Mentor Graphics (MENT) Flops In Q1, But New Icahn Stake Supports Share Price

Activist investor Carl Icahn reported Thursday that he has a 6.9 percent stake in Mentor Graphics Corp. (NASDAQ: MENT), pushing the company's shares up despite disappointing quarterly results and future guidance.

Icahn indicated in a regulatory filing that he acquired the shares under the belief that they were undervalued. Icahn now holds 7.3 million shares in Mentor together with investment partners High River and Hopper Investments.

The chip-design software maker reported a fiscal first-quarter loss of $23 million or 22 cents per share, down from a loss of $13 million or 14 cent per share in the same quarter last year.

Excluding one-time items, Mentor earned 2 cents per share in the quarter, a penny worse than the the market consensus.

Revenue for the company dropped 7 percent to $180.6 million in the three month period ended April 30, missing the analyst estimate of $182.75 million.

"While the quarter's bookings were lower than last year due to the concentration of scheduled renewals in the second half of this year, the renewals that did occur in the first quarter were very strong, growing 25% from their prior contract values for the renewals within our top ten contracts," said Walden C. Rhines, CEO and chairman of Mentor Graphics.

Looking forward, the the company sees earnings excluding items breaking even in the second quarter to a loss of 2 cents per share, below the Street’s view of earning 2 cents per share. Mentor is also forecasting sales of about $180 million, well off the analyst view of $192.75 million.

For the full year 2011, the company is estimating adjusted earnings of 60 cents to 65 cents per share, compared to the consensus of 64 cents per share. Mentor added that it is forecasting sales of $870 million roughly for the full year, compared to the Street’s estimate of $871.65 million.

"Despite two sizeable acquisitions in the last year, our operating expense is still down on an absolute basis year on year. We expect our continued strong emphasis on cost controls, as well as an improving foreign exchange environment, particularly the Euro, positions us well for the year," said Gregory K. Hinckley, president of Mentor Graphics.

Shares of Mentor Graphics are up 7 percent to $9.69 in early market movement Friday.

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