Cadence Design Systems, Inc.

Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence second quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Thank you. I'll now turn the call over to Alan Lindstrom, Senior Group Director of Investor Relations for Cadence. Please go ahead.

Thank you, Erica. And I would like to welcome everyone to our second quarter 2019 earnings conference call. I am joined today by Lip Bhutan, CEO, and John Wall, Senior Vice President and CFO. The webcast of this call is available through our website, cadence.com, and will be archived through September 13, 2019. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Please note that the discussion today will contain forward-looking statements and that 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-K and Form 10-Q including the company's future filings and the cautionary comments regarding forward-looking statements and the earnings press release that we issued today. 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 results. The reconciliations are available at the investor relations section of cadence.com. Copies of today's press release dated July 22nd, 2019 for the quarter ended July 29th, excuse me, June 29th, 2019, related financial tables and the CFO commentary are all available on our website. Now I will turn the call over to Lipu.

Good afternoon, everyone. Thank you for joining us today. Cadence achieved strong operating results. for the second quarter of 2019, delivering 12% year-over-year revenue growth on broad-based strength across our product lines. Based on the strength of our business, we are raising our outlook for the year. John will provide more details shortly. While there's an ongoing global economic and geopolitical uncertainty, we remain confident about the multiple long-term trends that continue to drive strong design activity. Driven by trends such as artificial intelligence or AI, 5G, autonomous driving, and IoT, design activity is being fueled by workload-specific computing, system companies building custom silicon, new silicon startups, and digital transformation of industries such as automotive, aerospace, medical, and other industrial applications. Our intelligent system design strategy will enable us to provide more capabilities and value to our customers while also expanding our current total addressable market from about $10 billion to estimate $30 billion over the next five years. The foundation of the strategy is design excellence, which is comprised of our core EDA and IP business. In addition, we are building upon our core competency in computational software to expand into two new areas. The first one is system innovation, where we are expanding into new system domains with products like Curity, our new 3D EM solver that was launched last quarter. Curity has received considerable customer interest with numerous evaluations underway. And second new area is pervasive intelligence, where we are beginning to apply AI and our algorithmic knowledge to our core business and specific verticals. Now let us turn to our quarterly highlights for our core business. Our innovation engine continued to deliver as we introduced four significant new products in the quarter. We grew revenue in digital and sign-off by double digit year over year. through both ongoing proliferation with market-shaping customers and adoption by new customers at advanced nodes. Samsung Austin R&D Center, a leader in high-performance design, has selected Cadence Digital Implementation Solution for a next-generation high-end mobile CPU core design. Cadence state-of-the-art Innoverse-based flow delivered the best quality of results for their design, enabled Samsung Austrian R&D Center to meet its advanced process node objectives. Innovium, a leading provider of innovative data center switching solutions, adopted Innoverse for its highly scalable Telenix Ethernet switch designs. There were more than 40 tape outs at 7 nanometer and below using our full digital flow in the first half of 2019. And Innoverse, our digital implementation solutions, has over 80 active customers for 7 nanometer and below designs, including 10 at 5 nanometer. Next, I want to discuss highlights of our system design and verification solutions, for which revenue grew 7% year-over-year. Our hardware-assisted verification products, which are an integrated part of our verification suite, had another good quarter. With the addition of Proteum X1, we also provide comprehensive solutions across IP, and SOC verification, hardware software regressions, system validation, and earlier software development. Palladium Z1, our flagship emulation platform, added six new customers and had nine repeat orders. Habana Lab, a leading AI processor startup, say that Palladium was instrumental for the development of Gaudi. the industry's first AI training processor that natively integrates Ethernet and RDMA, and for their Goya inferencing chip. Pungible, a pioneer in data-centric computing, uses a combination of Palladium-Z1 and Protium-S1 systems in the development of their DPU family of products. The DPU is a new type of microprocessor that will revolutionize the performance, reliability, and economics of data centers at all scales. We introduced the Proteum X1 enterprise prototyping platform, which is the first data center-optimized FPGA-based prototyping system, and provides multi megahertz speed for billion gate designs, accelerating earlier software development and hardware-software convergence. Customer reception of Proteum X1 has been very positive, with earlier adoption from some market-shaping customers, including NVIDIA. Proteum S1 and X1 also added three new customers and received received seven repeat orders. We also delivered the Smart Jasper Go former verification platform that delivers an average of 2x faster proofs out of box and 5x faster regression runs by leveraging new machine learning-enabled smart proof technology. STMicro has been able to significantly boost its verification productivity with smart Jasper Gold. Custom analog grew a strong 11% year over year. In the quarter, we introduced an important new product, Spectre X Simulator, which is next generation massively parallel circuit simulator designs to provide up to 10X performance gain while solving 5X larger design. And while maintaining the golden accuracy, customers expect from 25 years of Spectre industry leadership in analog, mixed signal, and RF applications. SpectreX was endorsed by MediaTek, Mennonox, Renesas, and SiliconWorks. Now let me make a few comments on the geopolitical situation. We have and will continue to comply with the United States Department of Commerce export control regulations. The situation is fluid and we will continue to closely monitoring it. While there is an ongoing uncertainty, thanks to our strategy, continual innovation and operational execution, we are well positioned to capture growth opportunities arise from the longer-term trends driving strong design activity. While we do not provide details about any specific customer, I do want to emphasize that we have a very broad, diversified, and global customer base. With that, I will now turn the call over to John to review the financial results and provide our updated outlook.

