Call. All our revenue ratably, even in this segment compared to some other companies. So whenever you have a ratable revenue, call.

Speaker 2

The bookings are growing faster than revenues. Overall, we are pretty happy with system design and analysis, and especially the system analysis portion that is becoming bigger portion of Cadence business. And our 3 strength is our computational software expertise. Call. So, in EDA over the last 20, 30 years, we have a lot of experience doing very, very large systems efficiently and accurately.

Speaker 2

So we applied that computational software expertise to system analysis. So our solutions can be order of magnitude Better than what has been these legacy solutions in this space. Okay. And we first always focus Key customers, the top customers and the top customers in that space are similar to our traditional top customers. So, these The big system and semi companies also our top customers in system analysis, because we want to make sure your product is differentiated.

Speaker 2

Call. And I think that's ongoing and you see the strength in Clarity and Celsius and now with the introduction of Fidelity. Call. Now beyond that to your point, I think we also work on channel expansion and I think we have mentioned in the past that Call. We are expanding our partner network and also expanding more and more of these solutions to be available on the cloud, which also Naturally reaches more and more customers.

Speaker 2

So, we always want to first focus on the product, focus on the top customers and the big customers and then systematically build out a framework to expand the deployment and go to market. So overall, we are pleased with our progress And it is also very synergistic with our overall EDA position and overall Intelligent System Design strategy.

Speaker 8

That's great. Thanks very much.

Operator

Your next question comes from the line of Pradeep Rahmani with UBS Securities.

Speaker 9

Hi, thanks for taking my question. I just had a couple of questions on the marquee customer win that you're talking about. Call. Should we think about that as a competitive displacement from your side or Call. Should we think about it more as similar scope or maybe expanded scope, but larger contract values?

Speaker 9

How do you think about that?

Speaker 3

Yes, I would profile it as an expansion of The proliferation of our technology with that customer. I think that customer has seen the value and the products that we've provided over the last number of years and it's ready to take the next step. I mean, typically when we're proliferating with a customer like this, it starts with Them using our technology in a number of individual designs and then based on the success of those designs, they proliferate and expand into other multiple designs. Group. They may also continue to use other technology, but it's certainly Call.

Speaker 3

It has us very excited about the growth opportunity that this expansion means for us for the next number of years. Call.

Speaker 9

Great. And as a follow-up, your IP business is sort of accelerating if you look at the last few quarters. Corp. Do you still feel good about the low teens type of growth rate for the year or should we be thinking about something that's much higher than that?

Speaker 3

Call. Well, over the last 3 years or so, I think they've been growing around mid teens. We put in the outlook Low teens. It's in the outlook at 13%. We haven't changed that from the end of last year.

Speaker 3

But you might have noticed that they achieved 17% call. In Q1, what we find is that when we give them a target for low teens, they focus on the most profitable IP business And generally over performed, but the current outlook just represents 13%. There may be upside to that.

Speaker 7

Okay. Thank you.

Operator

Your next question comes from the line of Jay Flushauer with Griffin Securities.

Speaker 10

Call. Thank you. Good evening, Anurud and John. Question number 1, Anurud, we've spoken over the last few months of how your semiconductor customers are becoming increasingly like systems customers, systems customers are becoming more like semi customers. Call.

Speaker 10

With that in mind though, in what way are the 2 halves of the customer base still different? I mean, Even though they're becoming more alike, what are the important differences that remain in terms of their process or their mix of product From a company like yours. And in any case, given the overall rising tide of your business, given the strength of the end markets, call. How are you seeing the kinds of services and support requirements that you're having to invest in and expand for your customer base? Second question, going back to the Marquee customer,

Speaker 3

it's who we

Speaker 10

all think it is. Call. That company is already by far the largest spender on commercial EDA. They, like many other company. Semi companies have been materially expanding their R and D budget, inflected higher substantially over the last number of quarters.

Speaker 10

Call. The question is, could you foresee that particular customer becoming a more than 5% customer for you or even perhaps 10% and thereby increasing your overall customer concentration. Thanks.

Speaker 2

Yes. Hey, Jay, let me Call. I'll start with your first question. Like you said, system companies are becoming doing more semiconductor design and semiconductor becoming Companies are becoming more system companies and this is great for Cadence and the industry. And there are similarities there, but you asked about the So some of the differences, of course, first thing is, that's one of the reasons we expanded into system design and analysis.

Speaker 2

So naturally, To system companies, we are not just engaging with our EDA and IP products, which are silicon centric. We're also engaging with system design and analysis products, whether it's 3 d IC or PCB design or simulation. And that's a natural synergy of call. Our strategy and the natural synergy of what is happening in the customer base. So that's one big difference.

Speaker 2

I think the second big difference is that The system companies naturally, as you know, have software content. That's why they are a system company. So the need for hardware platforms, call. Especially both palladium and protium and software bring up is always critical, but is even more critical for these system companies that are doing semiconductors. So I think I would say these are probably the 2 big things.

