Afternoon. My name is Jesse, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Design Systems 4th Quarter 2017 Earnings Thank you. I will now turn the call over to Alan Lindstrom, Senior Group Director of Investor Relations for Cadence Design Systems. Please go ahead.
Thank you, Jesse, and I'd like to welcome everyone to our Q4 2017 earnings conference call. I am joined by Lip Bu Tan, CEO and John Wall, Senior Vice President and CFO. The webcast of this call is available through our website, cadence.com, and will be archived through March 16, 2018. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Please note that today's discussion will contain forward looking statements and that actual results may differ materially from those expectations.
For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include Cadence's most recent reports on Form 10 ks and Form 10 Q, including the company's future filings and the cautionary comments regarding forward looking statements in the earnings press release we issued today. In addition to financial results prepared in accordance with generally accepted accounting principles or GAAP, we will also present certain non GAAP financial measures today. Cadence Management believes that in addition to using GAAP results in evaluating our business, it can also be useful to review results using certain non GAAP financial measures. Investors and potential investors are encouraged to review the reconciliation of non GAAP financial measures with their most direct comparable GAAP financial results.
The reconciliations are available at the Investor Relations section of cadence.com. Copies of today's press release dated January 31, 2018 for the quarter ended December 30, 2017 related financial tables and the CFO commentary are also available on our website. And now I'll turn the call over to Lip Bu.
Good afternoon, everyone, and thank you for joining us today. Through the execution of our system design enablement strategy and delivery of our innovative solutions, Cadence delivered strong performance for our shareholders. John will go through our results in a few minutes. The transition to the data driven economy based on creation, storage, transmission and analysis of data is transforming virtually every industry and driving strong demand for semiconductors. It is being propelled by key technology waves including mobile, cloud data center, edge computing and automotive.
And machine learning is further transforming all of them. We are well positioned for growth and value creation as we provide the solutions that fuel this technology waves. Let me begin by highlighting our progress and successes during the year for several key vertical markets, starting with cloud data center. High speed SerDes technology is essential for next generation hyperscale data center. In Q4, we acquired Neu Semi, which is developing ultra high speed connectivity solutions, and we are thrilled to have a very talented team on board.
The trend of system houses building their own silicon continues with the chip design group atpremierhyperscalewebserviceprovider adopting our software and hardware solutions for 7 nanometer designs. As we reported in Q3, we are collaborating with Xylene, ARM and TSMC to build the industry first test chip for cash coherent interconnect for accelerators or C6 incorporating cadence IP and using Cadence tools on the TSMC 7 nanometer FinFET process. 2017 was a year of rapid advancements for automotive. We make steady progress with our EDA, IP and Services solutions for this market. In Q4, we entered into a strategic relationship with market shaping automaker that will include software, hardware and IP and services.
Earlier in the year, we signed a large design IP deal with a major customer in the automotive semiconductor sector. We had several key wins for our safety, test and reliability EDA solutions. Our IP business had great traction. Pansilica is now in 2 of the top 3 and design IP is in 4 of the top 5 automotive semiconductor companies. The 3rd vertical that I want to highlight is Aerospace and Defense.
We have successfully built on our initial engagement with customers like GE Aviation and Nordrum Grumman to further our footprint with both defense contractors and governmental agencies. During the year, we strengthened our existing relationship and won new customers for software and hardware and services. System design enablement also requires expanding our investments and partnerships to provide increasingly integrated system solutions for mutual customers. There's a strong interest in our pSpice Metworks integrated solution, which bridge the system level design and chipboard implementation domains. Earlier adopters include customers in the Automotive, Aerospace and Defense and Medical segments.
In Q4, we acquired SFM Technology, an innovative company that accelerates advanced ECAT, MCAT, rivalry creation and is an important step towards expanding our system design enablement strategy into mechatronics. It was another strong year for innovation, which is the heart of our success. We introduced 8 new products in 2017, and we have now introduced more than 20 significant products in the last 3 years. Now I will move on to product highlights for both Q4 and 2017. Digital and sign off revenue grew 10% for the year, driven by increasing proliferation with market shipping customers and broadening adoption by other semi and system customers.
