Synopsys Reports Strong Q2 Amidst China Challenges

Synopsys ((SNPS)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Synopsys painted a picture of robust performance, with the company showcasing significant revenue growth, particularly in the AI and HPC sectors, alongside strong design IP sales. Despite facing challenges such as declining revenues from China, uncertainties surrounding regulatory clearance for the ANSYS acquisition, and potential export restrictions, Synopsys remains optimistic about meeting its full-year guidance.

Strong Revenue Growth

Synopsys reported a revenue of $1.6 billion for Q2, marking a 10% increase year over year and surpassing the midpoint of their guidance. The design IP segment was a standout performer, with revenue climbing 21% compared to the previous year.

Resilient Business Model

The company’s backlog saw a significant increase of $400 million quarter over quarter, reaching a total of $8.1 billion. This growth underscores Synopsys’ consistent execution and the resilience of its business model in the face of market challenges.

AI and HPC Sector Strength

Synopsys continues to lead in the AI and HPC sectors, particularly in AI for chip design. This leadership has resulted in multiple design wins for flagship CPU and GPU cores, reinforcing the company’s strong position in these high-growth areas.

Strong Performance in Design IP

The design IP segment experienced a remarkable 21% revenue increase year over year, driven by robust demand for high-speed SerDes IP and leadership in PCIe 7.0 and UCIe Link technologies.

Successful Product Launches

The launch of new hardware-assisted verification products, HAPS 200 and ZeBu 200, has been successful, with these products offering high performance and flexibility, contributing positively to Synopsys’ portfolio.

China Revenue Decline

Revenue from China is expected to decline year over year due to macroeconomic factors and the cumulative impact of restrictions. The first two quarters were more challenging than anticipated, affecting the full-year revenue outlook.

Uncertainty in China Regulatory Clearance

The acquisition of ANSYS is facing delays due to pending regulatory clearances in China. Synopsys is actively negotiating with SAMR, although the timeline remains uncertain.

Export Restriction Speculations

There are ongoing speculations about potential BIS export restrictions that could impact sales to China. However, Synopsys has not yet received any official notifications regarding these restrictions.

Forward-Looking Guidance

Synopsys has maintained its full-year revenue guidance, projecting revenues between $6.745 to $6.805 billion for fiscal year 2025. The company adjusted its non-GAAP EPS guidance to $15.11 to $15.19 per share, factoring in Q2’s outperformance and bond issuance impacts. For Q3, Synopsys anticipates revenue between $1.755 to $1.785 billion and non-GAAP EPS of $3.82 to $3.87 per share. Despite regulatory discussions in China, Synopsys is confident in closing the ANSYS acquisition in the first half of the year.

In conclusion, Synopsys’ earnings call highlights a strong performance with significant growth in key sectors, despite facing challenges in China and regulatory uncertainties. The company remains confident in its ability to meet its guidance for the year, driven by robust demand and strategic execution.