Cadence Design Systems, Inc. (NASDAQ:CDNS) Q4 2022 Earnings Call Transcript

Anirudh Devgan: Yes. Great point. I mean our , very excited about Future Facilities because I think that the way to differentiate in the system space is also through differentiated vertical offerings. because if you look at the simulation space, there are only few like kind of unknown algorithms. There is finite element, there is CFD and now we are doing molecular simulation. But there are a lot of end markets, okay. And the one way to even further differentiate CFD, one way we differentiate CFD is by our compute power, right, doing things bigger things and faster. But the other way to differentiate it is building a vertical kind of end market. And in CFD, one of the biggest thing is this data centers and smart buildings. So, with Future Facilities, not only the thermal simulation is good, the core CFD engines and we can couple it with the rest of the CFD products.

But they also have built like a lot of models for like, if you go into a building or a data center, they have models for all the components, whether they are AC vents or AC systems and racks and all that. So, the customers can get very, very accurate digital twin for the data center. And that technology can be actually applied to any building, not just a data center. Now, we started with data center because that’s a big market. And as you know, they consume a lot of power. So, right now, data centers consume as much energy as like the whole airline industry, okay. So, that’s a lot of energy that they are consuming. And we have a lot of engagements that have picked up since we €“ because they are now in a bigger home with the whole Cadence reach.

So, we have a lot of engagements which are picked up with the hyperscalers, and with other companies, even in other industries because a lot of companies have big data centers, whether they are internal or on the cloud. So, you will see more of that from us, and I am pretty optimistic about it. That’s why we made that acquisition of this verticalization of having these vertical solutions in the CFD space.

Blair Abernethy: That’s great. Thank you.

Operator: Our next question comes from Ruben Roy from Stifel Financial. Please go ahead. Your line is open.

Ruben Roy: Thank you. Anirudh, you got a bunch of questions on hardware, and I think Carlin’s question hit on most of the things that I wanted to ask about. But I guess one thing that stood out to me from your commentary was that the two-thirds of your, I think new orders in €˜22 were for both Palladium and Protium. And that was interesting to me because it seems like as we are moving to more SSD designs, more firmware and software on those designs, that that sort of selling Palladium and Protium together is likely to move up. So, I guess if you could just comment on that and how you are thinking about that as either TAM expansion or a revenue growth driver kind of longer term behind hardware would be interesting. Thank you.