AI wave sparks surge in chip design demand! Synopsys (SNPS.US) Q3 earnings beat expectations and raises full-year guidance

According to Zhihu Finance APP, despite Electronic Design Automation (EDA) giant Synopsys (SNPS.US) reporting third-quarter results that beat expectations and raising its full-year guidance, the company's stock price still fell after the earnings release, indicating that it may not have met investors' higher expectations. Synopsys shares dropped by over 6% in after-hours U.S. trading on Wednesday, but the decline had narrowed to less than 1% at the time of writing.

The earnings report shows that Synopsys’ third-quarter revenue rose 42% year-on-year to $2.48 billion, surpassing the analyst consensus of $2.44 billion; adjusted net profit was $750 million, up 37% from $550 million a year earlier; adjusted earnings per share were $3.91, better than analysts' average estimate of $3.67.

Synopsys is benefiting from the multi-trillion-dollar expansion of artificial intelligence (AI) infrastructure, which is boosting demand for complex AI chips and advanced design tools. As chipmakers ramp up investment in more advanced chip systems, the demand for AI-related chip design has grown significantly. Meanwhile, tech giants such as Amazon and Google are also accelerating their in-house chip development efforts.

By business segment, design automation business revenue was $2.003 billion, up 53% year-on-year; design IP business revenue was $474 million, resuming growth with an 11% increase year-on-year. The design automation business includes advanced silicon chip design, verification products and services, Ansys products, system integration products and services, digital, custom, and field-configurable gate array (FPGA) integrated circuit design software, verification software and hardware products, manufacturing software products, and other businesses; the design IP business covers logic libraries, embedded memory, wired interface IP, memory interface IP, and security IP.

Synopsys Chief Financial Officer Shelagh Glaser said, “The true foundation for this growth is the robust design environment we are seeing, with AI being the main driver.” “Our customers are building increasingly complex chips, and their development cycles are getting shorter. Our tools help them simplify this complexity.” The company expects its design IP business to further grow quarter-on-quarter in the fourth quarter.

Synopsys President and Chief Executive Officer Sassine Ghazi said, “AI is driving unprecedented complexity and increasing the demand for silicon IP and engineering solutions, which are critical to delivering the next generation of AI computing, infrastructure, and physical AI systems. One year after completing the transformative acquisition of Ansys, we are focused on executing our strategy to further consolidate our leadership position and continue building growth momentum.”

Looking ahead, Synopsys forecasts fourth-quarter revenue between $2.53 billion and $2.58 billion, with the midpoint at $2.555 billion, generally in line with analysts’ average expectations; adjusted earnings per share are projected to be $4.10 to $4.16, with a midpoint of $4.13, above the analyst consensus of $4.00.

In addition, thanks to sustained strong AI-driven demand, Synopsys raised its full-year guidance. The company hiked its full-year revenue outlook to $9.69 billion to $9.74 billion (previously $9.625 billion to $9.705 billion), above analysts’ average estimate of $9.68 billion; and raised its full-year adjusted earnings per share guidance to $15.04 to $15.10 (previously $14.72 to $14.80), exceeding the analyst consensus of $14.78.