Good afternoon. My name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Design Systems Q1 2016 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 Lindstrom, Senior Group Director of Investor Relations for Cadence Design Systems. Please go ahead.
Thank you, Shannon, and welcome everyone to our Q1 2016 earnings conference call. With me today are Lip Bu Tan, President and CEO and Jeff Rebar, Senior Vice President and CFO. The webcast of this call can be accessed through our website cadence.com and will be archived through June 17, 2016. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Before I start, I want to call your attention to our CFO commentary, which was included in our 8 ks filing today and is available on our Investor Relations website atcadence.com.
The CFO commentary should be referenced in conjunction with both today's conference call remarks and the earnings press release issued today. 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 statements regarding forward looking statements in the earnings press release issued today. In addition to the 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 measure 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, 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 April 25, 2016, for the quarter ended April 2, 2016 and related financial tables can also be in
the Investor Relations portion of our website. Now I'll turn the call over to Lip Bu. Good afternoon, everyone, and thank you for joining us today. Cadence delivered good operating results for Q1. Revenue was $448,000,000 up 9% year over year.
Non GAAP operating margin was 26%. Non GAAP EPS was $0.28 and operating cash flow was $83,000,000 Looking at the environment, condition have not changed significantly since last quarter. Semiconductor business conditions remain challenging, and we remain mindful of the ongoing consolidation in our semiconductor customer base. While we do not expect a material impact on our business in 2016, consolidation could pose a challenge to industry growth over the next few years. I will begin our Q1 business highlights with system design and verification.
In February, I asked Underwood, Dave Gunn, who has led resurgence of our digital sign off business to expand his responsibilities to include leadership of our system and verification group. Underwood will bring innovative ideas and drive to our next generation verification solutions. Cadence offers a holistic verification suite of connected solutions that are based on strong core engines and optimized for total verification throughput. Rapid growing complexity and tight time to market requirements make emulation more critical than ever for customers designing chips and systems for mobile, cloud, automotive and other verticals. Palladium Z1 sales ramped nicely as customer embrace its advanced enterprise class capabilities, while demand for Palladium XP remains strong.
As a result, Cadence achieved its best quarter ever for hardware revenue. While our primary innovation focus continues to be organic development, we will also consider strategic acquisitions that will bring outstanding technology and talent. Recently, we announced that we'd enter into a definitive agreement to acquire Rocketic Technologies. Rocketic brings pioneering technology and talented team that will significantly increase the performance of our incisive enterprise simulator using parallel computing on standard multicore servers. In custom, analog, mixed signal design world, Virtuoso has been the de facto industry standard for the past 2 decades, used on the vast majority of designs with thousands of tape outs.
At our CDN Live Silicon Valley user conference earlier this month, we announced the next generation Virtuoso platform, including the Virtuoso Analog Design Environment Suite and the Virtuoso Layout Suite. The new Virtuoso offers designers an average 10x improvement in performance and capacity across the platform. The platform includes new technologies to address requirements of automotive safety, medical device and IoT applications. IP is an important component of our system design enablement strategy. I'm very pleased to announce that Peter Woden Kam joined Cadence as Senior Vice President and General Manager of our IP Group.
Peter comes to Cadence after 18 successful years with Broadcom, where he held roles of increasing responsibility, most recently as Senior VP, Vice President of Operation Engineering. Peter reached experience will enable us to deliver high quality differentiated products as it drives the refinement of our IP strategy to focus on sustained and scalable growth. This quarter, I would like to highlight our Tensilica DSP cores, which are very important strategic component of our IP business. In Q1, we had key design win for 5 gs baseband DSPs with the leading mobile handset company. And Spectrum licensed our Tensilica Hi Fi Audio Voice DSP because of its ultra low power capabilities.
Now move on to digital and sign off. The success and momentum we gained with our new flow continue with strong adoption of full flow in Q1, especially with customers in mobile, consumer, automotive and IoT segments. In Q1, a leading mobile chip company adopted our digital and sign off flow for this most demanding 10 nanometer projects. The Inova's implementation system added more than 15 new customers in Q1, while our Janus RTL synthesis solutions add more than 25 new customers. TSMC certified our digital and sign off tools for 7 nanometer design and 10 nanometer productions.
