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    SNPS
    Earnings call· Apr 2025(Q2 FY25)

    SYNOPSYS Q2 FY25 earnings call SNPS

    May 28, 2025 Source

    Executive summary

    Synopsys Q2 FY25 — Strong Performance Driven by AI and HPC, Ansys Acquisition on Track

    Synopsys delivered a strong Q2 FY25, driven by robust demand in AI and HPC sectors, offsetting subdued non-AI end markets and China headwinds. The company reiterated its full-year revenue guidance, confident in its resilient business model and leadership in AI for chip design. The Ansys acquisition is progressing, with regulatory approvals secured in most jurisdictions, and the company is actively negotiating for China clearance, anticipating a first-half closure.

    Highlights

    5

    • Revenue up 10% year-over-year to $1.6 billion, exceeding the midpoint of guidance.

    • Non-GAAP EPS of $3.67, above guided range, including a $0.28 benefit from a building sale.

    • Design IP segment revenue up 21% year-over-year to $482 million, driven by Interface IP.

    • Backlog increased by $400 million quarter-on-quarter to $8.1 billion.

    • Regulatory clearances for Ansys acquisition secured in all jurisdictions except China, with anticipated closure in H1 FY25.

    Concerns

    3

    • China revenue expected to decline year-over-year for FY25, despite overall guidance reiteration.

    • Free cash flow guidance lowered to $1.3 billion due to financing and acquisition-related costs.

    • Non-GAAP EPS includes approximately $0.06 of net charges associated with $10 billion bond issuance in Q2.

    Guidance & targets

    14
    CategoryTargetConfidence
    Full-year revenue
    $6.745 billion to $6.805 billion
    high materiality
    High
    Full-year total GAAP costs and expenses
    $5.01 billion and $5.07 billion
    medium materiality
    High
    Full-year total non-GAAP costs and expenses
    $4.05 billion and $4.09 billion
    medium materiality
    High
    Full-year non-GAAP operating margin
    40% at the midpoint
    high materiality
    High
    Full-year non-GAAP tax rate
    16%
    medium materiality
    High
    Full-year GAAP earnings per share
    $10.14 to $10.34 per share
    high materiality
    High
    Full-year non-GAAP earnings per share
    $15.11 to $15.19 per share
    high materiality
    High
    Full-year cash flow from operations
    approximately $1.5 billion
    medium materiality
    High
    Full-year free cash flow
    approximately $1.3 billion
    high materiality
    High
    Q3 revenue
    $1.755 billion and $1.785 billion
    high materiality
    High
    Q3 total GAAP costs and expenses
    $1.27 billion and $1.29 billion
    medium materiality
    High
    Q3 total non-GAAP costs and expenses
    $1.06 billion and $1.07 billion
    medium materiality
    High
    Q3 GAAP earnings per share
    $2.63 to $2.74 per share
    high materiality
    High
    Q3 non-GAAP earnings per share
    $3.82 to $3.87 per share
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Design Automation
    Adjusted operating margin was 40.9%.
    		$1.12 billion6%—40.9%
    Design IP
    Strong performance from Interface IP. Adjusted operating margin was 31.2%.
    		$482 million21%—31.2%

    Operational metrics

    9
    Non-GAAP operating margin
    38%
    Q2 FY25

    Company-wide non-GAAP operating margin.

    Non-GAAP EPS
    $3.67
    Q2 FY25

    Company-wide non-GAAP EPS.

    Benefit from sale of a building
    $0.28
    Q2 FY25

    Benefit included in non-GAAP EPS, not included in prior guidance.

    Net charges from bond issuance
    $0.06
    Q2 FY25

    Net charges associated with the $10 billion bond issuance, not included in prior guidance.

    Cash and short-term investments balance
    $14.3 billion
    Q2 FY25

    Cash and short-term investments balance at the end of the quarter.

    Debt
    $10.1 billion
    Q2 FY25

    Total debt at the end of the quarter.

    China revenue
    decliningyear-over-year
    FY25

    Full year guidance already factors in a year-over-year decline in China revenue.

    GPU acceleration speedup
    15x+
    Q2 FY25

    Speedup achieved using GPU for Proteus OPC product compared to CPU.

    China revenue decline
    -28%
    Q1-Q2 FY25

    The first half assumption for China revenue decline.

    Industry KPIs

    3
    MetricValueDetails
    Revenue growth$1.6 billionUSD
    Rpo current rpo$8.1 billionUSD
    Operating FCF margin rule of 4038%%

    Orderbook & backlog

    1
    Backlog$8.1 billionQ2 FY25

    up $400 million quarter-on-quarter

    Product announcements

    6
    ProductTypeDetails
    HAPS-200 and ZeBu-200launch
    PCIe 7.0milestone
    UALinkmilestone
    NVIDIA's NVLink Fusion ecosystem supportexpansion
    Synopsys.ai Copilotlaunch
    Agentic AIroadmap

    Deals & partnerships

    1
    AnsysAddress the need for new AI-powered silicon to systems design solutions, integrating electronics and multiphysics.

