Synopsys, Inc. (SNPS) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Synopsys Earnings Conference Call for the First Quarter of Fiscal Year 2021. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. Today's call will last one hour. Five minutes prior to the end of the call, we will announce the amount of time remaining in the conference. As a reminder, today's call is being recorded. Lisa Ewbank: Thank you, Laurie. Good afternoon, everyone. With us today are Art de Geus, Chairman and Co-CEO of Synopsys; and Trac Pham, Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets and other forward-looking statements regarding the Company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during the call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release, financial supplement and 8-K that we released earlier today. All of these items, plus the most recent Investor Presentation are available on our website at synopsys.com. In addition, the prepared remarks will be posted on the site at the conclusion of the call. Finally, we are again all participating from different locations today. Please forgive any delays, technology glitches or awkward handoffs in the Q&A session that occur as a result. Thank you very much for that. And with that, I'll turn the call over to Aart de Geus. Aart de Geus: Good afternoon. Q1 was a very good start to the year as we met or exceeded all of our guidance targets. Revenue was $970 million, with GAAP earnings per share of $1.03 and non-GAAP earnings above our target range at $1.52. The business was strong across all geographies and product groups. And for the year, we are reaffirming our guidance with low to mid-teens non-GAAP EPS growth, revenues surpassing the $4 billion milestone, non-GAAP operating margin of 29% to 30% and more than $1 billion in operating cash flow. Meanwhile, our markets are strong. Wherever one looks, be it at AI and machine learning, hyperscale-enabled cloud computing, 5G, next-generation automotive, massively connected IoT or software enhanced medical devices all require more chips and software. Chips to store and move huge amounts of IoT data through the cloud, chips for massive general compute and AI-driven smarts in every vertical end market, still more chips to tie these huge hardware-software systems seamlessly together and make them both secure and save and the escalating need for ever more secure software with embedded on an electronic system or in the enterprise software space. Trac Pham: Thanks, Aart. Good afternoon, everyone. We delivered a very strong start to the year and continue to execute well on our short- and long-term targets. We grew revenue broadly across all product groups and geographies. We reported non-GAAP earnings above our target range and continue to expand non-GAAP operating margin. We produced another quarter of robust collections, leading to a very strong cash flow, and we announced a $250 million repurchase in the quarter. Our strong start, market leadership and the resiliency of our business model with nearly 90% recurring revenue gives us the confidence to reiterate our 2021 financial targets. Operator: And our first question is from the line of Mitch Steves with RBC Capital Markets. Please go ahead. Your line is open. Mitch Steves: Hi, good afternoon, guys, so obviously, a good quarter here. I just had a couple of questions. The first one is actually just on the guidance. I've got a model that goes back pretty far. I realize you guys haven't missed a quarter in something like a decade. But I guess, historically, when you guys beat the first quarter and guide up the second quarter, you usually take out the full year lease by the magnitude of the beat. So I guess why is that not occurring this time? And then secondly, just in terms of the Software Integrity business, can you maybe provide us an update on kind of how you expect the margins to trend? I realize that last year is probably a difficult year in terms of getting new business, but how should that kind of trend through the year? So those are my tow questions. Trac Pham: Okay. And Mitch, this is Trac. Let me take the first question with regards to the guidance for this full year, and we definitely feel very good about the outlook for the year, especially in light of the strong quarter that we just posted in Q1. Now that said, it's still early in the year, and there's still a lot of business to book. And our focus is making sure that we execute in the guidance for Q2 and ensuring that we are on track to deliver very good growth and earnings growth for the full year. We've got a strong Q2 ahead of us, and we'll focus on that, and we'll provide more color on the year when we report in May. Aart de Geus: Regarding SIG, the good news is I think that we've made a number of changes where we are starting to see some of the positives. And for this year, our main objective was not so much to change the margins that to come back to growth rates that we can be more proud of. And so that is trending in the right direction. It's the first quarter, so it's a little early, but we're very encouraged. I'm also very encouraged because I can see and feel a change of tone in the team. I can see some very strong people have joined and so all of that is heading in the right direction. But as said, growth is our first objective because invariably, once growth does well, margin is much more manageable. Trac Pham: Yes, I would add to Art's comment that it is a good start to the year. And as we resume growth in that business, over the long term, certainly, it's going to -- the leverage on that business is both a combination of very strong growth and margin