Good afternoon, my name is Molly and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Design Systems First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I will now turn the call over to Jennifer Jordan, Corporate Vice President of Investor Relations for Cadence Design Systems. Please go ahead.

Thank you, Molly. And welcome to our earnings conference call for the first quarter of 2007. The webcast of this call can be accessed through our website, www.cadence.com and will be archived for one week. With me today are Mike Fister, President and CEO, and Bill Porter, Executive Vice President and CFO. Please note that today's discussion will contain forward-looking statements, and that our actual results may differ materially from those expectations. For information on the factors that could cause a difference in our results, please refer to our 10-K for the period ended December 30, 2006 and our 10-Q for the period ended March 31, 2007, which will be filed shortly. In addition to financial results prepared in accordance with Generally Accepted Accounting Principles or GAAP, we will also present certain non-GAAP financial measures today. Cadence management believes that in addition to using GAAP results in evaluating our business, it can also be useful to measure results using certain non-GAAP financial measures. Please refer to our earnings press release for a discussion of non-GAAP measures and to both our earnings press release and our website for reconciliations of GAAP and non-GAAP financial measures used in today's discussions. Now, I will turn the call over to Mike Fister.

Thanks Jennifer. Cadence started the year on a strong note with Q1 revenue growing 11% over the prior year period and non-GAAP EPS of 24%. 2007, our focus is again to grow our core business and expand any adjacencies. We continue to increase our differentiation in the core or at the platform level where we are delivering leading technology tier to provide value to our customers. So, I discussed with you at Analyst Day, customers continued to be challenged by time- to-market complexity and productivity. While we are already a leader in providing technology at the platform level, now if our customers move forward to these challenges, we have to understand the product development process and the ramifications of exploding design complexity. That’s why we bring design solutions to market to leverage capabilities across platforms, expand the moveable engineering teams within the customers, and ultimately address enterprise product development. Within this context, let me tell you about some of our progress in Q2 that’s in Q1. Continuing with the trend of consolidation at Cadence due to our Enterprise class capability, Hitachi announced the new design infrastructure co-developed with Cadence, to enhance the design and manufacturing competency in terms of costs, technology and quality. In our early evaluations of the co-developed Cadence and Hitachi designed infrastructure, Hitachi has succeeded in doubling design efficiency and reducing turnaround time by 40%. The new design system is entirely standardized on Cadence's design technology. Hitachi plans to extend and deploy this new design system to include not only information and communications products, but also digital consumer products, automotive, electronics and medical products. Hitachi clearly shares RNA and thinking about the product development process. Our integrated approach to design and verification is embodied in our logic design team solutions. This approach is resonating well with customers,…

Thanks Mike. I am pleased with our first quarter performance, which was highlighted by consistent execution and strong financial results. Total revenue was up 11% year-over-year, non-GAAP operating margin was 24% improving 400 basis points from Q1 of 2006, and operating cash flow was $90 million. GAAP earnings per share for Q1 of 2007 were $0.15, compared to $0.07 in Q1 of 2006. Non-GAAP earnings per share were $0.26 for the quarter, compared to $0.21 in Q1 of 2006, up 24% year-over-year. Total revenue for the first quarter was $365 million, compared to $328 million in Q1 of 2006. Product revenue was $238 million, maintenance revenue was $95 million, and services revenue was $32 million. Revenue mix by geography in Q1 was 48% for North America, 27% for Japan, 15% for Europe, and 10% for Asia. We saw good levels of business across all regions, with particular strength in our geographic accounts. One customer accounted for 12% of revenue Q1. In the quarter, approximately 84% of our product business was represented by ratable licenses. Estimated contract life on a dollar weighted average basis was approximately three years. Total costs and expenses, on a non-GAAP basis for Q1 were $277 million, compared to $290 million in Q4. Our non-GAAP operating margin in Q1 was 24% compared to 20% in Q1 of 2006. We are on target to achieve a 30% operating margin for the full year 2007. Quarter-end headcount was approximately 5,200. Total DSOs increased seasonally in Q1 to 103 days, compared to 97 days in Q1 of 2006. We expect DSOs to be in the mid-80s by year-end. Quality of receivables remained high, with receivables 90 days past due at 1%, within our historical range of 1% to 3%. Operating cash flow for Q1 was $90 million, compared to $41…

(Operator Instructions). We will pause for just a moment to compile the Q&A roster. Your first question comes from Mahesh Sanganeria from RBC Capital Markets.

