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01/10 19:46
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Revenue $1.74 billion, up 14% year-over-year. Growth driven by strong performance in design automation, with regional strength in Europe and North America. Sequential improvement in China, though headwinds persist.
Non-GAAP EPS $3.39, reflecting the impact of lower cash on the balance sheet and the additional $4.3 billion term loan used for the Ansys acquisition.
Design Automation Segment Revenue $1.31 billion, up 23% year-over-year. Growth led by strong performance in the hardware business.
Design IP Segment Revenue $428 million, down 8% year-over-year. Decline due to new export restrictions in China, challenges at a major foundry customer, and resource decisions that did not yield intended results.
Non-GAAP Operating Margin 38.5%, supported by strong growth in design automation but impacted by underperformance in the IP business.
Free Cash Flow Approximately $632 million, reflecting lower revenue and the interest impact of cash utilization and additional debt for the Ansys acquisition.
Backlog $10.1 billion, including Ansys, highlighting the resilience of the business.
Ansys acquisition: The acquisition of Ansys was completed on July 17, 2025, expanding Synopsys' revenue, customer base, and long-term opportunities. Ansys' simulation and analysis solutions have been integrated into Synopsys' portfolio, making it a leader in engineering solutions from silicon to systems.
AI-driven simulation products: Ansys 2025 R2 was released, featuring advancements in AI-driven simulation, GPU acceleration, system-level modeling, and cloud computing. These products extend Synopsys' AI leadership into simulation and analysis.
AI-powered engineering tools: Synopsys.ai Gen AI-powered capabilities are being piloted by roughly 20 customers, paving the way for agent engineer technology to transform engineering workflows.
Expansion into simulation and analysis: The integration of Ansys' solutions has diversified Synopsys' portfolio and global customer base, enabling it to serve industries like semiconductor, automotive, industrial, and aerospace.
AI and high-performance computing demand: Demand for high-performance computing and AI applications continues to grow, driving the need for Synopsys' emulation and prototyping solutions.
IP business challenges: The IP business underperformed due to export restrictions in China, challenges with a major foundry customer, and resource allocation decisions. Synopsys is pivoting its IP resources to focus on high-growth opportunities.
Cost optimization: Synopsys plans to reduce its global headcount by 10% by the end of fiscal year 2026 as part of its strategy to optimize costs and improve efficiency.
Strategic portfolio review: Synopsys is conducting a strategic portfolio review to focus investments on high-growth opportunities and improve execution.
Transformation initiatives: The company is undergoing a transformation, including the divestiture of the Software Integrity Group and the acquisition of Ansys, to align with its silicon-to-systems strategy.
Geopolitical Challenges: The company is operating against an unprecedented and challenging geopolitical backdrop, including new export restrictions that disrupted design starts in China, compounding existing weaknesses in the region.
IP Business Underperformance: The IP business underperformed due to deals that did not materialize, driven by export restrictions, challenges at a major foundry customer, and internal road map and resource decisions that did not yield intended results.
Economic and Regional Headwinds: Despite sequential improvement, headwinds persist in China, and semiconductor demand in industrial and automotive markets remains subdued.
Integration and Regulatory Delays: The integration of the Ansys acquisition is delayed due to pending regulatory approval for follow-on divestitures, elongating the full integration process.
Cost Structure and Debt Impact: The company faces increased costs and debt due to the $4.3 billion term loan for the Ansys acquisition, impacting free cash flow and financial flexibility.
Workforce Reduction: A planned 10% global headcount reduction by the end of fiscal year 2026 to optimize cost structure and improve efficiency may pose operational and morale challenges.
Strategic Execution Risks: The company is undergoing a strategic portfolio review and realigning resources, which involves risks in execution and achieving projected synergies from the Ansys merger.
Pivoting IP resources and road map: Synopsys is actively pivoting its IP resources and road map towards the highest growth opportunities, acknowledging that transformation takes time and external headwinds will persist.
AI-driven innovation: Synopsys is embedding NVIDIA Omniverse technology into Ansys simulation solutions to enhance the development, training, testing, and validation of autonomous systems. The company is also leveraging AI to transform engineering workflows, with approximately 20 customers piloting Synopsys.ai Gen AI-powered capabilities.
Multi-die momentum: Synopsys plans to deliver its first fully integrated solution combining semiconductor timing and power sign-off capabilities with Ansys thermal sign-off in the first half of next year.
Strategic portfolio review: Synopsys is conducting a strategic portfolio review to focus investments on the highest growth opportunities and achieve greater scale and efficiency.
Global headcount reduction: Synopsys plans to reduce its global headcount by roughly 10% by the end of fiscal year 2026 as part of its cost optimization strategy.
Revenue guidance for fiscal year 2025: Synopsys expects revenue between $7.03 billion and $7.06 billion for fiscal year 2025.
Non-GAAP earnings per share (EPS) for fiscal year 2025: The company projects non-GAAP EPS between $12.76 and $12.80 for fiscal year 2025.
Free cash flow for fiscal year 2025: Synopsys anticipates free cash flow of approximately $950 million for fiscal year 2025, lower than prior expectations due to reduced revenue and additional debt from the Ansys acquisition.
Q4 2025 revenue guidance: Synopsys forecasts revenue between $2.23 billion and $2.26 billion for the fourth quarter of fiscal year 2025.
Q4 2025 non-GAAP EPS guidance: The company expects non-GAAP EPS between $2.76 and $2.80 for the fourth quarter of fiscal year 2025.
The selected topic was not discussed during the call.
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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