A：Key highlights of Cadence's third quarter 2025 earnings include strong operational and financial performance across all product categories and geographies, with disciplined execution of strategy, bookings exceeding expectations to grow backlog to over $7 billion, and the raising of the full year outlook to approximately script revenue growth and 18% EPS growth.

A：Cadence is uniquely positioned to capture the generational AI opportunity with a differentiated and comprehensive portfolio spanning three D AI, 3D IC, PCB, and system analysis. The company is driving transformative PTA and productivity gains by infusing AI into its products and collaborating with AI innovators, foundries, and system leaders.

A：Notable partnerships and wins in the third quarter include a broad proliferation of core Eda software with Samsung and a leading semiconductor company in Qatar, deepening collaboration with TSMC for next generation AI flows, and winning design engagements with a marquee memory company for its new AI project.

A：The acquisition of the Arm Artisan Foundation IP has further augmented Cadence's design IP portfolio with standard cell libraries, memory compilers, and I/O optimized for advanced nodes at leading foundries, contributing to the company's design IP business momentum.

A：In the third quarter, Cadence's hardware verification platforms became the de facto choice for AI designs, offering industry leading performance, capacity, and scalability. The company saw record Q3 results with significant expansions at AI and HPC customers, and growing adoption of their AI-driven features and workflows.

A：Highlights of the system design and analysis business for Cadence include solid quarterly results, expanding innovative solutions, and growing adoption across a broadening customer base. Notable achievements include the significant expansion of the Cadence Reality Digital library with Nvidia's DGX SuperPort model.

A：The proposed acquisition of Hexagon's P&ES business and Msc software business is expected to bring industry leading structural analysis and multibody dynamics technologies to Cadence, complementing its multiphysics portfolio and accelerating its expansion in system design and analysis.

A：Cadence reported financial results for the third quarter including total revenue of $1339 million, GAAP operating margin of 31.8% and non GAAP operating margin of 47.6%, GAAP EPS of $1.50 with non GAAP EPS of $1.93, and strong balance sheet with cash balance and debt outstanding values.

A：The updated outlook for Cadence's 2025 financial performance includes script revenue growth of approximately script year over year, double-digit growth across all product categories, GAAP and non GAAP operating margins in specified ranges, GAAP and non GAAP EPS in specified ranges, operating cash flow in the range of $1.65 to $1.75 billion, and plans for share repurchase using at least script of annual free cash flow.

A：The growth in the IP business is being driven by multiple factors: the focus on profitable segments such as AI and HPC at advanced nodes, the entry of more foundries at leading nodes, long-standing partnerships with major foundries like TSMC, Samsung, Intel, and now Rapid, and improving performance with competitive power in design IP. Additionally, customer demand is bolstering the IP business.

A：The sustainability and visibility in the IP business are considered quite good. The performance has been exceptional, with a strong backlog and activities suggesting a continued positive trajectory into the next year.

A：The speaker is optimistic about the IP business growth in the next year, projecting that it will likely grow better than the company's average, with the possibility of growth being higher if the profitability is slightly lower than the EDA business.

A：The second half of the year had strong renewal opportunities with some of the large customers, contributing to the overall performance and backlog strength observed in the quarter.

A：The company's investment in AI infrastructure focuses on the first phase, which involves the acceleration of AI build-out. This investment is reflected in their bookings activity and is aligned with major investment phases in AI infrastructure.

A：The outlook for the EDA business is positive with all product lines performing very well and expected to grow double digits. The company is well-positioned, having exited the fiscal year with record backlog and broad-based momentum. While they do not typically guide for future years, they expect to maintain a disciplined approach with goals for double-digit top line growth, continued operating leverage, and balanced capital allocation.

A：The performance in China has returned to normal following disruptions in the second quarter due to specific policies. Design activities are strong across the region and the outlook for fiscal 25 in China is a year-over-year growth. There is no indication of unusual activity or potential disruptions from future quarters.

A：The acquisition of Beta CA and Msc Software is part of the company's strategy to position itself for future growth by aligning with emerging trends in AI and other sectors. The focus is on Silicon and Systems convergence and the acquisition is forward-looking, targeting growth opportunities in infrastructure AI, physical AI, and scientific AI.

A：The anticipated shift in AI technology is from text data-based AI to word model-based AI, where robots are trained using physical movement and sensors. One of the key challenges in training robots or cars is that there is not enough available data when training a word model.

