Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Synopsys Inc (SNPS, Financial) delivered excellent Q3 results, exceeding the midpoint of all guidance targets and setting a quarterly revenue record.
- Revenue was up 13% year over year, at the high end of the guided range.
- Non-GAAP operating margin increased by 3.6 points year over year to 40%.
- Non-GAAP EPS was up 27% year over year and above the guidance range.
- The company continues to see strong momentum across its business segments, supported by multiple secular growth drivers.
Negative Points
- Despite strong performance, the semiconductor industry is coming off a severe downturn, which could impact future growth.
- One of Synopsys Inc (SNPS)'s large leading-edge customers announced significant layoffs, which could affect future bookings and revenue.
- China's revenue was down 8% in Q3, reflecting ongoing macroeconomic challenges and technology restrictions.
- R&D expenses were slightly ahead of expectations, indicating higher costs associated with new product development.
- The company faces challenges in maintaining its growth trajectory in the face of increasing chip complexity and contracting design cycles.
Q & A Highlights
Q: Given the recent semiconductor downturn and layoffs at a leading-edge customer, how do you interpret their announcement about driving better efficiencies around IP and EDA solutions?
A: Sassine Ghazi, President and CEO: This is an opportunity for the customer to look deeper at what's core and what's context, targeting their resources where they can differentiate or leverage the ecosystem. We believe there will be an opportunity for further ecosystem leverage for both EDA and IP. We don't see much impact in the short to mid-term as our agreements are committed for the long term.
Q: How is Synopsys helping customers with chip package and systems-level challenges, especially with the ANSYS acquisition?
A: Sassine Ghazi, President and CEO: The support from customers around the ANSYS acquisition continues to build positive momentum. The combination of electronics and other attributes like structural, fluid dynamics, and thermal is critical. We are positioning Synopsys as a silicon-to-system design solution company, working with customers on solutions from silicon to software to systems.
Q: Where is Synopsys in the journey of AI monetization and driving EDA growth from 12% to 14%?
A: Sassine Ghazi, President and CEO: We have introduced DSO.ai, VSO.ai, and ASO.ai, with DSO.ai capturing about 20% uplift from the baseline. VSO.ai is in early monetization stages, and ASO.ai is in evaluation. The value we deliver and the impact will justify monetization to support the 2% growth communicated.
Q: Can you provide an update on backlog developments and the pipeline into year-end and next fiscal year?
A: Shelagh Glaser, CFO: Backlog for the quarter was $7.9 billion, up from $6.5 billion in Q3 '23. The number does ebb and flow as we build and burn, but it was relatively flat quarter on quarter. We continue to see strong momentum in the business.
Q: How are you feeling about the demand environment in China, given the recent performance?
A: Sassine Ghazi, President and CEO: We are executing well in China and growing, despite taking a pragmatic approach due to technology restrictions and the macro environment. We continue to perform incredibly well in other regions.
Q: What is the balance between R&D investment and product innovation pace?
A: Shelagh Glaser, CFO: We continue to invest in building out our roadmap and evolving our EDA capabilities. We don't see R&D investment as an area of savings anytime soon. We are driving efficiencies and reinvesting in product innovation.
Q: How should we think about the longer-term impact of contracting design cycles despite increasing chip complexity?
A: Sassine Ghazi, President and CEO: The cycle time of design is shrinking with increasing complexity, which is great news for the industry. However, not many customers can afford and have the skill to pace with that acceleration. We need to wait and see how many customers will have the ability to keep up.
Q: Are there any changes in your forward growth expectations due to Intel's comments about layoffs and using IP and EDA vendors more efficiently?
A: Sassine Ghazi, President and CEO: No, we don't see any changes in our forward growth expectations. Our engagements with customers are multi-quarters investments, and we don't see an impact in the short or mid-term.
Q: How does the development process for AI products differ from conventional EDA products?
A: Sassine Ghazi, President and CEO: AI products have a different pace of release and may be customer-specific. We are focusing on common layers and customizing at a fast pace without slowing down the infrastructure investment. AI will become an expected part of the solution.
Q: What is your ambition for the analog mixed signal business?
A: Sassine Ghazi, President and CEO: We see an opportunity in both verification simulation and the analog design environment. We are excited about the offering and our customers' interest, and we aspire to grow into that TAM.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
