Wednesday, July 23, 2008

The power of ratable revenue - redux!

Cadence (CDNS) announced Q2 results today and, while they made the quarter, they've lowered Q3 guidance as a result of forecasting a change to a ratable revenue level of 90% (see primer on revenue recognition).

It's like GroundHog Day for investors - perpetual changes in EDA revenue model that crater the stock - subsequent resets of guidance one after the other. Dire results as reports. Then EDA companies wonder why there are so few sell-side analysts covering the space? It's happened before many times - when will all EDA vendors get smart and transparent about their revenue - or investors get smarter about the truth underneath their software models? Maybe now?

As I posted in December last year the power of a subscription revenue model is that revenue is ratable - it's smooth - and most importantly it's never a surprise. Looks like Cadence is maybe, finally, figuring that out?

Note1: the "redux" in the title refers to the revision of Apocalypse Now - "Redux" released in 2001 - fantastic film.

Note2: FirstRain's revenue model is 100% ratable.

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