Core Points - Synopsys, Inc. has received approval for the divestiture of its Optical Solutions Group and PowerArtist businesses to Keysight Technologies, Inc. [1][2] - The divestitures are a regulatory requirement related to Synopsys' acquisition of Ansys, which was completed on July 17, 2025 [2]. - The expected completion date for these divestitures is around October 17, 2025 [2]. - The transactions are not material to Synopsys' financials, and specific terms of the agreements have not been disclosed [2]. Company Overview - Synopsys, Inc. is a leader in engineering solutions from silicon to systems, focusing on enabling customers to innovate AI-powered products [3]. - The company provides industry-leading silicon design, IP, simulation, and analysis solutions, along with design services [3]. - Synopsys collaborates closely with customers across various industries to enhance their R&D capabilities and productivity [3].

Core Insights - Synopsys experienced a significant stock decline of 18.2% in September, with a notable drop of 35% in early September due to disappointing third-quarter earnings [2] - The company operates in two segments: design automation, which includes EDA and the newly acquired Ansys, and design intellectual property (IP) [3][4] - The design automation segment saw a revenue increase of 23% year over year, while the design IP segment faced an 8% decline [4] Challenges Faced - CEO Sassine Ghazi identified three key factors negatively impacting the design IP segment, indicating that these issues are not expected to resolve in the near term [5] - Trade actions and weak demand from a major customer contributed to the company's poor performance, overshadowing the acquisition of Ansys [6] - Export restrictions imposed by the Trump administration disrupted design starts in China, affecting customer confidence [7] Future Outlook - Synopsys is currently facing challenges from a major foundry customer, potentially Intel, which has historically been a partner [9] - The stock showed some recovery following news of Nvidia's investment in Intel, suggesting potential positive developments ahead [9]

Core Insights - Synopsys, an electronic design automation (EDA) and engineering simulation software company, reported disappointing third-quarter earnings, leading to a significant drop in its share price [1] - Despite the earnings setback, Wall Street analysts maintain a generally positive outlook, with 18 out of 22 analysts holding "buy" or "outperform" ratings [2] - Price targets from analysts post-earnings range from $500 to $630, indicating a bullish sentiment compared to the current price of nearly $500 and a post-earnings low of below $390 [3] Business Performance - The issues highlighted in the earnings report are primarily linked to the smaller Design Intellectual Property (IP) segment, while the core EDA segment has shown strong performance with a year-over-year sales increase of 23.5% [4] - The acquisition of Ansys is expected to enhance growth opportunities, as it broadens the range of end-market customers and aligns with the core EDA business, particularly in semiconductor and AI-driven applications [5] Future Outlook - Management is anticipated to take time to address the challenges in the Design IP segment, but sustained growth in EDA and successful integration of Ansys are expected to bolster the long-term prospects for Synopsys [7] - Wall Street analysts believe that the potential benefits from the Ansys acquisition outweigh the risks associated with the Design IP segment [7]

Company Transition - Procore has announced Ajei Gopal as the new CEO, succeeding founder Tooey Courtemanche, who will step down in November [1][2] - Gopal, with 35 years of experience, is set to start on November 10, following Procore's Q3 earnings announcement [2] - Courtemanche will transition to focus on his role as chair of the board of directors [2] Leadership Background - Before joining Procore, Gopal served as CEO of Ansys from 2017 to 2025, where he significantly increased revenue and market value [3] - Gopal has held senior positions at Hewlett-Packard, CA Technologies, and Symantec, and was an operating partner at Silver Lake [3] Industry Context - Courtemanche's leadership coincided with a significant shift in the construction industry from paper to digital project management [4] - The construction sector is increasingly adopting tailored technological solutions amid a surge of artificial intelligence offerings [6] - Courtemanche emphasized Procore's mission-driven approach to empower builders, highlighting Gopal's experience in scaling software companies [8]