Thanks, Libu. And good afternoon, everyone. I'm pleased with our results for Q2 and our updated outlook for fiscal 2019. Q2 was a little unusual due to the export limitations that were imposed during the quarter. The export limitations that took effect on May 16th and June 24th in respect to certain customers remain in place today. We're aware that this is a very fluid situation So for the purpose of providing guidance for the second half of 2019, we've assumed that these current export limitations remain in effect for the remainder of the year. Now let me walk you through the key results for Q2, beginning with the P&L. Total revenue was $580 million. Non-GAAP operating margin was 33.6%. GAAP EPS was $0.38. and non-GAAP EPS was $0.57. Next, turning to the balance sheet and cash flow, at the end of the quarter, cash totaled $633 million, while the principal value of debt outstanding was $350 million. Operating cash flow for Q2 was $246 million. DSOs were 38 days, and during Q2, we repurchased $75 million of cadence shares. Now I will provide our updated guidance. For Q3, we expect the following results. Revenue in the range of $570 to $580 million. Non-GAAP operating margin of approximately 30%. GAAP EPS in the range of 32 to 34 cents. And non-GAAP EPS, in the range of 50 to 52 cents. Our updated guidance for fiscal 2019 is now as follows. Revenue in the range of 2.315 to $2.335 billion. Non-GAAP operating margin in the range of 31 to 32%. GAAP EPS in the range of $1.44 to $1.50. Non-GAAP EPS in the range of $2.11 to $2.17. Operating cash flow in the range of $680 to $720 million. And for the year, we continue to expect to use approximately 50% of free cash flow to repurchase Cadence stock. You will find guidance for additional items as well as further analysis in the CFO commentary available on our website. In summary, I am pleased with our execution so far this year. We are living in uncertain times and I am proud of how we are adapting to a fluid environment. Our improved outlook speaks to the diversification of our customer base, the underlying strength of demand for our technology and solutions, and the continued focus of our employees throughout the company on achieving our key financial metrics. I would like to thank our customers, partners, and of course our employees. We look forward to updating you on our progress throughout the second half of 2019. And with that, operator, we'll now take questions.

At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Tom Diffley with DA Davidson.

Yes, good afternoon. I was wondering if there's any way you could Do more of a quantification of the impact from the different export controls in China right now. The relative size of that or the impact earnings or anything more you can give would be great.

Tom, we wanted to provide clarity in relation to second half guidance and expectations without speculating on what may or may not happen with regard to current export limitations. While we don't provide... details on what that speculation might be. We do want to emphasize that we have a very broad, diversified, and global customer base.

Okay. But no way to size in case it does come back to give us a hint of what the upside potentially could be to your guidance?

It's very hard to say. We don't want to speculate.

Okay. And then moving on, maybe you could talk about the The margins in the quarter versus the guided margins, about 10% lower. Is it just mix, or is there more going on there?

Yes, certainly Q2, there was more profitable mix in revenue. We were happy with the performance and functional verification. We continue to expect modest growth for 2019, even considering the impact of those export limitations. The... We expect gross margins, of course, like if Q2 was a little unusual due to the export limitations, we'd expect the gross margins for the second half to return to more typical levels. We're investing in opportunities to expand our business with market-shaping customers and investing in TAM expansion opportunities. So that's why the op margin for the second half is forecast at approximately 30%. Okay.

