Synopsys Inc. (SNPS) shares have plunged 22.4% in the past year, underperforming the Zacks Computer and Technology sector and the S&P 500 index’s return of 7.8% and 9.5%, respectively. The stock has also underperformed Zacks Computer – Software industry’s decline of 4.6% in the same time frame.This underperformance raises questions — whether investors should buy, sell or hold SNPS stock?Synopsys One-Year Price Return PerformanceImage Source: Zacks Investment ResearchKey Challenges Impacting Synopsys' Perfor ...

Core Viewpoint - The future of Ansys (NASDAQ: ANSS) is increasingly influenced by external factors, particularly bureaucratic and governmental decisions, amid rising geopolitical tensions [1]. Group 1 - Ansys's management and shareholders currently have limited control over the company's future direction [1].

Core Insights - Synopsys Inc. will host its annual SNUG Silicon Valley conference on March 19-20, 2025, featuring keynotes from industry leaders including Synopsys CEO Sassine Ghazi and Microsoft CEO Satya Nadella [1][2][7] - The conference will include over 100 sessions focusing on chip and system design, with participation from major companies such as AWS, GlobalFoundries, Microsoft, Samsung, and TSMC [2][3] - An inaugural, invite-only Synopsys Executive Forum will take place on March 19, gathering technology business leaders to discuss the convergence of silicon and systems design [3] Event Details - The keynote by Sassine Ghazi will address engineering challenges in the era of pervasive intelligence, with a virtual appearance by Satya Nadella [1][7] - A fireside chat between Arm CEO Rene Haas and Sassine Ghazi will focus on sustainable computing [7] - OpenAI's Head of Hardware, Richard Ho, will present on scaling computing for AI advancements [7] Industry Collaboration - The Executive Forum aims to foster collaboration among industry pioneers from companies like AMD, Ansys, Arm, AWS, Broadcom, IBM, Intel, and NVIDIA [3] - The event will provide insights into addressing engineering challenges driven by technology complexity and cost [3] Company Overview - Synopsys delivers comprehensive silicon to systems design solutions, partnering with semiconductor and systems customers to enhance R&D capabilities [5]

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Core Insights - Synopsys Inc. has launched Synopsys Virtualizer™ Native Execution on Arm-based hardware, enhancing software development for edge devices and significantly accelerating virtual prototype execution and deployment [2][3] - The innovation aims to improve productivity for engineering teams in automotive, high-performance computing (HPC), and Internet of Things (IoT) sectors [2][3] Group 1: Product Features and Benefits - Virtualizer Native Execution accelerates hardware/software co-design, enabling agile software development methodologies for Arm-based applications [3] - It supports integration into CI/CD methodologies, simplifying software development, validation, and testing workflows through common toolchains [3][5] - The solution delivers accelerated performance with native execution of software workloads on Arm servers, enhancing modeling, simulation, debugging, and analysis capabilities [5][6] Group 2: Market Impact and Use Cases - The automotive industry can benefit from earlier software development, ultimately saving time and costs as developers can leverage Arm's capabilities in cloud and edge environments [4][6] - Faster validation turnaround times lead to improved time to market, with simulation execution speeds significantly increased by executing software binaries directly on Arm application processor cores [6] - The extensive model libraries available on Arm hardware allow for earlier integration and validation of software, expediting debug cycles and time to market [6][10] Group 3: Availability and Support - Synopsys Virtualizer Native Execution is currently available and can be deployed in various environments, including cloud platforms like AWS, Google, and Microsoft [7][10] - The solution supports full system-level validation with electronics digital twins, enhancing productivity in system validation processes [10]

Group 1 - The core viewpoint of the article is that Synopsys has received preliminary approval from the UK's Competition and Markets Authority (CMA) for its acquisition of Ansys, contingent on asset divestitures, and the deal is expected to be completed by mid-2025 [1][2] - Synopsys reported strong Q1 FY2025 earnings with an EPS of $3.03, exceeding expectations of $2.79, and revenue of $1.46 billion, slightly above the anticipated $1.45 billion [2] - The acquisition aims to enhance Synopsys' market position by integrating its software products with Ansys' engineering simulation software, addressing previous concerns about innovation suppression and price increases [2] Group 2 - Synopsys has a market capitalization of $68.88 billion and a gross margin of 81.35%, indicating a robust financial position with cash reserves exceeding its debt [1] - The company is actively seeking regulatory approvals in other jurisdictions for the acquisition, which is part of its strategic initiative to expand its offerings in electronic design automation and silicon IP [1] - Stifel maintains a buy rating on Synopsys following its strong Q1 performance and positive future guidance, setting a target price of $620, while remaining optimistic about the company's growth potential despite challenges in the Chinese market [2]