expansion that should contribute to the overall margin story as well. Operator: We'll go next to the line of Jason Celino with KeyBanc. Please go ahead. Jason Celino: Thanks for taking my question. Maybe for my first one for Trac. You mentioned a little bit of pull forward in the quarter, very solid beat, but maybe could you just quantify maybe what the amount and what products? Trac Pham: Jason, it's mostly on the hardware side. We saw hardware was a little bit better than expected for the quarter. And then with regards to IP, we had some IP deals that were scheduled in Q3 that we saw in Q1. That was an element of the quarter. But for most part, the results in Q1 were a function of really good execution across the board, and you can see that in the mix of how we did geographically and also by the different products. Jason Celino: Okay. And then for my follow-up, it looks like you've broken out China and it accelerated meaningfully in Q1 even from the whole year of last year. And even with limited data here, it seems to be kind of confirming your confidence in that China wasn't pulling. But I'm curious what specifically about Q1 versus maybe what you saw all of last year? Aart de Geus: Well, in simple terms, China is growing well as a high-tech country. And so there are many customers that are all doing more and more chips that are doing more sophisticated chips and that rely on our tools to get essentially as a growing economy that will continue to do well for a number of years. Operator: Our next question will be from the line of Jackson Ader with JPMorgan. Your line is open. Please go ahead. Jackson Ader: Art, you mentioned that the kind of recent breaches, specifically with solar wins has increased the awareness or the demand on consulting-led Software Integrity deals. But just curious on the product side, either from Tinfoil or the Black Duck products. Are these also seeing an increased demand? And is there anything that those products do specifically that might help this type of attack in the future? Aart de Geus: Well, our business tends to be not so much in the diagnostic of issues and more in the prevention of them. Now some of the products that you mentioned are sort of on the boundary of that. And to be honest, I don't know if these had any bump-up. In general, I would say that these type of breaches initially go through almost like a panic phase where people just want to find out, have they been breached and so on. That is not the business that we are in. Then they go into the longer-term considerations, which is how do they make their environment much more solid. And that is precisely where our Software Integrity group is focused on. And more often than not, this is why sophisticated consulting is a value because there are so many different product offerings in the world and plotting a strategy that over the long-term makes the development of environment stronger actually requires some sophistication. And so, that is why we're trying to staff up further in those areas because we do see that it has impact. Jackson Ader: Okay. Great. And then just a quick follow-up. Given the supply chain disruptions that we see in the automotive market, can track, can you just remind us how much of your maybe IP revenue is booked on royalties or product shipments? And should we expect to see any kind of headwinds from the automotive slowdown? Trac Pham: Well, I'll start with the second part of the question. So far, we haven't seen a change in the momentum of the IP business. There's -- the IP business is pretty diversified. Obviously, automotive is a good segment and a good element of growth for that business. But so far, we're not seeing any impact in terms of the momentum that we've experienced over the last several years. With regards to the up-front mix, that's more a function of the fact that we switched over to 606 in 2019. And so you're going to see a little bit more up-front in the business, which will create more variability, but that's something that I think we've got some good experience over the last couple of years managing. So I don't see that as an issue. With regards to royalty, I don't have those numbers specifically in mind, but it tends to be a smaller portion of the overall revenue. Operator: Our next question will be from the line of Joe Vruwink with Baird. Please go ahead. Joseph Vruwink: I wanted to start. I was hoping to maybe get an update on where backlog finished the quarter. And relatedly, in recent quarters, you've been making some comments to suggest order trends being in line or better than your expectations. Just wondering, if we could maybe get an update on how new business, Trac, relative to your thinking at the story of the quarter. Trac Pham: Joe, we backlog for the quarter ended at around $4.6 billion. And the bookings trend for the quarter was pretty much as planned. We did well in the quarter. Keep in mind that the backlog and the bookings will vary from quarter-to-quarter, depending on the large deals that are expected to be in that quarter. So it will vary. And what we typically emphasize more is looking at the quality of the deals that we closed in the quarter and whether or not run rate, what the trend on run rate was, and that was definitely higher this quarter. Joseph Vruwink: Okay. That's helpful. And then are going back to the new product discussion between through the IC Compiler, DSO.ai and then SLM. Just wondering, over a mid-term framework, which of these things do you think has the potential to be more material to Synopsys performance? When you throw out DSO.ai becoming an anchor product for customers, are you demonstrating the type of