In this episode of Making Markets, Sassine Ghazi, President and CEO of Synopsys, joins host Daniel Newman for a conversation about Synopsys’ recent earnings and outlook for 2024, and as the new CEO, his top priorities for the company, and his visions to grow Synposys with current technology industry trends like AI.
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Transcript:
Daniel Newman: Sassine Ghazi, newly-appointed CEO at Synopsys, welcome to Making Markets.
Sassine Ghazi: Thank you. Great to be here.
Daniel Newman: I really appreciate you joining. I know it’s only been a few days since you officially took the role. I’ve been following the company closely and, of course, the situation, because it was announced last year. Everyone knew that there was this cutoff. We come back from holiday, and here you are in the big chair. You’ve been in a big chair for a while, but we’ll call it the biggest chair. How are you feeling? What a way to start 2024.
Sassine Ghazi: I’m feeling awesome. As you said, this transition was announced around August timeframe, but Aart and I have been working on the actual transition for about three years. Many people don’t know that, but it’s one of those transitions that is happening at such an exciting time for the company and the industry. So I’m looking forward to it.
Daniel Newman: Yeah. Absolutely. I mean, it’s such an exciting inflection in this particular space. We saw last year was a big year for the IP across the semiconductor space, some big IPOs, but of course, we’re also seeing what AI is doing to transform the business to create a whole plethora of new players, new contributors that are getting into this semiconductor design space. We’re seeing the explosion of demand for ASICs. We’re seeing automotive companies going from a handful of chips to hundreds or thousands of chips. We’re rolling into CES, which is going to be a really exciting moment. So there’s so much for us to talk about, but I’d love to just start with the backstory. Like you said, you’ve been preparing for this for some time. Just give me a quick rundown of the journey at Synopsys to becoming CEO.
Sassine Ghazi: Yeah. I’ve been very fortunate. My career has been a design engineer at Intel to Synopsys as an engineer, and the number of opportunities opened up. Actually, I joke about it. I never asked for the jobs that they opened up. I was asked to move to a new job, and from an engineer, I moved to sales and marketing, then to run the product development for our EDA business unit, then, about four years ago, to COO, then president. So I’ve been at the company for 25 years, done pretty much every job inside the company. The part that gets me super excited is really the experience I had to be close to customers to get a feel and a pulse on what is happening, the trends, and guide the product development in order to lead the company to where we are.
Daniel Newman: Yeah. It’s sometimes more indicative of your path when you’re being asked or told the next role that you’re going to do. But sometimes, I think, when you have a particular skillset, like in your case, you had engineering, and they’re seeing you as someone that could do this bigger job, you need to get your, of course on revenue, you need to get your hands into some of the strategy and corporate development stuff so you can kind of get experience in these other areas. But in semis, it’s almost always engineering-led, because it’s so critical. And so it sounds like a really perfect background. Now, in a recent CNBC interview I did right at the end of last year, I don’t know if you saw this, but I flashed one of my surprises to watch in the semi space, and I flashed Synopsys.
Sassine Ghazi: I did. I did. Yes. Thank you.
Daniel Newman: I’m glad you saw that, and the reason I said that is because I really do think, kind of how I led off this conversation about this rapid interest and investment and more companies participating in the space. And so there’s a design part of Synopsys that people know about, and then there’s the IP portfolio that I think, to some extent, I think less people really fully understand and know about, but I think the second-largest IP portfolio. I just love to hear from people like you that have been in the space when someone says, “Introduce Synopsys,” because it’s not necessarily a household name even to the investment community. But with everyone being so interested in semis and your role to play, how do you do your elevator pitch and introduce the company to people?
Sassine Ghazi: It’s such an awesome question, because when you think of a company the size of Synopsys, we’re 80-ish billion dollar market value company. So we’re not some tiny little company that has no impact. We’re a significant company, and if you think of the silicon development, which is right now at the heart of not only economies and industries, but even it’s at the top agenda items for national securities for many countries, that silicon development truly will not be happening at the pace that is happening without a company like Synopsys. We are that essential to our customer’s R&D and product development.
