Ever needed to analyze the cooling performance of an electronics board? Mentor's got a tool for that. Image: Mentor Graphics.

What: Shares of Mentor Graphics (NASDAQ:MENT) fell more than 30% on Friday morning. The carnage started on Thursday night, when the maker of tools for semiconductor design and manufacturing reported solid third-quarter results with a side of horrific next-quarter guidance.

So what: In the third quarter, Mentor's sales declined 0.7% year over year to $290 million. Adjusted earnings fell 18% to $0.28 per diluted share. Both figures were in line with the company's own guidance, and a rounding error away from analyst estimates.

But in the fourth quarter, analysts had been looking forward to earnings near $0.97 per share on roughly $439 million in top-line sales. Here, Mentor's official guidance points to earnings of $0.47 per share on sales of just $336 million. That's not even in the same ZIP code as Wall Street's estimates.

Now what: If Mentor delivers on these lowball promises, fourth-quarter sales would plunge 23% lower year over year while earnings would crash 57% lower.

CEO Wally Rhines said that customer interest is strong but the sales cycle for a recent spate of new chip-testing tools will take a while to yield results. Moreover, the semiconductor industry is boiling down to a smaller set of bigger players, thanks to a virtual hurricane of big-ticket mergers.

And it's not like the company is staring down a big bounce in the next fiscal year, which would have excused the current weakness to a large degree. Instead, sales are only expected to increase by low single-digit percentages in the next fiscal year, starting from low levels including that diastrous fourth-quarter projection.

The report made an impact on other chip design tool specialists as well, but nowhere near the level experienced by Mentor itself. Both Cadence Design Systems (NASDAQ:CDNS) and Synopsys (NASDAQ:SNPS) fell more than 6% on Mentor's news, escaping a bigger hit because they aren't currently leaning on brand-new updates to their most important product lines. That was a big piece of Mentor's desperate puzzle on Friday.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.