Cadence Pricing Spineometer: 1 of 5 Vertebrae
Cadence Design Systems, a global software and technology company supporting the silicon chip and pharmaceutical design industries among others, had a negative Q1 2024. Revenue fell 1% to $1.0 billion and earnings before interest and taxes fell 22% to $250 million over the same period last year.
A review of Cadence’s 22 April earnings call and associated financial reports provided insight regarding the importance of pricing on performance.
Cadence is in a highly turbulent industry regarding customer demand, competitive dynamics, and geopolitical risk.
Anirudh Devgan, CEO of Cadence, remarked; “Long-term trends of hyperscale computing, autonomous driving and 5G, all turbo-charged by an AI super-cycle, are fueling strong broad-based design activity.”
The technology driving their solutions uses AI as an input, delivers offerings that rely on AI, and has customers that use their deliverables to improve AI.
Cadence counts Nvidia, Arm, Intel, Broadcom, Qualcomm, Juniper, AMD, and several other well-known tech companies as customers. In automotive and aerospace, Cadence lists Stellantis, General Motors, Renault, and Lockheed as customers.
While price itself was not singled out as a discussion topic, working across these industries with fast-evolving value propositions would make pricing itself a very challenging and impactful function.
- From the annual revenue, industry benchmarks would suggest 8 to 40 individuals specializing in pricing to support Cadence’s business performance. Other factors indicate Cadence should operate at the upper end of this spectrum.
- With a global footprint and diverse customer base, we would expect pricing to support sales professionals in their price negotiations and constantly update the statistical models for providing negotiation and price guidance.
- The large and fast-evolving offering portfolio indicates an above-average requirement for offering pricing related to new product development and price evolution management.
- Commercial policy and sales incentives would each impact pricing performance and therefore should engage pricing professionals in their decision-making.
- The fast-evolving industry dynamics would further increase the need for pricing and economic expertise.
Research into the investment by Cadence in pricing yielded underwhelming results.
No pricing-focused professionals were uncovered in our research. Pricing expertise was held by members of product management, sales, and business development but pricing does not appear to be a recognizable career track within Cadence.
This is supported by Reddit pricing complaints stating, “There is no realistic ‘price list.’ Your sales account manager gives you a ludicrous quote and you negotiate. Details like per-seat costs, contract duration, and so on are negotiated on a case-by-case basis.” More enjoyable, and some believe more accurate, was an extended metaphor regarding the paying of a dowry in goats as the company is unused to working with fiat currency.
In short, we suspect pricing is largely an uncontrolled yet highly political issue at Cadence.
Given the importance and capability of pricing at Cadence as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of June 2024.
Cadence Pricing Spineometer: 1 out of 5 Vertebrae. Demand growth management outweighs price management for Cadence today, but this points towards a huge opportunity for improvement given the right team and organizational integration.
CDNS (Cadence Design Systems, Inc.) was relatively unchanged at 280 the day prior to their earnings call and 275 one week later. FY 2023 revenue of $4.1 billion with a 31% operating margin and P/E ratio near 75.
For FY 2023, a 1% improvement in price would yield a 3% improvement in operating profits holding all else constant at Cadence.
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