The News: Synopsys, Inc. reported results for its second quarter (Q2) of fiscal year 2024, with revenue reaching $1.455 billion compared with $1.263 billion for Q2 of fiscal year 2023. Read the press release here.
Synopsys Q2 2024: Strong Tech Performance Amid Rising Chip Complexity
Analyst Take: The rise of artificial intelligence (AI) and the proliferation of silicon have significantly increased the complexity of semiconductor designs, driving demand for Synopsys’ electronic design automation (EDA) tools and design IP. AI technologies are becoming more prevalent, requiring advanced and highly specialized semiconductors that can efficiently handle complex computations.
Driven by strong demand for its EDA software and hardware and design IP products, Synopsys reported revenue of $1.455 billion in Q2 2024, marking a 15% increase year-over-year (YoY). Non-GAAP net income surged by 26.7%, reaching $466.9 million (or $3.00 per diluted share), reflecting the company’s robust operational performance.
Sassine Ghazi, president and CEO of Synopsys, stated that the company is in an era of pervasive intelligence, fueled by the rise of AI, silicon proliferation, and software-defined systems. These trends are driving systemic complexity for technology R&D, which in turn drives unprecedented opportunity for Synopsys.
Synopsys is uniquely positioned to capitalize on increasing semiconductor design complexity. Additionally, the ongoing development of AI applications in various industries—from autonomous vehicles to healthcare diagnostics—ensures a continuous demand for cutting-edge semiconductor solutions, thereby providing Synopsys with a sustainable and robust growth trajectory. This symbiotic relationship between the evolution of AI and the need for sophisticated silicon technology places Synopsys at the forefront of a rapidly expanding market, ensuring steady revenue growth as the adoption of AI continues to surge globally.
By the Numbers
Despite a quarter-over-quarter (QoQ) decline in revenue and net income, attributed partly to an extra week in Q1 2024, Synopsys remains optimistic, raising its full-year guidance as it continues demonstrating resilience and growth in the semiconductor technology sector.
Additional numbers summarizing their recent performance:
- Revenue: Synopsys reported $1.455 billion in revenue for Q2 2024, a 15% increase YoY from $1.263 billion in Q2 2023.
- GAAP net income: The GAAP net income for Q2 2024 was $299.1 million (or $1.92 per diluted share) compared with $275.6 million (or $1.78 per diluted share) in Q2 2023. This represents an 8.5% increase in net income and a 7.9% increase in earnings per share (EPS) YoY.
- Non-GAAP net income: On a non-GAAP basis, net income was $466.9 million (or $3.00 per diluted share), up from $368.3 million (or $2.38 per diluted share) in Q2 2023. This marks a 26.7% increase in non-GAAP net income and a 26% increase in non-GAAP EPS YoY.
- Operating margin: The non-GAAP operating margin was 37.3%, reflecting strong operational execution and cost management.
- Cash flow: Operating cash flow, including discontinued operations, was $477 million for the quarter. Free cash flow, including discontinued operations, was $438 million. The company ended the quarter with $1.66 billion in cash and short-term investments.
- Segment Performance:
- Design Automation: Revenue was $1.05 billion, up 14% YoY, driven by EDA software and hardware. The adjusted operating margin for this segment was 39.6%.
- Design IP: Revenue was $399.8 million, up 19% YoY, driven by broad-based strength in IP products. The adjusted operating margin for this segment was 31.2%.
- QoQ Comparison:
- Revenue: Revenue decreased from $1.65 billion in Q1 2024 to $1.455 billion in Q2 2024, primarily due to the extra week in Q1 2024, which contributed $70.5 million in revenue.
- GAAP net income: Decreased from $449.1 million in Q1 2024 to $299.1 million in Q2 2024.
- Non-GAAP net income: Decreased from $466.9 million in Q1 2024 to $368.3 million in Q2 2024.
- Guidance for Q3 and Full Year 2024:
- Q3 2024: Revenue is expected to be between $1.505 billion and $1.535 billion. GAAP EPS is projected to be between $2.22 and $2.35, and non-GAAP EPS between $3.25 and $3.30.
- Full Year 2024: Revenue is expected to be between $6.09 billion and $6.15 billion. GAAP EPS is projected to be between $9.14 and $9.36, and non-GAAP EPS between $12.90 and $12.98.
Despite some QoQ fluctuations due to the extra week in Q1 2024, Synopsys’ strong performance in Q2 2024 reflects its robust business model and continued demand for its critical technology solutions. The company remains confident in its growth prospects, as evidenced by its raised full-year guidance.
Strategic Acquisition of Ansys to Enhance Capabilities
Synopsys’ planned acquisition of Ansys, which has received approval from Ansys stockholders, is a strategic move designed to significantly bolster Synopsys’ capabilities and expand its total addressable market (TAM). Ansys is renowned for its expertise in simulation software, particularly in thermal analysis, electromagnetics, and structural mechanics.
