Synopsys Earnings

The perfect quarterly results are to slightly beat the consensus for earnings and profit, and not say anything negative about guidance for the upcoming quarter. Synopsys delivered all that with their latest quarter yesterday. Revenue was $521M versus $483M last year, giving solid growth of over 8%. Non-GAAP earnings per share was 65c. The revenue number is significant since it should put Synopsys firmly over the $2B revenue level for the whole year.

Their official guidance for the full year is:

• Revenue: $2.055 billion – $2.065 billion
• Other income and expense: $10 million – $12 million
• Tax rate applied in non-GAAP net income calculations: approximately 20 percent
• Fully diluted outstanding shares: 155 million – 159 million
• GAAP earnings per share: $1.57 – $1.63
• Non-GAAP earnings per share: $2.48 – $2.50
• Cash flow from operations: at least $500 million

Aart’s discussion of the results on the conference call was also contained no real surprises. The semiconductor industry is strong but the global economy is vulnerable in all sorts of ways. But Synopsys themselves are very well positioned:We lead in chip implementation. We have a comprehensive solution for verification that reaches all the way up to the intersection of hardware and software. We’re the number two IP company in the world. And with the acquisition of Coverity, we’ve not only significantly expanded our portfolio and customer base, but are transforming Synopsys into its next incarnation.

Some more interesting facts came out of the prepared remarks, no so much specific to Synopsys but to the semiconductor ecosystem as a whole.

Aart said they were tracking 150 FinFET designs around the world and Synopsys is integral to more than 95% of them. I don’t think that last remark means anything significant, just that some Synopsys tool is used. I wouldn’t be surprised if Cadence is integral to 95% of them too.

100 million chips have shipped containing Synopsys’s USB 3.0 IP. The transition to USB3 has been going relatively slowly since so much of what USB is used for doesn’t require any of the extra capability that it delivers. Your mouse and keyboard just don’t need more than USB2 (USB1 actually).

During the quarter Synopsys announced foundry support for Intel’s 14nm process. Aart said that Synopsys was already heavily used internally at Intel to design their own products. I was surprised since Intel is so paranoid (so they survive!) about ever saying which tools they used. At the Jasper users’ group a couple of years ago Intel gave the keynote and pointed out that it should not be taken as an endorsement of Jasper or even a sign that they used Jasper’s products. Synopsys also announced foundry support for Samsung and TSMC FinFET designs.

IC Compiler II (the physical design environment) is finally being introduced for full production and should ramp strongly in 2015:Based on intense customer interest across the design spectrum, the introduction of our new IC Compiler II is clearly the highlight of 2014, and a milestone in design automation. This next generation tool delivers an astounding 10X improvement in throughput. That’s 10X, not 10%. Since announcing IC Compiler II in March, we delivered its production version exactly on schedule last month. The number of customer engagements has grown very rapidly, and we have booked our first orders. So far, the accelerating number of tape-outs has been in 40, 28 and 16/14 FinFET designs, and the first chips have already successfully come back from manufacturing.

One area where Synopsys is doing something new is Coverity. This is not in the EDA space directly, it is in the mainstream software development space. Due to the way acquisition accounting handles deferred revenue, this will be dilutive this year, breakeven next and accretive in 2016. But one important fact is that Coverity sells into different accounts from Synopsys and even when they sell into the same accounts, it is different groups and budgets and so offers incremental growth:Recall that half of Coverity’s customers are brand new to Synopsys, representing a completely new pool of potential buyers. The other half are companies we know well, but where Coverity is used in different parts of the company and accessing different budgets.

So, delivered what was expected, no surprises going forward. Just what Wall Street likes.

More articles by Paul McLellan…