And finally, when you look at the growth in intelligent system design over the next several years, does that meaningfully change the model for either a margin or cost structure point of view versus traditional EDA?

Well, we're not guiding out beyond 2019. Everything we know is included in our guidance for 2019. We take a longer-term view over things and, again, wouldn't focus on any one quarter. I tend to... like compare current results against our current midpoint of guidance against 2016, and I think I would expect the model to be pretty consistent.

Okay, thank you.

Your next question comes from John Pitzer with Credit Suisse.

Yeah, good afternoon, guys. Thanks for letting me ask the question. John, just to follow up on the gross margin, I want to make sure I understand, what was unusual about the June quarter? I thought I heard you say from the last question It had to do with the export tariffs, but then you're saying that the gross margins return back to normal in the back half of the year, despite the fact that it looks like you're still excluding some business related to the tariff issues.

Well, Q2 was a little unusual in that the export limitations took effect on May 16th and again on June 24th in respect to certain customers. And like I say, those remain in place today. The... And then, I mean, we had, you know, we had a few things in terms of, you know, hardware results. Hardware was a little bit more profitable than we expected. You know, services revenue was a little bit more profitable than we expected. And just generally, like I said, I wouldn't, you know, it was great, it was a profitable quarter for Q2, but I wouldn't extrapolate that into any kind of future guidance that we expect, you non-GAAP gross margin to return to more typical levels in the second half of the year.

That's helpful. And maybe as kind of a follow-up for LeBleu, LeBleu, clearly China's going to continue to be a long-term strategic customer for you. I'm just kind of curious, given the heightened tension, U.S.-China trade, is there any concern that we should have that China might try to do EDA on their own, or... Are the barriers to entry to that business just so high it would be difficult for them to kind of generate domestic sources for what you provided? Any sort of longer-term color on that would be very helpful.

Sure. So I think, you know, clearly they have a number of China-based EDA companies offering a few point two solutions. And, you know, clearly we're not going to speculate in the broader, you know, hypothesis. But clearly we focus on to be the best partner for our customer and globally include China.

Thank you.

Your next question comes from Gary Mobley with Wells Fargo Security.

Hey, guys. Thanks for taking my question. Can you hear me all right? Yep. Yep. All right. Good. John, I want to ask you a question about your fiscal year 20 outlook. I know you're not going to say anything with respect to revenue growth or margins or anything at all relating to 2020, but as you enter your budget meeting, whatever that is, are you still going to use the guiding principle of the rule of 40 in terms of looking at the revenue growth, the sum of the revenue growth and operating margin?

Yeah, Gary, certainly. I mean, the model we have, we expect to apply consistently and rule of 40 has been something we've looked at across the different business groups. But with that, you know, we're guiding for 2019 now and not guiding beyond.

Understood. And with respect to your market shaping customer, I presume that you're still in the investment mode with this customer. Is it fair to assume that you haven't been able to recognize any revenue from the relationship at this point? And if that's the case, when would you expect you to bring the product to full fruition and be able to recognize revenue?

Yeah, so I think, Gary, we mentioned quite a few market-shaping customers. That's quite a few important ones that are the leader in the industry. And I think I assume that you refer to this marquee, U.S. and Macintosh Company, Clearly, we have a breakthrough and wide-ranging win with this U.S.-based semiconductor company, where we have a breakthrough and wide-ranging win. We are in the early stage of partnership. We are now very heavily engaging with them across the product line, the breadth of our engagement. So we're excited about it, but we continue to stay on course and focus. Okay. Thank you for taking the questions. Sure.

Your next question comes from Jay Fleashour with Griffin Securities.

Thanks. Good evening. Lipa, let me ask you a competitive question regarding Mentor. That is, it's becoming recently apparent that since the acquisition two and a half years ago, they've been doing quite well with revenues well beyond what they last reported in 2016. and particularly in the areas for which they were always the market leader, including physical verification and PCB, and it looks more recently also in hardware. The question is, have you encountered that before, and have you had to make competitive adjustments, let's say, to the fact that Mentor is, in fact, doing so much better than they were pre-acquisition? A couple of follow-ups.

