Company Overview - Synopsys (SNPS) shares increased by 3.6% to $569.1 in the last trading session, with a notable trading volume, and have gained 14.6% over the past four weeks [1] - The growth is driven by strong momentum in AI and HPC, positively impacting Synopsys' product segments, including Synopsys.ai, VSO.ai, and ASO.ai, which are seeing increased adoption due to productivity improvements [1] Earnings Expectations - Synopsys is expected to report quarterly earnings of $3.84 per share, reflecting a year-over-year increase of 12%, with revenues projected at $1.77 billion, up 16% from the previous year [2] - The consensus EPS estimate for the quarter has remained unchanged over the last 30 days, indicating that stock price movements may not sustain without trends in earnings estimate revisions [3] Industry Context - Synopsys is part of the Zacks Computer - Software industry, which includes other companies like OptimizeRx Corp. (OPRX), that recently closed 2.3% higher at $12.97, but has seen a -7.9% return over the past month [4] - OptimizeRx's consensus EPS estimate has also remained unchanged at $0.03, representing a 50% increase compared to the previous year, and it holds a Zacks Rank of 1 (Strong Buy) [5]

Financial Data and Key Metrics Changes - The company reported a strong second quarter with revenue of $1.6 billion, up 10% year over year, exceeding the midpoint of guidance [5][14] - Non-GAAP operating margin was 38%, and non-GAAP EPS was $3.67, reflecting strong execution and leadership position [14][16] - Backlog increased to $8.1 billion, up $400 million quarter on quarter [14][16] Business Line Data and Key Metrics Changes - Design Automation segment revenue was $1.12 billion, up 6% year over year, with an adjusted operating margin of 40.9% [17] - Design IP segment revenue increased by 21% year over year to $482 million, with an adjusted operating margin of 31.2% [17][10] Market Data and Key Metrics Changes - The company experienced strong demand in Europe and South Korea, which offset headwinds from China [16] - The AI and HPC sectors remained robust, while non-AI end market demand was subdued [6][16] Company Strategy and Development Direction - The company is focused on leveraging megatrends in AI, software-defined systems, and silicon proliferation to drive growth [6][13] - The pending acquisition of Ensys is aimed at enhancing AI-powered silicon design solutions [7][12] - The company is investing to maintain and extend its leadership position in AI for chip design [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a slowdown in China but reiterated confidence in full-year guidance due to strong execution in other regions [22][26] - The company is optimistic about the second half of the year, expecting to capitalize on secular megatrends driving the semiconductor industry [20][19] Other Important Information - Non-GAAP EPS targets were increased to reflect Q2 outperformance, partly offset by net interest expenses from a $10 billion bond issuance [19] - The company is experiencing a shift towards GPU-based compute for EDA tools, which is expected to enhance pricing power [90][92] Q&A Session Summary Question: Impact of China sales on overall revenue - Management confirmed that China sales now represent 10% of the mix, down from 12% in Q1, and acknowledged a year-over-year decline in China revenue [24][26] Question: Clarification on bond payment structure - Management clarified that the first bond payment would include a catch-up for the first half month due to the bond's settlement date [27][28] Question: Revenue mix in China - Management stated that they do not split revenue by region but indicated that the mix in China is similar to the rest of the world [33] Question: R&D spending by largest customer - Management noted that while there may be fluctuations in hardware spending, committed agreements with customers like Intel remain stable [40][41] Question: Status of the ANSYS acquisition - Management expressed confidence in closing the ANSYS deal in the first half of the year, citing positive negotiations with regulators [42][61] Question: Changes in design activity for non-AI customers - Management observed stabilization and renewed activity in industrial and automotive sectors, indicating a positive trend [46][47] Question: Recurring revenue development - Management acknowledged fluctuations in recurring revenue but emphasized strong performance in the IP business, which was up 21% [78] Question: Overall R&D landscape - Management indicated a pickup in R&D spending in automotive and industrial sectors, suggesting a return to stronger growth similar to previous years [85][87] Question: Pricing power and GPU-based compute - Management confirmed that the shift to GPU-based compute has allowed for better pricing models, enhancing overall value for customers [90][92]

