Good afternoon. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Design Systems Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. I will now turn the call over to Alan Lundstrom, Senior Group Director of Investor Relations for Cadence Design Systems. Please go ahead.
Thank you, Jennifer, and welcome everyone to our Q3 2017 earnings conference call. With me today are Lip Bu Tan, President and CEO and John Wall, Senior Vice President and CFO. The webcast of this call can be accessed through our website cadence.com and will be archived through December 15, 2017. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Next, please note that today's discussion will contain forward looking statements and that our 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 issued today. Note that this afternoon we filed our 10 Q for the quarter ended September 30, 2017. 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 measures or results, which can be found in the quarterly earnings section of the Investor Relations portion of our website. Additionally, a copy of today's press release dated October 26, 2017 for the quarter ended September 30, 2017 and related financial tables and our CFO commentary, which was included in our 8 ks filing today can also be found in the Investor Relations portion of our website. Today, following Lipu's remarks, John Wallen will present the financial results and outlook. Then Lip Bu and John will be available during the question and answer period. And now I will turn the call over to Lip Bu.
Good afternoon everyone and thank you for joining us today. Kadant achieved excellent operating results for the Q3 through consistent execution and broad based proliferation and adoption of our digital and sign off, custom analog and IP solutions. John will provide more details on this in a few minutes. There is favorable dynamic that is benefiting the semiconductor industry, EDA and cadence driven by growth in emerging technology trends such as machine learning, IoT, edge computing and autonomous driving. Now let us take a closer look at our highlights from Q3.
Starting at the customer and ecosystem level, Cadence is collaborating with Xyleen, ARM and TSMC to build the 1st test chip for cash coherent interconnect for accelerators or C6 using the TSMC 7 nanometer FinFET process. This chip contains Cadence IP and is designed using a full cadence design flow. Applications such as big data analytics, search, machine learning and 5 gs wireless will benefit from C6. We signed an agreement with longtime customer, Dialog Semiconductor, where we have grown to become their prime EDA partners based on the strength of our mixed signal solution. And they are now using our latest products in simulation and digital implementation.
In Q3, we extended our collaboration with Hitachi for system design enablement, spending chip level to PCB level mixed signal designs with thermal analysis, hardware software codesign code verification to address functional safety requirements. InvenSense, a business unit of TDK that develops sensor SoC expanded their use of our mixed signal design solution. TSMC recognized Cadence with 3 Partners of the Year awards for the joint development of both 7 nanometer FinFET Plus and 12 nanometer FinFET Compact Design Infrastructure as well as for joint delivery of automotive design enablement platform. Now I will move on to products highlights. Digital and sign off revenue grew 15% year over year in Q3, driven by increasing proliferation with market shipping customers and broadening adoption by other customers.
In terms of specific highlights, a global marquee company and a key IP partner expanded and deepened their investment in cadence technology, include our digital solutions. Quantenna Communication, a leader in carrier class Wi Fi chips adopted our full digital flow, including Genus Synthesis, Innovus implementation and Tempus for timing sign off. More than 80 customers have now deployed our digital and sign off products for advanced node designs, with more than 35 of those for 7 nanometer designs. IP revenue grew 14% year over year in Q3 as our refined strategy continues to achieve strong results under the leadership of Babu Mandava. In Q3, we expanded our relationship with a large Asian memory chipmaker for LPDDR4, PCIe Express Gen 4, NAND Flash PHYs and Tensilica DSPs, which is a foundation for their next generation platform.
We deliver a comprehensive automotive IP portfolio for TSMC 16 nanometer FinFET automotive process technology that includes our flagship DDR and PCIe Xpress 5 PHYs and controllers. Tensilica continues to be the market leader for audio signal processing and adoption is growing for our DSPs that are tuned for vision and neural networks. In Q3, 10 customer licensed Tensilica IP, including 5 in China. 4 of the 5 China customers were new. For system design and verification, momentum continue for Xyleum, our parallel logic simulator, which added more than 15 new customers in segments including mobile, communication, storage and memory.