You’re right. In our portfolio, we have three segments. One segment is our design automation. This is the software we provide for customers to be able to develop a chip. The second segment is design IP, which is semiconductor components that goes into the chip. So today, there is no AI chip or a chip that goes into mobile or your laptop, et cetera, that does not have a Synopsys IP in it, either to connect the chip to the outside world or connect the chip to another chip inside that system. We have the third business, which is the software security. We communicated in Q4 that we’re exploring strategic alternatives for that business, but the first two businesses are at the heart of developing any semiconductor chip, period.
Daniel Newman: I think it’s a pretty telling line item to be able to say any chip. Basically, you-
Sassine Ghazi: That’s right.
Daniel Newman: By the way, congratulations. 80 billion market cap is, that isn’t something to shake a hand at, and that’s a very, very impressive result. By the way, kind of what I … I said a surprise, because kind of a well-kept secret. But I think that secret’s going to come to an end. I think this year may be where that really starts to change. Any that don’t know will know.
Sassine Ghazi: If you look at the last four years … When you think, by the way, if you zoom out and you look at semiconductor as a market, there is the boom and the bust that we’re all used to. In our business, we don’t feel the big ups and the big downs, because we’re tied to the semiconductor R&D budget, which has been expanding due to complexity. Our portion of that R&D budget is expanding due to the impact we provide to those customers.
You look at the last four years, it’s very rare to see companies our size to say that we’ve grown at about 16% CAGR. We improved our operating margin by about 800 basis points during that period. You look at FY23, which we wrapped up in October, 15% year-over-year growth, and environment for semiconductor in ’23 was fairly choppy. You have AI, of course, as a segment that was gangbuster, but the rest of semi, it depend on which market you’re in. It was up and down. We are guiding ’24 at the 13% year-over-year midpoint, and as I said, where we are in that supply chain and the ecosystem is so unique. The opportunity and the trust that our customers have in us is really what gives me and us the excitement about our company.
Daniel Newman: Yeah, and to simplify this for the audience, basically, the silicon design cycle is much longer, and whether you’re in the boom or the bust cycle, which everyone knows about with semis, these companies, whether it’s an Intel or a Qualcomm or it’s … It doesn’t matter, they’re always continuing innovation. So Nvidia and AMD, everybody’s got … Now, by the way, there’s more of these companies. So AWS has a roadmap and with their homegrown silicon, and NXP has a …
And so what I’m saying is all these different companies are still working with you, and in fact, they’re designing systems, which you’re getting more and more involved in, that have more chips, chiplet, silicon requirements. In the end, they’re actually using more of your stuff, and that’s why you had a record ’23. That’s why, what was it, revenue, record, op margin, record, EPS, despite ’23 being a really tough year for certain parts of the semiconductor industry.
Sassine Ghazi: Exactly. Exactly. So what’s driving our growth, and if you zoom out beyond Synopsys, and you look at the overall market, the insatiable demand for chips and silicon due to … You can think of it as the AI mega driver for compute. One, driver. Two, you mentioned many of the hyperscalers and system companies are trying to figure out how to optimize their product and their product differentiation and experience, which is no longer at the software and system level. It has to go all the way down to the silicon choices they’re making in order to have a power-efficient car or a data center that not consuming half of the energy of the world in order to power up all the applications and the use cases.
So there is the silicon opportunities, and then there are system companies that are coming down with a software-defined silicon and systems as another opportunity. So the way we’re positioning Synopsys is a silicon-to-system solution company. At the silicon level, I’ve already described it. There is no silicon development. There is no advanced chips that is happening today, and I’m not saying it loosely. I mean what I’m saying. There is no advanced chip development today that is happening without Synopsys design, automation, and IP. Then, you have system companies, be it an automotive, a hyperscaler, et cetera, that they’re going through their own transformation, and that transformation is all through AI and connectivity, et cetera.