And Samsung Foundry certified our tools for its 14 LPP process. Finally, we also announced today that Jeff Reebhardt decided to retire from Cadence in March 2017. Jeff had been great partner to me and the company over the 5.5 years. As an integrated member of my leadership team, he has made long lasting contributions to the company. During Jeff's tenure, we have consistently met or exceeded our financial objectives, improve both our operating margin and cash flow, strengthen the balance sheet and optimize our return on capital.
Jazz has done an outstanding job of executing on the strategy and the management philosophy that my Board and I have put in place and built strong financial teams. We have initiated a comprehensive search to identify our next CFO. Jeff is working with me in the search process. Once a new CFO is appointed, Jeff will work collaboratively on the transfer of responsibilities and will remain active involved with us through the retirement days. While Jeff retirement is bittersweet, we all congratulate him on the successful career as CFO and wish him well in the next chapter of his professional life.
In summary, Cadence once again delivered good results in challenging environment. Our portfolio of solutions across chip, package, board, system and software and IP guided by our system design enablement strategy best position us to drive new business in verticals including automotive, aerospace, medical and across IoT applications. Strong broad based demand for the new Palladium Z1 contributed to our best hardware revenue quarter ever. The innovative NIO Virtuoso platform strengthens and solidify our position in custom, analog and mixed signal design. And our digital sign off solutions are proliferating with current customers and gaining new customers.
Now, I will turn the call over to Jeff to review the financial results and provide our outlook.
Thanks Lip Bu, and good afternoon, everyone. It has been an honor for me to serve as CFO of Cadence for the past 5.5 years. I'm extremely grateful for the support of my colleagues and our talented extended team. I will work with Flippo in the search process and I'm fully committed to ensuring a smooth transition and look forward to maintaining our strong momentum through the transition process. I'm confident with our strong CEO Lip Bu Tan, executive team and finance team will continue to successfully execute on the strategic initiatives and drive shareholder value just as we have over the past 5.5 years.
Now moving on to our results. Please note that the CFO commentary we posted on the Investors section of our company website should be referenced in conjunction with both my remarks and earnings press release issued today. As Zifu discussed, Q1 was a good quarter and will remains challenging environment. Innovative new products and strong execution continued to distinguish us in the market. Total revenue was $448,000,000 up 9% year over year.
Non GAAP operating margin was 26% compared to 23% for Q1 2015. The timing of revenue and expenses contributed to a higher than expected margin for Q1. We are maintaining our revenue and margin outlook for the year. GAAP net income per share was 0 point 17 dollars Non GAAP net income per share was $0.28 up 22% over the year ago quarter. Operating cash flow was $83,000,000 Cash and short term investments were $907,000,000 compared to $711,000,000 at the end of Q4 2015.
Recall that in January, we entered into a 3 year $300,000,000 term loan and drew $50,000,000 on a revolving credit agreement. At quarter end, we had $700,000,000 of debt outstanding. Approximately 45% of cash and short term investments were in the U. S. At quarter end.
DSOs were 32 days, down from 35 days in Q4. We repurchased 11,600,000 shares of stock for $240,000,000 which represents a little less than 4% of shares outstanding. Before turning to our outlook, let me call your attention to the following items. As Lip Bu mentioned, we believe Rocket Tic will help accelerate our innovation and functional verification to address increasing challenges of system design complexity. This acquisition is expected to close in Q2 and is not expected to have a material impact on our 2016 financials.
We have not disclosed the terms of the transaction. We undertook a restructuring in Q1 as part of our ongoing efforts to optimize resource allocation and operate the business efficiently and effectively. The restructuring charge was $14,000,000 Now let's turn to our outlook. There are no changes to our fiscal 2016 outlook for bookings, revenue, operating margin, non GAAP EPS or cash flow. We continue to expect bookings in the range of $2,000,000,000 to 2 point
which equates to 8%
growth at the midpoint. Revenue in the range of $1,790,000,000
to 1 $840,000,000 should be
a 7% growth at the midpoint. Non GAAP operating margin of approximately 26%, GAAP EPS in the range of $0.71 to $0.81 non GAAP EPS of $1.15 to $1.25 and operating cash flow in the range of $380,000,000 to $420,000,000 For Q2, we expect revenue to be in the range of $445,000,000 to $455,000,000 non GAAP operating margin of approximately 25 percent GAAP EPS in the range of $0.17 to $0.19 and non GAAP EPS in the range of $0.27 to $0.29 Approximately 90% of revenue is expected to come from beginning backlog. You will find guidance for additional items in the CFO commentary. So with that, Shannon, we will now take questions.
