The Six Five Team discusses the latest earnings release from Synopsys and the news that Sassine Ghazi will succeed Aart de Geus as CEO, effective January 1, 2024.
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Patrick Moorhead: Synopsys Q3 2023 earnings, and an appointment of a new CEO. So a little background, software design and test validation is being, I’m not going to say taken over by software and AI, but that is the direction it is heading. And it’s super exciting and I think puts companies like Synopsys and Cadence in a bigger driver’s seat in the next five years. The more people you can enable, the more fluid IP is, chiplets coming in, I mean I’m super excited about the market as a whole. And yeah, the two horsemen in EDA are Cadence and Synopsys.
SNPS set a great quarter in the background of kind of a gloomy chip beat, beat raise, and a lot of it was on the back of AI. The thing you need to realize is they are at the front end of design. So their revenue is coming in based upon the designs that are being done, not the ebbs and the flows of the semiconductor market overall. They beat on EPS by over 5%, a little beat on revenue. But the cool part is they mapped out, like you and I have seen, details on how they make money in AI, and I thought they did a really good job on that. It’s like first, design participation, the explosive demand for AI chips, if you’re Nvidia, AMD, you’re Amazon, using those tools.
And the second is putting AI across the full EDA stack. And I talked about AI and software doing more for design and validation and test, that’s called Synopsys.ai. And by the way, Synopsys.ai was out before it’s cool, because they have a ton of customers. They have nine out of the top 10 semiconductor companies on Synopsys.ai. And third is an internal, how do I make AI to improve efficiencies, do transformations and automate internal workflows? This company gets it. And then they didn’t pull up, they actually said AI chips have already driven half a billion dollars in revenue over the last 12 months, but it’s only 10% of Synopsys’s revenue coming from AI right now. So big growth, but more room for growth there that they’re not tapped out.
So that was a great quarter, I love this space. The big announcement was that co-founder and CEO, Aart de Geus, is retiring. Sorry, he’s not retiring, he’s moving to be executive chair of the board. He co-founded this company in 1986, the year I graduated from high school, and has been at the helm ever since. I think that is pretty awesome being there that long. And a new gentleman, not new, not new to Synopsys because he’s been there for 25 years, and was the architect of the AI strategy, Sassine Ghazi. And I had the chance to talk with him right after the earnings call to get his point of view on not only the quarter, but more importantly going forward.
Dan, we love to talk about what’s next with new CEOs that come in. Hey, did you get brought in? The board wants to do something different, change the strategy. We have people that won’t talk to us until their listening tour is between 90 and 120 days. But essentially it’s, we have a good strategy, and oh by the way, I helped craft that strategy with the board of directors, and I already mentioned he was the architect of what they’re doing in AI. So net-net, it’s a great time for a transition. It’s a high point. Doing really well. In fact, I look back at the last four quarters, they have beaten on EPS and revenue consistently. Good time to do this, and I look forward to getting to know Sassine even better.
Daniel Newman: Yeah, look, I have not spent as much time with Synopsys as you have, but looking from the outside it seems with the massive, what do we like to say, Pat? You can’t run software on air?
Patrick Moorhead: Exactly.
Daniel Newman: And so behind that are some really important players like Synopsys that are the enablers of design of semiconductors. This ecosystem often gets hyper-focused, like Nvidia right now getting an uneven lion’s share of the attention because it is the fabulous designer of AI systems that are very popular right now for training large language models. Behind that though are companies like Synopsys that actually make laying out these chips possible. Behind this are companies like ASML that make the hardware machinery that actually enables the production of these things. Behind this are materials players, there are analog chip makers that make chips that are part of systems that are enabling the complete systems. There are assembly companies in Asia that are putting these things together.
And what I guess I’m saying is that’s kind of how Synopsys is. It’s probably never going to be a company that’s going to get the kind of attention when we talk about semiconductors that the big [inaudible] monolithic or systems designers are going to get, but try building these systems without them. And so I think that’s a great way to talk about these things is, there is an ecosystem, there are partnerships and these things are really important.
Pat, in terms of the new CEO, look, my phone’s on, I look forward to the call. I look forward to having a conversation to get to better know how under the new leadership the company’s going to scale, going to grow. And then I look forward to being part of the market story in terms of telling how Synopsys will drive its next wave of innovation, its next wave of growth, and of course become more deeply interdependent, like its recent Intel partnership, with these big chip makers that are in the marketplace, Pat.
So there you have it, congratulations to Synopsys. We’ll talk soon.