Even if they’re not doing their own silicon, they need to have a software and automation, a company, and that’s where we engage with them, to prescribe to the silicon provider what type of silicon they need and chip they need. So that’s another level of opportunity for us. If you go back six, seven, eight years ago, our market was growing mid-single-digit. Now, we’re committing in our long-term is double-digit growth, and it’s due to, back to the silicon complexity and the system opportunity that we have.
Daniel Newman: Yeah, and I think it was the end of 2019, Sassine, I wrote a MarketWatch op-ed. I said silicon will eat the world. I did my prediction trends in 2019 just before C-19, which that created its own sort of explosion of demand. But you were just starting to see all the software innovation, and it didn’t really matter whether you were talking about software-defined vehicles, networks-
Sassine Ghazi: That’s right.
Daniel Newman: … whether you’re talking about moving to the cloud, applications, even … I mean, really, everything we do is going to be run on chips. And so it was kind of weird, because it really wasn’t that great of a prognostication. But it ended up setting really well, because everyone kept saying software eats the world, but you can’t run software on air. You needed something.
Sassine Ghazi: Exactly. Exactly. Given you know the market, it’s really cool to have that conversation, because if you go back around 2012, ’13, ’14 timeframe, we, as a company, were having a hard time attracting top talent, because it was not, especially fresh out of school, it was not viewed as the future. It’s, “No, no, no. I want to go to the big giant-“
Daniel Newman: It’s Google.
Sassine Ghazi: Exactly. ” … hyperscalers, et cetera, because that’s the sexy part of the industry. That’s where the things are happening.” I’m not saying it’s not sexy or things are not happening there, but the realization became very clear in the last four years or so that in order to drive the acceleration of these future applications and opportunities, you need to optimize your silicon. It’s no longer a silicon cycle of every four or five years, I’ll move to the next generation. It’s happening at a much faster rhythm due to the necessity to optimize along that stack from silicon to software.
Daniel Newman: Absolutely, and I mean, look, credit where credit is due. The likes of Jensen Huang and Lisa Su have made semis cool again with AI, and of course, seeing Jeff Bezos and Satya Nadella leading massive companies that have basically built on … They’re not saying, “We’re just going to offer apps and hardware.” “We’re going to build all the way down to the silicon layer and create an end-to-end stack.”
I think it makes companies like Synopsys kind of cool again, not kind of, really cool again, because if you’re an engineer coming out of Stanford or Duke or wherever you’re coming out of, you’re saying, “These companies are basically, they’re building the IP that’s going to build this stuff.” While it might not be as well-known outward, if you’re an engineer, and you love the idea of participating in innovation, you’re knowing that you’re doing something really special.
Sassine Ghazi: One of my favorite, maybe I have about two, three favorite keynotes last year, but the one that stuck out is when Satya in the Microsoft Ignite, introducing the next wave of Microsoft products and the things he was most excited about. About maybe 30, 40% of his presentation was on silicon, and that’s Microsoft, the number one software company in the world talking about the silicon as a differentiator for them. Then, of course, you mentioned Jensen, Lisa, et cetera. They’re seeing the exact same opportunity.
The chip is becoming so relevant for a megatrend differentiation at the product level, and the reason it’s becoming important … It’s not like silicon was not important a decade ago. Everybody knows in order to build a product, you needed silicon. But the complexity of these applications, we don’t talk too much around, say, energy efficiency. Today, if you talk to most of the hyperscalers, they have plenty of demand from opportunities on their cloud on the compute infrastructure they have. But one of the big challenges is there isn’t enough power to power up all that demand. Assume you have all the silicon, and we’re not talking about the power that consume the capacity of a small city. It can be the capacity of a country in terms of a power consumption. So that optimization at the silicon level is becoming a necessity in order to make that scaling possible.
Daniel Newman: Yeah. It’s interesting, but whether … I was at the AI Everywhere event with Pat Gelsinger-
Sassine Ghazi: Pat. Yes.
