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Cadence's downbeat fourth-quarter forecast signals weakness in chip industry

Cadence Design Systems forecast fourth-quarter revenue and adjusted profit below Wall Street estimates on Monday, as slower R&D spending by semiconductor firms navigating a tough economy weighs on the chip design software provider.

Shares of the San Jose, California-based company fell about 4 per cent in trading after the bell.

A slower-than-expected chip industry recovery has a cascading impact on firms like Cadence, which makes software tools and hardware that help produce blueprints for chips before they are mass manufactured.

Tighter U.S. export controls on high-end chip technology to Beijing has also made investors nervous as it could hurt Electronic Design Automation (EDA) firms like Cadence, which derived 15 per cent of its total revenue from China in 2022.

The company’s costs have also risen as it has had to invest into integrating generative AI capabilities into its own software tools. The company’s costs rose 13.8 per cent in the third quarter ended Sept. 30.

Cadence expects current-quarter adjusted profit per share in the range of $1.30 to $1.36. Analysts had expected adjusted profit of $1.37 per share, as per LSEG data.

The company forecast fourth-quarter revenue in the range of about $1.04 billion to $1.08 billion, the mid-point of which fell below estimates of $1.07 billion.

Revenue in the July-to-September quarter rose 13.4 per cent to $1.02 billion, edging past analysts’ expectation of $1 billion.

Quarterly adjusted earnings per share of $1.26 was above estimates.

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