Synopsys(US:SNPS)2025-05-28 22:02Financial 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]