Broadcom continue to increase its investments in our digital platform, which proliferated throughout many advanced node projects. During the year, a global marquee company and a key IP partner expanded and deepened their investments in cadence technology, including our digital flow digital solutions. More than 100 customers have now deployed our digital and sign up products for advanced node designs. About 40 customers are using Cadence at the 7 nanometer nodes and have taped out over 30 designs, Demonstrating the strength across our product line, we had 20 full flow wins for the year. IP revenue grew 18% for the year as the outsourcing trend continues and our refined strategy drove strong results.
We booked by far our largest ever design IP contract. The agreement includes a broad array of our design IP, including DDR controllers and PCIe Express. Tensilica have a strong quarter with increased loyalties. Tensilica leadership in audio is leading to key wins in smart speakers market, while adoption growth for our DSPs are tuned for vision and neural networks. Momentum continued to build for the new software products in our verification suite.
But overall revenue was down 5% for the year due to hardware. In Q4, Xyleum, our new parallel logic simulator, added more than 25 new customers. More than 90 customers have adopted Axilium since its launch in February 2017. True to lumpy nature of our hardware business, after a slow start to the year, Palladium and Protium ramp up in Q4, and we finished the year with a significant backlog of orders. For the year, we added 20 new Palladium Z1 customers, 10 of those in Q4.
Sales of the new Proteum S1 FPGA based prototyping system was strong as we added 15 new customers and had 9 repeat orders. Jasper proliferation continue to accelerate. 9 of the top 10 semiconductor companies now use our former verification solution, and we doubled the number of new customers in 2017. For our custom and analog design solutions, newer market trend along with increasing design complexity drove strong demand for both our advanced node custom design and simulation solutions leading to revenue growth of 11% for the year. 2 of the top 3 memory companies have now adopted our Spectre XPS Fast Spy simulator and Characterization solutions.
System interconnect and analysis solutions grew 8% for the year, with growth across PCB implementation, IC packaging and security power integrity analysis. Newly launched Virtuoso design system platform and Allegro design through DFM products have been very well received. Our power integrity solution was a key driver for our strong security results with interest across multiple verticals. Now let me quickly summarize my comments. Consistent execution and broad based proliferation and adoption of our solution drove excellent financial results for the Q4 and for our full fiscal year.
Cadence along with the semiconductor and EDA space is benefiting from a number of technology waves centered on machine learning. Adoption of our digital sign off solutions by market shaping customers is broadening our reach and customer base. Our refined IP strategy led to strong mid teen growth. We are excited about the acquisition of Niu Semi, which we expected to add next generation high speed SerDes for modern cloud data center applications. Momentum has continued for our custom and analog solutions as both large and small customers have adding capacity.
We are proud of what we accomplished in 2017 and excited about the opportunities ahead for 2018. With that, I will turn the call over to John to review our financial results and provide our
outlook. Thanks Lip Bu and good afternoon everyone. I'm very pleased to say that we met or exceeded our key operating metrics and delivered strong financial results for both the Q4 fiscal year 2017. First, I will go through the key results starting with the P and L. Total revenue was $502,000,000 for Q4, up 7% over the prior year period.
For the year, revenue was $1,940,000,000 also up 7% year over year. Non GAAP operating margin was 30% for Q4 and 27.5% for 2017. On a GAAP basis, Cadence reported net income of $0.73 per share for fiscal 2017 and a net loss of $0.05 per share for Q4. These GAAP results reflect a total one time charge of $92,000,000 or $0.33 per share on a provisional basis for U. S.
Tax reform, of which $67,000,000 or $0.24 per share was for the mandatory repatriation tax and $25,000,000 or $0.09 per share was for the revaluation of our net deferred tax asset resulting from the U. S. Corporate tax rate reduction. Please note that these provisional amounts may change as Cadence continues to evaluate the impact of the Tax Act. Non GAAP net income per share was $1.40 for the year, up 16% over 2016 and $0.39 for Q4, up 15% year over year.
Now turning to the balance sheet and cash flow. Cash and short term investments were $693,000,000 at year end of which 80% was outside of the U. S. We had $735,000,000 of debt outstanding at quarter end which includes $85,000,000 that we drew down from our revolving credit facility during the quarter. Operating cash flow was $127,000,000 for Q4 $471,000,000 for 2017.
During Q4, we used $143,000,000 for acquisitions and repurchased $50,000,000 of Cadence shares. DSOs were 36 days. Before I present the outlook for Q1 and fiscal 2018, I'd like to talk a little about the impact of U. S. Tax reform and our transition to new revenue rules.
First, the impact of U. S. Tax reform. It has only been 40 days since the U. S.