More than 50 customers have now adopted Xyleum. Palladium Z1 is the most advanced emulator on the market. In Q3, building on the comprehensive software relationship, Marvell expanded its investment in Palladium Z1 to extend emulation use to all its engineering projects. The new Protium S1 FPGA based prototyping system continues to gain traction in Q3 with 17 purchases, 9 of which were repeat orders. Revenue growth has been strong this year for our custom analog design solutions, up 12% year over year for Q3 as increasing complexity is driving increased needs of advanced node custom design and simulation solution.
Our system interconnect and analysis solutions grew 7% year over year for Q3 with growth in PCB implementation, IC packaging and security power integrity analysis. Before turning it to John, let me quickly summarize my comments. Consistent execution and broad based proliferation and adoption of our solution drove excellent financial results. Semiconductors, EDA and Cadence are benefiting from a number of emerging technology trends. Proliferation of our digital and sign off solutions continue to grow with market shipping customers and adoption is broadening to other customers.
IP growth has rebounded this year to over 10% with our refined strategy. Custom and analog growth is strong as both large and small customers have been adding capacity. John will now review the financial results and provide our outlook.
Thanks Lip Bu and good afternoon everyone. Strong demand for our products and consistent execution enabled Cadence to deliver excellent operating results for the Q3, highlighted by revenue, non GAAP operating margin and EPS at or above the high end of our guidance range as well as strong cash flow. First, I will go through the key results starting with the P and L. Total revenue was $485,000,000 up 9% over the year ago quarter. Digital and sign off, custom analog and IP revenue were strongest with functional verification modestly below the Q3 2016 level.
The mix for revenue recognized over time was approximately 90%. Non GAAP operating margin was 27.5% as a result of higher software and IP revenue and continuing to maintain a diligent focus on costs. GAAP net income per share was $0.29 Non GAAP net income per share was $0.35 up 17% year over year. Now turning to the balance sheet and cash flow. Cash and short term investments were $682,000,000 at quarter end of which $187,000,000 was in the U.
S. We had $650,000,000 of long term debt outstanding at quarterend. We repurchased $50,000,000 worth of Cadence shares in Q3 and we expect to continue repurchasing shares in Q4. Operating cash flow was $89,000,000 and DSOs were 34 days. Next, I will present the outlook for Q4 and fiscal 2017.
For Q4, we expect revenue in the range of $490,000,000 to $500,000,000 with approximately 90% of revenue expected to come from beginning backlog. Non GAAP operating margin of approximately 30%, GAAP EPS in the range of $0.26 to $0.28 and non GAAP EPS in the range of $0.38 to $0.40 Based on this Q4 outlook, we now expect fiscal 2017 to look like this. Revenue in the range of $1,930,000,000 to $1,941,000,000 non GAAP operating margin of 27% to 28%, GAAP EPS in the range of $1.04 to 1 $0.06 non GAAP EPS of $1.39 to 1 $0.41 and operating cash flow in the range of $450,000,000 to $480,000,000 Please note that we increased our fiscal year outlook for revenue, EPS and cash flow. You will find guidance for additional items in the CFO commentary. Next, I want to discuss our preparations for the new revenue accounting standard known as ASC Topic 606, which Cadence is required to implement for fiscal 2018.
My team and I have spent a lot of time on the new standard. Previously, we said that we expect to substantially retain revenue over time treatment and here is an update for where we stand today in our preparations. We expect our revenue over time mix to remain at approximately 90%. In the year of adoption, we expect that our revenue under the new standard will be slightly lower than under the old standard. This results from a one time accounting adjustment to retained earnings upon adoption of the new standard.
We are using the modified retrospective transition method, which means that during the year of adoption, we will report revenue under both the new and old standard for 2018. There will be no impact on cash flow or the economics of the business. By 2019, we do not expect a material difference in what revenue or expenses would have been under the old and new standard. Now to conclude my remarks, Cadence just completed a very strong quarter. We raised our numbers for the year and I'm looking forward to working closely with Lip Bu and the rest of the company to continue to drive more success going forward.
