On Tuesday, Rosenblatt has changed its stance on Cadence Design (NASDAQ:CDNS) Systems, Inc. (NASDAQ: CDNS), lowering the stock's rating to Neutral from Buy, while increasing the price target to $280 from $265. This shift in rating follows the company's fourth-quarter earnings report released Monday after the market close, which met revenue expectations and reported slightly better margins.
Cadence Design's fourth-quarter results showed a healthy demand for its EDA hardware, IP, and simulation software, with total revenue growing by 19% year-over-year. Despite this growth, the company's guidance for the first quarter of 2024 was less promising, forecasting revenues significantly below analyst expectations. The projected Q1 revenue range is between $990 million and $1,010 million, with a midpoint of $1 billion, which falls short of the consensus estimate of $1,090.3 million.
The company's backlog, which reached $6 billion in the fourth quarter of 2023, saw a modest year-over-year increase of 3%. This slower backlog growth contributes to the more conservative outlook for the upcoming quarter. Additionally, revenue from China, which accounted for 17% of Cadence's total revenue in 2023, is anticipated to decrease to 14-15% in 2024.
Cadence expects upfront revenues, primarily from hardware and IP sales, to represent 17.5% of its total revenue in 2024, up from 16% the previous year. These upfront revenues are projected to become a more significant contributor as the year advances. Following the fourth-quarter earnings report, Rosenblatt has made slight adjustments to its forecasts and, with time passing, decided to raise the target price. However, the firm anticipates that the stock may face near-term pressure due to the subdued first-quarter outlook and the expected reduction in revenue contribution from China.
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