Wall Street has turned its back on stocks like Affymetrix (AFFX) or Cadence Design Systems (CDNS), two suppliers of essential technology tools whose end users have been belt-tightening. San Jose, Calif.-based Cadence is in turmoil following Wednesday's departure of its chief executive and four lieutenants after their failed bid for rival Mentor Graphics and an unwise sales strategy for Cadence's software-which semiconductor firms use to design new chips. Nevertheless, Cadence is an entrenched leader whose fortunes would rise after a management turnaround and a chip-industry recovery.

The San Jose-based company increased its buyback plan by $500 million, bringing the repurchase amount up to $912 million. Cadence develops electronic design automation (EDA) software and
hardware.

Seeing as the company just repurchased $660 million in debt, their cash position can easily handle a $500 million buyback. If they repurchase the shares over a short time period, this buyback could reduce the share count by 20-24%, which would greatly improve EPS once earnings get back to normal.

The company reported weak second quarter earnings on July 23, 2008 with revenues of $329 million, compared to revenue of $391 million in the same period last year. Net income sunk to $5 million, or 2 cents a share, from $60 million, or 20 cents a share in the year-ago period.

"Although we achieved our Q2 numbers, it was more difficult than we planned. Customers are demanding still more flexibility in when, what and how they purchase software and hardware," said Mike Fister, CEO.

However it was good to see that Citi upgraded CDNS to buy from neutral and added the stock to their Top Picks list. The Citi analyst commented, "We view CDNS as a strong candidate to generate 50% 1-yr and 100% 2-yr returns." The analysts noted a few catalysts; their new CFO Kevin Palatnik, cost restructuring, many upcoming tech conferences, and the $912 million buyback authorization. The analyst upped the price target $9 to $11.50.

The San Jose-based company increased its buyback plan by $500 million, bringing the repurchase amount up to $912 million. Cadence develops electronic design automation (EDA) software and hardware.

Seeing as the company just repurchased $660 million in debt, their cash position can easily handle a $500 million buyback. If they repurchase the shares over a short time period, this buyback could reduce the share count by 20-24%, which would greatly improve EPS once earnings get back to normal.

The company reported weak second quarter earnings on July 23, 2008 with revenues of $329 million, compared to revenue of $391 million in the same period last year. Net income sunk to $5 million, or 2 cents a share, from $60 million, or 20 cents a share in the year-ago period.

"Although we achieved our Q2 numbers, it was more difficult than we planned. Customers are demanding still more flexibility in when, what and how they purchase software and hardware," said Mike Fister, CEO.

However it was good to see that Citi upgraded CDNS to buy from neutral and added the stock to their Top Picks list. The Citi analyst commented, "We view CDNS as a strong candidate to generate 50% 1-yr and 100% 2-yr returns." The analysts noted a few catalysts; their new CFO Kevin Palatnik, cost restructuring, many upcoming tech conferences, and the $912 million buyback authorization. The analyst upped the price target $9 to $11.50.

PE of 9 and a PEG of 0.75.

Semiconductor manufacturing equipment maker Cadence Design Systems Inc. said last week that its board has approved the repurchase of up to $500 million of common stock.

The authorization is in addition to the $8.36 million remaining under a previous authorization.

The stock trades for 6x cash flow.

Cadence Design (CDNS) was downgraded from Neutral to Underweight, JP Morgan said. Estimates also cut, as the company is seeing a longer sales cycle. Customers also feeling financial pressure.

Techinical spec

Price Target: 24

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hi tech software chip design