Mentor Graphics hits a billion

Mentor reported that revenue was up 4% $320 million for FQ4 ended January 31, 2011. For the quarter, systems and software revenue was up just 2%, while service and support revenue was up 10% to $100 million. For the year, the company reported revenue of $1,015 million, up 11%. Wally Rhines, CEO, characterized the results this way: “It was a quarter and a year of records for the company, including the significant milestone of crossing one billion dollars in revenues. We exited the year with very strong momentum as our strategy of diversification has driven growth in non-traditional EDA applications like manufacturing, thermal analysis and embedded software, all of which grew bookings faster than the overall company. Additionally, the growing complexity of chips and the challenges of the 28nm and 20nm process nodes have generated substantial demand for both our functional verification and our design-to-silicon products.” Even though FQ4 wasn’t all that spectacular, the company has reason for optimism: Bookings grew 15% for the quarter and for the year, while the annualized run rate of its largest contract renewals was 20% for the quarter and 29% for the year. Both are indicators of future revenue that can be recognized, though the timing is unclear (to me). Mr. Rhines also highlighted its success in selling into its new areas of interest, such as system electronics and auto and aero embedded systems, saying that “bookings in these new areas grew at almost double our overall bookings growth rate. Embedded software bookings grew strongly, fueled by the growing need of chip design and system companies to provide development, compilation and debug environment of software developers using their chips and systems.” CFO Greg Hinckley gave a bit more color on the December Flowmaster acquisition, saying that Flowmaster had prior year revenue of about $10 million and was purchased for about $15 million. Nr. Hinckley said that Flowmaster was “growing relatively slowly. We think that we have an interesting opportunity to combine it with our 3D computational fluid dynamics simulation [Flomerics]. Flomerics is growing significantly faster. We’re very optimistic on the synergies between the 2 product lines.” Flowmaster and Flomerics are part of Mentor’s Integrated System Design division, which reported revenue that was down 35% for the quarter and 10% for the year. Mentor says that this is due largely to very strong growth a year earlier, when many of the company’s aerospace and defense and telecom customers renewed multiyear contracts. To offer a rosier comparison, Mr. Hinckley said that Integrated System Design revenue was “still up 30% over fiscal year 2010 and several sub-product lines such as … design for manufacturing showed double-digit growth.” It’s always hard to tell when CFD is a tiny part of the revenue of a billion dollar company, but the implications here are that Mentor believes in its CFD products and will continue to build out its capabilities. As we learned about Flowmaster, Mentor considers it crucial to future success to branch out into new verticals. For fiscal 2013, the company expects revenue of about $1.1 billion, up 9%, and for FQ1, Mentor forecasts revenue of about $255 million, up 11%.