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    SNPS
    Earnings call· Jul 2025(Q3 FY25)

    SYNOPSYS INC SNPS

    Sep 9, 2025 Source

    Executive summary

    Synopsys Q3 FY25 — Ansys Integration and IP Business Headwinds

    Synopsys achieved a transformational milestone by closing the Ansys acquisition, significantly expanding its market opportunity in engineering solutions. Despite this, the company faced headwinds in its Design IP business, leading to a downward revision of full-year guidance. Management is actively realigning IP resources and implementing a 10% headcount reduction by FY26 to optimize efficiency and focus on high-growth areas, particularly leveraging AI and the Ansys integration.

    Highlights

    4

    • Closed the Ansys acquisition on July 17, expanding revenue, customer base, and long-term opportunity.

    • Design Automation revenue was up 23% year-over-year, driven by strong hardware performance and competitive wins.

    • Backlog reached $10.1 billion, underscoring business resilience.

    • Synopsys.ai Gen AI-powered capabilities are being piloted by roughly 20 customers, paving the way for agent engineer technology.

    Concerns

    4

    • Design IP revenue was down 8% year-over-year due to new export restrictions in China and challenges at a major foundry customer.

    • Full-year FY25 revenue guidance updated to $7.03B-$7.06B, lower than prior expectations.

    • Full-year FY25 free cash flow guidance updated to approximately $950M, lower than prior expectations.

    • Anticipated global headcount reduction of roughly 10% by end of FY26 to optimize cost structure.

    Guidance & targets

    14
    CategoryTargetConfidence
    Full-year FY25 Revenue
    $7.03 billion to $7.06 billion
    high materiality
    High
    Full-year FY25 GAAP Costs and Expenses
    $6.08 billion to $6.1 billion
    medium materiality
    High
    Full-year FY25 Non-GAAP Costs and Expenses
    $4.43 billion to $4.44 billion
    medium materiality
    High
    Full-year FY25 Non-GAAP Tax Rate
    16%
    low materiality
    High
    Full-year FY25 GAAP EPS
    $5.03 to $5.16 per share
    high materiality
    High
    Full-year FY25 Non-GAAP EPS
    $12.76 to $12.80 per share
    high materiality
    High
    Full-year FY25 Cash Flow from Operations
    approximately $1.13 billion
    medium materiality
    High
    Full-year FY25 Free Cash Flow
    approximately $950 million
    high materiality
    High
    Q4 FY25 Revenue
    $2.23 billion and $2.26 billion
    high materiality
    High
    Q4 FY25 GAAP Costs and Expenses
    $2.12 billion and $2.14 billion
    medium materiality
    High
    Q4 FY25 Non-GAAP Costs and Expenses
    $1.44 billion and $1.45 billion
    medium materiality
    High
    Q4 FY25 GAAP EPS
    negative $0.27 to negative $0.16 per share
    high materiality
    High
    Q4 FY25 Non-GAAP EPS
    $2.76 to $2.80 per share
    high materiality
    High
    Headcount Reduction
    roughly 10%
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Design Automation
    Strong performance from hardware business, competitive wins with leading hyperscalers, and record unit shipments for emulation and prototyping solutions. Adjusted operating margin was 44.5%.
    		$1.31 billion23%—44.5%
    Design IP
    Impacted by new export restrictions in China, challenges at a major foundry customer, and roadmap/resource decisions. Adjusted operating margin was 20.1% due to lower-than-expected revenue and investments.
    		$428 million-8%—20.1%
    Simulation & Analysis Product Group (Ansys)
    Revenue for approximately two weeks following the acquisition close on July 17. Performed in line with expectations, with largest contributions from high-tech, aerospace, and automotive verticals. The remainder of Ansys revenue was included under EDA.
    		$78 million———

    Operational metrics

    10
    Total Revenue
    $1.74 billionup 14% YoY
    Q3 FY25

    Includes approximately two weeks of Ansys financials.

    Non-GAAP operating margin
    38.5%
    Q3 FY25

    Company-wide non-GAAP operating margin.

    Non-GAAP EPS
    $3.39
    Q3 FY25

    Company-wide non-GAAP earnings per share.

    Cash and investments balance
    $2.6 billion
    Q3 FY25

    Company-wide cash and short-term investments balance.

    Total debt
    $14.3 billion
    Q3 FY25

    Includes additional $4.3 billion term loan used to fund a portion of the Ansys acquisition.

    Headcount reduction
    roughly 10%
    FY26

    Part of enterprise-wide initiative to develop and deploy custom Gen AI and optimize cost structure.

    AI product adoption
    roughly 20
    Q3 FY25

    These capabilities pave the way for agent engineer technology.

    IP Business Growth
    24%YoY
    FY24

    Growth in the year prior to FY25 for the IP business.

    IP Business Growth
    17%YoY
    FY23

    Growth two years prior to FY25 for the IP business.

    Ansys channel business
    about 25%
    Q3 FY25

    Represents the portion of Ansys's business conducted through its robust channel.

    Industry KPIs

    6
    MetricValueDetails
    Revenue growth$1.74 billionUSD
    Rpo current rpo$10.1 billionUSD
    Bookings billings$10.1 billionUSD
    Pricing model mixdiscussions underway
    Operating FCF margin rule of 4038.5%%
    Ai product adoption monetizationroughly 20customers

    Orderbook & backlog

    1
    Total Backlog$10.1 billionQ3 FY25

    Includes Ansys backlog, underscoring business resilience.