Core Viewpoint - Synopsys (NASDAQ: SNPS) experienced a significant stock decline of over 35% following its third-quarter earnings release, prompting Ark Invest to purchase nearly 16,000 shares, indicating confidence in the company's long-term growth potential driven by AI and custom chip development [2][3]. Growth Potential - The increasing demand for AI-powered products and custom chip development presents substantial growth opportunities for Synopsys, which is a leader in electronic design automation (EDA) used by semiconductor and electronics companies [2][3]. - As various industries, including technology, automotive, medical, industrial, aerospace, and defense, begin to design chips in-house, Synopsys has an organic growth opportunity that is further enhanced by a recent acquisition [4]. Acquisition of Ansys - The acquisition of Ansys, an engineering simulation and analysis software company, is expected to accelerate Synopsys' growth by broadening its customer base beyond its traditional semiconductor clients [5]. - This acquisition will enable Synopsys to offer a "silicon-to-systems" solution, combining EDA tools for chip design with simulation software for modeling AI-infused products [6]. - Despite facing near-term challenges in its design IP business, the Ansys acquisition has the potential to significantly enhance Synopsys' earnings potential in the long run [7].

Investment Rating - The report does not explicitly state an investment rating for Synopsys, but it highlights significant performance challenges and market expectations that may influence investor sentiment. Core Insights - Synopsys reported total revenue of $1.74 billion for FY3Q25, a year-on-year increase of 13.7%, but below market expectations of $1.77 to $1.80 billion [1][7] - The non-GAAP operating margin was 38.5%, slightly lower than the previous year and below the consensus of 39.0% [1][7] - Non-GAAP earnings per share were $3.39, down 1.2% year-on-year, and below the expected $3.80 [1][7] - The overall performance was negatively impacted by the underperformance of the IP business, leading to a stock price drop of over 35% [1][7] EDA and IP Business Performance - EDA business revenue grew by 23% year-on-year to $1.31 billion, exceeding market expectations of $1.18 billion, driven by increased complexity in AI chip designs [2][8] - The IP business revenue declined by 8% year-on-year to $428 million, significantly below the expected $552 million, primarily due to weakened confidence from Chinese customers and delays in high-margin product deliveries [2][8][5] Strategic Developments - The completion of the Ansys integration marks a structural upgrade in Synopsys' engineering software portfolio, enhancing its market position as a leader in "silicon-to-system" solutions [2][9] - The Ansys 2025 R2 platform, which integrates AI-driven simulation and advanced features, is expected to enhance Synopsys' capabilities in various high-tech sectors [2][9] Future Outlook - For Q4, Synopsys expects revenue between $2.23 billion and $2.26 billion, with a revised full-year revenue guidance of $7.03 billion to $7.06 billion [3][11] - Non-GAAP earnings per share for the full year are projected to be between $12.76 and $12.80 [3][11] - Management remains cautious about the short-term recovery of the IP business, citing industry and geopolitical factors as ongoing challenges [3][11]

Core Viewpoint - Synopsys (SNPS.US) stock price plummeted after third-quarter performance and guidance fell short of expectations, leading to downgrades from several Wall Street analysts [1][2] Group 1: Analyst Ratings and Price Targets - Baird downgraded Synopsys from "Outperform" to "Neutral" and reduced the target price from $670 to $535, citing significant changes in the design intellectual property (IP) outlook, including restrictions in China and changes in customer behavior [1] - Morgan Stanley maintained an "Overweight" rating with a target price of $715, noting strong performance in core electronic design automation (EDA) despite unexpected weakness in the design IP business [1] - Needham kept a "Buy" rating but lowered the target price from $660 to $550, highlighting mixed results post-Ansys acquisition and questioning whether the IP issues are structural or temporary [2] - Wells Fargo reiterated a "Hold" rating while reducing the target price from $630 to $550 [2] Group 2: Financial Performance and Guidance - Synopsys completed the $35 billion acquisition of Ansys in July, but the subsequent financial report showed mixed results, particularly poor performance in the IP business, which has historically influenced stock volatility [2] - Analysts indicated that the fourth-quarter revenue guidance exceeded market expectations, primarily due to the inclusion of Ansys, which offset the weakness in the IP business [1] - Concerns were raised about the potential challenges in financial reporting following the Ansys acquisition, with analysts noting that the company's performance is significantly below historical standards [2] Group 3: Market and Business Outlook - Analysts expressed surprise at the ongoing challenges from the Chinese market and Intel, but remain optimistic that these headwinds will eventually subside [2] - The transition of the IP business model towards "larger IP" (such as subsystems and chips) and its impact on profitability is a key focus for analysts moving forward [2]