PCA where that if we think a few years down the road, this is going to be a flagship like some of your other flagships? Or would you maybe point towards one of the other products in your discussion as being more influential to Synopsys revenues in the midterm? Aart de Geus: Well, of course, every team at Synopsis has its own preferred one, meaning the one they're working on. But you're certainly very correct to say that DSO is of high potential because but DSO really applies to some of our other flagships. And in the case of design automation, it uses a Fusion Compiler and a number of the tools that go with it. And so, they're in light its power because if you can amend the human with machine learning-driven enhancements and acceleration, then it's very similar to what we literally did 30 years ago when we came in to the market with automatic synthesis, where the human did a lot of work and the synthesis became essentially a power tool for them. And so, I expect that we will see impact of that already this year and certainly next year. If we look at 3DIC, that will be a little bit more gradual, but it's very fundamental because as you well know, a lot of people had predicted the death of Moore's law. And by the way, it's far from dead, but it has slowed down. And what is so interesting, in my opinion, with 3DIC is that that is another way to adding substantial complexity where instead of doing it all on one chip, you can do multiple complex chips and connect them very closely together. So over time, this will grow in importance. And then Silicon Lifecycle Management is particularly interesting because the word life cycle is in there. And that would tend to say, well, the utilization will be over a longer time frame, but the interest turns out to be extremely high already now because people see that if we could put a variety of data sources and intelligence inside of the chip for self-diagnosis, that's going to be rapidly more and more important for all the places where chips are used on applications that could engage our human life. And of course, the car comes up as the first example for that, but robotics and a number of other areas, we'll have the same. And so, what -- from our perspective is exciting about this, these are also very much organic innovations may be amended with some small acquisitions. And it bodes well for sort of the speed in which we are creating new value, and that's an additional reason to emphasize it to you. Operator: And our next question from the line of Gary Mobley with Wells Fargo Securities. Please go ahead. Gary Mobley: Good afternoon everybody. Thanks for taking my question. I wanted to want to ask kind of the, I guess, intangible type question to Art, and maybe you have a good answer, maybe you don't. But one of the things that we've been hearing from fabless chip companies as they're struggling to get access to adequate manufacturing capacity, in particular, leading-edge process nodes. Is that there really seems to be less of a hurry to develop the latest and greatest sub-5-nanometer chip? And so my question to you is, have you seen any slowdown or any feedback from customers indicative of perhaps a slower pace of design innovation in light of the capacity constraints the chip industry is seeing? Aart de Geus: Okay. I do think I have a good answer for that. For starters, on the advanced nodes, we see none of that on the contrary. I think the race is fully on. A lot of companies understand that the impact of, let me call it, AI-enhanced computation is going to be enormous on a lot of end markets, and those are sophisticated chips. And a lot of people are essentially chasing that opportunity, all in the hope of having the best offering. And so, no slowdown as far as we can tell, and I emphasize in the preamble, the many new technologies we have precisely because that is of high appeal. I think part of the confusion around the capacity question comes from the fact that the automotive industry, which is hammered right now by essentially the lack of a few parts in order to ship a car, it's really quite pathetic because these are little parts And they hold back a high value product, is actually mostly in older technologies and in older manufacturing and so not even 300-millimeter but the smaller wafer sizes. And for those, there's not really an alternative because there's a limited number of these foundries. And sure, you could redesign these chips, but who wants to redesign these old chips just because right now, for a couple of months, you don't have enough parts. And so that is the picture that we see. I expect that, that will go away in a few months. But nonetheless, meanwhile, if you're caught in essentially the supply chain narrow spot, you can see the impact. And so over time, I think what we will see is that a number of companies will become more careful in saying, hey, if I have to move this design to a newer technology, I want to design it already now so that it's better documented and can be essentially remapped to a new technology. Gary Mobley: Okay. Appreciate the thoughts there. As my follow-up, I want to pin you down a little bit pin you down on a little more detail related to Software Integrity. If I go back to your last earnings call, I think you guys were mentioning that perhaps you can generate 15% to 20% bookings growth in the current fiscal year, which would ultimately end up translating to that similar growth rate in the out-year let's call it, fiscal year '22. Just to pin you down here on that. Is that reaffirming today given the start of the year? Trac Pham: Yes, Gary, that's what we're reiterating. Operator: And our next question