Company Reports

Synopsys delivered another solid quarter, with results exceeding our estimates on the top and bottom lines. Revenue grew 42% year over year, incorporating Ansys, and encouragingly, management raised the full-year outlook by slightly more than the quarterly beat.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We see the primary growth drivers being when clients initiate new chip designs and price hikes to charge for additional value provided. We see a long runway for increased chip activity, driven by artificial intelligence-related chip development and increasing chip density and prevalence in electronic systems.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We see the primary growth drivers being when clients initiate new chip designs and price hikes to charge for additional value provided. We see a long runway for increased chip activity, driven by artificial intelligence-related chip development and increasing chip density and prevalence in electronic systems.

Synopsys reported a solid second quarter, mildly beating our revenue and adjusted EPS expectations. Revenue grew 42% year over year, affected by the Ansys acquisition, and management raised its full-year outlook (EPS guide up 2% at the midpoint).

Synopsys reported earnings that were in line with our expectations for revenue, operating income, and EPS. Adjusted EPS was up 24% year over year.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We see the primary growth drivers being when clients initiate new chip designs and price hikes to charge for additional value provided. We see a long runway for increased chip activity, driven by artificial intelligence-related chip development and increasing chip density and prevalence in electronic systems.

Synopsys reported solid Q4 results, with revenue growing 39% year over year, although ex-Ansys growth was closer to -3%. Adjusted EPS of $2.90 was a 4% beat compared with guidance.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We see the primary growth drivers being when clients initiate new chip designs and price hikes to charge for additional value provided. We see a long runway for increased chip activity, driven by artificial intelligence-related chip development and increasing chip density and prevalence in electronic systems.

Following third-quarter earnings, the first with Ansys, there were a number of moving parts and we have gone through a more extensive model update after our initial reaction.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We believe the primary growth driver is when clients initiate new chip designs—also called design starts—which we expect to accelerate due to the recent surge in artificial intelligence-related chip development across the industry.

We are placing Synopsys under review to allow for further analysis and a model update. We plan to provide an update as soon as possible.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We believe the primary growth driver is when clients initiate new chip designs—also called design starts—which we expect to accelerate due to the recent surge in artificial intelligence-related chip development across the industry.

Synopsys' third-quarter revenue grew 14% year over year, and non-GAAP operating margins came in at 38.5%, both falling short of FactSet consensus expectations. This was driven by an 8% year-over-year decline in IP revenue, exacerbated by a sluggish China recovery.

Leading electronic design automation companies Synopsys and Cadence Design have received approval from the US Department of Commerce to recommence their operations in China.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We believe the primary growth driver is when clients initiate new chip designs—also called design starts—which we expect to accelerate due to the recent surge in artificial intelligence-related chip development across the industry.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We believe the primary growth driver is when clients initiate new chip designs—also called design starts—which we expect to accelerate due to the recent surge in artificial intelligence-related chip development across the industry.

Reports have emerged suggesting that the Trump administration is asking semiconductor software design firms, known as electronic design automation, or EDA, to cease selling to China.

Wide-moat Synopsys reported a solid second quarter, but results were clouded by reports that the Trump administration has instructed all the major electronic design automation providers—Synopsys, Cadence, and Siemens EDA—to halt sales to Chinese entities. Synopsys responded on the earnings call that it has not received any formal notification from the US Bureau of Industry and Security regarding new export controls, and declined to speculate on the potential impacts. At the same time, the company reiterated the full-year guidance which factors in declining revenue from China, but does not account for any restrictions like those that were reportedly introduced today.

Synopsys is a leading provider of software tools that engineers use to solve a fundamental industry challenge—designing complex semiconductor chips. It offers products that streamline chip building, enhance the efficiency of chip structure, automate processes, and minimize errors. Its solutions have become indispensable to virtually every major semiconductor company and a growing number of electronic systems companies globally. We believe the primary growth driver is when clients initiate new chip designs—also called design starts—which we expect to accelerate due to the recent surge in artificial intelligence-related chip development across the industry.

We maintain our $550 fair value estimate for wide-moat Synopsys after the firm reported top-line results within our expectations and a solid beat on the bottom line. This quarter we saw China form a lower proportion of revenue (approximately 12% compared with 16% in the previous quarter), as US restrictions on China take effect. Furthermore, China’s domestic economy is facing a weak macroeconomic environment that led to slower sales growth for Synopsys for the region. While we expect US firms to very gradually lose share in China over the long term, China’s macro trend downward has been a bit harsher than we originally anticipated. Management now expects revenue from China to grow more slowly than the corporate average, which is slightly more bearish than the commentary last quarter. Even so, the full-year revenue outlook was maintained as other regions and product strength still supported the initial full-year guide. Shares are trading at a 13% discount to our fair value, which we view as slightly undervalued, but still 3-star-rated on a risk-adjusted basis.