Yes. Thank you and congratulations on a good quarter and the guidance. Quickly, did you say variable was 84% this quarter?

Yes, for the quarter Mahesh?

Yes, for the March quarter. Hello.

Yes.

Okay. So, can you give us some color on the bookings? Would that 84% variable imply that you had a pretty strong booking?

Yes. The 84% variable number does imply that we had good business levels. And as I have said, we did see good business across the geographies and also across the product lines, and as you can see from the percentage of business by revenue, there is a little bit of variability there because of the type of contracts. So, it's not always apparent. But as you look at the business, kind of across the fourth quarter average, I think you'll see that we are continuing to have very good business levels in our three primary product areas; digital, functional verification and custom, and I think it's good to see the digital line comeback, because there were few questions a year ago saying, have you lost any of your momentum in digital? And I think the answer is, no, we just saw some absorption and some of the advantages that we have with our holistic power approach, as well as the front-end logic design team are really starting to come through. So, overall I think you could see good business levels.

So, how do you feel about your backlog targets for the year? Do you feel more confident or less confident? Any color you can provide on that?

I am just consistent with what our outlook was at the beginning of the year. I think we are planning to provide good value to customers, and I think one of the things that we are trying to achieve is a nice balance between building backlog or visibility, as well as selling continuously and getting better value for customers. So, as we did last year, it's a nice balance. I think we do expect to grow our backlog, but on the other hand we are not trying to maximize this. We're trying to get better value for customers and get better value in return.

Okay, thank you.

Your next question comes from Jay Vleeschhouwer from Merrill Lynch.

Thanks, good afternoon. Mike, I'd like to ask you about a metric that hasn't really come up before, but I am wondering if it might attain some additional importance or new importance, particularly, as you move into the so called enterprise EDA market. And that specifically is the measure of profitability by account. When we talk about bookings we talk about run rate, but particularly as you move into larger deals or more comprehensive types of transactions, what does that mean for how you can gauge the profitability of accounts particularly as certain product areas or certain customers are very support and services intensive? And then a couple of follow-ups.

Yeah, Jay, to tell you the truth I am really focused with Bill and Kevin on continuous selling, I think that's the first way to go, broach driving value and making sure that the customer hasn't got too much capacity, and that is one of the kind of prerequisites for really being able to drive value. We always look across products and services when we do these things. And I think that, our application engineering force and services teams are some of the best asset the company has. Especially as we approach the real enterprise penetration, which is consolidations. And certainly we have served well and the ones that we've done so far. Most of those kinds of consolidations started off with a service lead opportunity to not only demonstrate but probably to migrate some of the influx designs. And over time I think that if we look at it in combination that gives us the best vision into how we become a full service enterprise supplier.

You've talked about how Virtuoso is going to be an important product upgrade opportunity for you this year. But I'd like to ask about other areas that may not have been performing as well for you or where you might need to add additional product capability for future incremental revenue. A couple of things came up with the DATE Conference in Nice last week, which is what's prompting the question. First in terms of Litho or Manufacturing-Aware Design, it was evident last week at the conference that there is more talk about manufacturing awareness moving up into the design process, which prompts the question of where you are with that. And secondly system level design, multiple definitions perhaps but again its becoming an increasingly important revenue category and industry issue. I understand you might have some kind of an incubation program going on, but beyond Virtuoso these two things and perhaps others might seem to be important for future revenue.

