Goldman Sachs Communacopia + Tech Conf. 2025: Synopsys CEO on Earnings, China/IP Headwinds, Ansys Integration, & AI Strat in Semi Design

Key Takeaways

TL;DR: SNPS detailed recent IP segment weakness and 2026 guide reset, mainly due to: 1) ongoing China sales restrictions/uncertainty; 2) a major foundry partner’s IP adoption shortfall. Both now “de-risked” in outlook thru 2026. Core EDA tools/svcs, simulation (incl. Ansys), and HW biz remain strong/on track. $400mn cost synergy plan from Ansys deal is being accelerated, w/ higher near-term HC reduction. Mgmt re-affirmed mid-40% LT margin goals and highlighted strong structural demand in complex chip design, AI enablement, and new sys/vertical customer segments.

1. IP Biz Weakness & 2026 Outlook

• Two Key Drivers for IP Rev. Shortfall:
  • China BIS Restriction & Customer Uncertainty:
    • US BIS restriction (late May) halted some China sales for ~6wks, causing major disruption.
    • Even post-lift, China customers stayed cautious: “When the BIS restriction got lifted… customers in China [did not] quickly get back into normal. There’s a lot of uncertainty in China.”
    • SNPS’ China growth (20–25% CAGR, 4yrs) slowed to corp avg in FY24, w/ “significant reduction” ahead for FY25.
    • Strategic De-risking: Mgmt assumes “the China environment to remain tough” in 2026 modeling.
  • Foundry Customer ($TSMC inferred) Investment Miss:
    • SNPS expected strong IP rev. from a major foundry’s roadmap investment, but “that did not materialize,” causing a double-hit in forecasts.
    • For FY26, SNPS assumes no customer usage or rebound for this IP.
• Investor Implication: Mgmt proactively de-risked IP segment for 2026, guiding for muted growth vs. prior mid-teens. Rest of SNPS biz remains healthy.

2. IP Biz Model, Structural Changes, & Capacity Constraints

• IP Rev. Model & Product Delivery:
  • Shifting from “off-the-shelf” IP to customized subsystems/chiplets for hyperscale, edge AI, auto. “Each opportunity is very unique and customized” (resource-intense).
  • Newer model:
    • Beyond “build once, sell many” to NREs, per-use fees, royalties due to customization/scope.
• Capacity Limits:
  • Demand for advanced IP (“UCIe”—chiplet interconnect) strong (“3+ dozen committed engagements”), but SNPS is resource-constrained, leaving some opps uncaptured: “we have tapped out on the resources.”

3. Ansys Acquisition: Status & Synergy Acceleration

• Integration & Transparency:
  • FY25/Q3 had only a brief (2wk) “stub period” of Ansys in SNPS results; full segment reporting (simulation vs. semis) from Q4.
  • “Ansys is performing in line with expectations.”
• Synergies & Cost Actions:
  • Accelerating $400mn cost synergy target—now moving earlier than original yr-3 plan via “10% HC reduction by end FY26.”
  • Cuts to be selectively reinvested for growth; margin goals (mid-40%s) reaffirmed.

4. Core EDA & Simulation Biz Trends

• Current Fundamentals:
  • Non-IP EDA & HW (emulation/prototyping) tracking to expectations.
  • Design activity segmented: “Tale of two mkts… HPC/data center [vs.] auto, industrial, etc.”
    • New customer entrants/diversified chip design driving opp.
  • AI Demand: Need for customizable silicon (in-house, ASIC-model, or vertical integration) driving design starts.