Synopsys Earnings Call: Growth and Strategic Advances

Synopsys ((SNPS)) has held its Q4 earnings call. Read on for the main highlights of the call.

Synopsys Earnings Call Highlights: Strong Growth Amid Challenges

The recent earnings call for Synopsys painted a picture of robust growth and strategic advancements, despite facing certain market challenges. The sentiment was largely positive, driven by strong revenue growth and the successful integration of ANSYS. However, the company acknowledged hurdles in the China market and a decline in the Design IP segment. Optimism for future growth was bolstered by a new strategic partnership with NVIDIA and improvements in operating margins.

Record Annual Revenue and Backlog

Synopsys reported a record annual revenue of $7.05 billion, marking a significant milestone for the company. The fiscal year 2025 concluded with an impressive backlog exceeding $11 billion, showcasing strong demand for Synopsys’s offerings and setting a solid foundation for future growth.

Strong Performance of Design Automation Segment

The design automation segment, which includes EDA and ANSYS, demonstrated remarkable performance with revenue reaching $5.3 billion. This represents a 26% increase year over year, underscoring the segment’s critical role in Synopsys’s overall growth strategy.

Successful Integration of ANSYS Acquisition

The integration of ANSYS has been a success, contributing $757 million in revenue. This acquisition is expected to drive double-digit growth in fiscal year 2026, highlighting the strategic value of ANSYS in Synopsys’s portfolio.

New Strategic Partnership with NVIDIA

Synopsys announced a groundbreaking strategic partnership with NVIDIA, involving a $2 billion investment. This collaboration aims to revolutionize design and engineering through AI and accelerated computing, positioning Synopsys at the forefront of technological innovation.

Improved Non-GAAP Operating Margin

The company’s non-GAAP operating margin improved to 37.3% for the full year, with expectations to reach 40.5% in fiscal year 2026. This improvement is attributed to cost synergies and the inclusion of ANSYS, reflecting Synopsys’s commitment to operational efficiency.

Challenging Market Conditions in China

Despite overall positive performance, Synopsys faced challenges in the China market, where revenue fell 18% year over year. Excluding ANSYS, the decline was 22%, attributed to ongoing restrictions and subdued market conditions.

Decline in Design IP Segment Revenue

The Design IP segment experienced an 8% revenue decline due to a challenging second half. Growth in this segment is expected to remain muted in fiscal year 2026, as Synopsys navigates market headwinds.

Forward-Looking Guidance

Looking ahead, Synopsys provided optimistic guidance for fiscal year 2026, projecting revenue between $9.56 and $9.66 billion. ANSYS is expected to contribute approximately $2.9 billion, reflecting double-digit growth. The company anticipates a non-GAAP operating margin of 40.5% and plans to repay $2.55 billion of debt, aided by proceeds from recent divestitures. Synopsys also expects a free cash flow of approximately $1.9 billion.

In conclusion, Synopsys’s earnings call highlighted a strong performance with record revenues and strategic advancements, despite facing challenges in certain markets. The company’s strategic partnerships and successful integrations pave the way for continued growth, with a positive outlook for fiscal year 2026. Investors can look forward to Synopsys’s innovative strides in AI and design automation, promising a bright future ahead.