Daniel Newman: … recently, and if you just listen, by the way, because I went from event, to event, to event, and I’m listening, and I’m listening, and I’m listening to … By the way, the power envelope has always been a part, but the amount of emphasis-
Sassine Ghazi: That’s right.
Daniel Newman: … and this goes back to the design, and by the way, to systems design, because it’s not any one piece of silicon now. I mean, you’re talking about a PC with an NPU, and a VPU, and a DPU, and an IPU, and a CPU, and a GPU. By the way, these things all have to work harmoniously together, and then, by the way, doing the data center, and it’s exponential. Right? I mean …
Sassine Ghazi: Exactly. I can even take it further in terms of complexity. So let’s assume you have the silicon sitting in a rack in a data center. At the same time, you have to manage your cooling. The HVAC requirement becomes important to, how much can you stack? Then, you talk about reliability of that silicon, because if it overheats, then you have a serious issue when you have a rack that’s going down because you did not plan for thermal effects, heat effects, et cetera. So you have that intersections of silicon and electronics with the mechanical, with physical, with multiple aspect as you’re looking at these product innovation. The car is a great example. If you’re able to get another 100, 150 miles on a charge, that’s a significant differentiator. So how do you drive that innovation in the context of everything interconnected?
Daniel Newman: Absolutely, and cars will be a massive frontier. We will talk about that more next week. I’d like to talk about CES. That’s going to be huge next week.
Sassine Ghazi: Yeah. Yeah. Sure. Yeah. Yeah.
Daniel Newman: I realize that for everybody out there, I’m always like, “I don’t know if this will be published tomorrow or in a week.” But we’re talking about CES.
Sassine Ghazi: CES. That’s right.
Daniel Newman: But let’s quickly touch on AI. So at the end of last year, the company announced some very interesting and engaging solutions using generative AI, and one of the things that you said that resonated with me, was so profound, was you, as an engineer, is that engineers are hard to find and that as the demand grows, and as you’re trying to move design forward, you’re trying to take a lot of IP that’s been prebuilt, you’re trying to put systems together more quickly … The whole generative AI boom is really about upskilling society. I mean, that’s what, at least, it should be about, but you’re taking on chip design with gen AI. I mean, give me the rundown of the thinking there.
Sassine Ghazi: Yeah. That’s something, it’s, I want to call it almost personal for me, because it’s so exciting. We started our AI investment before people knew what AI is all about, around 2017 timeframe, and in 2020, we introduced the first AI application for chip design. It was focused primarily on, how can I achieve a better performance or power of a chip in a much shorter period of time? So we call that Vector, is AI for optimization. The second one we introduced that you’re referring to in the Q4 timeframe last year was a AI for chip design assistant. So in there, we talked about Co-pilot type of AI application. There, the primary focus is our customers are struggling to find enough talent to support the silicon development that they have, because the same engineering pool are being stretched with many companies trying to find and fill that talent gap. So if you’re bringing engineers out of school, typically, in order to be productive in a complex chip development, that cycle of ramp-up is minimum five years.
So how do you accelerate and assist our customers and the new engineers to ramp up into becoming more effective in chip design? So between the assistant and the optimization, we’re offering our customer an AI-based chip design application in order to provide better outcome faster. The third pillar we talked about is a generative AI application for chip design. What we mean by that is, can you take part of the chip or part of the chip development process and truly have an AI system take care of it for you?
Now, you go to the fourth one, which is more aspirational. Can it be autonomous? So with no human in the loop for part of the chip development or portion of the chip development. Now, the first one is in production. We’re making money from it. We’re selling it, because we introduced it in 2020. The assistant, we have customer engagement right now, early customer engagement. The generative, we are in early exploration and prototyping, and the autonomous is more aspirational toward the future.
Daniel Newman: Well, I do believe we will get there. I genuinely cannot tell you, Sassine, how impressed I’ve been with the ability to quickly implement and utilize these tools. Now, we have a lot to solve when it comes to data rights, protection, privacy, security generative will create. But in terms of its power, in terms of productivity and efficiency, it’s unparalleled. I couldn’t be more excited.
