Mentor reported third quarter revenues of $250.5 million, up 5%, including system & software revenues of $154.4 million as well as Service & support revenues of $96.1. The company had non-GAAP earnings of $0.25 a share, as compared with $0.22 a share a year-earlier. The non-GAAP operating margin was 14.4%.

Jay Vleeschhower of Griffin Securities, a long time analyst of our industry wrote that he is changing his recommendation on Mentor stock from "hold" to "buy". His main reason for doing so is that "the company achieved what is essential to EDA performance and investing, namely substantially improved bookings and some backlog replenishment."

The strongest performing division was Design to Silicon. The Calibre product, in spite of increased competition from Cadence, Magma, and Synopsys, continues to do quite well. The increase in licenses sold, I think, is mostly due to the competition for portable consumer devices. These products are doing well in the market and competition is fierce both in the cell phone as well as in the tablet and e-reader markets.

The second largest contribution to revenue came from the PCB division, grandiosely called the Integrated System Design Division. Mentor's market leading position will be very difficult to replace in the short term, given the approximately 20% market share advantage over the next competitor.

Selling the Catapult product to Calypto, a company in which Mentor has a controlling interest, practically doubled Calypto's yearly revenue to about $20 million and produced a one time income to Mentor of about $1.5 million for the quarter.

The challenge for Mentor is the same as that of the rest of the industry. A further slowdown of the financial markets worldwide will eventually erode the consumers' buying power, just when they are digesting the new gadgets. Thus lower consumers' appetite will slow down the pace of new products development resulting in a surplus of licenses that will result in lower number of renewals and certainly fewer new accounts. Competition will increase around major accounts. This is important to Mentor since, according to Jay, its top ten customers accounted for 65% of total systems and software revenue for the quarter. Loosing just one will have a significant impact to the bottom line.

At the end of this quarter the company had cash and cash equivalents of $112 million and had generated $10 million in cash from operations in the period. Although Gary Smith's 2010 analysis puts Mentor as the second largest EDA company in term of revenue, Jay's analysis shows that in 2011 Cadence has surpassed Mentor in global market share. In my opinion this is mostly a matter of bragging rights since the distance between Synopsys and the nearest competitor is too large to make up.