Synopsys (SNPS) 28th Annual Needham Growth Conference Virtual summary

Key business developments and outlook

• Fiscal Q3 saw significant headwinds in the IP business due to China restrictions, foundry customer challenges, and resource allocation issues, leading to an outlook cut for 2023 and a de-risked 2026 forecast.

• Persistent uncertainty in China continues to impact customer decisions, with no improvement assumed for 2025–2026.

• Resource shifts to high-performance computing (HPC) titles are expected to yield results in the second half of the year.

• Full transparency and visibility into the Ansys segment have been incorporated into guidance following investor feedback.

Ansys segment performance and integration

• Ansys is outperforming other segments, driven by its leading simulation and analysis portfolio with broad R&D applicability.

• Simulation and analysis tools remain underpenetrated in R&D budgets, presenting significant growth opportunities.

• Integration of Ansys is progressing smoothly, with accelerated cost synergies and significant deleveraging of term loans expected by H1 2026.

• Revenue synergies are targeted at a $400 million run rate by year four, with joint product solutions expected in 2026.

• More details on joint products will be shared at the upcoming SNUG conference.

IP business strategy and monetization

• Focus is shifting to interface and essential IP, with divestment of the ARC processor IP to prioritize strategic areas.

• Rapidly evolving standards, especially driven by AI, create opportunities for custom and standard IP solutions.

• Exploring new monetization models, including selective royalty-based arrangements for data center AI customers, while maintaining upfront NRE and use fees.

• Automotive and industrial sectors are expected to increase demand for sophisticated IP as their chip designs become more advanced.