Strangely coincidence, it was exactly where we focused the adjacency business. We have a perfect strategy associated with lithography; metallization and chemical [etch] as fundamental components of our DFM approach, which I call design side DFM. The reason that that is Jay is because the electrical parameters are impacted by those and physical signoff is insufficient to be able to close the design if you affect electrical performance. And I like our position in this; it's exactly where we target the PVS pressing the modularity of it, and what we have bundled into the GXL. And we are making customer progress on this, we are not over hyping it, and everyone will follow that trend as far as I am concerned. On the systems side, that’s what we mean by up the adjacency. We do have not only the ISX capability which I referred to in the opening comments. But we do have some technologies that we've been very selectively engaged with. Hitachi was a test bench for one of those, of that stack. The reason that the company had such an exciting announcement is not only that they consolidated across the Cadence tools suite, but because they are a system design company, and the real moral of the story is that they are using that to allow their system designers to use semiconductors to express some of their ideas across all different kinds of verticals. That's because their next president can see the vision or the roadmap and it's more than PowerPoint, my friend it's real. So, I think the problem with the systems category in general is that, it's historically been kind of theoretical. It's [prevalent] with a lot of niche players would have no connection to the implementation of a chip or of the RTL or any of the gates or even the software or hardware co-design. And I really believe that our fundamental integration of all those pieces is demonstrated in the blueprint with how those systems customers can really progress and evolve, and it's very exciting.

Okay. Just to press the point, however, Mike. I understand what the product roadmap or product intent is that you have. But, I'm afraid it wasn't entirely clear, when these might convert to revenue for you. Are you saying that as this year progresses may be these new things are going to convert the revenue for you as additional businesses as in '08 and if you could just clarify that? And again, back to earlier question on profitability by account. You are planning to increase your margins by several hundred basis points over the next few years. Does that suggest a lessening of services and support intensity on average, even as you pursue a larger business?

Yeah. The ISX product has been out for a while, so is the thing we call Builder which is a hardware template thing and it's contributing. And it's a relatively small percentage or components of the verification business, which has got a lot of emulation, simulation content to it. So, it's kind of what I mean by progressing up the adjacency. And to tell you the truth we have not been public in breaking out the subcomponents of the verification business beyond elements of the hardware business. And we’ll think about how to do that and expose it to you. In terms of the RF services and the ability to scale in to the enterprise, I think we are extremely scalable. We got a massive organization, the biggest and best in the industry by a long shot and that's in both human scale and capability, and that's the most important part, because it's geocentrically deployed. And I believe we’ve got a ton of skill, we've grown the business over my three years here by a long shot with almost no increase in human headcount. And I think that's a testimony for just how scalable it is.

Jay, this is Bill. Just to add a little bit to Mike's comment on moving up the stack. As you could see from the success we had with our early incubation. Patience in working with customers to really get the products right, its being paying off as both of those products have had awards. So, we are not rushing to get those to revenue, I think we want to make sure that they really are clicking with customers and we are building up that experience out of our core business in to the systems adjacencies. So, I think patience helps. We don't need those to get to our targets. I think it's really getting the right basis for those products and getting them to work with customers, that is very important for incubations or early stages in that product. So that experience we are going to continue. And then on the profitability piece, as we continue to have better integration within our product platforms and amongst our product platforms, along with layering on top of it the experience with kits, we should be able to get less support intensive, work with our customers, because there is not going to be the same type of handling you need when you are dealing at a point to a level. So, I think that will help naturally overtime, not something that’s immediate. But that will help us to leverage our revenues down to profitability. It's just a natural way that the field continues to train themselves and then to work with customers.

Okay. Thank you.

Your next question comes from Rich Valera from Needham & Company. Rich Valera - Needham & Company: Sorry. Can you hear me, okay.

We can Rich. Rich Valera - Needham & Company: Okay, great. Bill at your recent analyst day, you talked about your three major segments and what you were sort of counting on them to grow in '07 to meet your sort of 8% to 10% growth rate. And you specifically cited verification is growing probably double-digits or may be better and Custom IC as also growing up in that double-digit type of rate with digital possibly flat. Flat to up 10% and yet in your first quarter it seems that it was pretty much the reverse with digital showing really strong year-over-year growth, I think about 30% and the other two segments down year-over-year. Just wondering if there is anything to read into this, you mentioned you feel like you’ve got some sort of reacceleration in digital. But should we still expect those other two segments verification and custom to grow reasonably this year? Is there anything that would have changed your view based on these results? Thanks.

