Cadence Design Systems, Inc.

What they do

Cadence develops software, hardware and IP used by semiconductor companies and systems companies to design and verify chips and electromechanical systems. Offerings are organized into three product categories: Core EDA, Semiconductor IP, and System Design and Analysis (SD&A). The company says its products address performance, power and area optimization and time-to-market for customers.

Revenue drivers

• Core EDA — Software, hardware and services for designing and verifying semiconductors; grew 18% year-over-year in Q2 2026 on demand for the AI portfolio and adoption across hyperscalers, top semiconductor companies and startups.
• Semiconductor IP — Silicon subsystems, software and services that accelerate chip design; Q2 2026 IP revenue grew more than 40% year-over-year, highlighted by a significant agreement with Intel and wins with other semiconductor companies.
• System Design and Analysis (SD&A) — Solutions and services for designing and verifying complete electronic systems, from printed circuit boards to complex assemblies; grew 37% year-over-year in Q2 2026, aided by PCB and advanced packaging adoption and the Hexagon D&E business.
• Hardware — Accelerated hardware, described as a record quarter in Q2 2026 with 12 new customers added and significant expansions with hyperscalers and leading AI innovators.

Recent performance

Q2 2026 revenue was $1.584 billion versus $1.275 billion in Q2 2025. GAAP operating margin was 28.4% and non-GAAP operating margin was 45.5%, compared with 19.0% and 42.8% a year earlier. GAAP diluted EPS was $1.33 versus $0.59, and non-GAAP diluted EPS was $2.11 versus $1.65. Quarter-end backlog was $8.1 billion, with $4.2 billion of remaining performance obligations expected to be recognized in the next 12 months.

Strategy

Cadence's Intelligent System Design strategy extends its offerings from chip design to full electromechanical systems across three pillars: Design Excellence, System Innovation and Pervasive Intelligence. The company integrates agentic and generative AI, machine learning and digital twin algorithms into its core products, developed in-house or through acquisitions. It has pursued complementary acquisitions including BETA CAE, VLAB Works, the Artisan foundation IP business from Arm and Secure-IC, and has a definitive agreement announced September 4, 2025 to acquire Hexagon's D&E business. Management positions Cadence as leading an agentic AI transformation in semiconductor design.

Risks

• Revenue timing variability — Operating results for any period are affected by the timing of revenue recognition, particularly for hardware, IP and certain software products.
• Industry concentration — Business growth depends primarily on the semiconductor and electronics systems industries.
• Trade controls and geopolitical tension — Cadence is subject to export and import controls, including restrictions on advanced node IC production in China and BIS Entity List rules, and notes obligations under BIS and DOJ settlement agreements.
• Acquisition integration — Cadence continues to acquire companies and technologies, including a pending agreement to acquire Hexagon's D&E business, and may not realize expected benefits or may face integration difficulty.

Outlook

For fiscal 2026, management expects revenue of $6.26 billion to $6.34 billion, or 19% growth based on the midpoint, along with non-GAAP operating margin of 43.75% to 44.75%. GAAP diluted EPS is guided to $4.76 to $4.86 and non-GAAP diluted EPS to $8.05 to $8.15. The company raised its 2026 operating cash flow outlook to $2 billion at the midpoint. The non-GAAP tax rate reflects current assumptions and will be re-evaluated periodically.