from the line of Jay Vleeschhouwer with Griffin Securities. Please go ahead. Jay Vleeschhouwer: Art, let me start with you with a question concerning the breadth of growth in core EDA, then a follow-up for you, Trac. So for Art, it's been quite obvious for the last number of years that there's been a rejuvenation of growth in synthesis and as well in implementation for obviously benefiting you in those two areas. But industry data and just the logic of technology would suggest that there was a close correlation between synthesis and the usage of RTL simulation, where you're also a market leader and then similarly for implementation correlated to DFM and physical verification. The question therefore is, has the growth -- the better trajectory you've seen in both DC and implementation induced more rapid growth as well in those highly correlated technologies and products. And then for Trac, how are you thinking about your head count growth for the year in the context of your OpEx guidance for fiscal '21? At the end of the quarter, you had what appeared to be a record number of openings, equivalent to over 6% of head count. So maybe talk about how you're thinking about the rate of bringing people on. And then frankly, if you are having issues with availability, given the large numbers that you have in your open recs as do your two large competitors? Aart de Geus: Okay. Jay, the question you're asking is complex because fundamentally, the picture that you're painting is a picture that started with individual tools and had long moved towards tools that are very correlated with each other and often used in tandem. And so a number of years ago, I point the term that we're moving from scale complexity more of the same to systemic complexity, which is more of the same plus heterogeneous demands and constraints all coming together. And so, if you take as I said of gravity like you did in synthesis and implementation and you look upward, you arrive at RTL, which is essentially a way to describe hardware, but RTL does very much look like a language, and that's not a surprise because right on top of that, sits software. And so we very much see a cone upward that's broadening where hardware and software and hardware-software together to be verified and optimized, and this is increasingly the case for all the large systems. And by the way, around the software for simulation, we added a variety of hardware accelerators such as emulation and prototyping. If you look downward, you mentioned DFM, which stands for design for manufacturing. And that is an absolutely correct term because the manufacturing, which was nicely isolated, somebody else was worried about the physics, as you go to smaller and smaller things, you have to worry about a lot of things when you design a chip. And so the connectivity down to the manufacturing has grown substantially, and we do ourselves way more there. But aside of manufacturing, I could have added the word test because we also do design for test. You have now heard the Silicon Lifecycle Management, which is sort of designing for what happens later. I could have added to word FUSA, functional safety because for all the cars, there are all kinds of rules that one has to follow, and we have actually a fabulous offering in that. That is, by the way, also manifested in the IP. And reliability is going to grow in importance as well for all of these products. So for a long time, we have always looked at this as the big picture. And the complexity of these intersections is actually one of the areas where Synopsys shines. And that's precisely why I mentioned in the preamble a few times that the benefit of the cross-discipline is something that where we can really add a lot of value to our customers. And I think that will continue. Trac Pham: Hi, Jay, this is Trac. So I want to make sure I understand your question correctly. You're asking about head count growth and how that matches up with our expense guidance for the year and therefore, margin for the year, is that correct? Jay Vleeschhouwer: More or less, yes, I mean you're clearly looking to bring on a large number of people. If you were to fill every one of your open positions today, would you stay within the range of OpEx guidance, for example? Trac Pham: I don't want to comment about the rec itself, but in general -- generally speaking, the business. And that's consistent. The investment that we're making in the business is consistent with the goal of increasing margins to the 29% to 30% for this year. In addition to that, that investment is also related to our long-term goal of driving to the Rule of 40, 45, which is going to be making sure that we continue to grow the business over time and also expanding margins simultaneously, so the head count itself is really a commitment to a balanced commitment to drive growth and improve profitability. Operator: Our next question is from the line of Pradeep Ramani with UBS. Please go ahead. Pradeep Ramani: I had a couple of questions on China. I mean, your revenue is growing 74%, I guess, year-over-year, but when I look at a company level, your time-based revenues are growing 13% to 14% year-over-year and up-front grew 15%, 16%. So I mean is my interpretation correct that with regards to the mix in China with respect to EDA or hardware or IP, it is more or less in line with your mix overall? Or are you sort of -- or is the mix sort of skewed more towards EDA or hardware both in terms of absolute revenue dollars and growth? Aart de Geus: Well, let me take it from the product side. China, of course, came online, roughly speaking, 25 years after most of the west. And so when they