Your first question comes from the line of Ghosh Sankar from Bank of America.
I had a couple of them. 1st and foremost, Lip Bu can you just talk a little bit about the tone you're getting from your customers given that there are some concerns on near term demand and longer term consolidation? Just kind of curious what your guys' viewpoint is, what you're hearing from your customers either in terms of what they're telling you, what their body language is regarding EDA purchases?
Okay. So let me start. First of all, I think as I mentioned, semiconductor business condition remain challenging, little or no growth expecting for 2016 according to all the various analysts report. But clearly, we are well positioned in terms of long term growth opportunity in terms of the mobile, cloud, wearable, IoT, vision, machine learning and automotive related area. So those will be driving some of this advanced node growth in system and IP.
And so answer your question clearly, we don't see any much changes, but actually we see a lot more design terms of proliferating our tool and solution on various vertical market. In terms of consolidation, clearly, last year is a big consolidation year, more than RMB100 1,000,000,000 consolidation with some major deal like avago Broadcom, Intel, Alterra and many others. So we are mindful of the ongoing consolidation to our semiconductor customer base. But meanwhile saying that, I think clearly, I mentioned earlier about the opportunity we see and in terms of proliferating our new solutions. And in terms of the long term impact, it's very hard to predict and but we don't expect any material changes to our business.
And I think in the longer run, what some of this consolidation may pose a challenge to the industry growth over the next few years.
Got it. Got it. That's very helpful. And then in terms of R and D, I think this is a question I've asked in the past. Just kind of curious any updated thoughts regarding the fact that your customers are getting more cognizant of their cost and complexity.
So along the path, is there an opportunity for you guys to be a little more efficient with your R and D? Or do you think that this mid-thirty percent of sales is still going to be the predictable mix of R and D for the intermediate future?
Yes. So let me try to answer your questions, if I hear correctly. I think clearly, the complexity and the time to market pressure is increasing tremendously, especially in the advanced nodes and the 14 and 16 and 10 and 7. And as you know the mask cost is very high. So first time pass is critical.
And so that's why we see a tremendous growth into our emulations and also the growth in terms of full flow in the digital and custom mix signal related. And then our relationship with foundry partner become very critical. And we mentioned we have a very deep partnership with our foundry partners that include TSMC, Samsung and many others. And I think clearly all this relationship and also with our ARM, IP ecosystem are critical for the success. And so we continue to drive R and D efficiency and we continue to drive.
I think Jack mentioned about some of the restructuring to drive more efficiency and we doubled, tripled down in some of the area and then also with some of the key customers support. And so we want to make sure that the customer design based on our tool earnings call, Jeff, you
mentioned that most of your OpEx is earnings call, Jeff, you mentioned that most of your OpEx is front half loaded, so it should slow down in the second half. Is that still true? And the second question is what is the number left in the buyback?
So we have I'll answer the second question first. We have $720,000,000 left on the buyback for the remaining part of this year. As far as OpEx, yes, in the first half of the year, you tend to have less vacation and more Social Security tax. Those things roll off in the later half of the year offset by the fact that we continue to invest in R and D, key R D people and key technical sales people. So that will counteract the other trend a little bit.
So, OpEx should be similar in the second half versus the first half or?
Yes, approximately similar. We have more shutdowns and less social security tax impact, but more talented engineers and talented salespeople.
Your next question comes from the line of Gary Mobley from Benchmark. Your line is open. Please go ahead.
Hi, everyone. Thanks for taking my question. If I'm not mistaken, Cadence has a policy of raising prices or trying to implement a price increase every 2 years or so. I'm curious if that is an across the board price increase for all products or whether or not that's staggered across the various product lines? And could you remind us of when we may be hitting that biannual price increase?
