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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary shows strong financial performance with a 21% revenue growth and robust cash flow. Despite some uncertainty in China, the company maintains strong liquidity and a significant backlog. The Q&A section reveals management's confidence in AI-driven opportunities and the ANSYS acquisition. Although there are concerns about China, management's optimistic outlook and strategic initiatives suggest a positive sentiment. Given the strong financials and growth prospects, the stock is likely to see a positive movement in the next two weeks.
Revenue $1.6 billion, up 10% year-over-year, driven by strong growth in Design IP and regional strength in Europe and South Korea, offsetting headwinds from China.
Non-GAAP Operating Margin 38%, reflecting consistent execution and resilient business model despite a dynamic macroeconomic environment.
Non-GAAP EPS $3.67, which includes a $0.28 benefit from the sale of a building and approximately $0.06 of net charges associated with a $10 billion bond issuance.
Design Automation Revenue $1.12 billion, up 6% year-over-year, against a strong compare, with an adjusted operating margin of 40.9%.
Design IP Revenue $482 million, up 21% year-over-year, driven by strong performance from interface IP, with an adjusted operating margin of 31.2%.
Free Cash Flow Approximately $220 million, reflecting the company's strong cash generation capabilities.
Cash and Short-term Investments $14.3 billion, indicating a strong liquidity position.
Debt $10.1 billion, reflecting the company's financing activities.
Backlog $8.1 billion, up $400 million quarter-on-quarter, indicating strong future revenue visibility.
New Hardware Products: New hardware assisted verification products, HAPS-200 and ZeBu-200 are off to a strong start, offering high performance and flexibility.
AI Capabilities: Synopsys' DSO.ai momentum continued, driving multiple design wins for flagship CPU and GPU cores.
Design IP: Revenue increased 21% year-over-year as customers rely on Synopsys IP to minimize integration risk and speed time to market.
Market Expansion: Strong demand from customers in regions outside of China, particularly in Europe and South Korea.
AI and HPC Sectors: The AI and HPC sectors remained robust despite market fluctuations.
Revenue Growth: Revenue up 10% year-over-year, with total revenue of $1.6 billion.
Backlog: Backlog increased to $8.1 billion, up $400 million quarter-on-quarter.
Free Cash Flow: Free cash flow was approximately $220 million.
Acquisition of Ansys: Pending acquisition of Ansys to enhance AI-powered silicon to system design solutions.
Investment in AI: Synopsys is investing to maintain and extend its leadership position in AI for chip design.
Regulatory Issues: The pending acquisition of Ansys is subject to regulatory clearances, with all jurisdictions cleared except for China. The company is actively negotiating with SAMR to secure this clearance.
Market Demand Fluctuations: There are signs of stabilization in industrial and automotive sectors, but non-AI end market demand remains subdued, indicating potential risks in revenue generation from these segments.
Supply Chain Challenges: The slowdown in China has been noted, which could impact supply chain dynamics and customer demand in that region.
Economic Factors: The macroeconomic environment is described as dynamic, which could introduce uncertainties affecting future performance.
Competitive Pressures: The company faces competitive pressures in the semiconductor industry, particularly in the areas of AI and high-performance computing, where rapid advancements are necessary to maintain market leadership.
Pending Acquisition of Ansys: The acquisition aims to address the need for new AI-powered silicon to system design solutions, integrating electronics and multi-physics. Regulatory clearances are in progress, with expectations to close in the first half of the year.
AI and HPC Sector Growth: Despite market fluctuations, the AI and HPC sectors remain robust, driving demand for Synopsys' products.
Design Automation Revenue Growth: Design Automation revenue increased by 6% year-over-year, supported by new hardware-assisted verification products.
Design IP Revenue Growth: Design IP revenue increased by 21% year-over-year, driven by strong demand for high-speed SerDes IP and interface IP.
Generative AI Capabilities: Synopsys is leveraging generative AI to enhance design and verification cycle times, showcasing significant efficiency improvements.
Full Year Revenue Guidance: Reaffirmed revenue guidance for fiscal year 2025 is between $6.745 billion and $6.805 billion.
Operating Margin Guidance: Non-GAAP operating margin target for fiscal year 2025 is 40% at the midpoint.
Earnings Per Share Guidance: GAAP earnings per share guidance is between $10.14 and $10.34, while non-GAAP earnings per share guidance is between $15.11 and $15.19.
Third Quarter Revenue Guidance: Expected revenue for Q3 is between $1.755 billion and $1.785 billion.
Free Cash Flow Guidance: Free cash flow for fiscal year 2025 is projected at approximately $1.3 billion.
Share Repurchase Program: None
Synopsys reported strong financial performance with a significant EPS beat and robust cash flow. Despite challenges in the IP segment, the company shows promising growth in EDA and strategic partnerships, notably with NVIDIA. The strategic focus on AI-driven innovation and the Ansys integration are positive indicators. The Q&A reveals a cautious but optimistic outlook, with management addressing headwinds and emphasizing long-term growth. The partnership with NVIDIA and strategic cost management further bolster the positive sentiment, suggesting a positive stock price movement in the short term.
The earnings call indicates several challenges: underperformance in the IP business, lower free cash flow, and a slight decline in operating margins. Although there are positive developments like AI and HPC growth, the persistent issues in the Design IP business and cautious outlook for Q4 margins suggest a negative sentiment. The reluctance to provide specific guidance on the backlog and revenue contribution from Ansys further adds to uncertainty, leading to a likely negative stock price movement.
The earnings call summary shows strong financial performance with a 10% YoY revenue increase and EPS exceeding expectations. While there are concerns about geopolitical risks and non-AI market demand, the positive outlook from AI and HPC sectors, a $500 million share repurchase program, and optimistic guidance suggest a positive stock price movement. The Q&A section highlighted management's confidence in overcoming challenges, despite some regulatory uncertainties with the ANSYS acquisition. Overall, the positive elements outweigh the negatives, indicating a likely stock price increase in the next two weeks.
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