    Regulatory clearances in all jurisdictions other than China. Working cooperatively and actively negotiating with SAMR to secure China regulatory clearance.

    Risks & headwinds

    4
    China revenue declineFY25

    expected to decline year-over-year for FY25

    Mitigation: Offset by strong demand from customers in other regions and resilient business model.

    Macroeconomic environmentQ2 FY25

    market fluctuations; non-AI end market demand remains subdued

    Mitigation: Strength in AI and HPC sectors, and signs of stabilization in industrial and automotive.

    Bond issuance costsQ2 FY25

    approximately $0.06 of net charges associated with the $10 billion bond issuance

    Mitigation: Partly offset by Q2 outperformance, reflected in updated non-GAAP EPS guidance.

    Financing and acquisition-related costsFY25

    lowered free cash flow guidance to approximately $1.3 billion

    What to watch in Q3 FY25

    5

    Ansys Acquisition Closure

    H1 FY25
    CurrentPending China regulatory approval
    TargetClosed

    Why it matters

    Successful closure is key to Synopsys's strategy for AI-powered silicon-to-systems design and integrating electronics and multiphysics.

    We have regulatory clearances in all jurisdictions other than China. We are working cooperatively and actively negotiating with SAMR to secure China regulatory clearance, and we continue to anticipate closing in the first half of this year.

    Q&A highlights

    7

    Clarification on China's revenue mix (software, IP, hardware) and the potential bottom-line impact if BIS export controls change, given China sales are declining.

    Synopsys does not split revenue mix per region but stated it's similar to the rest of the world. Management reiterated that they have not received any notice from BIS and cannot speculate on the impact of potential changes. They confirmed that the full-year guidance already factors in a year-over-year decline in China revenue.

    “We cannot speculate about any potential impact to a notice that we have not received.”

    asked by Lee Simpson · answered by Sassine Ghazi

    2 min read6 chapters

    Detailed Narrative

    01

    Macroeconomic Environment and Market Trends

    Synopsys continues to observe a "tale of two markets," with robust demand in AI and HPC sectors, while non-AI end market demand remains subdued, though industrial and automotive segments show signs of stabilization. A slowdown in China was offset by strong demand from other regions. Megatrends like AI, software-defined systems, and silicon proliferation are increasing design complexity and driving Synopsys's growth.

    02

    Ansys Acquisition Update

    The pending acquisition of Ansys is progressing, with regulatory clearances obtained in all jurisdictions except China. Synopsys is actively negotiating with SAMR for China regulatory clearance and anticipates closing the deal in the first half of the current fiscal year, emphasizing the strategic importance of integrating electronics and multiphysics for AI-powered silicon-to-systems design.

    03

    Design Automation Resilience and Innovation

    The Design Automation segment demonstrated resilience with 6% year-over-year revenue growth. New hardware-assisted verification products, HAPS-200 and ZeBu-200, are seeing strong adoption. Synopsys is leading in multi-die architecture, supporting complex 3D heterogeneous integrated designs with over 40 chiplets for a leading HPC AI chip maker and displacing manual layout flows at a top-tier Asian semiconductor customer. The company is also enabling the industry's first 2-nanometer-based HPC design and multiple sub-2-nanometer test chips.

    04

    Design IP Growth and Leadership

    Design IP revenue increased 21% year-over-year, driven by strong demand for high-speed SerDes IP (224 gig PHY) and leadership in PCIe 7.0 (seven unique customer wins) and UALink (over 20 customer engagements). Synopsys's recently announced support for NVIDIA's NVLink Fusion ecosystem is expected to enhance scale-up optionality for AI factories, as customers rely on Synopsys IP to minimize integration risk and accelerate time to market.

    05

    AI for Chip Design Leadership

    Synopsys is leveraging AI across its full stack, with DSO.ai driving multiple design wins for flagship CPU and GPU cores. A major AI infrastructure customer began large-scale deployment of VSO.ai across five projects, and a major automotive Tier 1 in Japan adopted ASO.ai. The company also showcased generative AI-powered assistive and creative capabilities, such as Synopsys.ai Copilot, which accelerates design and verification cycle times from days to hours.

    06

    Agentic AI and Future Engineering Workflows

    Synopsys is pioneering Agentic AI, which is expected to transform engineering workflows by allowing R&D teams to focus on architecture and design decisions while agent engineer technology handles implementation details. This represents a significant opportunity to "reengineer engineering" and potentially shift monetization models as new value is delivered to customers.

    AI-generated summary of the company’s earnings call. Not investment advice.