So our fundamental purpose of course is to deliver great innovative products to our customers. And when we do that, we believe we can capture value from our customers. We do focus on the quality of our deals and pricing, but the key thing is we deliver value, we'll get paid for it.
It. Okay. All right. You mentioned that hardware sales are record level and I believe that might be emulation related. And I'm just curious how those hardware sales are impacting your gross margin and operating margin for that matter and how it may create some lumpiness in the bookings backlog figures that you guys are striving for 2016?
Well, emulation like our hardware business, our emulation business is certainly lumpy like our IP business is going to be lumpy. What we've said as we've introduced and released the Z1 and started shipping and selling the Z1 is that we expect revenue to go up in our hardware business and margin to go up with the new product. And I think we're happy with that. And you saw we had a record hardware quarter. So we're doing quite well so far.
Okay. Any notable change between EDA and system design enablement? Still roughly a 55, 45 mix respectively?
Yes. Our system size about 40% of our business, 60% is the traditional semiconductor business.
Your next question comes from the line of Rich Valera from Needham and Company. Your line is open. Please go ahead.
Thank you. With regards to the restructuring, Jeff, is that kind of a business as usual, more of a reallocation of resources bringing, I guess, pruning in areas that are less strategic and adding in more strategic areas?
Yes, it was planned as part of our guidance and certainly we're trying to optimize our resource allocation between different parts of the business. So yes.
Got it. And then I'm guessing you kind of have said what you want to say on emulation, but I'll try anyway. You talked about very strong demand for XP boxes in the quarter, which helped drive this record quarter. Can you help us understand why folks would buy an XP when a Z1 is out there, maybe other than the obvious, which is maybe they can't get a Z1 yet because you can't make them as fast as people would like them?
Yes. So let me start first and then Jeff can fill in. So clearly, we want to highlight that in the XP platform still continue to remain strong. And then the Z1 is the best launch for us and it's the antiplate class and then the 5X, the throughput and then very scalable and customer love it. And we ship as we build and have been very well received and we are delighted with that.
The combination of both that make the quarter the best rate quarter ever. And then Jack can add more.
Yes. I mean, obviously, I think both product lines were very strong and there's different purposes for each product and you have different customer needs. So people are going to buy what they need and we're happy to sell them either one.
Got it. And then so you sound like you've hired a new head of IP, which is great. Can any more color you can give on the trajectory of that business? I think what you've said so far is you expect it to grow less this year than
it has in the past, which
I think has been a mid teens rate. Can you talk about what you would expect that to grow at once this restructuring is done and you've kind of shifted some of the portfolio towards more sustainable profitable businesses, I guess, you intend to do?
Yes. Rich, I'm happy to share highlight here. So clearly, we are excited about Peter Vallonkamp join us with his rich experience and a highly qualified and to deliver the high quality and differentiating product as you drive the refinement of our IP strategy and then focus on sustainable and scalable model going forward and in terms of growth. And then Peter came from Broadcom, as I mentioned. And he the last job he has at Broadcom is a Senior VP, Operation Engineering.
And then that is in charge of not just the design and also global worldwide manufacturing technology that include all the hardware program. And he personally now is very strong in the analog RF related area. He's an inventor and actually hold more than 100 issue and patent pending patents in U. S. So he's a very accomplished innovator himself.
And so we are excited for him. And then as we kind of grow the business over 10% of revenue and right now it's about time to refine our IP strategy for the next path of growth. So we mentioned in the past the moderate growth than 2015 and that already built into our guidance. Longer term, IP revenue growth we expect to be above corporate average and that is our actual expectation in terms of growth. So we are excited about the IP portfolio we have, especially in the Tensilica VIP related area have been strong for us.
And then now we also double down on some of the design IP. Clearly, he will bring some differentiating products going forward. And we have a couple of success. Clearly, we highlight we have this 5 gs gs baseband DSP win with the leading mobile handset and also the spectrum. And now we're starting to move into some of this machine learning, ADAS, vision processing, genomic sequencing.