Tax Cuts and Jobs Act was signed into law. We've done a lot of work and we have a lot more to do. But as of today, here is what I can tell you about its impact on Cadence. Based on our analysis of the act, our non GAAP tax rate will fall from 23% to 16% for 2018. As mentioned earlier, in Q4 we recorded a $67,000,000 charge for the mandatory repatriation tax and $25,000,000 for the revaluation of our net deferred tax assets resulting from the U.
S. Corporate tax rate reduction. We do not expect a meaningful impact on cash used for taxes in 2018. We expect to repatriate international cash but given the logistics involved we are still determining the timing and amount of repatriation. In the first half of this year, we plan to review our overall tax position in light of the new tax act.
As of now, that's about as much as we can say about the impact of the new tax act, but we are continuing to work on it and we plan to provide further information in our Form 10 ks when it is filed in a couple of weeks. Now I will discuss the changing revenue rules. Cadence has adopted the new revenue accounting standard known as ASC Topic 606 for fiscal 2018. For ease of communication over the course of the next few minutes, I plan to refer to the new revenue accounting standard simply as the new revenue rules or the new rules. To contrast it with the former standard ASC Topic 605 which I will refer to as the old revenue rules or the old rules.
The first thing to mention about our transition to the new revenue rules is there will be no impact to our cash flows or to how we operate our business. The impact on our expense line is minimal and the portion of our revenue recognized over time will remain approximately 90% under the new revenue rules
just as
it was under the old revenue rules. However, there is a difference in our revenue guidance for 2018 under the old and new revenue rules and I'll explain now why this difference exists. In the recast process on transition to the new revenue rules, some of our contracts that had upfront revenue recognition under the old rules shift to recognition over time. And some contracts that were recognized over time become upfront. Cadence is using the modified retrospective transition method to adopt the new revenue accounting rules.
Under this transition method, only a subset of orders are recast and recognized as revenue under the new revenue rules, specifically those orders that were in our backlog at the end of 2017. During this recast process, we expect to take approximately 3% of our backlog that would have primarily been recorded as revenue over the 2 years under the old revenue rules and included immediately as an adjustment to our opening retained earnings on the balance sheet for 2018. As a result, we estimate that our revenue under the new rules in 2018 will be approximately 2% lower than it would have been under the old rules. We expect the difference between revenue under the new rules and old rules to gradually decline over time and be de minimis within 2 years. Guidance for the year will be provided under both the new and old rules, while quarterly guidance will only be provided on the basis of the new rules.
We will report revenue under both sets of rules for every quarter in 2018. Now I will provide our guidance. For fiscal 2018, we expect revenue in the range of 2.015 to $2,055,000,000 under the new revenue rules. That range would be 2.055 dollars to $2,095,000,000,000 under the old rules or growth of approximately 7%. We expect non GAAP operating margin of approximately 27% under the new rules.
Adjusting for the difference in revenue, this implies a non GAAP operating margin of 28.4% under the old rules. We expect GAAP EPS in the range of $0.80 to $0.90 which would be $0.93 to $1.03 under the old rules. Non GAAP EPS of $1.50 to $1.60 which would be $1.62 to $1.72 under the old rules. We further expect operating cash flow to be in the range of $480,000,000 to $530,000,000 And we expect to repurchase Cadence common stock at the rate of $15,000,000 per quarter during 2018. For Q1, our guidance based on the new revenue rules is as follows: revenue in the range of $500,000,000 to $510,000,000 non GAAP operating margin of approximately 26%, GAAP EPS in the range of $0.20 to $0.22 and non GAAP EPS in the range of $0.36 to 0 $0.38 We expect our DSOs for Q1 to be approximately 40 days.
You will find guidance for additional items in the CFO commentary available on our website. I want to leave you with the following points. Cadence had a strong finish to 2017 and we're excited about our prospects for 2018. We will continue to improve our operating profitability in 2018. Our guidance implies an operating margin of 28.4 percent for 2018 under the old rules which is up from 27.5% we achieved in 2017.
And I'm delighted to finish 2017 with 7% revenue growth for Q4, 7% revenue growth for 2017 and a projection for 7% revenue growth for 2018 on an apples to apples basis under the old revenue rules. And with that operator, we'll now take questions.
Your first question comes from Gary Mobley with Benchmark. Your line is open.
Hi, guys. Thanks for taking my question. Congrats on a strong finish to the year. I want to start with a question about contribution from the New Semi acquisition. You mentioned you paid about $142,000,000 for the acquisition.
