Cadence settles with U.S. government over export violation, agreeing $140.6M penalty – News

Electronic design automation software firm Cadence Design Systems Inc. said it has agreed to pay a fine of $140.6 million as part of a settlement involving claims it illegally sold its software to Chinese customers from 2015 to 2021, in breach of U.S. export rules.

In a filing with the U.S. Securities and Exchange Commission today, the company admitted that it broke the rules regarding the export of chipmaking software to China. Successive U.S. administrations have imposed stiff restrictions on the chipmaking industry, and what it can and cannot export to China without a special license, as part of an effort to stifle the country’s artificial intelligence and military technology industries.

The violations were said to involve a subsidiary of Cadence, which shipped $45.3 million worth of banned products to a customer in China that later transferred them to a third-party in the country, without U.S. government approval.

Cadence sells sophisticated EDA software that’s essential for chip development. It’s used by engineers to design integrated circuits, circuit boards and other electronic systems. As part of the settlement with the U.S. government, Cadence has agreed to implement additional export law compliance initiatives and submit to annual audits, to prevent similar breaches in future.

News of the settlement came as Cadence posted its second-quarter financial results, beating analysts expectations on strong revenue growth, driven by rising demand for AI chips. The company reported earnings before certain costs such as stock compensation of $1.65 per share, beating the analysts’ consensus estimate of $1.56 per share comfortably. Revenue for the period came to $1.28 billion, up 20% from a year ago and above the $1.25 billion analyst target.

However, the settlement did impact Cadence’s bottom line. Taking that into account, it delivered net income of $160 million in the quarter, down from $230 million a year ago. If not for that penalty, its profit would have grown.

Cadence President and Chief Executive Anirudh Devgan (pictured) declined to talk about the settlement, but praised the company for delivering an “exceptional” quarter, saying it highlights the “strategic relevance of our AI-driven portfolio and the depth of our customer relationships.”

Among the highlights in the quarter were Cadence’s system design and analysis business unit, where revenue grew 35% from a year earlier, and the intellectual property business, where sales rose more than 25%. The company cited “AI-driven optimization” and its “broadening silicon solutions portfolio” as the main drivers of growth in those units.

During the quarter, Cadence suffered a setback of sorts when the Trump administration imposed new licensing requirements on the export of EDA software to China, preventing it from selling even more of its products to Chinese firms. A report from Mizhuo Financial Group Inc. said the company likely incurred a charge of $56 million as a result of that restriction, but fortunately it didn’t last for long.

Earlier this month, the White House removed the new restriction, as part of a broader trade deal with China that secured America’s access to vital rare earth materials, ensuring only a brief interruption for Cadence. The chiomaking giant Nvidia Corp. has also been allowed to resume sales of its H20 graphics processing units to China under the same deal.

Looking forward, Cadence didn’t provide guidance for the current quarter, but increased its full-year earnings forecast. It says it’s now expecting fiscal 2025 earnings of between $6.85 to $6.95 per share, up from an earlier range of $6.73 to $6.83 per share. The forecast is strong, as Wall Street analysts are targeting earnings of just $6.76 per share.

The company also reiterated its full-year revenue forecast of between $5.21 billion and $5.27 billion, which compares well with the Street’s forecast of just $5.2 billion.

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