Yes, Rich don’t see anything based on these results that changed our outlook for the year, particularly in those product areas. As I've mentioned, I think we did have strong performance, but because of the mix of contracts where you have certain of the areas having more revenue in a particular quarter, you don’t get to see that strength and that will come out over time. We do see a good pipeline in our Virtuoso upgrade process, and that will continue to pull other business with it, because that’s been our experience. In functional verification, the real breadth of that offering continues to do very well against the competition. So, I think both of those will be good growers for us, and I think I mentioned there is upside from the other product areas, and that's the nice thing about having a portfolio. You can't always predict exactly where the portfolio will perform, but I think over the year we should see strength in all three areas. Rich Valera - Needham & Company: Great. And Mike you mentioned a Space-Based Router in your comments. Can you [say] but is that a potential upgrade cycle on the digital side? Will you get incremental revenue for that if customers upgrade to the Space Based Router or is that a maintenance upgrade?

Not a maintenance, it's a feature differential in the tiering of the products. So further up the stack in the GXL, that's where it's implicit and it's most evident in the custom in the Virtuoso platform Rich. So, it's really a cool technology, and there were people questioning just how cool, cool was. I guess if the industry has voted then, we know where they have voted. And the early customer trials were just glowing. As you know, ATI and IBM were both early testimonials for it. So, I think it really bodes nicely especially for the advanced process nodes, and for our design side of DFM. And it's absolutely structural and strategic on our part. So, to me it's very encouraging that we see such strong response from the industry in recognition for it. Rich Valera - Needham & Company: Great. And Bill, I think you addressed this in your comments, just wanted to clarify you. The cash flow from Ops was pretty light this quarter, lighter than it’s been in several quarters. But is it purely a timing issue and do you feel that you'll make that up to hit that sort of 450 target for the balance of the year?

We do Rich, and we look carefully at where our scheduled payments are. And this is just one year where you could see that there's generally some movement in quarters where it's not always sequentially up. Some quarters have stronger cash flow than others. So, it's just the way that the year rolls out. The cash is in the year and we do expect to hit that 450 number. Rich Valera - Needham & Company: Great. Thanks very much.

Your next question comes from Terence Whalen from Citigroup.

Hi thanks for taking my question from Citigroup. So, my question links to the first questions. We've seen the ratable up here at about 83% or 84% for the past two quarters. Now, is that a function really of the third quarter of '06 being more upfront? Is it exogenous or thirdly, is it indicative may be of going more towards the mix of 80% plus ratable for the rest of the year? And then I have a follow up.

Yeah. Terence it's not indicative of a change in mix for the rest of year. It's more indicative of business levels in Q1, which is normally a seasonally lower quarter than what we saw normally in Q4. So, you can have a higher mix being affected by just little bit lower volumes. But, I think on average the way to read into it is good business levels.

Okay, great. Then a couple of follow ups regarding the balance sheet. I think there was a pretty large increase actually in other assets going form about $246 million to $364 million, an increase of $120 million. What was that increase? And then secondly related to that, do you expect the working capital draw or a source of cash flow in next quarter? Thank you.

Sure. If you look at the balance sheet, there are some significant increases in both other assets as well as long-term liabilities, and that is the impact from adoption of FIN 48, the new income tax accounting standard. And you will be able to take a look at that and read that in more detail in our 10-Q. But, essentially the balance sheet gets grossed up for deferred tax asset, as well as for liabilities. So, that's really the change on the balance sheet. And then I would expect that throughout the year, we would continue to see our working capital get a little bit more efficient. So I would say a draw, but it's always kind of hard to predict quarter-to-quarter.

Okay, great. And just squeeze one last in, if I can, on the stock buyback. Do you expect stock buyback dollar levels to remain at similar level or decline or increase through the rest of the year? Thanks.

Yeah. Terence, I would just say that we have authorization, and I think we will be selective as we use it. We don't try to forecast that level of repurchase with any degree of specificity for the year. But, we like to do it. You could see our history, so I would just say be patient and we will tell you about it at the end of every quarter.

Thanks and nice job.

Your next question comes from Harlan Sur from Morgan Stanley

Hi, this is actually John, I am calling for Harlan. Nice quarter guys. Let's see, I would like to kind of focus in on the end markets, the end applications that you guys are seeing especially in the area of analog and wireless. Can you share any kind of trends that you might be seeing within this marketplace?

Yeah. Wireless is on the rise everywhere. It's not only about a particular wireless standard, but actually mixed devices where they will have two or three of them integrated at once.

Okay.