Just given market multiples, I'm assuming maybe New Semi was operating with about $25,000,000 in annual revenue and maybe adding about 100 basis points to your fiscal year 2018 outlook. Am I doing that analysis correctly?
I don't think so, Gary. You're right in terms of we use the $143,000,000 of cash for acquisitions in Q4. We're not disclosing any more details at this time, but we don't expect those acquisitions to become accretive until 2019.
Okay. So because the purchase accounting is not flowing through the income statement in 2018?
Any impact on 2018 is included in our guidance. I will provide more information in our Form 10 ks when we file in a couple of weeks.
Okay. All right. And did you mention that the Emulation backlog increased year over year despite having a down year for emulation in 2017?
Yes. As mentioned earlier, this is a lumpy business and we have a slow start in the 1st three quarter. We have a strong finish and we are very excited and that we have a significant backlog of orders going to the 2018.
Okay. All right. I just had one follow-up question on this ASC 606 issue. I'm assuming you're going to start recognizing emulation revenue more ratably versus upfront.
And
correct me if I'm wrong if that's not the component that's moving upfront. But
No. Sorry, Gary, that's not the case. We have a slight difference. Some of our revenue goes from upfront over time, and that's mainly software perpetual revenue. That's a small portion of our business.
And the piece that's mainly moving from previously ratable to upfront is some of our IP business. Hardware, we've recognized upfront and that's partly why it's been inherently a lumpy business for us.
Okay. Help me understand how this balances out over time, the difference between ASC 606 and 605. This is just the way you're booking the revenue as we annualize this issue?
Sure. So like I said in the prepared remarks, during the recast process, we expect to take approximately 3% of our backlog that would have primarily been recorded as revenue over the next 2 years under the old rules and then included immediately as an adjustment to our opening retained earnings. Now about a third of that, we never get back that about 2% of that backlog becomes a timing difference. And then we will gradually grow that revenue over time layer over the next 2 years such that ASC 606 and 605 revenue would be the same. We believe if you take the difference in our guidance, there's about a $40,000,000 difference between in revenue in 2018 between both sets of revenue rules.
That's around 60% of the total difference. We expect the difference between revenue under the new rules and old rules to gradually decline over time and be essentially de minimis within 2 years. Okay.
And Gary, just to go back to the first question that the NIO Semic acquisition plus SFM Technology acquisition. So we did 2 acquisition that we used 143,000,000 cash.
Okay. That's helpful. All right. I'll let others ask questions. Thank you, guys.
Thank you.
Your next question comes from Jay Vleeschhouwer with Griffin Securities. Your line is open.
Thanks. Good evening. Lito, let me start with you on an EDA market question. To what extent are you seeing that the frequency of intra contract new or expansion business is perhaps increasing, reflecting the positive inflection that we've been seeing in semi R and D. In other words, customers are coming back for additional business, notwithstanding that they may not actually be up for renewal?
Are you seeing more of that kind of walk in business for any part of the business?
Yes. So good question. And as you recall and we are very disciplined in terms of our agreement with our customer. We have this average 2.5, 2.6 year durations And that is a contract we have in place. But from time to time, we also have customer come back to us and to add on some of this we call it add on business.
That is not part of the agreement because of model new product and new technology will come out in the new advanced nodes. And those are we keep track of that very carefully because that is where you show the growth for the future. And we are very excited that our this add on business is coming strong. And I mean that indication of strong growth and what I described earlier, this data driven economic, some of the 3 of the vertical market we are focusing on And the system company, they're building their own silicon team to differentiate their products and also their demand for the advanced nodes and more complicated design, they come to us and we are really excited about that.
Okay. I have just two more questions. I'll ask them, but at the same time for John. On the last conference call, a quarter ago, we talked a bit about customer concentration and you mentioned that you have no customers at more than a single digit percentage of revenue. The question is, is there some upward trend however for any customers beyond that?
In other words, that was a snapshot, but have you seen any customers in fact increasing from perhaps low single digit to mid single digit on their way to high single digit perhaps. Just as for example in the case of Synopsys, Intel has grown from 10%, 11% of their business to 16%, 17% of Synopsys. Is there some similar trend for any customers in your case? And then just to wrap up on the product side for Lip Bu, you mentioned some of the early momentum for Protium. My question is, how do you see the addressable market developing for FPGA prototyping?