Summary of Synopsys Conference Call Company Overview - **Company**: Synopsys - **Event**: Goldman Sachs Communication and Technology Conference - **Speaker**: CEO Sassine Ghazi Key Points Industry Context - The semiconductor industry is facing challenges, particularly in the IP (Intellectual Property) business due to external factors such as restrictions in China and issues with a major foundry customer [3][6][10]. Financial Performance - Synopsys reported a weaker-than-expected Q3 performance, primarily driven by a decline in the IP business [3][7]. - The company anticipates muted growth for the IP segment in FY2026, while other business areas are expected to perform well [7][18]. Factors Affecting IP Business 1. **China Market Impact**: - Synopsys faced a BIS restriction that hindered sales in China for about six weeks, leading to uncertainty among customers [5][6]. - Growth in China, which had been around 20% to 25% CAGR, is expected to decline significantly [10]. - The company cannot sell to many potential customers in China due to technology restrictions [9][10]. 2. **Foundry Customer Issues**: - A significant foundry customer did not utilize the IP investment made by Synopsys, impacting revenue forecasts [6][14]. - The company has decided to de-risk its forecasts by assuming no customers for the IP built for this foundry [10][16]. Business Segments - Synopsys operates in three main areas: Design EDA (Electronic Design Automation), Design Automation, and IP [5]. - The company is pivoting towards more customized IP solutions, particularly for hyperscale and automotive markets [20][22]. AI Integration - Synopsys is leveraging AI in its products, focusing on reinforcement learning, generative AI, and agentic systems to enhance design efficiency [35][36]. - The integration of AI is expected to improve productivity and reduce time to market for customers [35]. Ansys Acquisition - The acquisition of Ansys is seen as a strategic move to enhance product offerings, particularly in physics simulation for advanced chip designs [39][41]. - Synopsys plans to report Ansys revenue separately for transparency and to highlight the health of its core business [26][46]. Cost Management - Synopsys is implementing a 10% headcount reduction by the end of FY2026 as part of a cost synergy program related to the Ansys acquisition [28][30]. - The company aims to achieve $400 million in cost synergies while reinvesting in growth opportunities [30]. Investor Communication - The CEO emphasized the importance of transparency regarding the challenges faced in the IP business and the need for investors to adjust their growth expectations for FY2026 [45][46]. - Synopsys is committed to returning to mid-teens growth for the IP segment by FY2027 [46]. Conclusion - Despite current challenges, Synopsys maintains a strong outlook for its other business segments and is focused on leveraging AI and the Ansys acquisition to drive future growth [42][46].