Core Viewpoint - Synopsys (SNPS) has experienced a significant decline in share price, dropping 20.8% over the past year, underperforming compared to the broader market indices and sectors [1][2]. Financial Performance - The first quarter of fiscal 2025 showed mixed results, with earnings and revenues declining year over year by 10.4% and 3.7%, respectively, despite surpassing the Zacks Consensus Estimate [2][4]. - The largest segments, Electronic Design Automation (EDA) and Design IP, contributed 97.2% of total revenues, with EDA revenues increasing slightly by 0.8% to $978.7 million, while Design IP revenues fell by 17.2% to $435.1 million [3]. Guidance and Market Sentiment - Synopsys maintained its fiscal 2025 revenue guidance between $6.745 billion and $6.805 billion, with non-GAAP earnings expected in the range of $14.88-$14.96, but this did not boost investor confidence [4]. - The company has beaten the Zacks Consensus Estimate three times in the last four quarters, with an average surprise of 3.7% [4]. Market Challenges - Several risks are constraining Synopsys' performance, including uneven revenue recognition due to customer product adoption schedules and capacity constraints in data centers [6]. - The sluggish recovery in key markets such as mobile, PC, and automotive is impacting growth, with consumer demand remaining muted amid economic uncertainties [7]. - US-China tensions pose additional risks, as revenues from China accounted for over 15% of total revenues in recent fiscal years, with regulatory challenges and trade tensions affecting investor sentiment [8][9]. Valuation Concerns - Despite the share price decline, Synopsys trades at a forward 12-month price-to-sales (P/S) multiple of 9.98x, above the industry average of 8.31x, raising concerns about limited near-term upside [10]. Strategic Initiatives - Synopsys benefits from strong strategic partnerships with industry leaders like TSMC, NVIDIA, Intel, and Arm Holdings, which enhance its position in chip design innovation [13][14]. - The company is expanding its technological leadership through investments in AI-powered design automation tools, with significant milestones achieved in 2024 [17][19]. Growth Projections - The Zacks Consensus Estimate indicates continued revenue growth for fiscal 2025 and 2026, projecting an 8% and 12.4% increase, respectively, with EPS estimates suggesting a 12.7% and 15.9% rise [21]. Conclusion - The 20.8% decline in Synopsys' stock highlights near-term challenges, but strong fundamentals and technological leadership suggest potential for long-term success [22]. - Maintaining a hold position allows existing investors to participate in growth while navigating volatility, while new investors may consider waiting for a more attractive entry point [23].

Core Viewpoint - Synopsys (SNPS) reported better-than-expected first-quarter fiscal 2025 results, with non-GAAP earnings of $3.03 per share, exceeding both the Zacks Consensus Estimate of $2.81 and the guided range of $2.77-$2.82, despite a 10.4% year-over-year decline in earnings due to falling revenues [1][2]. Financial Performance - First-quarter revenues increased by 12% year-over-year to $1.46 billion, slightly surpassing the Zacks Consensus Estimate of $1.45 billion, although the decline in Upfront Product and Maintenance and Service revenues impacted the overall performance [2][3]. - Time-Based Product revenues, which constitute 56.9% of total revenues, rose by 2.9% to $828.2 million, while Upfront Product revenues decreased by 16.7% to $368.1 million [4]. - Electronic Design Automation (EDA) revenues accounted for 67.3% of total revenues, amounting to $978.7 million, up 0.8% year-over-year, while Design IP revenues fell to $435.1 million from $525.7 million in the previous year [5]. Geographic Breakdown - Revenues from North America represented 43% of total revenues at $622.6 million, while Europe contributed 11% with revenues of $153.7 million. Revenues from Korea, China, and Other regions were $250.4 million, $173.9 million, and $254.7 million, respectively [6]. Margin Analysis - The non-GAAP operating margin was reported at 36.5%, down 360 basis points year-over-year, while the adjusted operating margin for EDA improved by 310 basis points to 39.7%. However, the Design IP segment's margin decreased significantly from 46.7% to 29.1% [6][7]. Balance Sheet and Cash Flow - As of January 31, 2025, Synopsys had cash and short-term investments totaling $3.81 billion, down from $4.05 billion as of October 31, 2024. The total long-term debt was $14 million, a decrease from $16 million in the previous quarter. The company reported a negative cash flow from operating activities of $67 million for the quarter, an improvement from a negative cash flow of $88 million in the same quarter last year [8]. Guidance - For fiscal 2025, Synopsys expects revenues between $6.745 billion and $6.805 billion, with non-GAAP earnings projected in the range of $14.88-$14.96. For the second quarter of fiscal 2025, the company anticipates revenues between $1.585 billion and $1.615 billion, with non-GAAP earnings per share expected between $3.37 and $3.42 [9][10].

