Anirudh Devgan
President and Chief Executive Officer at Cadence Design Systems
Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that Cadence delivered excellent results for Q3, driven by our technology leadership, strong execution, diversified customer base and resilient business model. We beat our Q3 guidance on all key metrics and are raising our financial outlook for the year yet again to 19% year-over-year revenue growth and 40% operating margin. John will provide more details on our Q3 results and updated outlook for the year.
Notwithstanding the prevailing macroeconomic uncertainties, our thesis about generational drivers, such as 5G, hyperscale computing and AI/ML driving robust design activity over the long term remains intact. These secular trends are accelerating the digital transformation across several end markets, while the growing hyperconvergence across multiple domains, mechanical and electrical, hardware and software, and systems and semis is driving the strong need for continued innovation in compute, connectivity and storage.
Customers are investing heavily to differentiate their next-generation platforms with system companies increasingly developing purpose-built silicon and semiconductor companies benefiting from expanding silicon content. Our comprehensive offerings comprised of leading end-to-end EDA solutions, IP, hardware and expanding systems portfolio uniquely position us to support our customers while providing us with ample growth opportunities.
In an environment of increasing design complexity, tighter time-to-market requirements and growing shortage of talent, sophisticated AI/ML solutions can greatly help to democratize chip and system development, while dramatically increasing productivity and quality of results. Customers deploying our game-changing AI-driven Cadence Cerebrus and Optimality solutions are realizing amazing results. And in Q3, we augmented our portfolio with the transformative Verisium AI verification platform and the JedAI data platform.
Verification continues to be the critical part and system time to market, consuming the vast majority of resources with debug being the largest component. Verisium provides a generational shift in verification, moving from a legacy single-run, single-engine approach to algorithms that leverage big data and AI to optimize multiple runs across multiple engines leading to a 10x boost in debug productivity. Several customers, including Samsung and ST Microelectronics, have observed impressive results with Verisium for automatically triaging and root causing bugs.
JedAI is our revolutionary AI-driven, big data analytics platform that is foundational to unifying our AI innovations across Cadence Cerebrus, Optimality and Verisium. JedAI operates on vast amount of data, including all types of design, verification, analysis and methodology information to facilitate smaller design optimization -- facilitate smarter design optimization and enhanced productivity.
In Q3, we significantly expanded our footprint with market-shaping customers as they increasingly embrace our optimized platform offerings. We deepened our partnership with BAE Systems across our core EDA and systems portfolio, including proliferation of our digital full flow and analog products and a broad expansion of our PCB and multiphysics system analysis solutions.
Additionally, in Q3, we strengthened our collaboration with Teradyne, which included a broad proliferation of our core EDA software across digital, analog and verification as well as a significant expansion of our PCB and system analysis business.
Demand for our core EDA software remains strong and broad-based. Our digital business had another strong quarter with 22% year-over-year growth, driven by key competitive wins and continued proliferation at market-shaping customers. 13 new customers adopted our digital full flow in Q3. It's been just over a year since we launched Cadence Cerebrus and is fast becoming a linchpin technology for customers as they derive incredible productivity and PPA results on a wide variety of their most advanced SoC designs.
Several leading customers have major multi-design, multi-project production deployments underway and are reporting up to 30% improvement in quality of results and 30 times productivity improvements. Additionally, we see accelerated growth in our front end and sign-off offerings, in part due to the Cadence Cerebrus pull-through effect.
We launched the SerDes Closure Solution, which dramatically accelerates complete design closure by using an innovative hierarchical architecture and a fully automated environment for the concurrent full chip optimization and sign-off. Using SerDes, Renesas observed six times faster chip level sign-off closure versus current methodologies. And Max Linear experienced overnight full chip sign of closure, while realizing up to 5% of untapped power savings.
Our custom IC business continues to define the analog market with this bold vision, market-leading technology and comprehensive portfolio. In Q3, it grew 12% year-over-year, driven by best-in-class Virtuoso platform and by strong growth in our Spectra simulation solutions.
Now moving on to functional verification. In Q3, our business grew 31% year-over-year, led by hardware and Xcelium. Our Palladium Z2 and Protium X2 hardware platforms providing industry-leading system verification and software bring up capabilities, added three new customers and had 20 repeat orders, including from high-end mobile, AI and hyperscale customers.
Our IP business, led by a STAR IP offerings at the most advanced nodes, continue to benefit from ongoing IP outsourcing trend and from customers increasing embracing IP reuse for risk reduction and faster time to market. During Q3, we signed our largest IP contract ever with the marquee US semiconductor company and had a major expansion at a leading US 5G company. Tensilica extended its leadership in the true wireless stereo market while proliferating its functional safety and infotainment solutions with automotive companies. We also had multiple design IP wins across our leading PCIe, DDR and die-to-die portfolio.
Our System Design and Analysis business is a key tenet of our growth strategy to leverage our computational software expertise and expand our TAM by growing in near adjacencies. This business continued its strong momentum, delivering 29% year-over-year growth as we increased our footprint in several verticals, including aerospace and defense and high-tech electronics. A broad systems portfolio providing tightly integrated platform solutions across the design, simulation and analysis is resonating strongly with customers as they increasingly choose a broader set of our solutions across these domains.
In Q3, we broadened our collaboration with Emerson, a global industrial technology and software leader, as they significantly expanded their use of our system solutions, notably our PCB, AWR and system analysis technologies. Fidelity CFD software, that was announced earlier this year, is ramping nicely and facilitating customers in verticals such as aerospace, marine and turbo machinery to do design optimization leading to efficiency improvement and meaningful reduction in emissions and energy consumption. And the addition of future facilities, digital twin-based thermal and power optimization technology will further help data center customers to reduce their carbon footprint.
Lastly, we completed the acquisition of OpenEye Scientific, a leader in the computational molecular design space. We are very excited to bring our system-level simulation and AI/ML expertise to the life sciences market to help improve the speed and accuracy of bio simulations, thereby enhancing the efficiency and success rate of drug-discovery process. Integration of both our future facilities and OpenEye acquisitions is progressing well.
In closing, Q3 was an outstanding quarter as we advanced our intelligent system design strategy and continued to closely collaborate with our customers on their next-generation designs. We are managing our business with an intense focus on innovation and operational excellence to drive both revenue growth and margin expansion and are very well positioned to capitalize on the MAG opportunities ahead of us.
Now I will turn it over to John to provide more details on the Q3 results and our updated 2022 outlook.