And with that, operator, we'll now take questions.
Your first question comes from Krish Sankar with Bank of America.
Hi. Thanks for taking my question. I just had a few of them. First one, John, just on the housekeeping on the ASC 606. In FY 2018, would your ratable revenue still be around 90% or is that going to be a transition year?
Yes, yes. We continue to expect to remain at approximately 90% for revenue over time.
Got you. Got you. All right. And then on the op margin, it looks like you're doing pretty well, like 27% to 28% this year, run rate of almost 30% in Q4. Should we expect the high 20s or trending towards 30% to be the new norm for op margins?
Well, at this point, we're not giving any guidance for 2018. Everything that we know is in our guidance for Q4.
Got you. All right. And then a question for Lip Bu. If you look at the whole like industry, the memory industry is transforming dramatically and there's more newer application for memory being utilized and you're also seeing the similar thing happening on the logic foundry side with processing power and storage. Just trying to figure out like how does that impact cadence in the long run?
I understand that design for memory has not been a big part of the mix for EDA companies in general, but I'm just curious in the long term tenure, when you look at all these like new things happening like AI, how does the improved computing or processing power and the storage power translate to EDA design for cadence?
Yes, Chris, thank you for the questions. And this is a very important question. And then first of all, as you know, right now, with all the edge computing and all the big data analytics and storage and memory become more and more critical because of the latency and the local access very critical. So to me more and more become a memory centric design for a lot of data center and edge computing. So memory become very important to us and that's why I think we mentioned about Asian big memory company adopting of some of our key IPs beside the tools.
And so we put a lot of more effort into the memory storage side because of this major trend that I see that in my remark I mentioned about edge computing, the IoT and this autonomous driving and that become critical. And so we have a lot to offer beside our DDR, the memory and all the PCIe, so all the key IP and also the Tensilica become playing a very important role. And then the other part is also some of this our mixed signal solution become critical to some of this memory player and the storage player and that we are excited about. And in fact, we announced the legoto memory solution that is the first integrated memory design and verification solution is to addressing what you described the opportunity for us.
Got it. Got it. That's very helpful. And then just a final question. Of your total revenue, what percentage is from systems and what percentage of your total revenues from the auto industry?
So your question is how many percent of our revenue is system and roughly about 40 plus and we don't have it's difficult to break down because some company they have the silicon, they also have their system and how you divide it. But I think the overall trend as I mentioned earlier beside the EDA while moving towards the system design enablement. And we target a couple of vertical that are very important to our future growth and that's a huge opportunity for us like automotive and ADAS related application. Same thing with the cloud data center and that we are very exciting. And then the other part is this whole industrial IoT and that back to our question about the storage and latency issue and that to me is a very huge opportunity for us to pursue in some of this vertical growing and in a much bigger TAM market for us.
Got it. Very helpful. If I can just squeeze one last, I apologize for this. Would like applications like ADAS, would you characterize this as systems or would that be considered since it's part of silicon, is it part of your core EDA business? Thank you very much.
Yes, good question. And for the ADAS, there are some company providing the system. And in fact, in our last earning call, we mentioned about ADAS system company using our PCIe Gen 4 IP on this new advanced 7 nanometer process. And so that's just one example of working with the system company Tier 1 or OEM. And then the other part is now very important to us is some of the semiconductor player.
And we mentioned about the top 5 semiconductor company in automotive and automotive semiconductor company are using our Cadence IP and many of them are also using our mixed signal design flow. And then some part of the this automotive LiDAR application, they are using our Tensilica engine, like for example, Rome, last quarter we highlight that. So I think all in all, you can slowly, slowly tracking us how successful we are in some of this vertical we are going after and because of the trend changing and this is exciting for us in terms of growing opportunity when we're pursuing our system design enablement strategy.
Excellent. Thanks a lot, Lip Bu. Thanks, John. Thank you. Thank you.