entered the space of starting to do, let's say, significant chips, not the really small things, but of some meaning, right away, they entered with a design methodology that was more up-to-date than what some of the other companies use. And so that predicated from the start a substantial amount of IP being used in parallel to the advanced technologies. And so from that sense, the balance is slightly different than in the traditional west if I can call it that. At the same time, increasingly now all of these companies look the same to us be it China, be it in Korea or in Europe or in the U.S. All the ones that are driving the state of the art have to deal with the physics underneath have to deal with the software on top and have to deal with the sophistication of large IP blocks and substantial development capabilities. And so, while it was more different, maybe a decade or so ago, I think it is now more the same than it was before. And in hardware, I think it's sort of a very similar picture. The most advanced users are the people that are sitting at the intersection of hardware and software, and that is precisely where Synopsys shine. Pradeep Ramani: Okay. And for my follow-up, I guess, if I look at your -- again, the China revenue, how do you think -- how are you looking at it in terms of -- as you progress through the rest of the year? I mean, do you get a sense that, obviously, it's going to grow faster than last year overall? Or are you sort of seeing the comps get harder in the back half and sort of de-selling a little bit? Aart de Geus: Well, I would say last year was a strong year for us as well. And so in general, as you well know, the Chinese economy did actually grow in contrast to some of the western economies. The hope, of course, is that the west will start to grow as COVID gets hammer down more. But in general, there's no reason to believe that China will not continue to be a very live market for us. And in general, I would say, overall, everything touching chips and around it right now is doing well because of the overwhelming demand of all the end markets and the specialized verticals. Operator: Thank you and I have a follow-up question from Pradeep Ramani. One moment, Pradeep, your line is open. Did you have an additional question or should we move onto a next person in the queue? Okay, I am going to release that line. We're going to go next to the line of Vivek Arya with Bank of America Securities. Vivek Arya: Thanks for taking my question. Art, I'm curious, are you seeing more customers design with ARM technology in the PC and the server markets? How would you think about that trend now versus what it was in the last one or two years? Any way to kind of quantify whether it has gone up or down? Aart de Geus: It's hard to quantify if there are more, but it is easy to quantify that they have progress, meaning that already a number of years ago, and it was more than two years ago, a number of people started to look at, is it possible to use ARM cores for -- in the surface space. And some have continued to try. Others have given up at that time. But now, there's definitely a small group that is looking at using the service actually in cloud environment. And I don't want to announce who these people are. Some have probably spoken publicly at this point in time. But that has followed a lot of hard work to make that possible. And now the question will be, are the economics and the capabilities sufficient to be a good counterweight to the x86 family of processes that are typically used in the cloud. So, it is well possible that we're actually going to see a further diversification of computation largely because cloud is not only the regular general purpose computation, but now we have specialized efforts, certainly, in everything dealing with big data and machine learning. And for that, clearly, a number of players have put processes on the market that are dedicated to that and are particularly fast for it. And so ARM fits into all of these categories that -- but so are a number of other people doing their specialized processes. Vivek Arya: Got it. Very helpful. And then for my follow-up, Trac, just two clarifications, I think you mentioned somewhere that some shipments moved into Q1. I was wondering, how much did they impact sales and EPS? And part B of that is, you've given a full year outlook of about 10% or so growth at the midpoint, I believe. What is the implied growth in the Software Integrity part of your business as part of that 10% growth for the full year? Thank you. Trac Pham: Okay. So the first part of the question is that -- I'm sorry, was... Vivek Arya: The shipments moving into Q1, I recall you said something along those lines? Trac Pham: Yes. There is some IP that should shift in Q1 that was originally planned for Q3, but overall, it was on a significant amount. Most of the quarter was really strong execution. With regards to the SIG, Software Integrity business, what we had commented on at the beginning of the year was that we expect to grow bookings by over -- in that 15% to 20% for the full year. And that with the time-based model that we have on revenue that we would exit the year at double-digit growth. But for the full year, we'll probably be in the high single digits. And so far, we are -- after Q1, we are on track for delivering that. Operator: Our next question is from the line of John Pitzer with Crédit Suisse. Please go ahead. John Pitzer: First one, Trac, just going back to the OpEx guide for the year, maybe another way to ask an earlier question, was there anything about the COVID environment that hindered your ability to actually bring