80211 and WiMax will be a popular combination, so that you can kind of hook up to the high bandwidth sources that's near and dear to your heart. Beautiful thing for a company like us, because we are very sophisticated in the mixed signal technology capabilities for the tools, and able for that kind of integration either in system or on dye. The analog trends are up and down. I think we are going to enable some more growth in pure analog, because of the capabilities that are present in new Virtuoso. So that's so called assertions that allow you to drive consistency. Like I often use the right and left channel of the stereo. If the right channel is louder than the left, that will drive you crazy. This [cater] the tools or you've got the capability of saying its important that the right and the left match each other all the way through the process and like magic it tells you if you do something stupid. So this is the preview of mostly smart designers before. It's not so much that they couldn't do it, but sometimes it took a couple of tries to get it right, like by four or five tries. Customer experience to this is it gets down to may be two tries to get it right, and so all those trends are on the rise. Now that there is a mixed signal integration, pure analog, and sometimes I say big A, little D and big D little A. Sometimes it's a lot of analog with a little digital; sometimes it's a lot of digital with a little analog. That's why Bill and I were saying tools across. The tool’s together and that's why we've optimized the tools across them. So its not just base Virtuoso capability, but also what we do to drive the optimization with Encounter, and it's very interesting.

Okay, great, that's really good to know. Now, kind of getting on to the Virtuoso platform, it was introduced at the end of last year, so I think you have may be two quarters of performance under your belt in a way. And I know there is a lot of people asking this, and I am not sure if you at a point to give us an idea of any kind of ASP uplift or any kind of trend that you are seeing in ASPs going forward for the new Virtuoso platform?

John it's still a little early for that. As you recall, it took us really to get four quarters of data to really mind and get some history before we were able to roll that out for both the Incisive and the Encounter lines. So I'd just say be patient. The mix is something that we are just watching now still kind of in the teens with GXL. And that's about the only color that I'd share until we get a little further along and get some more volumes so we can start to be a little bit more predictive.

Okay. That's fair enough. And just one last housekeeping question. How does book-to-bills look for the March quarter?

We don't get to the level of describing bookings we'll do that on an annual basis. So that's I think the earlier question. I do expect to have reasonably good business, but we are not going to try to predict it quarter-to-quarter. We are trying to match visibility and value and that's just something that is more important over the longer term.

Okay fair enough. Nice job guys thank you.

Your next question comes from Matt Petkun from D.A. Davidson and Company

Hi, just real quickly Bill. I think I missed the percentage of revenue that came from backlog in the quarter. Was it two-thirds as usual or a little bit more?

Yeah, Matt in the first quarter it's a little higher than that, and as we look throughout the year we are about at that two-thirds level.

Could you give a specific number for this quarter?

No. I don't think we have the need to get to that level of specifics. We still have normally the third of the business that will generate from pipeline as we get in to the second quarter and I think that's one of the things that we focus on.

Okay. And then I was hoping that you guys could give us a little bit of an update on your emulation business. Obviously your competitor has been making more noise in the hardware space in general recently. And I was just kind of wondering how you guys saw that play out in the year first quarter?

Yeah. I mentioned in my comments of the Palladium III by our customer response is the performance leader. The tiered offering that we have does not only include Palladium I and II, but also the Accelerators give us a nice kind of a price line up. And that may be the real way to going and look across by continuum. Do note that there are other trials that are engaged with some other competitive alternatives, but I would encourage you to dive into whether those are trials are real business for them. And I think the real strength of our emulation capability is the coupling into what we do across the rest of the verification. It's a solutions oriented approach as opposed to a point of light. And that kind of drag effect between simulation and our emulation vice-versa and what we do is VPA, the process automation is where all the real power is as it helps you to go drive co-design in the hardware space, as well as the functional logic verification that is kind of the history of emulation.

Okay. And then just my next question, and also kind of on Verification. Mike, I don't know that anybody wants to put too much stake into Cooley's numbers, but he did point out, at least in his survey a mild pickup in HDL simulator use for Synopsys over Cadence, attributing it to what Synopsys and many would like us to believe there's a shift to SystemVerilog that you guys haven't been embracing so clearly. I don't know that I believe that, but I would like to hear kind of your response and kind of what you are hearing from your customer base as they do make the transition to SystemVerilog?

