Thoughts On Synopsys’ Q2 2009 Earnings Call

Last night you may have watched the NBA Playoff game in which the Orlando Magic came back to defeat the heavily favored Cleveland Cavaliers. Great game!!!

Or the finale of American Idol in which Kris Allen came back to defeat the heavily favored Adam Lambert. Great show!!!

What did I do last night? I listened to the Q2 2009 Synopsys earnings call. Great conference call!!!

(OK … I’ll admit it wasn’t as exciting and nail biting as either of the other viewing options. Just think of it like this: I took on the work of listening to the call and summarizing it for you, in order to free you up to watch the game or idol. You can thank me later :-) )

Here’s the summary. (You can read the full transcript here if you like).

Financials

On the up side, Synopsys had a good Q2, beating their revenue and earnings per share guidance slightly. On the down side, Synopsys lowered its revenue and cash flow guidance slightly for the rest of the year, allowing for potential customer bankruptcies, late payments, and reduced bookings. Customers are approaching Synopsys to “help them right now through this downturn”, i.e. to reduce their cost of software. It looks like the recession is finally catching up to them.

As I finish off this post on Thursday morning, it looks like the analysts agree. Synopsys shares are down 10%, so it seems they are getting punished for revising their forecast. 

Still, Synopsys is in very good financial health, with $877M in cash and short term investments. Their cash flow is going to go down the rest of the year, so they will eat into this fund, but they will still have plenty to selectively acquire strong technology that might add to their portfolio, as they did with the MIPs Analog Business Group.

Themes

There were 2 themes or phrases that kept recurring in the call that I am sure were points of emphasis for Aart.

First, the word “momentum” was used 6 times (by my count) during the call. Technology momentum. Customer momentum. Momentum in the company. Clearly, Synopsys is trying to portray an image of the company building up steam while the rest of the industry wallows in the recession.

Second, customers are “de-risking their supplier relationships”, i.e. looking to consolidate with an EDA vendor with strong financials who’ll still be there when the recession ends. Again, Synopsys is trying to portray itself as the safe choice for customers, hoping to woo customers away from less financially secure competitors like Cadence and Magma. This ties in with the flurry of “primary EDA vendor” relationships that Synopsys has announced recently.

The opportunity for Synopsys (and danger for the competition) is to pick up market share during this downturn and it looks like that may be happening as companies “de-risk” by going with the company with the “momentum” and a “extraordinarily strong position”. Or at least that’s the message that Synopsys is sending.

Technology

Aart did rattle off the usual laundry list of technology that he wanted to highlight, including some introduced last year (e.g. Z-route). Of note were the following:

  • Multi-core technology in VCS with 2x speedup (is 2x a lot?)
  • Custom Designer, which Aart called “a viable alternative to the incumbent” (ya know marketing didn’t pick the word “viable”)
  • Analog IP via the MIPS Analog Business Group acquisition, especially highlighting how that complements the Custom Designer product (do I see “design kits” in the future?)
  • The Lynx Design System (see my 5-part series)
  • IC-Validator (smells like DRC fixing in IC Compiler - Webinar today, I’ll find out more)

__________

In summary, Synopsys had a good quarter, but they have finally acknowledged that they are not immune to the downturn and they expect to get impacted the next few quarters.

harry the ASIC guy

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

Tags: , , , , ,

5 Responses to “Thoughts On Synopsys’ Q2 2009 Earnings Call”

  1. Jeremy Ralph Says:

    I wonder if buying someone in the embedded space (like WindRiver) would be a good move for Synopsys?

  2. harry Says:

    Indeed, something in the embedded space makes a lot of sense. Aart has previously predicted that SoC differentiation would move to software and current trends only support that (e.g. high cost of ASIC respins).

    Wind River is a company that immediately came to my mind as well, being as they are an RTOS leader. They may also prefer to go after a smaller player like Express Logic which has a lighter weight RTOS and which they can morph more easily into their organization without the baggage of a large sales force.

    Another interesting possibility would be Tensilica. Chris Rowen is from Synopsys, so the DNA is there. If one could figure a way to automatically analyze C-code and build a Tensilica Xtensa architecture optimized for the instruction stream of that code, that would be very powerful.

  3. Paula Jones Says:

    Hi Harry,
    Tensilica figured out how to automatically analyze C-code and build a Tensilica Xtensa architecture optimized for that code about 3 years ago - it’s our XPRES compiler and lots of our customers already use this as their first pass - finding out quickly (in just a few minutes) how quickly they can accelerate their algorithms with minimal effort). You’d think a tool like this would change the world - and it has for a few customers. The problem is that most people think that they have to use a standard RISC core with HW accelerators. Our challenge is to get them to thing differently.

    Not sure Synopsys needs to buy an RTOS vendor. Maybe ARM should. Most HW blocks as well as many Tensilica processors that are used as HW blocks (we call them dataplane processors) don’t need an OS, just firmware.

    Paula

  4. Chris Edwards Says:

    At DAC in Downtown LA (I think it was 2001), I sat next to Aart as we travelled in convoy to some restaurant. He asked who Synopsys should buy next - it wasn’t an entirely serious question by any means but it’s the kind of thing you do at DAC. I said, pretty much without hesitation: “Well I wouldn’t buy any more point tools for the minute, there’s not much out there right now that’s all that different. Why not The Mathworks?”

    He gave me the “you are a crazy person” look - the COSSAP acquisition was still fairly recent as I recall and it was about five years after Mentor bought Microtec Research. Software acquisition was not going to be the popular choice at that point. But I explained that many of his customers would wind up using Simulink (or Matrixx as it was then) if they weren’t already. And there was a developing ecosystem around it, although a number of those companies had to be rescued by FPGA makers and other hardware companies with an interest in the tools.

    Today, oddly enough, I’d probably give a different answer, largely on the basis of cost versus future revenue. The problem is recommending another company. One remarkable aspect about embedded software is that there really isn’t a leader with a handle on the kinds of markets that matter to a company such as Synopsys.

    The RTOS companies have, strange as it may seem, limited insight into what customers are doing in many of their markets. Those with a good insight are often operating in specialty markets such as military or automotive that don’t carry over into consumer. Some just seem to be confused. And none of them have a very good story on multicore development, which is surely the one place that they should be focusing. The people doing a lot of the running there are actually hardware players or have more of a hardware background - ARM, Tensilica, Critical Blue - plus the people who actually ship hardware and have an interest in shipping N cores, where N is a large number, such as Clearspeed, Intel and nVidia.

    And it’s worth noting that Synopsys has an operation that is software focused - the virtual prototyping group. Does the company need to add an RTOS offering to that? I think not - in fact, it might kibosh deals it already has.

  5. Tim Schneider Says:

    Too late on the Wind River suggestion… Looks like Intel already snapped them up for a cool $880+ million last week! Suggestions like this have been made before, even an ARM merger, but I think ultimately they would be too expensive and possibly not the core direction that Synopsys wants to head in? Who knows? BTW a 2X speedup with a long regression run *IS* a big deal. That’s cutting your time in half! :)

Leave a Reply