It's much smaller to date than emulation as best we can tell. It's a less than $100,000,000 category, predominated thus far by Synopsys. Do you foresee perhaps that category growing several fold eventually the way emulation has over the last decade and thus make it worthwhile for you to be in that market?
So I think Jade, I think you have two questions. So let me address the first one first in term of customer concentration topics. First of all, I think we have a very broad portfolio. We also have a very I call it long tail analog and industrial usage and that are very stable and a good business for us. And then meanwhile, we also have this new newly developed digital flow that we have a lot of proliferations and with different account.
And the good news is we have all the customer most of the customer are growing and we are delighted and to support them. And but we are continuing to have that not more than one customer. They have 6% of our business. So it's a very broad growing in the diversify and that's something that we like. And meanwhile, we love the customer continue to grow and buy more of our products.
And in summary of your second about the Protium, and as you recall, we have the hardware emulation product and that is still the best in the emulation business. And we continue to grow well as Ken mentioned earlier the Q4 we have a strong finish, we have a strong backlog going forward to 2018. And we also come out with this Protium and we call it S1 and that also gaining a lot of traction. We have 17 new customers and 11 repeat orders. And this is the correctly point out is the FPGA based prototyping system and more software oriented.
And that I think we are delighted. We are getting a lot of traction, a lot of interest from the customer. And then at the end of the day, we right now, we are very focused is the whole verification suite. And that consists of Jasper, the former verification consists of clearly the hardware and also we have just the simulation new tool, Axilium. We are delighted after the launch.
We have 90 customer adopted. And then we have the hardware and now we have a protean and so we have a complete suite going forward. Many customers love that solutions.
Great. And Jia, I wouldn't add any more to that. I think Lip Bu has covered it all. Okay. Thank you.
Your next question comes from Monika Garg with KeyBanc. Your line is open.
Hi. Thanks for taking my question. First question, John, this 2018 ASC 606 is about $40,000,000 negative impact. In 2019, is it fair to assume you are saying 60% of the impact this year that means next 2019 is probably close to somewhere $30,000,000 to $35,000,000 negative impact?
Again, like I say, Monica, that we'd the difference between revenue under the new and old rules to gradually decline over time and be de minimis within 2 years.
So some in
'nineteen and then mostly 0?
There is a very, very small difference in 'twenty, but it's minimal.
Got it. Okay. Thank you. Then Lip Bu, IP grew strongly in the year, close to 17%, 18%. So and you made an acquisition also, which probably helps 2018, but how to think about IP growth rate going forward?
You think it can grow about low double digit sustainably?
Yes. So I think first of all, I think the Q4 we're excited for the whole year IP grew 18% and under the leadership of Babu. And this outsourcing trend is continue. And then the other part is clearly the our refined strategy is really working. And we signed a couple of very important key contracts, the largest design IP.
And then also clearly, we have Tensilica is a really very good IP that have strong loyalty growth and that apply into the whole machine learning, deep learning and neural networks and also the audio vision processing application market. So I think overall, I think we like what we have. And then meanwhile, this new semi acquisition is strategically very important to us. As you all know, this scale out of the data center and high speed SerDes is essential and for the next generation of data center and cloud. And this is a very, very talented team and we are very, very happy to have them join us.
And then we also have this Xyleen and ARM TSMC using the Cadence IP and Cadence tool for the 7 nanometer for also for the data center market and server market. So I think overall, I kind of we kind of like our IP portfolio and IP team and also the continue to look for the right IP that are really important to our vertical market, the STE market, in the automotive, in the data center and then also the defense and aviation industry and the market. And that's where we are kind of going the vertical part and that's where the growth going to come from and a lot from for cadence.
Got it. John, non GAAP tax, it went lower. How about cash taxes? Any change to that?
Cash taxes around 11% to 12% is what the cash tax was for 2017. You'll see that detail in the Form 10 ks when we file it in a couple of weeks. And I would expect that to be maybe slightly lower for 2018.
Got it. Just the last one on emulation, grew very strong in 2015 2016 2017 slightly lower given 2 very strong years. How should we think about emulation given you talked about backlog also going forward? Thank you.
Right. Well, as Lip Bu mentioned, hardware revenue is down for the year in 2017. But as we said before, hardware is an inherently lumpy business. And after a slow start to the year, we're pleased with the way the year turned out and we had a good finish and exited the year with good backlog of orders. I would I mean, we're very confident in the secular trend in demand for emulation capacity that continues.