people on board to actually accelerate growth in some of the markets like Software Integrity, such that if we get to a point where the vaccine is widely distributed and things open back up, you guys might take that opportunity to kind of reaccelerate OpEx for future growth? Or how do I think about the COVID dynamic within OpEx? And then I have a follow-up. Trac Pham: Yes. Overall, I think we've done a pretty good job of bringing head count on and breaking people on board. As a matter of fact, you bring up the topic. We brought our general new general manager for the Software Integrity business on without ever physically meeting him. So, it's something that we're managing through and much like the rest of the business, we're just learning how to work remotely and adapting pretty well, I think. And I think that we'll continue to do that throughout the rest of the year and adjust as things free up or change with the health environment. John Pitzer: That's helpful. And then, Art, as my follow-up, just in the core EDA business. I'm wondering if you could help me just better understand how the business is tracking between sort of some of the more traditional customers you've had in that business. Let's call it, the Intels, Qualcomms and Broadcoms of the world and maybe some of the more nontraditional customers, the hyperscale companies, we now have a very vibrant private semi market that we haven't had in years. I'm kind of curious that nontraditional bucket. How big is that now part of the core EDA business? And I'm assuming it's growing meaningfully faster, but can you help me differentiate? Aart de Geus: Sure. Well, first, I think your description fits well, the situation, meaning the traditional big players continue to invest heavily because they are chasing or driving, depending how you look at it, advanced technology, no matter what. Secondly, the hyperscalers are clearly continuing to see the opportunity to do more designs themselves to do more manufacturing, not so much manufacturing, but control where they get their own products from. And the one thing that's different about hyperscales versus other companies, they don't design chips to sell the chips. They design chips in order to use them in their own product offering. Having said that, a number of these companies have been successful already at doing that. Some have acquired small start-ups and some are literally growing their design teams and their experience to go with it as we speak. And so, it's a part of the market that is definitely on very good growth, I would say, probably twice as much as the rest. And then the other category, you call them start-ups, sometimes we also call them all AI companies or machine learning-ish companies because there are many companies around that and not that they all do AI processors, but there's a vibrant world that is essentially trying to change the future. And so only anything that is close to machine learning is super highly interested at the minimum, two things, which is compute very fast and compute with a lot of data. And once you say these words, you have to also say not using too much power because otherwise you fry the chips. And so, those are all good words for us because that means, they tend to immediately heads towards the most advanced IP, head towards the most advanced utilization of tools. And so that has also been a very good market for us. So, some of the AI guys get acquired by the traditional list. Some of the traditionals get acquired by the hyperscalers. It's a live market. And live is a good word in here because this is a field where advanced change in technology opens new doors at the very moment where there are a lot of opportunities. John Pitzer: And Art, I know it's early, but is there any way to size that nontraditional bucket as a percent of revenue today? Aart de Geus: Well, there is a way, but we don't do it for you, unfortunately. Sorry, we don't disclose the individual buckets. But I don't mean to be coy. I want to be very clear, I think hyperscalers, AI and a few other specialty areas are very good growth for us and are also very demanding, which is typically actually good for us because it drives angles of technology that will be meaningful. And while, for example, I did mention the whole automotive space because it tends to be a little behind on the most advanced technology, it is now looking very much forward precisely because of these needs of life cycle guarantees, reliability, functional safety, and a number of those concepts are very powerful and will, over time, I think, also make it back into the other groupings. So, I guess what I'm describing to you is a really live field, and our job is to find which ones of these customers are the nuggets and serve them as well as we can. Operator: And with minutes remaining in our call, we'll take our last question in the queue from the line of Gal Munda with Berenberg Capital Markets. Your line is open. Gal Munda: Thanks for taking at the end. Appreciate it. And the first question is just around the EDA growth that you're seeing. Clearly, above what we used to say is kind of sustainable growth of the market, and you're referring to some significant market share wins that you're taking. I was wondering if you're able to kind of separate what you're seeing in terms of what the market is growing as recently considering the fact that there's been an acceleration in the general market trends. And how much is the market share win as in addition to what you're growing at when you're growing close to the double digits? Aart de Geus: Well, I think I'm always a little careful before commenting on competitors. And I do