1065034--7/20/2009--MAGMA_DESIGN_AUTOMATION

related topics

{control, financial, internal}

{acquisition, growth, future}

{customer, product, revenue}

{product, market, service}

{property, intellectual, protect}

{personnel, key, retain}

{debt, indebtedness, cash}

{system, service, information}

{regulation, change, law}

{stock, price, share}

{operation, international, foreign}

{stock, price, operating}

{investment, property, distribution}

{product, candidate, development}

{condition, economic, financial}

{cost, operation, labor}

{operation, natural, condition}

{provision, law, control}

{loan, real, estate}

{capital, credit, financial}

{interest, director, officer}

There is substantial doubt about our ability to continue as a going concern. We have a substantial amount of indebtedness, which could adversely affect our financial position. The convertible notes we issued in March 2007 must be repaid in cash in May 2010, unless they are redeemed by us or converted into shares of our common stock at an earlier date, which is unlikely to occur if the price of our common stock does not exceed the conversion price, or they are exchanged for convertible notes with a longer maturity. If we cannot generate sufficient operating cash flow or alternatively obtain external financing, our business and financial condition may be materially adversely affected, and our business may fail. We are currently party to and may enter into debt arrangements in the future, each of which may subject us to restrictive covenants which could limit our ability to operate our business. Financial market conditions may impede access to or increase the cost of financing operations and investments. Customer payment defaults may cause us to be unable to recognize revenue from backlog, and changes in the type of orders comprising backlog could affect the proportion of revenue recognized from backlog each quarter, which could have a material adverse effect on our financial condition and results of operations. We rely on a small number of customers for a significant portion of our revenue, and our revenue could decline if customers delay orders or fail to renew licenses or if we are unable to maintain or develop relationships with current or potential customers. We compete against companies that hold a large share of the EDA market and competition is increasing among EDA vendors as customers tightly control their EDA spending and use fewer vendors to meet their needs. If we cannot compete successfully, we will not gain market share and our revenue could decline. If the industries into which we sell our products continue to experience a recession or other cyclical effects affecting our customers research and development budgets, our revenue would likely decline further. Our lengthy and unpredictable sales cycle and the large size of some orders make it difficult for us to forecast revenue and increase the magnitude of quarterly fluctuations, which could harm our stock price. We have a history of losses, except for fiscal 2003 and fiscal 2004, and had an accumulated deficit of approximately $377.4 million as of May 3, 2009. If we continue to incur losses, the trading price of our stock would likely decline and we may be forced to discontinue our operations altogether. Our quarterly results are difficult to predict, and if we fail to reach certain quarterly financial expectations, our stock price is likely to decline. We have faced lawsuits related to patent infringement and other claims, and we may face additional intellectual property infringement claims or other litigation. Lawsuits can be costly to defend, can take the time of our management and employees away from day-to-day operations, and could result in our losing important rights and paying significant damages. Our operating results will be harmed if chip designers do not adopt or continue to use Blast Fusion, Talus, FineSim, the Quartz family of products, Titan or our other current and future products. Our operating results may be harmed if our customers do not adopt, or are slow to adopt, 65-nanometer and smaller design geometries on a large scale. Difficulties in developing and achieving market acceptance of new products and delays in planned release dates of our software products and upgrades may harm our business. Our success will depend on our ability to keep pace with the rapidly evolving technology standards of the semiconductor industry. If we are unable to keep pace with these evolving technology standards, our products could be rendered obsolete, which would cause our operating results to decline. Our costs of customer engagement and support are high, so our gross margin may decrease if we incur higher-than-expected costs associated with providing support services in the future or if we reduce our prices. If chip designers and manufacturers do not integrate our software into existing design flows, or if other software companies do not cooperate in working with us to interface our products with their design flows, demand for our products may decrease. Product defects could cause us to lose customers and revenue, or to incur unexpected expenses. We may not be able to hire or retain the number of qualified personnel required for our business, particularly engineering personnel, which would harm the development and sales of our products and limit our ability to grow. Our success is highly dependent on the technical, sales, marketing and managerial contributions of key individuals whom we may be unable to recruit and retain. If we fail to offer and maintain competitive compensation packages for our employees, or if our stock price declines materially for a protracted period of time, we might have difficulty retaining our employees and our business may be harmed. If our sales force compensation arrangements are not designed effectively, we may lose sales personnel and resources. We have had to implement a series of restructuring efforts recently. In the event that these efforts result in ineffective interoperability between our products or ineffective collaboration among our employees, or we are unable to continue to manage the pace of our growth, our business could be harmed. We may be unable to make payments to satisfy our indemnification obligations. Our investments in marketable debt securities are subject to risks which may cause losses and affect the liquidity of these investments. Acquisitions are an important element of our strategy. We may not find suitable acquisition candidates and we may not be successful in integrating the operations of acquired companies and acquired technology. Because much of our business is international, we are exposed to risks inherent in doing business internationally that could harm our business. We also intend to expand our international operations. If our revenue from this expansion does not exceed the expenses associated with this expansion, our business and operating results could suffer. We are subject to risks associated with changes in foreign currency exchange rates. Forecasting our tax rates is complex and subject to uncertainty. Future changes in accounting standards, specifically changes affecting revenue recognition, could cause unexpected adverse revenue fluctuations for us. We have incurred and will continue to incur significant costs as a result of being a public company. We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price. The effectiveness of disclosure controls is inherently limited. We may not obtain sufficient patent protection, which could harm our competitive position and increase our expenses. In addition to patents, we rely on trademark, copyright and trade secret laws and contractual restrictions to protect our proprietary rights. If these rights are not sufficiently protected, it could harm our ability to compete and generate income. The price of our common stock may fluctuate significantly, which may make it difficult for our stockholders to resell our stock at attractive prices. Our certificate of incorporation and bylaws, and Delaware corporate law contain anti-takeover provisions which could delay or prevent a change in control even if the change in control would be beneficial to our stockholders. We could also adopt a stockholder rights plan, which could also delay or prevent a change in control. There may be additional dilution to our current stockholders upon achievement of various milestones pursuant to our mergers and acquisitions. Failure to obtain export licenses could harm our business by preventing us from licensing or transferring our technology outside of the United States. Our business operations may be adversely affected in the event of an earthquake or other natural disaster.

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1065034--7/20/2009--MAGMA_DESIGN_AUTOMATION_INC