Yeah, it is a topical question. I guess if you go survey the [Eisner] you are probably going to get a little bit of our competitive bias, aren't you? I read that was some interest, I think it was about maybe a 3% return rates. So, I don't even know if it’s statistically relevant. The body language from our customers is that the trail blazers that are out there with E are happy as a clam and pushing along forward, those are really complex digital devices. There is a lot of momentum in VHDL and Verilog as it exists. And there's a lot of hype for SystemVerilog. I think you characterized it correctly yourself. You have potential fodder out there or FUD around the convergence of a SystemVerilog across all the different continuums. That's going to be a tough thing to do, that may take 10 years as far as I am concerned. I think our strength is that we're agnostic across all those languages. IP today is sourced across, a lot of historical artifacts including VHDL and E. That, does it make it a dream that we can continue to succeed if some kind of a standard that emerges on SystemVerilog. We were public in January that we had a huge number of customers out there using our SystemVerilog early solutions. And throughout the year, we continuously enhance that part of it. So, our agnosticism includes a strong SystemVerilog offering ever strengthening through the year, or whatever niche our customers find it valuable. And I think once again kind of back to the emulation point. This is a unified approach we have across all pieces of our verification business, not just IP sourcing language. So, the real power is the seamlessness to that with the rest of our verification and implementation suites. And I like the foundation and the momentum of our strategies.

Okay. Thank you.

Sure.

(Operator Instructions). Your next question comes from Tim Fox from Deutsche Bank.

Thank you, good afternoon. Mike I was wondering if you could just dive a little bit more into the strength in the digital performance this quarter. And wondering if there is anything there around an increase in run rates; may be some competitive displacements or was it largely just a timing of bookings?

I would say yes, yes and yes. Tim every customer is doing digital. The theater strategy is to penetrate at the high end; we are doing all the complex devices as far as I am concerned. I think what you see are three other elements of it. It’s not about pointing tools. If anybody degenerates to that hit look there, that's something good. That is symptomatic of a strong or a weakness and they are across to the total offering. No power is material; we are out there with CPF across all the product lines, customers are watching it in an production setting. This is invaluable to them and it's a drag for the digital business. Second; Logic design team is out there in the public domain, I commented it was doing quite well. It's a poor cost of verification and front-end logic not only for synthesis but across conformal. Of course we enjoy a very nice technology and market position in our test capabilities that is a strength of the digital line. The third thing is the tiering of the digital line from top to bottom; someone learns how to use them as complex stuff, and it works nicely in the low end and vice-versa. So, I think that is a momentum. You are always going to see as Bill said in his own very particular way. I'm going to say it’s a little blotchy from quarter-to-quarter, and I don't think people should draw conclusion on that. But it’s great technology, we get a lot of good feedback, and I think really the strength of ours is going to be in the solution approach as either in miniscule or microscopy across things like power and front-end design and that’s why we did it that way.

Okay, thanks. And Bill just one question on cash flow. 450 is a solid number this year, but obviously trailing earnings growth. Could you just address what the divergence there may be, and I guess more importantly looking into '08 do you anticipate cash flow to start to get back to tracking earnings growth? Thanks.

Well I think it does track pretty well Tim. If you look at our earnings for the year at a $1.30, and you look at our cash flow per share at a $1.30 I think that’s a pretty high quality of earnings. I think always as you grow the business there is potentially a slight lag from a working capital perspective, but not significant. And we are always looking at how we can increase value for the customers, and at the same time get a little bit more cash for us. So I am not saying that we are going to have increase in working capital necessarily, but there is always a little bit of that, that happens. But I think I would expect cash flow to grow with earnings, it’s just a matter of is it going to be the exact same percentage. Hopefully, but there could always be a slight delay as that catches up.

Okay so if they catch up, could we see they catch up in '08?

I do expect to see both profitability increase and cash flow increase next year.

Great, that's all from me. Good quarter, thank you.

Thank you.

Your next question comes from Rohit Pandey from HSBC Securities

Thank you, few questions. Bill what was the restructuring charge in this quarter about?

Rohit you’ll generally notice that there was a small credit in restructuring and those leases. Because we have the ability to do a little bit better in closing out some of those leases? We got $1 million back because we are not going to have to pay that liability. So, as soon as we realize we can close out a lease like that, we would adjust our goal.