Speaker 2

Call. And then the third thing that always helps is, a lot of times the system companies are new at Or sometimes are engaging in new activities in semiconductors. So there is no legacy there. So that always helps us Because without legacy, with the strength of our portfolio, we typically do well in the market. Call.

Speaker 2

And now with respect to your second question, like we said, we are pretty happy with our engagement with the marquee U. S. Semiconductor company and there is a lot of opportunities to grow there over the years in multiple aspects, EDA, hardware and the Systems Solutions.

Speaker 3

Yes, Jay, we have a very diverse customer base, as you know. And I mean, we're very, very happy that Call. This opportunity means that this particular customer is likely to spend a higher percentage of their dollars with us over the next few years and it sets us up to grow well in that account over the next few years. But we expect to grow well in many, many of our accounts, If not all of our accounts over the next few years. And so, yes, I wouldn't I'm not expecting a 10% customer.

Speaker 3

Thanks. Yes.

Speaker 2

Yes. Another thing, Jay, which you probably know already to highlight is, as we do more of these AI based solution, Cerebras and you'll see more from us going forward. It's an opportunity to provide much more productivity to our customers, Whether they're a semiconductor company or system company. So what we are hoping is that because as you know the labor market is tied and The need for talent is always growing. There is more and more need for automation and higher level automation.

Speaker 2

So, I think there is opportunity for us Do well in variety of customers, especially moving to more towards automation and less towards call. Hiring, they will still hire more people, but there's opportunity for EDN IP to be a bigger percentage of wallet as we provide more automation

Operator

Your next question comes from Vivek Arya with Bank of America Securities.

Speaker 4

Call. Thanks for taking my question. Anilud, if you look at the growth acceleration over the last few years, has it come from a wider customer base or is it more revenue per customer? And that if I kind of carry that question forward for the next 3 to 4 years, Call. What do you think is going to be a more important factor in driving the growth?

Speaker 4

Is it a wider customer base or is it more revenue per customer?

Speaker 2

Call. Yes, that's a good question. What I would say is there are 3 big trends that are helping us. So first trend is, Call. As you know, we are in Golden Age Semiconductors and it's expected to grow continue to grow for next 5 to 10 years.

Speaker 2

So our core business can do well with the semiconductor companies. I think the second thing is Like was mentioned earlier, the system companies are doing more silicon, so that adds like new kind of opportunities call. To engage with system companies and that I think is going to continue for the next 5 or 10 years because there are systemic reasons for System companies want to do silicon for customization. And then the 3rd Big trend is we are also expanding our portfolio into system design and analysis, which is a growing TAM for us and also expands Yes, it's a growing market. It's a profitable area.

Speaker 2

And so that these three trends, which is one is the core semiconductor business is going to do well that helps our ED and IT. Call. 2nd, system companies are going to do more silicon. And 3rd, our portfolio itself is expanding to system design and analysis. Call.

Speaker 2

And all these three things can be held with AI and more automation. And I don't see that changing in the next 5, 10 years. So I think these are fundamental trends for a while that can help

Speaker 4

question. Got it. And I know this is probably, it might be apples and oranges, but when I look at Semiconductor companies, they are benefiting from raising prices and we see across the board their margins are getting better. Call. Are you benefiting at all from raising prices on a like to like basis?

Speaker 4

Or is that not a factor when you look at the stronger growth and the acceleration this year. Like is there a level of price inflation that is benefiting you in some ways also?

Speaker 3

Call. Yes. Vivek, our revenue increase always comes from a combination of volume and pricing increases. And you see that happen over time on all of the accounts. Yes.

Speaker 3

I don't know what else to say to you in terms of that. But everything has been call. We just focus on continuing to provide more and more value to customers and they continue to provide more and more share of the wallet to us.

Speaker 4

Call. I guess my question is, is the price increase this year different than what you have had historically?

Speaker 3

We have increased prices this year, but similar to prior years.

Speaker 4

Okay. Thank you.

Operator

Your next question comes from the line of Reuben Roy with Westpark Capital.

Speaker 11

Hi, thanks. Anirudh, I just want to follow-up on sort of the discussion around the core segments and certainly Call. Off to a fast start in some of the other areas this year. Just wondering, when you look at the especially the custom IC design, are you thinking that that's An area of your business that is going to sort of get back to sort of the corporate type of growth rates or maybe underperformed a little bit relative to some of these newer areas, whether it's verification tools, system Design and Analysis Tools, etcetera. Just wondering, I hear you the core business is still growing along with the semiconductor area, but it seems like some of your other businesses are set up To grow at a faster pace, am I thinking about that correctly?

