The Six Five team discusses Synopsys Q1 FY2024 Earnings.
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Transcript:
Daniel Newman: Why don’t we talk about Synopsys because, talk about a company that’s got some work that it’s going to have to do to support all this AI explosion, Pat.
Patrick Moorhead: Yeah. So Synopsys is tip of the spear for all this chip chippery, right? Not only do they do EDA or SOCs and chips and IP, but they also do system simulation and they’ve got this big potential Ansys acquisition that should hit in ’25. But listen, they beat on revenue or they met on revenue, but they beat on EPS by 4%. They got a great lift on the stock market. They had record quarterly earnings revenues of 21%, a big OpInc increase at 3.5%. But no, I liked the way that they came out and talked about the industry first, right? First GAA, that’s gate all around, Arm Cortex X tape out, leading mobile supplier, by the way.
This is a company you have to listen to the earnings call to actually get it. But they had some really great highlights on AI, showing how it’s getting DSO.AI. Drove a 20% revenue uplift, winning multi dive package designs, record revenue and software integrity. But no, very solid thing. And I’m really interested to see. I think that Synopsys is going to be one of these power brokers, like big power brokers in the next five years. I don’t know if they’ll be the next NVIDIA. But I got to tell you, this space is so hot. It’s democratizing the way that companies can do design. It would’ve been nuts to think that an AWS or a Microsoft could develop their own SOC. But with tools from companies like Synopsys and Cadence, it’s the real deal.
Daniel Newman: Yeah, I had the chance to talk to their CFO, Shelagh Glaser, and it was good to get the kind of run down. I think you said something that was worth double clicking on, Pat. And that’s, this is not a company that you can just sort of tip tap in for a moment and get. What they’re doing is so important. Between what the second-largest portfolio of IP for chip makers as well as EDA, and now the Ansys deal is going to make them an even bigger power broker. By the way, the size of that deal was not immaterial. I mean, you look at that, remember how big you thought the AMD, Xilinx deal was? Similar in size. Why is this? Because this era of building chips, this multi-trillion dollar sort of economic expectation, and you can talk about whether that’s chips, infrastructure, electricity, design, whether it’s packaging, all the different things that go into that.
But there’s a lot of complexity and there’s also a lot of companies and players that want to enter the market. They want to speed execution. They want to speed design. They want to continue to advance with the most powerful designs as well as, again, trying to address the sustainability issues. Which, Pat, this is a practical version of that, not a greenwashed version of that. We’re going to be deploying massive amounts of scale to compute, and that’s going to require a ton of consideration. So whether it’s the generative AI tools that they’re using to streamline and shorten the design cycles or it’s the IP that their customers are able to license. This company is going to be more and more critical, more in the forefront of the discussion around AI.
And as long as AI continues to be the boon, by the way, AI will fuel more regular compute chips. AI will fuel more networking chips. AI will fuel more lagging edge chips. All this stuff kind of happens and it all coincides. And I think we always want this sort of zero-sum, like, oh, it’s all about the leading edge, newest node AI chip. But look at a vehicle. It went from a handful to dozens, to hundreds, to thousands of chips. This is a variety of silicon that’s going to be in these intelligent vehicles. And Pat, it’s companies like Synopsys that are going to be critical to the contributions required to put these things together.
So you kind of hit on the results. They’re good results. The leadership of the company seems to be doing the right things operationally on margin. They moved the midpoint up on guidance. They seem to be stable on profitability. It was just an overall really good quarter, but it’s a company you’re going to need to spend a little more time to understand. It’s not GPUs or CPUs that people kind of all get. There’s a lot of very specific technical prowess that is underneath this company, but they are what, Pat? They’re the critical partner to just about every one of these major fabless and design and manufacturers of silicon in the world.
Patrick Moorhead: Yeah, statistically, Synopsys and Cadence, you have to buy both of them because they have some different strengths and weaknesses. But good talk.
Daniel Newman: Yeah, well, I mean we’re playing the game out there for everybody that wants to know. By the way, when people kind of go, what are the other picks for AI? Because the natural gravity is always about to pick one of two things. It’s either the chip or the software that everybody knows. This is the software and IP that nobody knows is out there. And when you’re kind of trying to say what are the kind of smart companies to maybe invest in, this could be one. Again, we’re not giving investment advice.
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.
