After wrapping up six consecutive quarters of meeting or exceeding guidance, this company is optimistic about its business in the upcoming quarters too. So much so, that the company recently raised its guidance for full year.
Apart from the traditional semiconductor market it serves, this electronic design automation company continues to make investment in non-traditional markets - a strategy, which helps to reduce volatility of business and competition, while increasing the potential for growth.
... Read on to find out about the company - Mentor Graphics Corp. (MENT)
Mentor is a supplier of EDA (electronic design automation) systems. The EDA systems are advanced computer software and emulation hardware systems, which enable companies to develop better electronic products faster and more cost-effectively. Mentor markets its products and services worldwide, primarily to large companies in the military/aerospace, communications, computer, consumer electronics, semiconductor, networking, multimedia, and transportation industries.
The company generates revenue in two categories - system and software; and service and support.
The system and software revenue refers to revenue from sale of licenses of software products and emulation hardware systems, including finance fee revenues from long-term installment receivables resulting from product sales.
The service and support revenue refers to revenue from software and hardware post-contract maintenance or support services and professional services, which include consulting, training, and other services.
Mentor typically generates about half of its revenues from customers outside the U.S. and about one-third of its expenses outside the U.S.
The new applications of EDA, particularly in transportation, is helping the company to diversify its revenue base. In the recent second quarter, Mentor secured major automotive orders from companies like Hyundai Kia, Mitsubishi, Fiat, Chrysler, and Mazda. Apart from the automotive companies, commercial aircraft companies also patronize Mentor's EDA software.
While new contracts are one of the primary revenue drivers, equally important is the contract renewal growth rate. Over the last five quarters, Mentor's contract renewal growth has steadily strengthened, and so has been the growth of its backlog. In the recent second quarter, the company's contract renewals in its traditional business was an impressive 45% growth while backlog was an all-time quarterly record. (Mentor's fiscal year ends January 31).
The penchant for acquisitions seems to paying off in spades for Mentor. Not only has the company diversified its customer base with the help of acquisitions, it is also experiencing strong performance from the acquisitions. In fiscal 2010, the company made seven acquisitions.
Mentor also keeps its focus on the protection of intellectual property. The company has over 100 patents issued, and 40 more are pending for emulation technologies. Last month, the company sued French emulation tools vendor EVE SA in a federal court in Oregon alleging patent infringement.
Activist investor Carl Icahn, who had a 6.9% stake in Mentor in May, has been accumulating shares in the company. According to a recent SEC filing, Icahn increased his stake to 14.98% last month.
With the corporate raider circling it, Mentor recently adopted a poison pill to ward off unwanted takeover maneuvers. After all, Mentor had been a subject of a hostile takeover bid by rival Cadence Design Systems Inc. (CDNS) two years ago.
For the fiscal third quarter ending October 31, 2010, the company expects non-GAAP earnings of about $0.15 per share and GAAP earnings of about $0.08 per share. This compares with non-GAAP earnings of $0.01 per share and a GAAP loss of $0.13 per share in the preceding quarter, and non-GAAP earnings of $0.05 per share and a GAAP loss of $0.28 per share in the third quarter of fiscal 2010.
Analysts covering Mentor are bullish about its earnings prospects, and over the last seven days, have raised their estimates for the third quarter by 5 cents to $0.16 per share.
Mentor sees its third quarter revenue at about $220 million, which represents 17% sequential growth and 16% year-over-year growth.
Buoyed by the strength in its business indicators, particularly the backlog, contract renewal growth and new system design customer wins, Mentor now expects full fiscal year 2011 non-GAAP earnings of about $0.65 per share and GAAP earnings of approximately $0.20 per share, and revenue of about $880 million. Previously, the company was anticipating non-GAAP earnings per share of $.60 to $.65 and GAAP earnings per share of $.10 to $.15 on revenue of $870 million.
The revised fiscal 2011 outlook represents 38% growth of non GAAP per share earnings and 9.5% growth of revenue over fiscal 2010.
With expanding business and better visibility, MENT is a stock worth keeping an eye on.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.