Financial Data and Key Metrics Changes - The company reported a strong second quarter with revenue of $1.6 billion, up 10% year over year, exceeding the midpoint of guidance [5][14][16] - Non-GAAP operating margin was 38%, and non-GAAP EPS was $3.67, reflecting strong execution and a resilient business model [14][16] - Backlog increased to $8.1 billion, up $400 million quarter on quarter [14][16] Business Line Data and Key Metrics Changes - Design Automation segment revenue was $1.12 billion, up 6% year over year, with an adjusted operating margin of 40.9% [17] - Design IP segment revenue increased by 21% year over year to $482 million, with an adjusted operating margin of 31.2% [17][10] Market Data and Key Metrics Changes - The company observed strength in Europe and South Korea, which offset headwinds from China [16] - The AI and HPC sectors remained robust, while non-AI end market demand was subdued [6][16] Company Strategy and Development Direction - The company is focused on addressing challenges in design complexity and costs driven by megatrends in AI, software-defined systems, and silicon proliferation [6][12] - The pending acquisition of Ensys is aimed at enhancing AI-powered silicon to systems design solutions [7][12] - The company is investing to maintain and extend its leadership position in AI for chip design [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a slowdown in China but reiterated confidence in full-year guidance due to strong execution in other regions [22][28] - The company is optimistic about the second half of the year, supported by strong demand in AI and HPC sectors [20][19] Other Important Information - The company is actively negotiating with SAMR for regulatory clearance in China regarding the Ensys acquisition [7][45] - Non-GAAP EPS targets have been increased to reflect Q2 outperformance, partly offset by net interest expenses from bond issuance [19] Q&A Session Summary Question: What is the expected impact of declining sales in China? - Management confirmed that they are anticipating a decline in China year over year but reiterated full-year guidance based on strong performance in other regions [26][28] Question: Can you clarify the bond payment structure? - The CFO confirmed that the first payment will include a catch-up for the first half month due to the bond's settlement timing [29] Question: What is the revenue mix in China? - Management stated that they do not split revenue by region but indicated it is similar to the rest of the world [35] Question: How is the largest customer’s R&D spend affecting growth? - Management noted that while there may be fluctuations, committed agreements generally protect EDA software revenue [42] Question: What is the plan if the ANSYS deal does not close? - Management emphasized that they are focused on completing the transaction and are confident based on received approvals [45][66] Question: What is the outlook for design activity in non-AI markets? - Management indicated signs of stabilization and new energy in industrial and automotive markets, with increased design activity expected [50] Question: How is pricing power being affected? - Management stated that pricing is based on the value delivered to customers, and they see opportunities to improve pricing as challenges increase for chip design [81] Question: What is the confidence level for achieving double-digit revenue growth? - Management expressed confidence in achieving industry-leading double-digit revenue growth, even with potential challenges in China [107]