Our next question comes from Mitch Steves with RBC Capital Markets.
Hey guys, thanks for taking my questions. I had 2. So the first one is kind of more on the ASP and how you guys sell to your customers. So as these chips get more and more complicated and you go to, for example, MCM modules for GPUs and things like that, do you guys have any ability to raise prices? Or how does the pricing mechanism work as the chips get more complex?
Yes.
So I think in terms of the EDA pricing, clearly is a competitive market, various from sector to sector and product to product. But clearly, we have a very disciplined and value driven. And then I strongly believe in driving value by working closely with the customer, collaborating with the customer and then deep partnership with the ecosystems. And then we raise price every 2 years and very disciplineally across all the product line. So because chip is getting more and more complex and then a lot of more design challenges and complexity and that's where our tool shine and because we want to really driving the technology leadership.
In fact, last since 2014, mid-twenty 14 to now, we have 25 organically developed new products and customer love it because those new products are really disruptive and then help them to design very complex chip and simulate verify quicker and so that they can go to customer quicker. And so I think all our investment right now we're starting to show the result now. If you look at digital, we're growing at 15% and customer analog, even though we have a big market shares and we grew 12% and then IP we are growing at 14%. So all the investment we make in the most advanced node, the most completely rewrite some of our tool, now the customer really adopting and proliferating across all their engineering organizations. So we are very pleased with that.
Got it. And then my second one is more a geographic focus. So China has been a lever of growth for you guys for a good couple of years now. Is there any change there? Is there additional investment?
How do we think about that geography as we look at 2018 and beyond? I'm not looking for guidance, but maybe just the long term trend if there's anything to be aware of that's changing either positive or negative?
Yes. I think, first of all, China is a very fast growing opportunity for us and we are very well positioned in China. And then as you all know, the China government are very committed to building their domestic semiconductor industry with a very, very heavy investment. And we are really well positioned there in terms of tool and IPs and we work with all the leading customer and I go there every month and because critical next to U. S.
And then China become a very big platform and opportunity. And then if you look at the global semiconductor growth, maybe a single digit growth, but China is growing at 20 plus percent and with a lot of funding available. So I think clearly, it's an exciting space and we are doing well and we continue to position and committed to that region.
Perfect. Thank you.
Thank you.
Your next question comes from the line of Farhan Ahmad with Credit Suisse.
Hi, thanks for taking my question. My first question is on the functional verification and emulation. The revenues there are down year on year for 3 quarters in a row. Can you just talk about what is happening in that market and why are we not seeing growth?
Sure. So I think on the verification side, we have this verification suite that consists of Jasper for formal verification. And then the simulation previously we had the Incisive, but we bought the Rockitag and then we completely rewrite the tool and right now we have Accelium. This is a new tool. We are just highlight we have more than 15 customers this quarter.
And then we have total of 50, 50 adopting and using our Xyleum. And we're excited about this new tool. And then on the Z1, Pralidium is the most advanced emulator and we continue we are very comfortable with the business. We're happy comfortable with that and we highlight Marvell adopting for all their engineering design projects. And then last quarter, we highlight HiSilicon expanding their capacity.
So it's a lumpy business, but sometimes we know we really like continue to be the best in the marketplace. And the other part is we're quietly building up the Protium is the FPGA based prototyping and that is using the same compiler so that we can be customer can be scaling from the prototyping to our massive Palladium Z1 and that can really seamlessly working together. So we are kind of really focused on the verification suite with couple of new product just like what we did in our digital couple of years ago. We're going to continue driving the innovation. Some of these new product customers love it and we're going to continue engaging with them and then stay tuned over time you will see excellent performance from there.
And Farhan, this is John here. I would just remind you that last year was a record year for functional verification.
Got it. Is the decline from last year predominantly driven by hardware or is there something else going on also?
Yes, we're happy with the performance of our hardware business. Pipeline looks good and we have a disciplined approach to converting that pipeline to revenue. The secular trend in demand for hardware capacity remains intact. But as Lip Bu said earlier that with hardware there may be some lumpiness to quarterly results.
