Synopsys Inc (SNPS) Q2 2025 Earnings Call Highlights: Strong Revenue Growth Amidst China Challenges

Revenue: $1.6 billion, up 10% year over year. Non-GAAP Operating Margin: 38%. Non-GAAP EPS: $3.67, including a $0.28 benefit from a building sale and $0.06 net charges from bond issuance. Backlog: $8.1 billion, up $400 million quarter-on-quarter. Design Automation Revenue: $1.12 billion, up 6% year over year.

Design IP Revenue: $492 million, up 21% year over year. Free Cash Flow: Approximately $220 million. Cash and Short-term Investments: $14.3 billion. Debt: $10.1 billion. Full-Year Revenue Guidance: $6.745 billion to $6.805 billion.

Full-Year Non-GAAP EPS Guidance: $15.11 to $15.19 per share. Q3 Revenue Guidance: $1.755 billion to $1.785 billion. Q3 Non-GAAP EPS Guidance: $3.82 to $3.87 per share. Warning! GuruFocus has detected 3 Warning Sign with NCNO. Release Date: May 28, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points Synopsys Inc (NASDAQ:SNPS) reported a strong second quarter with a 10% year-over-year revenue increase, exceeding the midpoint of their guidance. The company maintained its full-year revenue guidance, demonstrating the strength and resilience of its business model. Design IP segment revenue increased by 21% year over year, driven by strong demand for high-speed SerDes IP and other interface IP. Synopsys Inc (NASDAQ:SNPS) is leading in AI for chip design, with significant customer adoption of its AI capabilities, including DSO.ai and VSO.ai. The company is confident in closing its pending acquisition of Ansys, which will enhance its AI-powered silicon to system design solutions.

Negative Points Synopsys Inc (NASDAQ:SNPS) is experiencing a decline in revenue from China due to macroeconomic conditions and export restrictions. The company faces potential regulatory challenges in securing China regulatory clearance for its Ansys acquisition. There is uncertainty regarding the impact of potential BIS export restrictions on Synopsys Inc (NASDAQ:SNPS)'s sales to China. The macroeconomic environment remains dynamic, with non-AI end market demand remaining subdued. The company has issued a $10 billion bond, which has resulted in net interest expenses impacting its financials.

Q & A Highlights Q: With China sales now at 10% of the mix, down from 12% in Q1, and a decline expected for the year, how will this impact margins if BIS export controls change? A: Sassine Ghazi, President and CEO, explained that the decline in China sales is due to cumulative restrictions and macroeconomic conditions. Despite this, Synopsys is reiterating its full-year guidance due to strong execution in other regions. The impact on operating margins is uncertain without a notice from BIS. Story Continues Q: Can you provide insights into the mix of software, IP, and hardware revenues in China? A: Sassine Ghazi stated that the revenue mix in China is similar to other regions, but specific regional splits are not disclosed. Q: Regarding the Ansys acquisition, if the deal is delayed or doesn't close, what is the contingency plan? A: Sassine Ghazi emphasized that the focus is on completing the transaction, which is seen as essential for accelerating innovation.

Confidence in closing the deal is high due to regulatory approvals in other jurisdictions and ongoing negotiations with SAMR in China. Q: What design activity are you seeing in the AI customer base, and have there been any changes? A: Sassine Ghazi noted strong demand in AI and HPC sectors, with stabilization in industrial and automotive markets. Synopsys is seeing increased activity in IP, indicating new chip designs and customer engagement. Q: How is Synopsys addressing the shift to GPU-based compute for EDA tools, and what are the pricing implications? A: Sassine Ghazi highlighted the significant speedup achieved with GPU acceleration, particularly in the Proteus product, and confirmed that pricing reflects the total cost of ownership benefits for customers. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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