Speaker 2

Yes. So I think on the question Call. I think your question is on the analog, the custom analog signal business. And if you look back call. Several years, that business has performed very well and continues to grow because as we go to newer nodes, it's not just The digital, but even the analog has to go to these advanced nodes.

Speaker 2

Now we have a pretty good position in the market there. And so Call. I mean that has grown I think slightly slower than maybe digital verification, but still has done pretty well over the last few years. Call. And I expect that to continue and there are few things that are helping it also apart from the traditional analog design.

Speaker 2

I mean, there is more and more call. RF design, so our recent move into RF with acquisition of AWR, that is well integrated with Virtuoso. And with 3 d IC and more and more, there's a lot of activity still at mainstream nodes. So I think overall we are pretty pleased with that business and it still has a very healthy growth rate call. And continues to be also fairly profitable business for us.

Speaker 11

Okay, understood. As a quick follow-up, Anurud. Call. Given what's going on, it's great to hear sort of the traction at marquee customers and large deals, etcetera. Call.

Speaker 11

Is there an update on how to think about your cloud, the kind of the move to the cloud for some of your Products or whether or not you're seeing some of your customers move to even a hybrid cloud situation? Or do you think as we get More of these larger customers, is it still going to be the vast majority of your business is going to be on prem? I'm just trying to figure out if that's still Big initiative for the company as you look out over the next several years.

Speaker 2

Absolutely. I mean cloud is a key initiative and I think we have Done this for several years. I think we're probably the 1st company to really invest heavily in the cloud and both from a Customer Managed Cloud or a Cadence Managed Cloud? And also variety of business models, right? So, because call.

Speaker 2

Primarily cloud allows more flexibility to our customers in terms of usage and business model. So, we have done this for several years and we are open to call. All kinds of possibilities. It's important to give choices to our customers. And in some cases, Call.

Speaker 2

They use their own cloud platform. In some cases, they use our kind of cloud platform that we work with our partners In a more of a SaaS offering. In some cases, like you said, they use hybrid, especially really big customers, if they have already a good Data centers internally, then they use a hybrid cloud for like peak utilization. And whereas some of the smaller call. Customers are the new start ups may completely go to the cloud.

Speaker 2

Okay. So I think we'll see how the market evolves, but we are ready with all kinds of solutions and business models and do how the customers use those solutions. But I do see that Call. The smaller or the newer companies go more towards full cloud and more of the traditional companies go towards hybrid cloud. But in any case, we are set up to service all these models for our customers.

Speaker 7

Makes sense. Okay.

Speaker 2

And we also have partnership

Operator

Our final question comes from Devin Au with KeyBanc Capital Markets.

Speaker 7

Hi, John. Hi, Henry. Thanks for taking my questions. Yes, just want to double click on verification in China. Call.

Speaker 7

Did you see any of the strength in these areas was maybe due to customers trying to buy ahead of any price increases or Perceived inflation, just given the whole current macro backdrop?

Speaker 3

Yes. I mean, there was very strong demand, but we have such strong demand that call. There's a waiting list right now for our hardware. We're building the hardware as quickly as we can. So, the hardware that we delivered call.

Speaker 3

In China in Q1, many of those orders were pre Q1. They were from last year. We have many, many more orders that we booked in Q1 that we'll deliver later in the year. But we're flat out trying to build those systems as quickly as we can right now. Demand continues to outstrip our ability to supply.

Speaker 7

Got it, John. Maybe just one more for you. Nice raise to the operating margin for the full year. Call. When you look at first half margin, if I'm at this right, it's around 40%, 41% range.

Speaker 7

The guidance suggests operating margins Moving a little bit lower in the second half. Can you remind us on what's mainly driving the mix shift there? Is it mainly due to timing of investments or maybe hiring that's more back end loaded? Call.

Speaker 3

Yes, I would characterize the second half guide as prudent. There's lots of external factors playing out at the moment and we're very, very confident in that second half outlook. At the start of the year, we highlighted that we expected a strong start to the year with hardware. We didn't want to extrapolate that into the second half of the year until we saw the pipeline sometime in the summer. Call.

Speaker 3

But we have we're delivering those hardware systems as quickly as we can. But we'll take a look at the second half outlook call. In the summer when we have a better visibility into the pipeline.

Speaker 7

Got it. Got it. Thank you. That's super helpful. Call.

Speaker 10

Thanks.

Operator

I'd now like to turn the call back over to Cadence for closing remarks.

Speaker 2

Thank you all for joining us this afternoon. It's an exciting time for Cadence with strong business momentum and a thriving semiconductor and systems industry offering tremendous market opportunity. We are proud of the innovative and inclusive culture we have built at Cadence. And on behalf of our employees and our Board of Directors, we thank our customers and partners Call for their continued trust and confidence in Cadence. Thank you.

Speaker 7

Call.

Operator

Thank you for participating in today's Cadence First Quarter 2022 Earnings Conference Call. This concludes today's call. You may now disconnect.

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