And so there's a lot of great application that Tensilica can be the key part of the IP design platform, the engine for that going forward. So I think we have some of the good asset portfolio. And now we like to have a new leader. He just saw April 1, and now have time to refining his strategy as a new leader, new Sharif on board. So he will be refining and come up with a strategy going forward and we're excited about that.
Excellent. Well, thanks for taking my questions.
Your next question comes from the line of Jay Vleeschhouwer from Griffin Securities. Your line is open. Please go ahead.
Thank you. Good evening. Lip Bu, Jeff, I'd like to start with a couple of product segment questions. First, when you think about your IC implementation business, that is to say Novus, to what extent would you say your incremental bookings in that business are coming from upgrading your own base versus adoption in competing or incumbent product environment perhaps for new projects? I'm sure it's some of each, but how would you think about that divide between just upgrading your own base and implementation versus effectively share gain in other bases?
Similarly, in terms of what you call system interconnect, that area from 2012 through most of 2015 had pretty good growth. It looked like there was a pretty good reinvestment cycle there going on for you and for Menor. But the last couple of quarters, the system interconnect percentage of revenue has been coming down. It looks like maybe the revenues have been under some pressure year over year. So would you say that the 3 or so year reinvestment cycle in PCB has largely run its course?
Or do you think that perhaps it's just a temporary pause and you'll see some rebound there?
Yes. Jade, this is good questions. And let me address one at a time. So first of all, on the digital and sign off area, as you know, we revolutionized the whole digital flow with some of the new tools. And I think you mentioned a couple of them.
Innovus for the implementation, Place and Route, Synthesis, Genus or Synthesis. And then we also have Tempus for sign off, Vodas for Power, Qantas and JUUS. And overall, we have been very good last year and then now we are proliferating in the Q1, strong adoption and proliferation and for some of our full flow digital and sign off, especially in the area of mobile, consumer, automotive and IoT related area. And so overall, I think Q1, I think we I mentioned in my script, leading mobile chip company adopting full flow digital sign off for their most demanding 10 nanometer projects with volume. And then Innovus, I think I mentioned, we have 15 new customer in Q1.
And then some of them is just successful in competing and we win. And Genus is 25 new customers. So that means that when I say new, that means that we are winning. And then Tempus 15, Vodaf is 4, Qantas is 6 and Juice about 3. So we continue to proliferate nicely.
And then of course, very deep important partnership with the ecosystem like TSMC, Samsung and ARM and very critical in some of the most advanced nodes, 10 and 7 nanometer that will bring us success. And then beside the company I mentioned, the leading mobile chip company adopting for 10 nanometer. In fact, today, this morning, we announced that Toshiba adopting our Innovus implementation for production mobile memory control that achieved 16% area reduction and 25% power saving. Those are very remarkable. In the real case, they'll adopt it because of the much better product and the solution they look for.
And
on the numbers a little bit, the digital revenue was up substantially quarter over quarter or year over year, excuse me. And some of that was a benefit from a completed contract in Q1, but generally our digital business has been quite strong. And the system interconnect business, I would take it as nothing more than a pause. We sometimes have fluctuations a little bit in revenue accounting due to MEAs or doing payable contracts. So we just view it as nothing more than a pause right now.
And just add on to that in the TCB related area, Q1 is overall a solid quarter with number of good size renew and renewal from both system and semiconductor companies. And we continue to expand our collaboration with TSMC on the integrated design flow for TSMC in the integrated fan out, I call it info packaging technology. And also I think we're clearly driving some of the foundry proven IC packaging and analysis solutions. And then our Siquity that is for the power signal integrity analysis system level. And we have a 2016 technology portfolio that improved the product creation time and enhanced PCB design analysis methodology for multi gigabit interface and like USB 3.1.
So overall, we continue to drive success there.
With respect to your earlier comments on restructuring, there was a question about that and your margin expectations for the year and as well your comments about your R and D. Let me ask you this. We've noticed just doing a quick spot check on your website, an unusually large increase in the number of job openings that you're posting, probably the largest we've counted to date in several years we've been looking at this data. And that included not surprisingly a particularly large increase in R and D, even virtually none for sales. And I guess the question is to what extent is that increase in R and D positions you're posting a function of having to compensate perhaps for attrition or turnover versus real organic investments or net capacity additions that you're looking to make in R and D?