And overall, I think we are very proud of the Q3 result. And clearly our software that is recurring are doing very well. Our IP, the refined strategy is working and we are very confident in this quarter year to year I think we have 14% growth. We are confident we'll exceed the 10% goal we set for the growth for this year.
Got it. And then one quick question on the IP side. You talked about Tensilica being used on the AI side and the DSP technology seems of significant advantages when it comes to the power for compute and it's very suited for the client applications of AI. So I just wanted to understand what kind of opportunity do you see over long term? And have you done any kind of market sizing in terms of how large that market could be potentially in few years from now for you?
Yes, good question. So I think overall, our IP refined strategy is really focused on the vertical market we try to go after. And then secondly, the most advanced process node and also the top tier customer that we are focusing on and making more standard off the shelf IP. Saying that, we also are quietly building up the star IP. Tensilica is one of the key star IP and because of their programmability and they are low power and then very scalable and is very suitable for the IoT and machine learning for the edge computing.
And then so that is something that clearly on the infant side of the that's why we are focusing. That's a lot of knowledge to be applying. And in fact, internally our EDA tool, we are using the machine learning to apply to our tool to optimize the inference, we can draw the experience and that have quicker to accelerate and come to a closure for that. So I think overall, Tensilica is a good engine, it's a DSP engine, but how we're going to build on top of it in term of the compiler, the kernel, the software to optimize that and can work with all the industry standard and player in the application layer. So I think clearly there's a huge opportunity especially in this whole machine learning, deep learning in a very broad sense and applying to very different vertical markets.
And then meanwhile, we're also applying to our own tool and using that to really shine the product performance and the customer love it.
Got it.
Thank you. That's all I had.
Sure. Thank you.
Your next question comes from Jaeson Shower with Griffin Securities.
Thank you. Good evening. Let me start with asking about your customer concentration. And that is if you could comment on trends in customer concentration. You've typically had your top 10 customers account for about 40% to 50% of the business, at least you used to disclose that in terms of your accounts receivable.
And it seems likely that you've probably developed a couple of customers in the last couple of years that are mid single digit percentage of the business. And so could you talk about the direction of that concentration? Do you think that you'll see more customers accounting for a larger percentage of the business? Or do you think the business may any connection between customer mix and rev rec implications of 606? In other words, is there anything about a systems customer and perhaps their predisposition to buy a hardware that might somehow mitigate the effects of 606 as compared to let's say semiconductor customers?
Good. Jay, thanks so much for your questions. So I will address the first portion on the customer concentration and then John will address the 606 impact. So on the customer concentration, very pleased to let everyone know we have no customer more than 5% of our revenue. And so we are very broad customer base and so there's no single customer more than 5%.
And so overall, I think we're excited about the broad distributing area. And then the other part is clearly when we are moving up from semiconductor right now pursuing a lot of system customer and then now move into the hyperscale web services and then the service providers. We can even broaden that customer base and then with a lot of really marquee names and real customer shaking market shaping customer. So I think all in all, we are in a very good position. We like what we have and we continue to grow with our customer as we grow our business.
And so it's a very diversified semiconductor. And don't forget, we also have a very strong analog mixed signal. And then also the PCB side, the customer is in the 1,000. And so we are very broad and very stable customer base that we have. So mixed signal, analog and then the PCB give us a very strong base.
And then we are pursuing the most advanced process node, most complex digital and we are getting a lot of traction on the Tier 1 customer. So I think then overall the broadening of our customers is widening adopting our products. So I think we are and now we are very pleased with what we have and we continue to kind of build on it. And then John maybe you can share the 606 impact.
