Mentor optimistic about 2003 performance

Mentor Graphics has issued guidance for 2003 reflecting the addition of all acquisitions done in 2002.

Mentor Graphics has issued guidance for 2003 reflecting the addition of all acquisitions done in 2002.

Mentor bookings are expected to grow almost 20% in 2003.

Half of that growth is expected to be a result of acquisitions made in 2002, Ikos emulation in particular, and the other half organic growth, led by the Calibre product family.

The company expects to build significant backlog in 2003 and anticipates closing the year with a very healthy book-to-bill.

As a result, revenue growth should once again be less than bookings growth as we seek to improve business predictability.

Revenues are anticipated to reach approximately $660 million, split 23-24% in Q1, 24-25% in Q2, approximately 24% in Q3, and the balance in Q4.

Revenue strength is expected to be greatest in emulation and customer support as the strength in software is taken to backlog.

Gross margin before amortisation of intangibles is expected to average 83.5%, across the entire year, benefiting from reduced emulation inventory reserves and a substantial improvement in Mentor Consulting.

Consulting is targeted to break even, up from a large loss in 2002.

The company expects gross margin to be in the range of 82% in Q1, 83-84% in Q2 and 83% in Q3.

Operating expense before amortisation of intangibles is expected to increase proportionately to revenues, up 10%, of which about half should relate to 2002 acquisitions and half relate to variable employee compensation.

Headcount at the end of 2003 should be modestly less than 3500 compared with a peak at Q2 2002 of 3730.

Mentor enters the year with first quarter operating expense of $120 million which is expected to increase sequentially at between 2 to 3% a quarter.

Other income and expense (OI and E) is expected to be an expense of about $10 million due primarily to interest paid on outstanding convertible debt.

The projected tax rate remains at 20% and diluted shares should increase slightly to 69 million.

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