Financial Data and Key Metrics Changes - Q3 revenue was reported at $1.74 billion, representing a 14% year-over-year increase, with non-GAAP EPS at $3.39 [5][16] - Non-GAAP operating margin stood at 38.5%, while GAAP earnings per share were $1.50 [16][17] - Backlog reached $10.1 billion, indicating business resilience despite challenges [16][21] Business Line Data and Key Metrics Changes - Design automation revenue, including Ansys products, increased by 23% year-over-year to $1.31 billion, driven by hardware strength [9][17] - Design IP segment revenue decreased by 8% year-over-year to $428 million due to various headwinds [17][18] - Design automation adjusted operating margin was 44.5%, while design IP adjusted operating margin was 20.1% [17][18] Market Data and Key Metrics Changes - Strong performance was noted in Europe and North America, while challenges persisted in China despite sequential improvements [16][18] - The semiconductor demand in industrial and automotive markets remained subdued [7] Company Strategy and Development Direction - The acquisition of Ansys is seen as a transformational milestone, expanding revenue and customer base, and enhancing long-term growth opportunities [5][8] - The company is pivoting its IP resources towards higher growth opportunities and is conducting a strategic portfolio review [14][15] - A 10% reduction in global headcount is planned by the end of fiscal year 2026 to optimize cost structure and drive efficiency [14][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing the increasing complexity and demand for AI-powered systems as a key growth driver [7][8] - The company is taking a cautious view of Q4 while still expecting to deliver a record revenue year [7][16] - Management acknowledged the challenges faced in the IP business and the need for resource reallocation to address these issues [24][40] Other Important Information - The integration of Ansys is progressing well, with no significant surprises reported post-acquisition [63][66] - The company is focused on delivering synergies from the merger despite delays in divestitures of certain business units [21][66] Q&A Session Summary Question: Challenges around the IP business - Management detailed three main challenges: export restrictions affecting design starts in China, issues with a major foundry customer, and roadmap/resource allocation decisions [24][25] Question: Operating margin outlook - The decline in operating margins is primarily due to the underperformance in the IP business, but long-term targets remain intact [30][33] Question: Design IP slowdown permanence - Management indicated that the slowdown is not just a Q3 issue and anticipates a transitional period for the IP business [40][41] Question: Ansys revenue integration - Ansys revenue is included in the Q4 guidance, with expectations for strong performance in the November-December timeframe [67][68] Question: Headcount reduction rationale - The planned headcount reduction was part of a strategic review and not solely due to current challenges in the IP business [87][88] Question: Future business models for IP - Discussions are ongoing regarding potential changes to business models, including royalties, to capture value from customization opportunities [56][57]

Financial Data and Key Metrics Changes - Q3 revenue was $1.74 billion, representing a 14% year-over-year increase, with non-GAAP EPS at $3.39 [15][4] - Non-GAAP operating margin was 38.5%, while GAAP earnings per share were $1.50 [15][16] - Backlog reached $10.1 billion, indicating business resilience despite challenges [15] Business Line Data and Key Metrics Changes - Design automation revenue, including Ansys products, increased by 23% year-over-year to $1.31 billion, driven by hardware strength [8][16] - Design IP segment revenue decreased by 8% year-over-year to $428 million due to various headwinds [16][10] - Adjusted operating margin for design automation was 44.5%, while design IP's adjusted operating margin was 20.1% [16] Market Data and Key Metrics Changes - Strong performance was noted in Europe and North America, while challenges persisted in China [15] - Semiconductor demand in industrial and automotive markets remained subdued [5] Company Strategy and Development Direction - The acquisition of Ansys is seen as a transformational milestone, expanding revenue and customer base [4][6] - The company is focusing on high-growth opportunities in IP and design automation, pivoting resources accordingly [12][10] - A strategic portfolio review is underway to optimize investments and execution [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth despite external headwinds, particularly in AI and semiconductor design [5][4] - The company anticipates a transitional and muted year in IP due to ongoing challenges [38][10] - A commitment to achieving synergies from the Ansys acquisition remains strong, despite integration challenges [19][66] Other Important Information - The company plans to reduce global headcount by approximately 10% by the end of fiscal year 2026 to enhance efficiency [12][19] - Ansys revenue for Q3 was $78 million, with expectations for continued growth in Q4 [69][15] Q&A Session Summary Question: Can you elaborate on the challenges in the IP business? - Management identified three main challenges: export restrictions affecting China, issues with a major foundry customer, and roadmap/resource allocation decisions that did not yield expected results [22][23] Question: How will the company address the decline in operating margins? - The decline is primarily due to the IP business's revenue headwinds, but the long-term commitment to mid-40% operating margins remains intact [27][31] Question: What is the outlook for the Ansys acquisition? - The integration is progressing well, with no significant surprises, and the company is focused on delivering on revenue synergies [66][67] Question: How does the company plan to manage the transition in the IP business model? - The company is pivoting towards more customized solutions and subsystems, which may require new business models to capture value [47][50] Question: What is the expected impact of the headcount reduction? - The reduction is part of a broader strategy to optimize resources and improve efficiency, which has been planned for some time [91][12]