Yes. Thanks Lip Bu. And Jay, I would just add there to the commentary that Lip Bu gave you that if you're looking at our AOR and our DSOs that it
will give you misleading view
of customer concentration because our AORs are our DSOs are normally really good, but and won't contain all of our customer base. But as Lip Bu said, it's the top customers like 5% to 6% and that top 25 customers at Cadence sorry, top 40 customers at Cadence make up about 25% of our revenue. But in looking at 606 comparing systems versus semi, how it applies to systems versus semi customers, but our software licenses are because our software licenses are used in an industry in which technologies change rapidly, we're required for most of our arrangements to take revenue over time. That's not going to change going forward. Like we said, we expect to our revenue over time mix to remain at approximately 90%.
I wouldn't expect that to differ based on whether the customer is a systems customer or a semi customer.
All right. Just to finish up on emulation, remind us what your thoughts were for the year in terms of how you thought emulation would play out for 2017? Your 10 Q shows that your hardware cost of revenues were down year over year. But if we ex out the inventory adjustment in Q3 last year, there would otherwise have been an organic increase in your cost of revenue for hardware. I assume some of that is for the build for Podium, maybe for Palladium as well.
So you might have had some growth, it looks like, year over year in emulation. But would it be fair to say that perhaps you held back deliberately on emulation because you had upside elsewhere in the business and that you mentioned disciplined pipeline approach. I think, John, perhaps we could read between the lines there to suggest you didn't really need hardware revenues per se to make the quarter and that you kind of held back into Q4?
Jay, what I would say to that is that, I mean, like we always said, we have a disciplined and value driven approach to pricing. On our hardware business, our margins for Q3 were better than they were in the first half. So I wouldn't read too much into lower cost of goods sold. I'd like to say we're happy with the performance of our business. The pipeline looks good.
That disciplined approach is helping us convert that pipeline to revenue. The secular trend in demand for hardware capacity remains intact. And although there may be some lumpiness in the quarterly results from time to time that, like I say, we're happy with the business. It's just that, like I say, I remind you that we're comparing against the record year last year.
Thank you.
Your next question is from Gary Mobley with Benchmark.
Hi, guys. Thanks for taking my question. Congrats on the promotion, John. Thank you. I want to start with a question about deferred revenue, both short and long term.
It looks like those metrics have decreased now 3 consecutive quarters and the dollar value isn't tiny either as a percentage of what you typically report for year end backlog. So I'm wondering if you could share with us if that's an indicator of overall backlog trends and then specific which product group generally has or generally carries the most upfront payments and hence deferred revenue?
I wouldn't read too much into it generally. But at Cadence, we try to match revenue timing with cash flows and with the generally the economic value transfer to customers. So deferred revenue in any one quarter is just a reflection of our timing of billings.
Okay. And Lip Bu, I know you're probably tired of answering the question about customer consolidation and whatnot, but I'll ask the question in a slightly different way. We've got a couple of different crosscurrents in the chip industry, which affects your merchant oriented chip customers. We've got even actually now a contribution from growth in the memory industry, 10%, 12% growth in everything else, which is the best growth rate we've seen since 2010. And on the other hand, we have a lot of shipping consolidation continuing maybe at a slower pace.
Could you speak about those crosscurrents in the context of your addressable market opportunities measured in license both software seats and the trends you're seeing there?
Yes, good question. Clearly, we're mindful of this customer consolidation. So far nothing material right now. We successfully managed through all this consolidation with many minimum impact in the revenue for 2017. And clearly, we are growing the business and complexity of design is increasing.
And then all this consolidation and actually is and now we're managing it well and we'll continue to grow the business. And as I mentioned in the previous question, we have no customer more than 5%, 6% of our revenue. And so it's very broad and then now with the system and in automotive and in the data center, edge computing and IoT, we are adding on new customer and adding expanding some of the new customer and they are also doing acquisitions. So along the way, I think we so far not going good and now we continue to do well. And we love to have great customer growing with us and meanwhile we are growing also.
So in a way the percentage is not depending on 1 or 2 customer. And so in a way it's a more healthy portfolio we have.
Okay. That's it for me. Thanks guys.
And your final question comes from Monika Garg with KeyBanc.