Palladium G1 is still the most advanced has the most advanced capabilities of any emulator on the market. And our existing customers continue adding more capacity. So we feel good about our hardware business for 2018.
Got it. So we should expect it to kind of return to a good growth going forward?
Monica, at 7% revenue growth on an apples to apples basis, I think we'd expect all product groups to grow in 2018.
Got it. Thank you.
Your next question comes from Mitch Steves with RBC Capital Markets. Your line is open.
Hey, guys. Just one clarifying question just on the acquisitions. Just to be clear here, so you're essentially messaging that the acquisitions did not contribute anywhere or more than 1% to the top line for 2018?
We're not distilling any more details at this time, but we will have further information in our Form 10 ks in a couple of
weeks. Okay.
And then secondly, just to make sure on the share count here. So we should just assume a $50,000,000 buyback every single quarter and I'm assuming that's encapsulated in the guidance as well?
Yes.
Okay. And then one last small one just on the margin front. Was there any impact from the accounting change in the margins as well?
So, of course, yes. You'll see in our guidance, we've given our guidance. It's on the CFO commentary. But there was no one point. Yes.
We're guiding 27% operating margin under the new rules and it's that the implied guidance under the old rules will be 28.4%.
Right. So I guess my question is the margin hit is going to go on the ratable subscription piece not really to the hardware business, correct?
The difference is just that $40,000,000 of revenue, that there's a minimal impact on expenses.
Okay, perfect. All right. Thank you very much.
Thank you.
Your next question comes from Farhan Ahmad with Credit Suisse. Your line is open.
Thanks for taking my question. My first question is regarding the New Semi acquisition. You are entering the SerDes design IP space. Now Broadcom is a very important customer. You mentioned highlighted it on your call.
Now they would end up becoming your competitor literally once you enter the market. Do you see any kind of conflict entering this space?
Yes. This is very good IP on the data center and the demand is so strong. And so with a lot of respect for Broadcom and then meanwhile there's some opportunity for us also and we're only going to license the IP.
Got it. And then can you just talk about your philosophy around the stock based comp? It's risen quite a bit as a percentage of your sales. It used to be like 3% to 4%, now it's about 7% to 7.5% of the sales. How should we think about stock comp going forward?
And how should we think about stock dilution from employee stock grants going forward?
Hi, Farhan. This is John. I mean, stock is just one part of the overall compensation package and different companies have different mixes of the package.
And then from Cadence, as I mentioned, the success we have is because of we continue to drive the innovation. For that we attract and retain the best talent we can get and so far is working well.
Got it. And then one accounting question to John. I'm just trying to reconcile my model. The cash flow from operations is not going to be impacted because of the accounting change yet the net income is going to be impacted. So can you help me just understand like what's the plug that's different now that basically bridges the gap between the net income to the free cash flow.
How we should think about it? So,
Faran, total difference between ASC 606 and 605 results is that $40,000,000 of revenue? Yes. That's it. I think you need to just if you go through your model and apply that, that everything else is minimal. There's minimal impact on expenses.
And you're correct, it's just an accounting change. There is no difference to our cash from operations. There's no difference to how we go to market. There's no difference to how we bill or contract our business with customers.
Got it. And then one last question on the Specter impact. Is any of your Tensilica IP impacted by Spectre?
Spectre? Say again, your question?
So recently there were security issues for processor, spectrum meltdown. I'm just curious if Tensilica core IP, if there is any impact
to your processors over there?
Yes. The one thing is, clearly, the security is quite important at this stage. And then we protect our IP and the data and the system and our customers very religiously and we are committed to that. And clearly the comprehensive design and verification had to be a lot more robust and we take good care of that. And so far, knock on wood, we are okay.
Thank you. That's all I had.
Thank you. Thanks.
Your next question comes from Rich Valera with Needham and Co. Your line is open.
Thank you. Lip Bu, I was wondering if you could give any more color around what sounds like some pretty good, I guess, share gains inside of Broadcom, sort of what's driving that? Any more specifics in terms of the applications or technologies they're working at, geometries they're working at? And then obviously, Broadcom has made overtures towards Qualcomm. And just wondering how you think about that transaction if it were to happen.
Could there be issues around pauses in spending or could it would ultimately be you think an opportunity presumably having lived through the prior Avago Broadcom maybe have something to look back on that?
