Cadence: Software Behind Semiconductor Design

This episode is brought to you by:

Visible Alpha. The team at Visible Alpha built a platform to analyze consensus data and financial metrics on over 6,000 publicly traded companies. Rather than having to dig through models one by one, Visible Alpha extracts data from every line item across sell-side models so you can better understand expectations on metrics beyond just revenue and earnings. Try Visible Alpha for free by visiting visiblealpha.com/breakdowns

MITIMCo. As the endowment office of MIT, MITIMCo searches for investment firms that are focused on achieving exceptional long-term investment returns. MITIMCo's goal is to create long-term relationships. They will partner with firms as early as Day 1 and do not ask for general partner economics in return. Visit MITIMCo’s website to learn more about their unconventional emerging manager approach, including examples of managers they have backed. While they only partner with a handful of new firms each year, they have also created and published resources for the broader universe of emerging managers to benefit from, making them even more unusual in the LP world. Visit www.mitimco.org to learn more.

[00:03:15] - [First question] - Everyday products that Cadence helps bring to life

[00:07:28] - The rise of Cadence and the origins of the semiconductor industry 

[00:10:26] - Major players in the semiconductor space back in the 80s 

[00:12:13] - Going from plan, to chip, to production

[00:16:58] - The life cycle of a chip and the cost to design one 

[00:19:19] - Differences between software design and embedded software 

[00:21:25] - The history of Cadence and the size and scope of their business today 

[00:28:05] - Existing customer base and how diversified they are

[00:30:55] - What a contract actually looks like between Cadence and a customer

[00:35:05] - Protection, off-the-shelf IP blocks and custom IP 

[00:35:53] - Cadence’s revenue growth, important metrics, and their KPIs

[00:37:03] - How correlated their revenue is to semiconductor cycles

[00:39:30] - Unit economics and the margin profile of the business

[00:42:13] - Contributing factors to growth and thoughts on pricing

[00:45:46] - Benefits of scale and what they like to see as investors from their R&D spend

[00:48:12] - Risks and competitors that may threaten Cadence’s success

[00:50:22] - Potential scenarios where the ecosystem becomes more vertically integrated

[00:52:56] - What would drive a 10x growth for Cadence in next five years

[00:54:58] - Things that would affect their growth in the next five years 

[00:57:38] - Lessons for investors when studying Cadence

[00:59:15] - How they navigated the pandemic and how it impacted their business