think that the overall market is actually strong as my response to the previous question. And so, I assume that all of us benefit from that. There's no question in my mind that in some of the advanced areas that we have focused on for the last few years and often communicated to you about, we are doing particularly well. And moreover, that we're building on top of that sort of next-generation capabilities that look very, very promising. So in that context, I assume that over time, we may gain some share. But this is always in the landscape that overall is positive, and we should continue to invest in these areas because now it's a good time for that. Gal Munda: Got you. And then just the last one. Going back to China, and if I look at that revenue run rate that you're on right now implying -- if you just extrapolate that around $460 million-ish of without any sequential growth of revenue, which is significant. How much of this China revenue in general would you classify as recurring? Is it similar to what you have in the rest of the business, similar percentage? Or is it more specific? Trac Pham: Overall, the business mix in China is very similar to total Synopsys. We've been able to do very well across the board. Aart de Geus: Well, I guess, this brings us to the end of the hour. And so first and foremost, we hope that you and your families have been able to stay healthy and that in the light of coming vaccines, you have both the patience to protect yourself and get there as soon as possible. And also, thank you for your continued following of Synopsys. And for a number of you, we'll be following up in the next few hours in one-on-one calls. Be well. Operator: Thank you. Ladies and gentlemen, this will conclude our teleconference. Thank you for using the AT&T conferencing service and you may disconnect.SNPS Ratings Summary
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KeyBanc Raises Synopsys Target to $575 Ahead of Q2 Earnings
KeyBanc raised its price target on Synopsys (NASDAQ:SNPS) to $575 from $555 while maintaining an Overweight rating, citing a constructive risk-reward profile ahead of the company’s fiscal Q2 earnings report on May 28.
The firm expects results to be in line with or slightly ahead of consensus but believes investor focus will center on two key factors: management's commentary on China exposure and the status of the Ansys acquisition. Confidence in both areas could serve as catalysts.
KeyBanc views current market expectations as overly cautious, suggesting that reaffirmed 2025 guidance—driven by strength in IP and hardware segments—could ease concerns about any softness related to China. The Ansys deal, if merely delayed to the second half rather than scrapped, would further support sentiment.
With investors still pricing in more downside than warranted, the firm sees Synopsys as positioned for outperformance and has raised its target to reflect continued confidence in the company’s execution and outlook.
Synopsys Positioned for Growth Amid Expanding EDA Market Opportunities
Redburn-Atlantic analysts initiated coverage on Synopsys (NASDAQ:SNPS) with a Buy rating and a price target of $600 on the stock. The report highlights the company’s strong positioning to capitalize on transformative trends within the Electronic Design Automation (EDA) industry.
Synopsys stands to benefit from a confluence of factors driving growth in the EDA sector. The increasing complexity and rising costs associated with developing advanced semiconductor solutions create a compelling need for cutting-edge design tools. Additionally, the addressable market is expanding as hyperscalers and OEMs bring more design processes in-house, further driving demand for Synopsys’s offerings.
According to the analysts, the integration of AI technologies into design workflows presents another lucrative growth avenue. Monetizing AI-powered solutions not only enhances the efficiency of design processes but also unlocks significant new revenue streams. Moreover, with the semiconductor market poised for a cyclical recovery, Synopsys is well-positioned to capture incremental gains from heightened activity across the industry.
The analyst's $600 price target reflects confidence in Synopsys's ability to leverage these tailwinds while maintaining its leadership position in EDA.
Synopsys Positioned for Growth Amid Expanding EDA Market Opportunities
Redburn-Atlantic analysts initiated coverage on Synopsys (NASDAQ:SNPS) with a Buy rating and a price target of $600 on the stock. The report highlights the company’s strong positioning to capitalize on transformative trends within the Electronic Design Automation (EDA) industry.
Synopsys stands to benefit from a confluence of factors driving growth in the EDA sector. The increasing complexity and rising costs associated with developing advanced semiconductor solutions create a compelling need for cutting-edge design tools. Additionally, the addressable market is expanding as hyperscalers and OEMs bring more design processes in-house, further driving demand for Synopsys’s offerings.
According to the analysts, the integration of AI technologies into design workflows presents another lucrative growth avenue. Monetizing AI-powered solutions not only enhances the efficiency of design processes but also unlocks significant new revenue streams. Moreover, with the semiconductor market poised for a cyclical recovery, Synopsys is well-positioned to capture incremental gains from heightened activity across the industry.
The analyst's $600 price target reflects confidence in Synopsys's ability to leverage these tailwinds while maintaining its leadership position in EDA.
