The wins just keep on coming for Synopsys, an electronic design automation (EDA) powerhouse. The company has built a major market position by providing the design software that Nvidia, AMD, Qualcomm and virtually every other major chip maker rely on for the design, verification and testing of their most complex products.
I have been impressed with Synopsys for years, and their market momentum just keeps rolling. Based on last quarter’s results and a long conversation with current CEO Aart de Geus, in June I reported that Synopsys was reaping the rewards of its long-term investments in AI.
That trend has continued, and even accelerated, in the numbers for the third quarter of the company’s 2023 fiscal year, with Synopsys reporting another record quarter with revenue of $1.487 billion, up 19% year-over-year. The GAAP earnings per diluted share were $2.17, and the non-GAAP earnings per diluted share of $2.88 exceeded the high end of guidance.
Synopsys also raised its full-year 2023 revenue guidance to between $5.81 and $5.84 billion; it also raised non-GAAP operating margin improvement by half a point versus prior guidance, to a total of 200 basis points. Additionally, the company has raised the full-year non-GAAP EPS range to between $11.04 and $11.09.
On top of all this, the company announced that Sassine Ghazi will succeed de Geus as CEO, effective January 1, 2024. I was fortunate to talk with Ghazi shortly after the earnings call to get his take on the outstanding results in the third quarter
Synopsys is monetizing AI
Semiconductor industry growth is slowing down overall, yet Synopsys keeps growing. The reason is that semiconductor innovation is booming, with significant increases in both chip starts and research and development investments. The big driver for this is AI, and Synopsys is well-positioned because of its pioneering work over the past several years to include AI in EDA. By the way, it’s no coincidence that Ghazi was at the forefront of managing these innovations at the company well before he was promoted to COO in 2020.
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When it comes to AI, Synopsys has three distinct value streams. First, it has a deep level of design participation with its chip maker clients that are feeding the explosive growth for AI chips. Second, it has pervasively embedded AI across its full EDA stack in a product initiative called Synopsys.ai. Third, it is applying AI to its own work by using AI-driven efficiency transformations that optimize and automate its internal workflows.
AI chips are a core value stream for Synopsys
Even a cursory glance at any niche of the tech sector will tell you that use cases for AI are increasing rapidly; in that context, it’s no surprise that the number of companies designing AI chips is also ballooning. Synopsys is uniquely positioned to benefit from this trend as the leading EDA provider to AI chip designers.
AI chips have already driven half a billion dollars in revenue for Synopsys over the past 12 months. To put that into perspective, that’s still only 10% of Synopsis revenue that’s coming from AI chips right now. That leaves plenty of upside for growth, because anybody designing an AI chip these days needs Synopsys IP to develop that chip.
Pioneering AI-driven chip design
Nine of the top semiconductor vendors are already using Synopsys.ai in production, with the 10th maker currently testing the solution. As I wrote in May of this year, Synopsys.ai is playing an increasingly vital role in shaping the future of chip design. The success of Synopsys.ai, as demonstrated by the impressive results achieved in productivity and performance, serves as a testament to the transformative power of AI for EDA.
Using AI to automate entire design sub-flows can reduce schedules from months to weeks while simultaneously achieving better results in terms of speed, power and area of the chips. That’s a potent recipe for driving adoption of Synopsys.ai among a customer base that’s already the best of any EDA supplier.
Synopsys.ai revenue is just starting to ramp, but early proof points indicate strong long-term growth prospects. Significantly, Synopsys has progressed from project-based experimentations to customers now adding full Synopsys.ai subscriptions. Not surprisingly, Synopsys also intends to harness generative AI into Synopsys.ai to deliver further advances in design assistance, exploration and generation.
As I spoke with Ghazi, a few things stood out to me. First, I’m more convinced than ever of what I wrote in May and June about why Synopsys keeps building on its success in the market. The company knows what it’s good at, it’s spent years embedding itself in the most important design processes of chip makers of all types and it keeps improving its products and its customer footprint in a disciplined way.
Considering all this momentum, it is an excellent time for the company to make a smooth transition to an obvious successor for de Geus as CEO. Ghazi is a seasoned industry veteran with 25 years of service at Synopsys. He’s been closely involved for many years with the company’s most important projects, and he’s the right person to execute on the current vision. Meanwhile, de Geus will remain as executive chairman and continue to collaborate with Ghazi. This transition appears to be the outcome of a structured and thoughtful succession planning process, and I expect Synopsys to continue to rack up successes.