Mentor lowers guidance after Cadence says loss will be higher than expected

EDA customer contract renewals are put on ice because of the economic environment.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 11/11/2008

Two EDA rivals have revised quarterly guidances on the financial crisis' impact.

Mentor Graphics Corp today said that on slowing customer activity it has cut its outlook for the second half of the fiscal year.

For the EDA company's fiscal Q3 2009, ended October 31, revenue is now expected to be about $185 million with a non-GAAP loss of approximately $0.05 per share, and GAAP loss per share is approximately $0.80. Mentor's previous fiscal Q3 estimates called for revenue of $220 million on GAAP earnings of $0.03 to $0.08 per share. 

For Mentor's fiscal Q4, ending January 31, 2009, the company said it expects a rebound, with revenues of approximately $270 million, non-GAAP earnings per share of about $0.55, and GAAP earnings per share of about $0.60.

However, that rebound will not give Mentor enough of a boost to best its fiscal 2008 numbers. For full-year fiscal 2009, the company expects revenues of approximately $815 million, non-GAAP earnings per share of about $0.40, and a GAAP loss per share of about $0.65. Mentor filed revenues of $880 million and earnings of $0.32 per share for fiscal year 2008.

“Typically, our customers had been negotiating contract renewals a quarter or two before their expiration,” said Walden C Rhines, chairman and CEO of Mentor Graphics, in a statement. “In this economic environment, customers are now waiting until the contracts come closer to expiration to renew. We expect a number of sizeable contracts to renew in the next several quarters, which should lead to a stronger fiscal 2010 than fiscal 2009.”

On the pending contract renewals, Mentor said it anticipates fiscal Q1 2010 revenues of $200 million to $210 million, non-GAAP earnings per share between $.05 and $.10, and GAAP loss per share between $.01 and $.06.

Mentor issued the update just days after its rival and once suitor Cadence Design Systems stated that its Q3, ended September 27, would see a GAAP net loss of approximately $0.67 to $0.65 per share. The loss compared to a GAAP net income of $0.24 per share in the same period in 2007 and is greater than Cadence previously estimated. The company said it revised its loss guidance on its recently announced restructuring efforts, which will see some 625 jobs cut.

Meanwhile, Cadence's anticipated Q3 results do not include the impact of any changes to the company's financial statements that could arise from its previously announced investigation into Q1 numbers. Cadence announced the investigation late last month, saying it was reviewing the recognition of revenue related to customer contracts signed during Q1 and that some $24 million in contract revenue was mistakenly reported for the March quarter. On the investigation, Cadence postponed its Q3 statement.

Cadence has yet to reschedule the Q3 earnings announcement. Mentor Graphics is slated to release financial results for its fiscal Q3 as well as revised fiscal 2009 guidance on November 19.