Synopsys Shares Plunge 7% on Disappointing Guidance Despite Strong Q4 Results
Synopsys (NASDAQ:SNPS) saw its stock drop over 7% in pre-market today after issuing weaker-than-expected guidance for the first quarter and fiscal year, overshadowing its solid fourth-quarter performance.
For Q4, Synopsys reported adjusted earnings per share of $3.40 on revenue of $1.64 billion, surpassing analyst expectations of $3.30 and $1.63 billion, respectively. Despite beating estimates, the outlook for the coming periods tempered investor enthusiasm.
For the first quarter, Synopsys projected adjusted EPS between $2.77 and $2.82, with revenue expected to range from $1.44 billion to $1.47 billion. This guidance fell short of analyst estimates, which anticipated EPS of $3.52 and revenue of $1.64 billion.
The company’s full-year forecast also disappointed. Synopsys predicted adjusted EPS in the range of $14.88 to $14.96 on revenue between $6.75 billion and $6.81 billion, below the Street consensus estimates of $14.89 in EPS and $6.91 billion in revenue.
Analysts from Morgan Stanley expressed concerns over the weaker guidance, noting that it marked a break from the positive momentum seen recently in Synopsys’ core EDA (Electronic Design Automation) business. They suggested that the disappointing outlook might dampen investor interest, especially following recent strength in the semiconductor sector.
Synopsys Shares Plunge 7% on Disappointing Guidance Despite Strong Q4 Results
Synopsys (NASDAQ:SNPS) saw its stock drop over 7% in pre-market today after issuing weaker-than-expected guidance for the first quarter and fiscal year, overshadowing its solid fourth-quarter performance.
For Q4, Synopsys reported adjusted earnings per share of $3.40 on revenue of $1.64 billion, surpassing analyst expectations of $3.30 and $1.63 billion, respectively. Despite beating estimates, the outlook for the coming periods tempered investor enthusiasm.
For the first quarter, Synopsys projected adjusted EPS between $2.77 and $2.82, with revenue expected to range from $1.44 billion to $1.47 billion. This guidance fell short of analyst estimates, which anticipated EPS of $3.52 and revenue of $1.64 billion.
The company’s full-year forecast also disappointed. Synopsys predicted adjusted EPS in the range of $14.88 to $14.96 on revenue between $6.75 billion and $6.81 billion, below the Street consensus estimates of $14.89 in EPS and $6.91 billion in revenue.
Analysts from Morgan Stanley expressed concerns over the weaker guidance, noting that it marked a break from the positive momentum seen recently in Synopsys’ core EDA (Electronic Design Automation) business. They suggested that the disappointing outlook might dampen investor interest, especially following recent strength in the semiconductor sector.
Synopsys Price Target Raised at KeyBanc Ahead of Q4
KeyBanc Capital increased its price target for Synopsys (NASDAQ:SNPS) from $540 to $600 per share. The firm maintained its Overweight rating on the stock ahead of the company’s earnings report on November 29.
KeyBanc anticipates that the software company will report better-than-expected results and subsequently raise its guidance. The analysts expect a possible modest revenue beat of around $5 million for Synopsys' fourth fiscal quarter, attributing this to ongoing strength in Intellectual Property (IP) and hardware segments.
The analysts also highlighted the importance of monitoring the company's backlog, which is expected to remain stable at around $7,100 million. Any figure above this would be considered a positive sign. Furthermore, they suggest that Synopsys is likely to provide a conservative initial revenue growth forecast for fiscal year 2024, in the range of 12-13%, and then increase this outlook as the year progresses.
Synopsys Price Target Raised at KeyBanc Ahead of Q4
KeyBanc Capital increased its price target for Synopsys (NASDAQ:SNPS) from $540 to $600 per share. The firm maintained its Overweight rating on the stock ahead of the company’s earnings report on November 29.
KeyBanc anticipates that the software company will report better-than-expected results and subsequently raise its guidance. The analysts expect a possible modest revenue beat of around $5 million for Synopsys' fourth fiscal quarter, attributing this to ongoing strength in Intellectual Property (IP) and hardware segments.
The analysts also highlighted the importance of monitoring the company's backlog, which is expected to remain stable at around $7,100 million. Any figure above this would be considered a positive sign. Furthermore, they suggest that Synopsys is likely to provide a conservative initial revenue growth forecast for fiscal year 2024, in the range of 12-13%, and then increase this outlook as the year progresses.
