(Reuters) - Cadence Design Systems ( CDNS ) forecast its annual revenue and profit below analysts' estimates on Tuesday, in a sign of soft demand for its chip design software as clients tighten spending in a tough economy.

Shares of the San Jose, California-based company fell 5% in extended trading.

The company, which counts British chip designer Arm Holdings, Nvidia and electric-vehicle maker Tesla among its customers, makes software for designing everything from chips to jet engines. It also sells computing systems designed to run that complex software.

Analysts at Berenberg have said demand and customer budgets for Cadence's system design and analysis products would be muted throughout 2025 due to the ongoing industry downturn in the automotive end market.

China accounts for a material portion of Cadence's business. Further restrictions from the U.S. government on semiconductor technology sales to Chinese entities could meaningfully reduce its business from the country, they said in a note in January.

Cadence's market share in the highly concentrated industry is also threatened by rival Synopsys' ( SNPS ) proposed buyout of engineering software firm Ansys ( ANSS ) in a $35 billion cash-and-stock deal.

The company expects its fiscal 2025 revenue to be between $5.14 billion and $5.22 billion, compared with analysts' average estimate of $5.25 billion, according to data compiled by LSEG.

Cadence forecast its annual profit, excluding items, in the range of $6.65 to $6.75 per share, also below the estimate of $6.83 a share.

Its revenue stood at $1.36 billion for the quarter ended December 31, an increase of 26.8% over the year earlier.

Excluding items, the company earned $1.88 per share in the fourth quarter, compared with the estimate of $1.82.