Synopsys(US:SNPS)2023-11-30 01:45Financial Data and Key Metrics - Q4 2023 revenue reached a record high of $1.599 billion, capping a record year with total revenue of $5.84 billion, up 15% YoY [96] - Non-GAAP operating margin improved to 35.1%, and non-GAAP EPS increased by 26% YoY [96] - Operating cash flow for the year was $1.7 billion, with cash and short-term investments totaling $1.59 billion and total debt of $18 million [24] - Backlog increased by $1.5 billion to $8.6 billion, driven by strong orders [96] - For FY 2024, revenue is expected to grow 12.4% to 13.5%, with non-GAAP operating margin expanding by approximately 2 percentage points and non-GAAP EPS growth of 19% to 20% [7] Segment Performance Design Automation - Revenue for the Design Automation segment was $3.78 billion, up 14% YoY, driven by strength in EDA software and hardware [8] - Adjusted operating margin for Design Automation was 38.1% [8] - Synopsys.ai received the World Electronics Achievement Award for EDA Software of the Year, with strong customer adoption across the design flow [2] - Major wins in verification and test, including a 10x faster turnaround time in verification and over 50% pattern reduction in test [2] Design IP - Revenue for the Design IP segment was $1.54 billion, up 17% YoY, driven by broad-based strength [8] - Adjusted operating margin for Design IP was 34.5% [8] - Key wins in automotive and multi-die ecosystems, including a marquee customer displacing competition in a multi-generation agreement [4] - Synopsys is the advanced node IP vendor of choice for all three leading-edge foundries [17] Software Integrity - Revenue for the Software Integrity segment was $525 million, up 13% YoY, with an adjusted operating margin of 14.5% [8] - Polaris software integrity platform saw over 50% YoY growth in Q4 [21] - The company is exploring strategic alternatives for the Software Integrity business to prioritize higher-growth opportunities in Design Automation and Design IP [1] Market and Geographic Performance - China is expected to grow in 2024 but at a slower rate than in 2023 due to export restrictions and macroeconomic challenges [15] - The company expects solid growth across geographies in 2024, with a balanced view of headwinds and tailwinds [107] Strategic Direction and Industry Competition - Synopsys is increasing investments in AI-driven capabilities, including Synopsys.ai Copilot, a breakthrough Generative AI capability for chip design [16] - The company is focusing on multi-die ecosystems and advanced node IP, with significant wins in 3D IC design and interoperability demonstrations [3][20] - Synopsys is aligning its portfolio investments with the greatest return potential, prioritizing Design Automation and Design IP over Software Integrity [1][76] Management Commentary on Operating Environment and Future Outlook - The company expects a challenging near-term growth environment in China but remains optimistic about long-term opportunities [102] - AI is seen as a key driver of future growth, with Synopsys increasing investments to accelerate its AI roadmap [16][103] - The company is confident in its business heading into 2024, driven by strong execution and leadership positions across its segments [22] Other Important Information - Synopsys will host its Investor Day on March 20th, 2024, in conjunction with the Synopsys Users Group event in Santa Clara [10] - The company completed $1.2 billion in share buybacks during the year, representing 80% of free cash flow [24] Q&A Session Summary Question: Backlog and Growth Outlook - The $8.6 billion backlog is broad-based, with strong momentum in Design Automation and Design IP, but growth in China is expected to slow, and Software Integrity is forecasted to grow at a single-digit rate [71][111] - The company is balancing headwinds (China, enterprise software spending) and tailwinds (AI-driven demand) in its 2024 guidance [107] Question: AI and Product Development - Synopsys is seeing strong adoption of AI capabilities, with a 20% contract-over-contract growth in EDA agreements that include AI features [43][63] - The company is offering AI capabilities through subscription licenses, with early adopters using it on select projects [60] Question: Hardware Verification and IP Business - Hardware-assisted verification is expected to continue its strong performance in 2024, following a record year in 2023 [50][51] - The IP business is expected to grow in line with the overall revenue profile, driven by increasing chip design complexity and protocol transitions [52] Question: Generative AI and Monetization - Synopsys is in the early stages of monetizing Generative AI, with initial results showing significant productivity improvements for customers [55][60] - The company is offering AI capabilities through flexible subscription and consumption-based models [60] Question: Cash Flow and Tax Impact - Cash flow from operations is expected to be impacted by $600 million in cash taxes, with $200 million paid in 2023 and $400 million due in 2024 [64][81] - The company expects cash tax growth to align with operating income growth over the long term [81] Question: Strategic Alternatives for Software Integrity - Synopsys is exploring strategic alternatives for its Software Integrity business to focus on higher-growth opportunities in Design Automation and Design IP [76]