Yes, I think it shows a lot of confidence in our future for sure, right, that we have these positions. We do tend to hire concentrate or hire on technical positions in R and D and in technical sales. Think you'll generally see most of those positions and being in that area. The restructuring is of course the concentrated in efficiency and effectiveness and making sure we're using the resources where we need to use the resources. And then, of course, as you're well aware, we are in a great place to work, very highly ranked in a great place to work.
And I think it's a good time for us to attract talented people.
Lastly, Jeff, could you comment on the increase in services revenue in the quarter? Was that largely related to IT engagements and is there anything to extrapolate there for that to be?
We recognized revenue in a completed contract in Q1 and that drove the services revenue up uniquely
in Q1. Okay. Thank you.
Thank you. Your next question comes from the line of Monika Garg from Pacific Crest Securities. Your line is open. Please go ahead.
Thanks for taking my question. First question on the emulation side. One of your peers mentors, they were talking about that they think that you guys had a very good quarter in emulation, but they were saying that the evaluation times are looking to be stretched from 3 months to 7 to 9 months, and there is some pricing pressure in the market. So how to kind of reconcile? Any commentary on that?
Yes. We don't know how to comment our competitors. I think so far we have been very focused on our business. And as I mentioned earlier, the especially in the most advanced node, now the complexity and the time to market, emulation is a must have. And clearly, our XP platform and Z1 have been doing really well and the customer is putting orders and they have many repeated orders.
And so overall, we see a tremendous opportunity for us. And because the time to market is so critical for the semiconductor company and the system company and our Z1 in a way have been the sales have been very nicely and then we have repeat orders already.
And I think the other thing is you need to realize we introduced a product in late Q4 and Lip Bu talked about this being the fastest ramp for emulation platform we've had. I think those two things clearly show what we believe the cycle time is.
Thanks. Then Jeff on the operating margin side, your Q1 op margins are better year over year. And Q1 is the lowest revenue quarter, so likely margins go up from here. But in your 2016 op margin guidance, they are slightly lower year over year. So are you just being conservative?
I think the Q1 outperformance was largely related to the timing of revenue and expenses obviously between the quarter. We are expecting to hire as Jay asked in his question in both R and D and technical sales, which will increase spending in the later part of the year, we're quite comfortable in maintaining our revenue and operating guidance for the year.
Yes. Thanks. Just last one. One. Intel announced a big layoff almost 10%, 11% workforce reduction.
Do you see any impact from that? Yes.
I think first of all, I think clearly Intel is a great company and I have a lot of respect for them. And but we are not going to comment on any specific on the company.
Right. I meant any impact on the EDA spend as due to the reduction of headcount?
We just don't comment on individual companies and there anything that's going on with them. They're again a great company is
what we said.
Your next question comes from the line of Sterling Auty from JPMorgan. Your line is open. Please go ahead.
Thanks. Hi, guys. I want to start with the comment about the hardware revenue record in the quarter. How did that deliver relative to your expectations? In other words, have you factored in that revenue that record revenue in your guidance?
And also how did the margin stack up versus what you were expecting, especially in the new C1 platform? Especially in the new C1 platform?
Okay. So everything when we give guidance, we always include everything we know at the time when we give guidance. So obviously it's hard for us to comment specifically on that. As we said also when we were introducing the Z1 and talking about the Z1 coming out, that we would see higher revenue this year and higher margins as a result of transferring to the Z1 platforms. And of course, as you know for sure, hardware is a lumpy revenue piece for us along with IP.
If I can add a little bit more, I think clearly we have a really, really outstanding team and driving the business. And so far, we are very comfortable to meet the customer demand.
And then relative to the IP business, I didn't quite get I understand lumpiness, but what's impacting the growth rate in terms of seasonality for this year?
So, I think it's really the change in our focus as we said in the last call, we're focused on sustained scalable growth and we're really concentrating on delivering that. I think more than anything else that's driving our business. As we said, we expect more modest growth this year than last year where it was as somebody said are in the upper teens. In the long term, we expect IP growth to be above corporate average.