Yes, Jade, you know, first of all, we respect Mentor tremendously. And right now, part of Siemens is a very big, you know, $100 billion company. So we don't take them lightly. And meanwhile, we respect them a lot. And then clearly, there are some products that are competing with us. I think you mentioned earlier the hardware verification emulation side. And of course, there are scalable products. So I think clearly, we continue to respect them, but we effectively competing with them, and so we treat them as business as usual.

All right. You've grown your headcount pretty substantially year-to-date and also from Q1. Could you talk specifically about how well you've been able to bring on applications engineers? You know, we've talked about this, that for at least the last half year, going back to last fall, in fact, you've had a significant increase in open recs for your AEs, particularly domestically, where you're now looking for AEs well beyond the number that either Synopsys or Mentor are looking for. So I imagine you've been able to onboard some, but can you talk about how you're doing in terms of bringing those kind of people on? And then lastly for John, you've talked for the last number of years about deep quality, price optimization, and so forth. When you think about your base of customer contracts in cohort terms or aging of the cohort of the contracts, how do you think you've done so far in terms of optimizing the base of contracts or how much is left to be done in terms of outstanding contracts that at renewal you can optimize?

Yeah, so, Jay, let me answer the first question, and then John will answer the second question. So on the HICAL, and we pretty much – is pretty much on plan in terms of what we're going to bring on board. In terms of the talent and also the FAE and engineering talent, we continue to bring in. And then John and I, we are very thoughtfully trying to bring in the talent with our executive team to really drive and focus on customer success. And so, you know, clearly, you know, we have a lot of multiple market-shaping customers. We are, you know, proliferating. and we need the FAE to support the customer success, and that's something that we're very focused on that. In terms of the AE resources increase, clearly, you know, not just domestically, also internationally to support our customer. So I think all in all, I think it's pretty much on plan, and we continue to drive that. And then, as we always say, only when we see the green light from the customer in terms of commitment, in terms of proliferation with us, then we add the AE and engineering talent to support that.

Yeah, and Jay, in respect to your questions about deal quality and optimizing pricing, I mean, we're very disciplined and value-driven, and we believe the best way to derive value for our products is to collaborate deeply with customers and deliver innovative and clearly differentiated solutions. And as LeFou highlighted, we're investing in opportunities to expand our business with market-shaping customers, and we're investing in TAM expansion opportunities that result from our intelligence system design strategy. I mean, in the end, it's all about innovation, which means attracting, retaining, and incentivizing top talent.

Thank you.

Your next question comes from Sterling Oddy with J.P. Morgan.

Yeah, thanks. Hi, guys. I wanted to start off by circling back to the export control and the quantification. I understand you don't want to speculate on what might come back in, but is there a way to look backwards and just give us some quantification of how much contribution we've gotten from these customers in the past?

Again, Sterling, I mean... So let me start first, I think, John.

First of all, I think Sterling, we're clearly complying the regulation and limit some of our relationship with any customer that may be on that entity list. And, you know, clearly we review all the product portfolio to determine which of the product and related support subject to the limitations. So I think this is something that we really focus on what are the maintenance and support we can provide. And we want to the best customer and we want to do the best we can. But meanwhile, very important is to comply with the regulation.

Yeah, we're not going to speculate on if and when either the regulations may change. our ability to service those customers under the existing regulations may change. But our updated guidance for fiscal 2019 assumes no change, either positive or negative, to current export limitations. But we would want to highlight and emphasize that we have a very broad, diversified, and global customer base.

Okay, and then on the margin guidance for the back half of the year, you talked about the gross margins, but is there anything else that would kind of dictate why the operating margin would be, I mean, the setup in operating margins has been kind of down for the, you know, third quarter or even the second half since the beginning. And usually that's kind of counterintuitive when we think about, you know, when your FICA rolls off and some other timing of investments, we've usually thought about you guys, like most enterprise offers being more profitable in the back half than the front half. So just looking at the, you know, the margin guide for next quarter, Other than gross margins, is there anything else that we can look to describe why the operating margins would be down sequentially?

Of course, Sterling, yeah. And like you said, like you pointed out, most of it is the expectation of a reversion to mean kind of for the gross margins. But on the up margin side, we're investing in opportunities with market shipping customers and in our time expansion opportunities. We also have the – Annual pay increases for employees are effective in July here at Cadence. So that kicks in for the second half of the year. And that's what's taken us to an expectation of 30% for the second half.

All right, perfect. Thank you.