Financial Data and Key Metrics Changes - The company reported revenue of $1.6 billion, representing a 10% year-over-year increase, exceeding the midpoint of guidance [4][14][15] - Non-GAAP operating margin was 38%, and non-GAAP EPS was $3.67, which was above the guided range [14][15] - Backlog increased by $400 million quarter-over-quarter to $8.1 billion [14][15] Business Line Data and Key Metrics Changes - Design Automation segment revenue was $1.12 billion, up 6% year-over-year, with an adjusted operating margin of 40.9% [16] - Design IP segment revenue increased by 21% year-over-year to $482 million, with an adjusted operating margin of 31.2% [16][10] Market Data and Key Metrics Changes - Strong demand was noted in Europe and South Korea, which offset headwinds from China [15] - The company observed a slowdown in China, which is expected to decline year-over-year, while other regions showed resilience [5][15][27] Company Strategy and Development Direction - The company is focused on leveraging megatrends in AI, software-defined systems, and silicon proliferation to drive growth [5][14] - The pending acquisition of Ensys is aimed at enhancing AI-powered silicon design solutions [6][12] - The company is investing to maintain its leadership position in AI for chip design [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a "tale of two markets," with robust demand in AI and HPC sectors, while non-AI end market demand remains subdued [5][4] - The company reiterated its full-year guidance despite challenges in China, citing strong execution in other regions [27][78] Other Important Information - Free cash flow was approximately $220 million, with cash and short-term investments totaling $14.3 billion and debt of $10.1 billion [16][17] - The company is confident in achieving industry-leading double-digit revenue growth despite potential challenges in China [102] Q&A Session Summary Question: What is the expected impact of declining sales in China? - Management confirmed that they are anticipating a decline in China year-over-year but reiterated full-year guidance based on strong performance in other regions [27][78] Question: Can you clarify the bond payment structure? - Management indicated that the first bond payment would include a catch-up for the first half month, transitioning to a regular semiannual payment schedule [28][29] Question: How is the revenue mix in China divided among software, IP, and hardware? - The company does not disclose revenue by region but indicated that the mix is similar to that of other regions [32] Question: What is the outlook for R&D spending among major customers? - Management noted that while there may be fluctuations, committed agreements generally remain stable, and opportunities arise when customers push their roadmaps [40][60] Question: What is the status of the pending ANSYS acquisition? - Management expressed confidence in closing the acquisition in the first half of the year, citing positive negotiations with regulators [42][63] Question: How is the company addressing the need for more system design capabilities? - The company is focused on completing the ANSYS acquisition, which is seen as essential for enhancing system design capabilities [42] Question: What are the expectations for R&D investment in the semiconductor industry? - Management observed a pickup in R&D investment in automotive and industrial sectors, indicating a positive trend for future growth [88][89] Question: How does the company view pricing power in the current environment? - Management stated that pricing is based on the value delivered to customers, and there is an opportunity to improve pricing as challenges in chip design increase [79][80]

Core Viewpoint - Synopsys Inc. (SNPS) has experienced a 6.8% decline in stock value over the past month, underperforming the Zacks Computer-Software industry's decline of 4.9, raising questions about whether investors should exit or hold the stock. Despite near-term challenges, the long-term growth potential for Synopsys remains strong, suggesting that holding the stock is advisable [1]. Performance Analysis - The decline in Synopsys' stock is attributed to broader market weaknesses and concerns over additional tariffs, particularly a 10% tariff on imports from China, which has negatively impacted investor sentiment. Revenues from China accounted for over 15% of total revenues in 2024, 2023, and 2022 [4]. - The Design Automation segment, a key growth driver, saw only a 3.5% year-over-year sales increase in Q1 fiscal 2025, reaching $1.02 billion, which is significantly lower than the double-digit growth rates seen in previous years [5]. - The stagnation in the Design Automation segment raises uncertainties about maintaining competitive advantages, as these tools are essential for semiconductor design [6]. Economic Context - The decline in segment revenue is partly due to economic uncertainties, with semiconductor companies reducing R&D spending amid fears of an economic slowdown, leading to investor skepticism about sustaining past growth trajectories [7]. Strategic Initiatives - Despite current macroeconomic and regulatory challenges, Synopsys is focusing on long-term value creation by leveraging trends in AI-driven semiconductor design [8]. - The company has developed an AI-powered tool, VSO.ai, aimed at improving verification times and design accuracy, catering to the increasing demand for sophisticated chips [9]. - Synopsys has formed partnerships with major semiconductor companies, including Taiwan Semiconductor Manufacturing, NVIDIA, and Arm Holdings, to advance AI, high-performance computing, and next-generation semiconductor designs [10]. - Collaborations with Taiwan Semiconductor Manufacturing have led to the development of production-ready design processes, while partnerships with NVIDIA and Arm Holdings aim to enhance design capabilities and reduce development time and costs [11][12]. Conclusion - Despite recent stock declines, Synopsys' long-term prospects remain positive due to its strategic focus on AI innovations and partnerships, making it worthwhile for investors to hold the stock [13].

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]