• Revenue: $1.46 billion, down 4% year over year.
• Non-GAAP Operating Margin: 36.5%.
• GAAP Earnings Per Share (EPS): $1.89.
• Non-GAAP Earnings Per Share (EPS): $3.03.
• Design Automation Revenue: $1.02 billion, up 4% year over year.
• Design IP Revenue: $435.1 million, down 17% year over year.
• Free Cash Flow: $108.2 million outflow.
• Cash and Short-term Investments: $3.81 billion.

• Warning! GuruFocus has detected 7 Warning Signs with ECPG.

Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Synopsys Inc (NASDAQ:SNPS) exceeded the midpoint of its Q1 revenue guidance and delivered non-GAAP EPS above the guidance range.
• The company reported a 4% year-over-year increase in Design Automation revenue, despite having one less work week compared to the previous year.
• Synopsys Inc (NASDAQ:SNPS) is making strong progress with its pending acquisition of Ansys, which is expected to enhance AI-powered design solutions.
• The company is seeing strong design activity at advanced nodes, with significant customer adoption of its Fusion Compiler platform for 2-nanometer projects.
• Synopsys Inc (NASDAQ:SNPS) continues to expand its AI offerings, with significant productivity improvements reported by customers using its AI-driven tools.

Negative Points

• Q1 revenue was down 4% year over year, and non-GAAP EPS was down 10%, partly due to one less work week in Q1 2025 compared to Q1 2024.
• The industrial, automotive, and consumer electronics markets remain challenged, impacting overall business performance.
• Revenue from the Design IP segment was down 17% year over year, attributed to timing and a tough prior year comparison.
• The company is facing headwinds in China, with expectations of continued deceleration in growth below the corporate average.
• Free cash flow was a $108.2 million outflow for the quarter, indicating cash management challenges.

Q & A Highlights

Q: Sassine, can you discuss the growth trends you expect to unfold over the short to long term, particularly in AI and non-AI sectors? How do you see DeepSeek impacting EDA and Synopsys? A: We see a tale of two markets. AI and HPC sectors have strong demand and healthy roadmaps, while consumer electronics, automotive, and industrial sectors are slower to adopt AI. DeepSeek will expand AI adoption on devices, enhancing affordability and effectiveness. Semiconductor R&D is expected to grow from 6% to 9% of sales, which is beneficial for us as we sell to R&D. We also sell to system companies developing chips for internal use, which is a growing opportunity for Synopsys.

Q: How do you view the current situation in China, and what impact does it have on your business? A: We have observed a deceleration in China due to cumulative restrictions and a slowing local economy. Last year, China finished at corporate average, but we expect it to be below corporate average this year. The hardware sales remain strong, but overall, we anticipate continued deceleration due to these factors.

Q: Can you elaborate on the impact of agentic AI and how Synopsys plans to leverage it? A: Agentic AI represents a significant opportunity as it matures to change engineering workflows. We are partnering with leading AI companies to bring this transformation to the engineering world. Internally, we are leveraging AI across all functions to modernize and capture productivity gains.

Q: How is the design activity for non-AI versus AI customers evolving, and what trends are you seeing? A: We engage with semiconductor companies on all their chip roadmaps. AI and HPC sectors are accelerating their development timelines, while consumer electronics and automotive sectors are slower. We see a pick-up in mobile and PC sectors, but automotive and industrial sectors remain steady without significant change.

Q: What is the current backlog, and how do you view the long-term growth prospects for EDA revenue? A: The backlog exiting Q1 is $7.7 billion. We expect Design Automation, which includes EDA software and hardware, to grow at a 12% CAGR over the next five years. Semiconductor R&D investment is increasing, which benefits Synopsys as we grow alongside their R&D investments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.