Your next question comes from Rich Valera with Needham & Company.

Thank you. Lipu, you referenced geopolitical tension in your prepared remarks, which I think most would agree has increased probably over the last quarter or so. And notwithstanding the fact that your business remains obviously very healthy, have you seen any change in any customer buying patterns or demand due to this increased tension or any perhaps unexpected customer attrition?

Yeah, so far we know we don't see that. But clearly in our... process prolong, and then clearly we'll see some impact. But clearly right now, so far, we don't see any impact. And then we have a very broad-based customer, as John mentioned, and we're happy in serving those customers.

Got it. And then the custom analog was particularly strong this quarter. I think 11% was the growth rate you provided. Is there anything you can point to to sort of justify why that was, I think, sort of above trend? And should we think of this as somewhat anomalous, or do we think that this business might be growing at a faster rate than it has historically?

Yeah, we are very delighted with that 11% growth with the big base we have. And then clearly, it reflects the leading products that we have and the tools that we have. and the customer really counting on us to delivering the design. And then meanwhile, a lot of applications that I mentioned earlier in the 5G and some of the IoT and autonomous driving, and they are all mixed signal. And so that is really a strong combination of our strength in the analog and now very strong portfolio that we have in digital, and they make it very compelling to grow that in the mixed signal RF area.

And as always, we'd encourage you not to focus on any one quarter, but you kind of have to look at the results over a longer period. And certainly I wouldn't focus on, if you're picking one quarter, I wouldn't extrapolate Q2 given the unusual nature of the impact of export limitations imposed during the quarter.

Got it. And then just to follow up on the Q2 gross margin, just a little confused, it sounds like you're suggesting that the export limitations bumped up the gross margins and just trying to understand why that would be. Did you ship less hardware than you expected to, and that helped your mix? Or just if there's any color you could provide on why the export restrictions would actually help gross margin.

Oh, certainly. It's not just export restrictions. Essentially, it's a combination of events in the quarter. Like I say, the quarter was a little bit unusual in that respect, but hardware was a little bit more profitable than we originally anticipated. Services revenue was a little bit more profitable than we originally anticipated. And then just Q2 was unusual in itself, given the export limitations imposed during the quarter. That's what I'm saying. I wouldn't focus on extrapolating Q2, but focus on any one quarter. But you look at the year, really.

Got it. Okay. Thank you.

Your next question is from Mitch Steams with RBC Capital Market.

Hey, guys. Thanks for taking my question. So if I look at your China revenue growth, you guys are up, you know, 20%, 21% sequentially. And then in your prepared remarks, you don't really say that you couldn't ship. So when you say that there is an anomaly in Q2, was that the actual negative in the quarter, or did it actually not impact the revenue line?

You say China is up? Yes, of course, yeah. Yeah, China was up. It was 12% of our revenue in Q2 in comparison to 10% in Q1. But of course, that's down from 13% in Q4. The nature of hardware and IP is a bit lumpy, in nature anyway. But like I say, we wouldn't read into any one quarter. But yeah, our forecast for the second half of the year assumes that the export limitations that are in place today remain in effect for the rest of the year?

Sure, yeah. So it's just to clarify that. So I realize that you're assuming a neutral environment as of today, but was it a negative for Q2 results?

Yeah, I think our results would have been higher if there were no limitations.

Okay, perfect. Thank you.

Your next question is from Gal Musa with Barenberg Capital.

Hey, guys. Thanks for taking my question. Just to follow up on that China argument, so, you know, it's up to 12% of our revenue today versus a year ago, 8%. It was kind of trending between 8% and 10% except for that Q4, which probably was hardware heavy. Can you just talk a bit more about about the overall growth? Is it the big players that are driving it, or is it a lot of the smaller players that are basically trying to ramp up their semi space? Where are you seeing demand if we ignore the trade restrictions for a particular customer for now?

Sure. Like you say, our China revenue mix over the past five quarters has ranged from a low of 8% in Q2 2018 to a high of 13% in Q4 2018. While I'm not inclined to attribute motivation, our China business has been strong over the past several quarters. But for now, our ability to deliver products and services to certain customers that are on the BIS entity list is limited. So we would expect the percentage of revenue in China to be lower for the second half of fiscal 2019 than the first half.