Hi, thanks for taking my question. Sorry, I also have one on emulation. Last on your last call, you had talked about that emulation kind of was weak than your expectation in first half and you expect the emulation to pick in second half. But your Q3 is actually lower year over Q over Q. So maybe could you add some color there?
Hi, Monica. This is John. On the Q2 earnings call, we'd said that we expected hardware to be a little stronger for the second half. And as you know, we've also said many times that the hardware business is inherently lumpy in nature. And at times, visibility can be challenging.
We believe Z1 remains the most advanced emulator in the market. And in Q3, some large customers, including Marvell, expanded their Z1 capacity. We're happy with how our hardware business is currently positioned. And to reiterate, our overall business did great in Q3 with software and IP being particularly strong and we've increased the outlook for the year.
Got it. Then it's 7 months since close of Mentors acquisition. Have you seen any change in competitive dynamics in the market? And especially given Siemens is not really in the semiconductor industry?
Yes. So first of all, Monica, thank you for the questions. So first of all, Siemens is a very great company and their revenue is over RMB100 1,000,000,000, a lot of respect for them and their management team. And so the mentor remains to be competitive under the Siemens leadership. We continue to have a lot of respect and monitoring very closely.
And in terms of their product line and the hardware emulation that we heard about. But so far we a lot of respect looking forward to see what they have.
Got it. Then like the last one here. We are seeing a lot of trends in the industry, industrial IoT, autonomous driving, more silicon content in autos, machine learning, artificial intelligence. Maybe could you talk about how could how these trends impact EDA industry in general and how it could impact cadence?
Yes, good question. In fact, that's why I highlight in my remarks. And we are very excited about all these emerging technology trends. I just mentioned a few. I think the machine learning, deep learning, I think we're just seeing the beginning of it.
The big company doubled down in some of this machine learning, deep learning development. There's a whole suite of new start up and that I'm to see them almost every other days. And the new start up, they are exploring some of this new architecture, compilot, the linear scaling of some of the silicon. And we are excited to support them in terms of 2 IPs to provide them for their success. So the big and small company are really addressing that.
Same thing with the autonomous driving, A lot of sensor company from camera to right now the LIDAR and really driving some of the scale in term of reflection on the LIDAR improvement and also the range, the 200 meter and beyond. So that move towards the level 4, level 5 that I'm looking forward to so that I don't have to drive my car and you will drive by itself. So I think those are very exciting and there's a lot of development in terms of big company doing that and there are some start up doing that and we are very well positioned to make sure that they use our cadence flow to do that. And then the other part in this whole machine learning, deep learning also apply into this IoT and also for very low power and then driving some of this edge computing beyond the cloud. The cloud, they are doing great.
The the gateway, they are more intelligent. There's a lot of company are pursuing that and we are delighted and well positioned to have them use our tool and IP to win that. And so all in all, I think those are really exciting that tie in very well with our system design and it opens the G that we kind of over the years have been building and refine it. And right now we can really capture the market and that's why you see the growth that we have and in our tool and IP, we're excited about that. Lip Bu,
is there any way quantify you need to size it like it adds 100 basis point growth, 200 basis points, how to think in a quantitative manner?
Yes, I think a little bit too early and also we haven't spent time on looking at it. We are so busy on engaging with our customer and to make sure that they get the tool and optimize for their design. And so we haven't really quantified it, but I think when we have a little bit time, we would definitely look into it. But so far the opportunity is really exciting. We're extremely busy to work with them.
Got it. Thank you so much.
Thank you.
And we have no further questions in queue at this time. And I would like to turn the call back over to Lip Bu Tan for any closing remarks.
In closing, through innovation and execution, we are well positioned to build on the success of our system design enablement strategy to further proliferating our solution with broader base of customers. I would like to thank all our shareholders, customer and partners, Board of Directors and my dear executive team and hardworking employees for their continued support. Thank you all for joining us this afternoon.
Thank you for participating in today's Cadence Design Systems Third Quarter 2017 Earnings Conference Call. This concludes today's call. You may now disconnect.