And last question, if you look at the OpEx, I guess the OpEx drop in the Q1 for sales and marketing is more than I think historical at least for the last few years and the OpEx drop in R and D was actually less. Do Didn't know if that was indicative of what you guys did in hiring in the quarter or if there was something else going on?
Yes, I think we're not going to comment on the details of our restructuring or number of positions impacted. Obviously, we focus on effectiveness and efficiency with the restructuring and obviously that had some impact on spending in the quarter.
Just add a little bit color. Clearly, as Jeff mentioned earlier, we are double down on R and D and fuel support engineering, FAE, because a couple of big customers are proliferating and we are working with them and make sure that we support them in their tapered successfully and in the most advanced nodes. So it's more to support technically and continue the innovation for the flow that we are focused on.
Great. Thank you, guys. Thank you.
Your next question comes from the line of Tom Diffely from D. A. Davidson. Your line is open. Please go ahead.
Yes. Good afternoon. So I guess I
was curious, are you at what you would consider full production right now for the emulation business? Or are you still in the process of ramping the new tool?
We're in production and not the clearly, we're meeting the customer demands. Okay.
All right. I know sometimes cycles pass, it's taking a while to get that to full levels.
All right. And then Jeff, when you look at the your commentary, it looked like the GAAP margin was down a little bit. What was the driver of the GAAP margin decreasing but the non GAAP staying constant?
We expect a higher tax rate this year than we did last year on a GAAP basis.
Okay. The cash tax rate stays the same?
It should stay the same, maybe slightly up.
Okay. And is that just location of where you are getting your revenue?
I think every government in the world needs more money. Yes.
All right. And then when you look at your full year guidance, I'm just curious how much of the buyback was in that? Were you assuming the buyback through the year or just the buyback through quarter? How much I guess When
we guide shares, we were guiding through the buyback as authorized through the board through the end of the year.
Okay. That's helpful.
All right. That's it. Thank you.
Our final question today comes from the line of Suji Desilva from Telpica. Your line is open. Please go ahead.
Hi, guys. Thanks for taking the question. First of all, on the emulation products, Z1, would you expect a natural sort of initial uptake of products as the product is launched and then a pause to digest those or would it be a steady ramp?
So the business is going to be lumpy obviously for emulation. Customers are going to buy the product when they need it based on their designs, right? So they weren't waiting, they were buying what they needed and they're going to continue buying what they need.
Okay. That was the answer to my question. And then the other question is around the system customers versus semis. Would you expect that mix to shift over the next several quarters of years? And then more importantly for systems customers, are they more likely to take bundles of your products versus the semis customers given that they perhaps need more help to kind of get into the semis business themselves?
And Suji, I assume that you are talking about the broad product rather than the emulation, right? Correct. Exactly. Okay. So I think clearly we are excited about this whole system design enablement.
And this is exactly about addressing the not just the silicon player and also into the silicon now moving to the system company and even the service provider. And then clearly, we are embarking aggressively and it's very exciting because we have not just the tool, we not only have the IP, we also have packaging and system design and analysis related. And that became very compelling to work with them that ranging from automotive sector like ADAS, function safety related and then to the cloud infrastructure, hyperscale web services infrastructure that they want to drive and then to the vision into the search and machine learning and with in our tool and then also the IoT. And you saw the announcement we have with Silicon Lab in terms of the low power mixed signal and then Realtek in the Tensilica on the ultra low power and it's just going on. And we are just excited about the whole medical, aviation, automotive, the cloud and IoT related.
So I think the system level we're going to grow significantly over the years and we're excited about the opportunity.
It is now my pleasure to turn the call back to Cadence President and CEO, Lip Bu Tan for closing remarks.
In closing, I am proud that for the 2nd year in a row, Fortune Magazine had recognized Cadence and our hardworking employees by including Cadence in the list of the 100 best companies to work for. I would like to thank all our shareholders, customers and partners, Board of Directors, employees for their continued support. Thank you all for joining us this afternoon.
This concludes today's conference call. You may now disconnect. Thank you for participating in today's Cadence Design Systems 1st quarter 2016 earnings