    Product announcements

    1
    ProductTypeDetails
    Ansys 2025 R2launch

    Deals & partnerships

    3
    AnsysAcquisition of Ansys to expand into engineering solutions from silicon to systems.

    Acquisition closed on July 17, 2025. Q3 results include approximately two weeks of Ansys financials.

    Undisclosed buyerDivestiture of Optical Solutions Group (OSG) and PowerArtist business.

    Delay in completing the divestitures due to pending final regulatory approval of the buyer by SAMR. Synopsys is taking measures to keep the businesses separate to maintain integrity.

    NVIDIAEmbedding NVIDIA Omniverse technology into Ansys simulation solutions.

    Aims to make it easier to develop, train, test, and validate autonomous systems with greater speed and confidence.

    Risks & headwinds

    4
    Design IP business underperformanceExpected to continue into FY26, leading to a 'transitional and muted year'

    IP revenue down 8% year-over-year

    Mitigation: Actively pivoting IP resources and roadmap towards highest growth opportunities; merging engineering teams to accelerate subsystem delivery; exploring new business models.

    Impact of China export restrictionsImpact lasted longer than the 6-week restriction period and is expected to continue.

    Disrupted design starts in China, compounding China weakness, impacting IP business.

    Mitigation: Diversifying portfolio and customer base with Ansys acquisition, which has different regional concentration.

    Challenges at a major foundry customerExpected to continue.

    Sizable impact on the year for the IP business.

    Mitigation: Realigning IP resources and assessing business models for IP delivery.

    Delay in divestiture completion for Ansys assetsUntil final regulatory approval of the buyer by SAMR.

    Elongating the full integration of Ansys.

    Mitigation: Taking measures to keep the Optical Solutions Group and PowerArtist business separate to maintain integrity.

    What to watch in Q4 FY25

    5

    Design IP Revenue Growth

    Q4 FY25 and into FY26
    Current-8% YoY in Q3 FY25
    TargetStabilization or signs of recovery/pivot effectiveness

    Why it matters

    The IP business is a significant segment facing structural headwinds; its recovery and successful pivot are critical for overall growth.

    I don't believe that these factors are just a Q3 impact. We will continue on derisking our forecast and anticipate that we will have a transitional and muted year in IP as we look ahead into FY '26.

    Q&A highlights

    7

    Clarification on the three factors impacting IP performance (China export restrictions, foundry customer, roadmap/resource decisions) and the permanence of these issues, including whether M&A is needed to address customer needs.

    Sassine explained that the China impact extended beyond the 6-week restriction due to customer uncertainty, and the foundry issue was market-driven. He noted the roadmap issue involved investing in Edge AI at the expense of other areas, and that the company is merging engineering teams to accelerate subsystem delivery. He expects a transitional and muted year for IP in FY26, emphasizing that demand for IP remains high.

    “I don't believe that these factors are just a Q3 impact. We will continue on derisking our forecast and anticipate that we will have a transitional and muted year in IP as we look ahead into FY '26.”

    asked by Ruben Roy · answered by Sassine Ghazi

    2 min read6 chapters

    Detailed Narrative

    01

    Ansys Acquisition & Strategic Transformation

    Synopsys completed the acquisition of Ansys on July 17, marking a significant milestone to become a leader in engineering solutions from silicon to systems. This acquisition diversifies Synopsys' portfolio and customer base, expanding into industries like automotive, industrial, and aerospace, and is expected to drive long-term growth by addressing the increasing complexity of AI-powered system designs. The integration is proceeding with enthusiasm, though final regulatory approval for the divestiture of certain Ansys assets is pending.

    02

    Design IP Business Headwinds

    The Design IP segment experienced an 8% year-over-year decline due to three main factors: new export restrictions impacting design starts in China, challenges at a major foundry customer, and internal roadmap and resource allocation decisions. These headwinds are expected to continue, leading to a transitional and muted year for IP in FY26, despite strong underlying demand for high-performance interface and foundation IP.

    03

    IP Business Model Evolution

    Synopsys is actively pivoting its IP resources and roadmap towards higher-growth opportunities, including a shift from individual IP licensing to more sophisticated subsystems and chiplet-based solutions. This involves merging engineering teams to accelerate delivery of customized IP, and exploring new business models that include royalty components to capture higher value for complex, customized IP deliveries, moving beyond traditional NRE plus use fee structures.

    04

    Efficiency and Cost Optimization

    The company is undertaking a strategic portfolio review and implementing enterprise-wide initiatives to boost productivity, including leveraging Gen AI. This will result in a global headcount reduction of approximately 10% by the end of fiscal year 2026, aimed at achieving greater scale and efficiency and accelerating the silicon-to-systems strategy. This action was planned irrespective of the IP business challenges.

    05

    Design Automation Strength

    The Design Automation segment demonstrated strong performance, with revenue up 23% year-over-year, primarily driven by demand for hardware emulation and prototyping solutions for AI workloads. Synopsys secured multiple competitive wins with leading hyperscalers and continues to lead in next-generation chip design, including full-flow digital implementations and sign-off platforms.

    06

    AI Integration and Innovation

    Synopsys is embedding NVIDIA Omniverse technology into Ansys simulation solutions to facilitate the development, testing, and validation of autonomous systems. The company's AI capabilities are a key differentiator, with roughly 20 customers piloting Synopsys.ai Gen AI-powered tools. The first fully integrated solution combining Synopsys' semiconductor timing and power sign-off with Ansys' thermal sign-off is expected in the first half of next year.

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