Sassine Ghazi: It’s unbelievable, and the reason it … If you go back and you ask many of the engineers that they’ve worked on AI algorithms, say, 10 years ago, the idea, from an implementation point of view, on paper, was there, but what made it possible really in the last two, three, four years is the availability of compute and the powerful compute. So right now, you’re able to bring in this algorithm on paper type of thinking into an actual deployment and use cases that you can bring to customers. I’m super excited, and actually it’s a bet that we’re putting for the company. I believe it’s a safe bet, safe bet in the sense it will happen. We have technology. We have a line of sight that what we’re dreaming of, it’s already, in some cases, it’s already here with the trajectory that it will be there, as well.
Daniel Newman: Yeah. Sassine, I’ll tell you one thing. I do believe that it will be on the industry. It will be on leadership within industry. I do think we can have great public/private relationships, but this is just moving too fast for the public, government to really oversee it proactively. And so we need great corporate citizens to really help drive good policy, good hygiene in this business, and it’s great to see leaders like you that see that and the importance of that.
Sassine Ghazi: Dan, it’s very important. Now, if you think about Synopsys and our AI products, they’re not going to general consumers, per se, individuals deciding to use a Synopsys AI, because what we deliver is we deliver it to the chip designers. But that being said, for us, what we are absolutely working with, the ecosystem and the market, is from an IP protection point of view, from a partner’s point of view. Because what if you are company A, chip company A, using your own foundation models, or you’re using a certain cloud provider, and company B, having their different approach for AI implementation with a different foundation model, different cloud provider, how do we make sure that we have technology that is protecting our IP and our customer IP as we’re enabling it?
Then, what you’re talking about is essential, which is the moment you provide AI application to every person on the planet, how do you ensure that is ethical, that is not biased, that is protecting the people, either security, privacy, safety, et cetera? That’s something that absolutely is moving so fast that we need to, as an industry, be able to address.
Daniel Newman: Absolutely, and I really appreciate that perspective. You are enabling, with your IP and systems, companies like Google to build Gemini and to ultimately deploy, in the cloud, a immediately-consumable on a mobile device, which, by the way, you provided IP to that also created a system so you could run that app on that. So there’s a lot of ties back to Synopsys, and I think that’s hopefully one of the things everybody out there, here listening in on Making Markets is paying attention to. I got just a couple minutes with you. Final question. Love to kind of get your … You’re now in the big chair, so we’re finishing where we started. What are your priorities in terms of driving the company forward? I heard a few things about, obviously, systems. I’m hearing AI, but what are your maybe two, three big goals, big priorities in your first year as CEO?
Sassine Ghazi: As I said, I’ve been with this company for 25 years, in a leadership position as COO and President for the last four years. To me, it’s about continued pace of momentum along three priorities. That’s sustainable growth that we just talked about, double-digit growth. How do we scale our company efficiently? What I mean by that is focusing on the top line is fantastic. There are many opportunities that we can leverage our own, what we’re talking about, AI as we’re selling it to customers. How can we use, modernize the company and have the ability to scale faster and more efficiently? Three, which is foundational for our company, continued leadership and investment in technology and innovation. If we’re able to do those three, Synopsys should be not only known to you and our chip designer community. It should be known beyond that, given the impact we will have.
Daniel Newman: Well, I’m really excited, Sassine, to follow this story. At The Futurum Group, we spend a lot of time doing research, market intelligence, and, of course, providing market perspective and analysis on the semiconductor space. As we did predict several years back that silicon would eat the world, it is, in fact, doing that. It is IP. It is design. It is the ability for rapid innovation that’s going to continue to bring these solutions to the world at such a mind-blowing pace. I want to thank you for the work you’ve done, the 25 years, and the commitment you’ve made to this industry, and, of course, I want to thank you, more than anything, for taking the time today to join me here on Making Markets.
Sassine Ghazi: Thank you so much, Dan. Thank you.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