Okay. And then how should we think about the G&A line going forward for the rest of the year. Should it go up from these levels or should it go down?

I would expect it to be relatively flat in terms of G&A.

Okay. And I'm looking at the inventory line and that probably is all the emulation inventory, I guess. So, why has the inventory been building up for the past four quarters?

I think inventory is relatively flat, if I look at it compared to Q4 to Q1.

Yeah.

So, let me just check that.

Yeah, it is flat compared to Q4 to Q1 and I thought you built inventory in Q4 to sell it in Q1, but year-over-year it's up from $23 million to $37 million?

I think we are seeing that business is being something that we can continue to grow, and we want to make sure we have enough inventory to be able to service the needs across all of the product lines. So, I am not concerned about seeing building inventories. I think we look forward and we think we have enough to grow the business and that's really what we are trying to do.

Okay. So, should this line go up or down?

I think overtime as we grow the business it could go up, but that's just something that we kind of watch quarter-to-quarter.

Okay. And the stock-based compensation is about $0.09 to $0.10 per quarter. So, should this be the way we should think about it going forward?

Yes. And as you look at the year, it's very comparable to last year. I think we have hit a steady state for stock-based compensation. And if anything, I think the trend generally is across all industries and technologies, that probably comes down slightly over time as people are just continuing to be more judicious with stock compensation. I do not expect it to go up any significant degree over time.

Okay. And finally, just looking at the growth on a year-over-year perspective; first quarter was 11%, second quarter guidance implies about 8%. So, is it just a conservative guidance or do you expect growth to slowdown on a year-over-year basis somewhat as the year goes forward?

Well, I think you have seen our history Rohit, which is generally we try to make sure that we are conservative in our outlook. And if we have the ability to get some better value we take it, if not, we are going to be able to grow the business in terms of top-line and profitability with the guidance that we set out at the beginning of the year, which is healthy in a maturing industry, that's sitting around at 8%. So, 8%'s a good number. If we do better on a quarter, that's great. But, you are going to see us grow the business at that base level plus or minus as we look at a particular quarter.

Okay, got it. Thank you.

Your next question comes from Sterling Auty from J.P. Morgan.

Hi guys it's Saket for Sterling. Three questions here. First, at your Analyst Day, I think that you put out the goal of converting 50% of your Virtuoso base to the new platform. Would you say you are still on track to achieve that goal mid 2008 that is?

I think that's a range Saket. I think that the upgrade cycle looks good for us. And as we get a little bit more experienced, we'll decide whether that needs to get updated. But I think the opportunity is there and we are seeing good results from customers. We'll find out whether it's going to be little faster or little slower than that as we get a little bit more experience.

Okay. Secondly in response to a question before about the ebbs and flows among verification, analog and digital. It almost sounded like it was a revenue flow issue. So would it be fair to say that verification analog, sort of your two stronger products historically. Would you say that those two products had stronger bookings this quarter or bookings that were in line with your expectation this quarter, even though the revenue was may be a little bit less than some were expecting?

Yeah. As I was inferring when I called business levels, I think the business levels for both of those platforms were in line, they are doing well.

Got you. Okay. And lastly just accounting wise, G&A was up a little bit more than we were expecting as was other income. Just wanted to know if there was anything behind that?

Nothing in particular as we look, there is just some, across the board there is million and a half here or there in G&A. There wasn't any major theme. That's probably going to stay constant or tail a little bit. Other income, there we saw a couple of items that gave us some positive surprises. We did a little better in foreign exchange for a couple of million dollars. We had some liquidity events that we could not forecast from our portfolio and so that provided us with another couple of million dollars of upside. And then just in general, we got a little bit better return on our cash portfolio. So it was kind of a combination of those things. As we look into Q2, obviously two out of three of those, probably we can't forecast to reoccur. We can't necessarily see foreign exchange or some of the liquidity events of the portfolio.

Okay, that's it for me, thanks.

Okay.

And that was our final question. I would now like to turn the call over to Mike Fister, President and CEO of Cadence. Mr. Fister?

Well, thanks. It's always a pleasure to talk to you, and I hope that you'll consider CDN Live coming up in Munich, if you are out in Europe and if not in September in the United States.

Thank you.

Thank you. Thank you for participating in today's conference call. You may now disconnect.