A：Simulation is the best way to generate data for a word model, and fundamental simulation of multi-body dynamics is considered essential. Horizon 2, physical AI, and Hexagon have a leading simulator for multibody dynamics which is expected to position them well for physical AI.

A：The two pillars of the SNA business are EDD I and HPC (High Performance Computing) and physical AI and connected technologies. The speaker views these areas as the most significant growth areas in the future and believes that the acquisition will position the company with two strong pillars in SNA for future growth.

A：AI is being applied to design in areas such as verification acceleration with SAME AI and physical design with Cerebrals AI Studio. Productivity gains have been demonstrated with improved logic simulation efficiency and coverage by companies like三星、台积电、和 Nvidia. AI tools are adopted by major customers, and the speaker believes that as these tools are monetized over time, they will lead to significant productivity increases and revenue growth.

A：Factors contributing to the speaker's optimistic outlook include the exponential increase in chip design complexity, the acceleration of new chip program introductions, the addition of new customers like OpenAI, and the proliferation of AI into new markets like automotive. The speaker also anticipates continued momentum and growth in 2026 for the hardware platform.

A：The company has been working on porting their workload to a combination of CPU and GPU for several years. A prime example is the announcement of Millennium earlier in the year, where they are moving system analysis workloads and critical EDA workloads, which include accelerating EDA and 3D design, to the CPU GPU combination.

A：The partnership with Nvidia and Intel benefits the company by providing new opportunities for CPU plus GPU combinations, exemplified by the Xi plus GPU. This collaboration also enhances discussions with Intel and ensures investment in both the ecosystem for Foundry and Intel's own products, which is favorable for the company's progress.

A：The company expects that if the EDA tools improve due to the integration of CPU and GPU systems, customers will adopt them. Better-performing tools are beneficial to all customers and can lead to increased demand for EDA tools.

A：Design activity in China appears to have returned to normal. The company was prudent in their guidance at the beginning of the year due to expectations of a tough macro and geopolitical environment, which turned out to be accurate. Although it's difficult to predict the exact growth, the company expects China to grow this year, and the stability in the geopolitical discussions between the U.S. and China is positive for the business. The company anticipates strong design activity and a stable environment to further their business growth.

A：The company's full-year outlook assumes the current export regime remains substantially similar and incorporates prudence for regulatory variability. They are committed to compliance while supporting customers globally. The strength in the company's business is broad-based across all product categories and geographies, which positively impacts the company's outlook.

A：The Opex (operating expenses) dynamics are influenced by the timing of hardware delivery. In Q3, the expenses were benefited by a small restructure and very healthy hardware gross margins. However, in Q4, some new expenses arose due to recent acquisitions. The overall expenses for the year are slightly ahead of expectations, reflecting a broad-based execution and strong demand across all product categories.

A：The company is confident in its hardware position, being the only company that designs its own chips and has success with its proteome and FPGA systems. Hardware is not as predictable as software, but the company has good demand and sees big customers buying almost every year due to their high design requirements. This buying behavior is changing, with customers buying systems of chips instead of a single chip, impacting demand and revenue.

A：The company invests a significant portion of its revenue and expenses in R&D, with almost 60% of its expenses allocated to this area. Furthermore, over a script of its investment and headcount is in engineering, customer support, and R&D. The current systems already support 1 trillion transistor design, and the company is well underway in designing the next generation of hardware systems, which will be ready before 2030.

A：The company has made significant investments in AI to address the increased demand for chiplet and custom memory designs in AI and HPC projects. There is potential for growing pains and lower profitability due to the industry moving towards more customer-specific designs. The company is adjusting its investment plan and selling motion to accommodate this more custom nature, and there is a focus on profitable growth.

A：The shift towards custom silicon design is a major trend, with system companies increasingly committing to custom silicon. This is driven by the high demand for AI compute, with projections of growth of about 2x every year. Companies like Google, Microsoft, and Tesla are investing in internal chip design and need to invest in EDA, IP, and hardware. This trend is seen as healthy for profitability and financial benefits, with the company working with major players like Nvidia and Broadcom.

A：The company is collaborating with several major companies on the next generation of AI solutions, not just in the design of AI but also in AI for design. This collaboration is centered around a new emerging area called 'agent AI', which can aid in the development of the remaining manual part of chip design, specifically in the development of register-transfer level (RTL) code. The company has significant investment in AI and has announced several partnerships, including one with Nvidia. They are also marketing a platform called 'JedAI', which provides a standardized approach but can accommodate customer-specific data and be deployed on-prem or in the cloud.