( ESNUG 373 Item 1 ) -------------------------------------------- [06/07/01]
Subject: Cooley Spanked For Confusing Magma Bookings & "Deferred Revenue"
> Three months ago, around DATE, Synopsys claimed to have $56 million in
> physical synthesis bookings, Cadence claimed $110 million, and Magma
> claimed $80 million in bookings. Something seemed odd here. I had done
> a physical synthesis tape-out census 3 months prior, and Synopsys had 65
> vs. Cadence's 7 vs. Magma's 3 tape-outs. Synopsys was winning by a 10X
> to 20X lead over Cadence and Magma -- yet Synopsys bookings were roughly
> half Cadence's and Magma's bookings. Huh?
>
> - from "The Magma Desperados"
From: Hank Walker <walker@cs.tamu.edu>
As usual, extremely interesting, John. Presumably Cadence is counting a
bunch of regular P&R revenue.
Do you have any update on Monterey? They had the most technically
challenging and interesting approach to an academic like myself. But I've
lost track of whether Monterey has ever shown a stable product that could
be run without FAEs in taxicab mode.
- Hank Walker
Texas A&M University College Station, TX
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From: Jay Vleeschhouwer <Jay_Vleeschhouwer@ml.com>
Hi, John,
I found your article on Magma interesting, but you made two errors in it.
One error was minor. The other was much more serious.
First, the minor error. It's important for you to to understand the
distinction between "bookings", "deferred revenues", and "revenues" in
the Magma S-1 filing. Bookings refer to Magma's customer orders coming in
the door for their technology and services. How those bookings are
recognized as actual revenues on their income statement depends on Magma's
revenue recognition model and its obligations to its customers. Some or
all of Magma's bookings are recognized "ratably" over the (typically 3
year) life of their sales contract with a customer. Therefore, on average,
they should see only 1/12th of their total bookings per quarter as revenue;
so the timing of the orders - earlier or later in the fiscal year - will
affect how much can be shown a revenues over the course of the year.
Deferred revenue is an amount that depends on the value of the "undelivered
elements" of a customer agreement, such as upgrades or services. Deferred
revenues are distinct from revenues, along with costs and expenses,
operating profits (or in Magma's case, losses), interest income, and so on.
You can't assume that $80 million in Magma bookings appears as $80 million
in deferred revenue on their S-1. You can't use these financial terms
interchangeably.
The more egregious error in your article was that you you got 1/13th of my
name wrong! I'm a VleeschhouWer, not a VleeschhouSer!!! The former is an
honorable Dutch family name; the latter - well, never mind. What if you
had gotten 1/13th of your tape-out survey wrong?
Anyway, see you at DAC.
- Jay Vleeschhouwer
Merrill Lynch New York, NY
P.S. In any event it's my understanding that for this last fiscal year,
Magma's bookings came in below expectations, though they were well
above their March 2000 fiscal year orders.
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From: Bill Frerichs <BFrerichs@dadco.com>
Hi, John,
Accounting buffs will point out to you that "deferred revenue" is the
billed components of term software licenses. It does not include
unbilled components. For example, if an EDA company were to sell a three
year deal but only bill for the first three months, the unbilled portion
would go into backlog, but not deferred revenue.
- Bill Frerichs,
Financial Analyst
D.A. Davidson & Co.
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Editor's Note: Again I wish to apologize for that Deferred Revenue
vs. Bookings error in that column. In my mind, Rajeev's $80 million
bookings translated to $27 million per year Deferred Revenue. I've now
learned that isn't the way the accounting works. Sorry. - John
---- ---- ---- ---- ---- ---- ----
From: <GO_Stock_Boy@yahoo.com>
Do the simple numbers from S-1
90 Million or so in VC investment
80 Million already spent (loss)
10 Million left
3 Million/month burn rate after revenues (maybe 2M with layoffs and
increased revenues)
OK - maybe some minor line of credit ..
3-5 months left to live without additional capital
= Avoid bankruptcy IPO !!
- GO_Stock_Boy (msg 9528 on the Yahoo CDN chat board)
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> "At the end of the day, it's tape-outs and follow-on customer orders are
> what count." concluded Jessica. And you know what? She's right.
From: [ Elvis Lives! ]
Hello Mr. Cooley,
I have not used Magma or Synopsys PhysOpt myself yet. It something that you
start to use and find that either you love it or hate it! But, I agree,
it's the number of right-first-time tape-outs counts.
> Magma's tools are hurting, too. From what Gary Smith of Dataquest and I
> have heard from customers, Blast Fusion can only handle blocks, not full
> designs. Magma's struggling with synthesis and Gary says he's heard that
> Blast Fusion doesn't work on designs over 200 Mhz.
Your chain of narration is weak, you said, Gary Smith heard from so and so,
and you heard from Gary, so who did Gary hear from in the first place?
Anonymous.
- [ Elvis Lives! ]
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From: [ The Man In The Iron Mask ]
John,
I'd love to comment (especially since I'm a former employee) but I cannot
legally do so... if you know what I mean. As always -> ANONYMOUS
- [ The Man In The Iron Mask ]
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From: [ My Lips Are Sealed ]
John,
I agree with the jist of your column. Any word on surplus Magma Hawaiian
shirts hitting the vintage clothing market soon? Anon.
- [ My Lips Are Sealed ]
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From: [ Death Before Dishonor ]
John,
I don't work for any of these EDA companies, but we could use any of them.
I don't have a bias, I just want working chips.
IMHO, you have gone over the edge on this one. Telling the facts is good,
but picking out as many negative things a possible and presenting those goes
over the edge. Spreading rumors and options without facts is very low. If
you don't have facts, don't write it. If they are dieing, let them die in
peace. Please don't spiral into the blackhole of EDA underground marketing.
Please keep my name and company anonymous. Thanks.
- [ Death Before Dishonor ]
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From: Shankar Hemmady <hemmady@pharmquest.com>
Hi John,
You are blunt!
BTW, even S-1 filings do not always tell the truth. Sometimes, S-1s are
well done accounting gimmicks. For instance, many B2C and B2B outfits
booked as revenues all that was transacted on their exchanges. They even
added the UPS or FedEx costs as revenues, even if it was credited to
customers! That is, until the SEC got tough with them and started asking
them to re-write revenues only to what the exchanges had title to...
IMHO, although Magma has burned so much cash -- in dot.com fashion -- I
suspect Rajeev has a lot more to show than your typical eCommerce site.
You've got to give credit to all of them EDA companies. Most of them are
real, not virtual, companies! More real than the dot.gones.
- Shankar Hemmady, CEO
PharmQuest Corporation
(and ex-EDA guy)
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