Dylan McGrath

8/20/2015 07:34 PM EDT
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SAN FRANCISCO—EDA and IP vendor Synopsys Inc. Wednesday (Aug. 19) increased its revenue target for fiscal 2015 after posting strong quarterly results despite a customer environment that Chairman and Co-CEO Aart de Geus described as mixed.

“We are executing well in a market that is fairly turbulent,” de Geus said in an interview following the company’s fiscal third quarter financial report.

Synopsys said it now expects to post revenue of between $2.225 billion and $2.24 billion for its fiscal year, which closes in October. Synopsys (Mountain View, Calif.) had previously said it expected to post revenue for the year of between $2.21 billion and $2.235 billion.

”The semiconductor and systems industry results and outlook remain mixed,” de Geus said on a conference call with analysts. “Customer growth rates appear more challenged than three months ago, as some customers thrive while others struggle. Consequently, consolidation continues, be it through asset purchases or full company combinations.”

While semiconductor industry consolidation is overall “somewhat of a headwind for EDA,” de Gues said, Synopsys customers are continuing to invest heavily in designing advanced chips.

Aart de Geus

De Gues said Synopsys’ expansion into the software quality and security space has broadened Synopsys’ long-term opportunity to grow faster than EDA.

Synopsys’ expansion into software quality and security continued during the fiscal third quarter, when the company completed the acquisition of Codenomicon, a software security company based in Finland; Elliptic Technologies, a founding member of the prpl Foundation's Security Working Group; and certain assets of Quotium, including its Seeker product and R&D team. Also during the fiscal third quarter, Synopsys acquired assets from Silicon Vision and Hitachi.

Just days after the close of the fiscal quarter, Synopsys completed the acquisition of Atrenta, a provider of SoC design tools.

“We are investing in new areas,” de Geus said during the interview with EE Times. While the integration of new acquisitions require a great deal of work, de Geus said that several of Synopsys’ recent acquisitions were relatively small (Atrena and Codenomicon being notable exceptions).

De Geus noted that the overall semiconductor industry is in a period of unusually heavy consolidation, particularly with large deals pending like Intel buying Altera, Avago buying Broadcom and NXP buying Freescale. He said he believes part of this wave is driven by increasing technical complexity, with some believing that larger companies can better offer the resources needed to move to more advanced chip design and manufacturing. There is also an economic component, de Geus said, with Wall Street pushing companies to grow faster.

But though the current wave of consolidation is unusually heavy, de Geus noted that consolidation has always been an essential part of the semiconductor industry since its beginnings. He said he doesn’t see that changing anytime soon. “We are in an industry of unbelievable rate of change and agility,” de Geus said.

Synopsys reported fiscal third quarter sales of $555.8 million, down slightly from the previous quarter but up 6.5% from the third quarter of fiscal 2014. The company reported a net income in accordance with generally accepted accounting principles (GAAP) of $55.4 million for the quarter, down slightly from the previous quarter and down 15.6% compared to the third quarter of fiscal 2014.

Synopsys reported non-GAAP earnings of $99.7 million, or 63 cents per share, exceeding consensus analysts’ expectations.

On a non-GAAP basis, net income for the third quarter of fiscal 2015 was $99.7 million, or $0.63 per share, compared to non-GAAP net income of $103.2 million, or $0.65 per share, for the third quarter of fiscal 2014. Reconciliation between GAAP and non-GAAP results is provided below.

Synopsys said it expects to report sales of between $570 million and $585 million for the fiscal fourth quarter, which closes in October, in line with consensus analysts’ expectations. The company said it expects to report non-GAAP earnings per share of between 65 and 67 cents per share, slightly below consensus analysts’ expectations.

For the full fiscal year Synopsys said it expects to report non-GAAP earnings per share of between $2.76 and $2.78 for the fiscal year, also in line with consensus analysts’ expectations.

“We are seeing good momentum in the business. Our internal investments and key acquisitions are paying off with game changing new technology and a brand new [total available market],” said Trac Pham, Synopsys’ chief financial officer, summing up the quarter on the earnings call. “We continue to deliver strong results and are well positioned for future opportunities.”

—Dylan McGrath covers the semiconductor and related industries for EE Times.