Financial Data and Key Metrics Changes - The company reported Q1 revenue of $1.46 billion, down 4% year-over-year, and non-GAAP EPS of $3.03, down 10% due to one less work week compared to Q1 '24 [6][32] - Non-GAAP operating margin was 36.5%, with total GAAP costs and expenses at $1.2 billion and non-GAAP costs at $924 million [31][32] - Cash flow from operations was approximately $1.8 billion, with free cash flow around $1.6 billion [34] Business Line Data and Key Metrics Changes - Design Automation revenue increased by 4% year-over-year, despite one less week of revenue [11] - The EDA software segment saw strong design activity at advanced nodes, particularly with 2-nanometer projects accelerating [13] - Design IP revenue decreased by 17% year-over-year, but opportunities for IP continue to expand, especially in AI-related applications [23] Market Data and Key Metrics Changes - AI and HPC markets remained robust, while industrial, automotive, and consumer electronics faced challenges [7] - China sales accounted for 12% of total sales, with expectations of continued deceleration due to local economic conditions and restrictions [46][50] Company Strategy and Development Direction - The company is focused on AI-driven design solutions and is progressing with the acquisition of ANSYS, which is expected to enhance its offerings [9][10] - The company anticipates a paradigm shift in chip design workflows due to advancements in AI, particularly with generative AI capabilities [18][110] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilient business model and strong momentum driven by AI and other secular growth trends [29][30] - The company reaffirmed its full-year 2025 targets for revenue and non-GAAP EPS, expecting continued growth despite challenges in certain markets [31][36] Other Important Information - The backlog exiting Q1 was reported at $7.7 billion [67] - The company is experiencing strong demand for its new hardware solutions, with a focus on fulfilling customer needs in the second half of the year [63][98] Q&A Session Summary Question: Growth trends in AI and non-AI segments - Management noted a strong demand in the semiconductor market for AI and HPC, while consumer electronics and automotive sectors are slower to leverage AI [39][41] Question: Sales performance in China - Management indicated that sales in China are expected to decelerate below corporate average due to economic conditions and restrictions [50][120] Question: Design activity for non-AI customers - Management observed a stabilization in design activity for non-AI customers, particularly in mobile and PC sectors, while automotive and industrial sectors remain steady [58] Question: Cost control and guidance for next quarter - Management highlighted that Q1 costs were lower than anticipated due to timing, but Q2 typically sees a step-up due to annual performance budgets [112][115] Question: Backlog composition and customer engagement - Management confirmed no significant change in customer behavior regarding backlog duration, maintaining consistent contract durations [81][82]

Financial Data and Key Metrics Changes - The company reported Q1 revenue of $1.46 billion, down 4% year-over-year, and non-GAAP EPS of $3.03, down 10% due to one less work week compared to Q1 '24 [6][32] - Non-GAAP operating margin was 36.5%, with total GAAP costs and expenses at $1.2 billion [32] - For fiscal year 2025, the revenue guidance is set between $6.745 billion and $6.05 billion, with non-GAAP EPS guidance of $14.88 to $14.96 per share [33][36] Business Line Data and Key Metrics Changes - Design Automation revenue increased by 4% year-over-year, despite one less week of revenue [11] - The company launched new HAPS 200 prototyping systems and ZeBu 200 emulation systems, enhancing performance significantly [12] - Design IP revenue decreased by 17% year-over-year, but opportunities are expanding due to AI customer needs [23] Market Data and Key Metrics Changes - AI and HPC markets remained robust, while industrial, automotive, and consumer electronics faced challenges [7] - China sales showed a deceleration trend, with expectations of continued decline below corporate average due to restrictions and economic slowdown [50][76] Company Strategy and Development Direction - The company is focused on AI-driven design solutions and is progressing with the acquisition of ANSYS to enhance its offerings [9] - The strategy emphasizes addressing design complexity and energy demands through innovative solutions [8] - The company aims to leverage AI capabilities to transform engineering workflows and improve productivity [18][108] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilient business model and strong momentum driven by AI growth [29] - The outlook for semiconductor R&D investment is positive, expected to grow from 6% to 9% of sales per year [41] - Management acknowledged challenges in the consumer electronics and automotive sectors but noted a recent acceleration in design activity [44][58] Other Important Information - The backlog exiting Q1 was reported at $7.7 billion [67] - Cash flow from operations was approximately $1.8 billion, with free cash flow around $1.6 billion [34] Q&A Session Summary Question: Growth trends in AI and non-AI segments - Management noted a bifurcation in the semiconductor market, with strong demand in AI and HPC, while consumer electronics and automotive are slower [39][41] Question: Sales performance in China - Management indicated that sales in China are expected to continue decelerating due to restrictions and economic factors [50][76] Question: Design activity for non-AI customers - Management observed a stabilization in design activity for non-AI customers, particularly in mobile and PC sectors [58] Question: Cost control and guidance for next quarter - Management highlighted that Q1 costs were lower than anticipated due to timing, but Q2 typically sees a step-up due to merit increases [112][115] Question: Backlog composition and customer engagement - Management confirmed no significant change in customer behavior regarding backlog duration, maintaining consistent contract durations [81][82]