That makes sense. Thank you. And then just... As a follow-up, if I think about, and without thinking about a particular number, but just for margin outlook in the future, recently we've had this bump in gross margin helping and the mix helping, but going forward, would you expect the gross margin to start contributing to the operating margin improvement as well, or do you think it's mostly based on the continued operating leverage?

Oh, yeah, I'd expect non-GAAP gross margin to return to more typical levels in the second half of the year, and then the reason we expect operating margin to be 30% is because we're investing in new employees as we invest in opportunities to expand our business with market-shaping customers and the time expansion opportunities we have, and also because the annual pay increases for employees were effective in July. That's impacting our Q3 and Q4 op margin, but I expect gross margin to return to more typical levels in the second half of the year.

John, if you look maybe a year or two ahead and not asking for the guidance, but just kind of trend-wise, is there a potential in gross margin to contribute to operating margin improvement in the future, or is it mostly going to be from operating leverage?

Again, everything we know is in our guidance for 2019, and we're not guiding beyond 2019. Okay.

Your next question comes from Jason Salino with KeyBank Capital Market.

Hey, guys. Can you hear me okay? Yeah, just a quick one from me. So I appreciate your comments around kind of the investing in your market-shaping customers and your TAM expansion opportunities. But as you think about these investments, you know, over the next, you know, second half and longer term, is there one area that you feel is going to be more investments near-term and then one area that's going to be more investments long-term, or is it going to be kind of equal?

We assess that regularly as part of our normal review of annual operating expenses. And really, back to Gary's comment earlier in terms of Rule of Forty, our approach is to invest in the areas where we think we have the highest revenue growth, I'm not saying 40 is the right number because, actually, we're not guiding beyond 2019. But, essentially, the whole premise on the Rule of 40 is you add your operating margin to revenue growth. So, basically, where we have areas of more revenue growth, we'll invest a little bit heavier there. Where we have less revenue growth opportunities, we'll look for more profitability.

Okay. Thank you.

Your final question comes from Krish Sankar with Calend.

Hi, thanks for taking my question. I have two of them for either Libbu or John. Number one is on your IT business, especially with your hyperscale customers. Are you guys doing any more customized projects or is it all mostly done behind us at this point? And then the second question is on the PCB business, have you seen any incremental design activity in PCB over the last few months? And if so, Do you think is that just a short-term blip, or do you think there's something else interesting in the horizon longer-term on PCB? Thank you.

So, Chris, let me address these two topics, and then John will add some color. First of all, IP is a very lumpy business, and clearly, if you look at the first half, it's a double-digit growth for us, and we like that. And then secondly, we just announced our 10-silica Q7 product, We are excited about that whole double vision and AI performance for automotive, AR, VR, mobile, and civilian applications. And so we just product release on that. And we have a couple of design wins in the data center, mobile, and automotive application. And then the other part we like a lot is this 30, high-speed 30, 112 gig 30 at 7 nanometer. And we have... very strong customer demands, and we're working very intensely with them. So overall, we like the IP business, and we continue to build that as part of our whole, we call it the design excellence, include EDA and IP. That is our strategy. In terms of the PCB interconnect site, also a very good solid business, and clearly the whole system interconnect and system analysis site and we are double-digit growth in that area. And so clearly the whole system analysis that will increase 4.5 billion 10 market, and then our quality 3D solver, very well received by customer. We have numerous evaluations and a strong customer engagement and interest. So all in all, I think we are pretty solid on that.

Yeah, and I would just add that IP, as Libu says, can be lumpy in any single quarter. But looking at the first half for IP, we had double-digit growth there, and we're happy with that. And with regard to System Interconnect, it was a strong quarter for our PCB IC packaging and security analysis products. And again, as Libu said, we had double-digit growth there. So we're very pleased with the results there.

Thank you, Libu. Thanks, John.

Thank you. Thanks.

If there are no further questions at this time, Mr. Lipu, your closing remarks, please.

Yes, thank you all for joining us this afternoon. Next phase of our strategy, intelligent system design, brings new opportunities in the design excellence, system innovation, and pervasive intelligence, and an expanded total addressable market. Of course, Cadence will comply with all export regulations and will continue to access and adopt to the situation. In summary, we are capitalizing on the multiple technology waves and further proliferating our solutions with a broader base of our customers. In closing, I would like to thank all our shareholders, customers and partners, board of directors, and our hardworking employees for their continued support.

Thank you for participating in today's cadence