By integrating Ansys’ cutting-edge simulation solutions with Synopsys’ robust EDA tools, Synopsys can offer a more comprehensive and integrated system design solution. This acquisition would not only broaden the range of applications Synopsys can address but also enhance its ability to serve industries that require highly reliable and precise simulations, e.g., aerospace, automotive, and consumer electronics.
The synergy between Synopsys and Ansys’ technologies is expected to accelerate innovation and improve the effectiveness of the semiconductor design process, thereby solidifying Synopsys’ market position and driving future growth. The anticipated completion of this acquisition in the first half of 2025 marks a pivotal step in Synopsys’ strategy to lead the industry in system design and verification solutions.
Strong Customer Engagement and New Wins
Synopsys has reported significant customer wins that underscore its ability to meet the evolving needs of its clientele and maintain a competitive edge in the market. Notably, the company achieved a full-flow displacement at a leading US systems company, indicating that its comprehensive suite of design and verification tools was selected to completely replace a competitor’s solutions offerings. This type of win demonstrates the superior performance and reliability of Synopsys’ offerings.
By continually obtaining new wins and extending its customer base, Synopsys can drive ongoing development and innovation in its products, ensuring it stays a preferred partner for semiconductor companies globally. These successes contribute to sustained revenue growth and enhance Synopsys’ position as a leader in EDA and design IP.
Looking Ahead
The company’s strategic investments in R&D, particularly in AI-driven design automation tools, and the upcoming Ansys acquisition are expected to enhance its competitive edge. These investments demonstrate Synopsys’ commitment to staying at the forefront of technological innovation. As AI continues to evolve, the need for advanced design automation tools that can handle the increasing complexity of semiconductor designs will only grow. Synopsys’ focus on AI-driven tools positions it well to capture this expanding market.
However, the company must navigate potential challenges, including integrating Ansys and maintaining its technological leadership in a rapidly evolving market. Integrating Ansys’ sophisticated simulation capabilities with Synopsys’ existing EDA tools will require careful planning and execution to ensure seamless operations and the realization of expected synergies. The integration process may involve significant efforts in aligning corporate cultures, harmonizing product lines, and merging technological infrastructures.
Moreover, maintaining technological leadership will demand continuous innovation and adaptability. The semiconductor industry is highly competitive, with rapid advancements in technology and shifting market demands. Synopsys must stay ahead of these trends by continually enhancing its product offerings and anticipating the needs of its customers. This will likely involve ongoing investments in R&D, as well as strategic partnerships and collaborations to broaden its technological capabilities and market reach.
Additionally, Synopsys must address the increasing importance of sustainability and environmental considerations in semiconductor manufacturing. As regulatory pressures and consumer awareness around environmental impacts grow, Synopsys will need to develop and promote eco-friendly solutions. This includes creating tools that help semiconductor companies reduce their carbon footprint and manage resource efficiency more effectively.
Overall, Synopsys’ focus on innovation and strategic acquisitions positions it for sustained growth in the near future. The anticipated completion of the Ansys acquisition in the first half of 2025 marks a pivotal step in Synopsys’ strategy to lead the industry in system design and verification solutions. By broadening its product portfolio and enhancing its technological capabilities, Synopsys is well-positioned to capture new opportunities in emerging markets such as autonomous vehicles, IoT, and advanced healthcare diagnostics.
Looking further ahead, Synopsys’ ability to foster strong customer relationships and secure new wins will be crucial. The company’s recent customer engagements and significant wins underscore its ability to meet evolving market needs. Continued success in this area will drive revenue growth and reinforce its market leadership.
Although Synopsys faces challenges, its proactive approach to innovation, strategic acquisitions, and customer engagement provides a solid foundation for future success. The company’s commitment to advancing its technological capabilities and expanding its market presence positions it to capitalize on the growing demand for sophisticated semiconductor solutions, ensuring a robust and sustainable growth trajectory in the years to come.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the Vice President and Practice Leader for Hybrid Cloud, Infrastructure, and Operations at The Futurum Group. With a distinguished track record as a Forbes contributor and a ranking among the Top 10 Analysts by ARInsights, Steven's unique vantage point enables him to chart the nexus between emergent technologies and disruptive innovation, offering unparalleled insights for global enterprises.
Steven's expertise spans a broad spectrum of technologies that drive modern enterprises. Notable among these are open source, hybrid cloud, mission-critical infrastructure, cryptocurrencies, blockchain, and FinTech innovation. His work is foundational in aligning the strategic imperatives of C-suite executives with the practical needs of end users and technology practitioners, serving as a catalyst for optimizing the return on technology investments.
Over the years, Steven has been an integral part of industry behemoths including Broadcom, Hewlett Packard Enterprise (HPE), and IBM. His exceptional ability to pioneer multi-hundred-million-dollar products and to lead global sales teams with revenues in the same echelon has consistently demonstrated his capability for high-impact leadership.
Steven serves as a thought leader in various technology consortiums. He was a founding board member and former Chairperson of the Open Mainframe Project, under the aegis of the Linux Foundation. His role as a Board Advisor continues to shape the advocacy for open source implementations of mainframe technologies.
