Cadence (CDNS): The Arms Dealer of the Chip War
1. Executive Summary
Cadence (along with Synopsys) forms a duopoly in Electronic Design Automation (EDA). You cannot design a modern chip (NVIDIA, Apple, AMD) without their software. As chips become more complex (3D-stacking, Chiplets), the reliance on EDA tools increases exponentially, decoupling their revenue from chip volume and linking it to R&D spend.
Key Thesis Points
- R&D Stickiness: Chip design costs are skyrocketing ($500M+ for a 3nm chip). Customers will not risk this investment by switching away from the industry standard toolset.
- System Design: Cadence is expanding beyond chips into "Systems"—simulating thermal, fluid dynamics, and packaging for the entire data center rack.
- AI-Driven Design: New tools (Cerebrus) use AI to optimize chip layouts automatically, allowing Cadence to charge for "results" (improved PPA) rather than just seats.
2. Business Overview
- EDA Software: Designing logic, verifying circuits.
- IP Blocks: Pre-designed components (DDR controllers, USB interfaces) that customers license to save time.
3. Financial Analysis
- Recurring Revenue: ~85% recurring. Highly predictable.
- Margins: Operating margins approach 40% with minimal CapEx.
4. Risks
- Cadence vs Synopsys: It is a fierce duopoly. Losing a major account (like Apple or NVIDIA) to Synopsys would be a blow.