Thanks. Yes. First of all, we a lot of respect for Broadcom. It's a very successful company run by Hawk and we are delighted. They embrace and invest into the digital platform we have in many of the advanced nodes projects.
We'll continue to support them for their success. And in terms of the Qualcomm and Broadcom both are very respected company and they are leader in their space. And I do not want to comment or speculate any of the impacts.
Got it. And just I missed the second acquisition that I think you called out that you made in the system space. What was that company?
Yes. So it's called SFM, it's innovative product and accelerate the advanced e cat and MCAT and mechanical cap in the library creations. And this is one of the very important step for us to expand our SDE into this mechanic electronics area. This is kind of part of a very important piece for us to move into the SDE for some of the vertical market we're trying to address.
Got it. And then John, you said they're not accretive until I think 2019. Are they actually dilutive in 2018?
A little bit, yes.
Okay. And will you actually have the expected revenue contribution in that K filing or what will you have incrementally on the revenue side in that K?
I don't actually know right now, But like I say, our guidance includes everything that we've taken everything into account in our guidance. But we've been like I say it's been 40 days since that U. S. Tax Cuts and Jobs Act and it's been like 40 days 40 nights going through the tax reform and dealing with this change over to new revenue rules. There is additional information going into the Form 10 ks and we're about 2 weeks away from filing.
I would look to that.
Fair enough. Thank you. Thank you both.
Thank you.
Your final question comes from Tom Diffely with D. A. Davidson. Your line is open.
Yes, good afternoon. I was hoping to get a little more information about some of these traditionally smaller end markets that seem to be growing and hope you can provide a little background as to what your exposure is now to advanced packaging and memory, How you've seen that grow recently? And what you think about the future with some of the new changes that they're going through?
Yes. Thank you, Tom, for asking this question. So clearly, this the advanced packaging, it become more and more critical. We are delighted. We have a very good offering in the beside the IC packaging, we also have the ball level packaging.
And on the silicon side, the 2.5D, 3 d become more and more adopted by the customer and also the foundry partners, especially in some of this, like for example, high speed 30 connectivity and then some of this really had to drive some of this packaging efficiency. And we work very close with our foundry partners for the some of this 2.5D packaging and so that we can provide the overall solutions. And also I think some of this 3 d NAND and then the packaging has become more and more critical. That part I think we look very, very close to that. And then I mentioned earlier about the 30, when you move up every 100 gigs, 30, the insertion loss is going to be critical.
And again, some of this 2.5D and even for tonic packaging is going to be very more important. And then so those are the things that we try to find solution to help and enable our customers.
Can you give us some sense of how fast these markets have grown over the last year or 2 and what you think the growth rate is going forward?
Yes, good question. Sometimes it's very hard to predict the growth rate, but I can tell you we are way ahead on the 2.5D and 3 d couple of years ago. And when we talk to the foundry partners and packaging company, they are telling us that well, there's no customer request for it. But now the customers, I think, to request them and coming to us. So I think people starting to realize pinpoint this all time to find solution.
We're delighted we have some of the solution that they need to help them to design and drive packaging efficiency and drive some of the performance they need.
And then finally, do you have technology today that enables them to work on kind of the next generation of memory, the MRAM and the different types of memory that potentially comes up over the next 5 years?
Yes. Memory become more and more critical and this whole data driven economy has a lot to do with data and storage. And that's something I pay a lot of attention and we're delighted. I highlight 2 of the 3 memory company are using our the Spice Fast Spice simulator and then also the characterizations of solutions. And also a couple of them are working closely with us in some of our tool and solution we need.
And we will continue to support our customer with all the help them work closely with them. Some of them need the IP, the memory IP, we are supporting them. And some of them need a tool to drive some of the efficiency performance they need. And then some they need the packaging side. So memory and data storage become more and more critical in this big data and data analytics and the machine learning, deep learning.
We pay a lot of attention to that.
That concludes our question and answer session today. With that, I'll turn the call back over to Lip Bu for his closing remarks.
In closing, through consistent execution and innovation, we are well positioned to build on the positive momentum of our system design enablement strategy to enable the data driven economic. I would like to thank all our shareholders, customers and partners, Board of Directors and very hardworking global employees for their continued support. Thank you all for joining us this afternoon.
Thank you for participating in today's Cadence Design Systems 4th Quarter 2017 Earnings Conference Call. This concludes today's call. You may now disconnect.