SNPS

Synopsys, Inc. (SNPS)

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Synopsys, Inc. (SNPS)

F3Q2010 Earnings Call Transcript

August 18, 2010 5:00 pm ET

Executives

Lisa Ewbank – VP, IR

Aart de Geus – Chairman & CEO

Brian Beattie – CFO

Analysts

Tom Diffely – D.A. Davidson

Raj Seth – Cowen and Company

Rich Valera – Needham & Company

K.C. Rajkumar – RBC Capital Markets

Saket Kalia – JPMorgan

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Synopsys Inc. earnings conference call for the third quarter of fiscal year 2010. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) Today’s call will last one hour. Five minutes prior to the end of the call I will announce the amount of time remaining in the cash flow. As a reminder, today’s call is being recorded. At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Lisa Ewbank

Thank you, Tony. Good afternoon, everyone. With us today are Aart de Geus, Chairman and CEO of Synopsys; and Brian Beattie, Chief Financial Officer.

During the course of this conference call, Synopsys will make forecasts and targets and will make other forward-looking statements regarding the Company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.

In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2010 and in our earnings release for the third quarter of fiscal year 2010 issued earlier today.

In addition, all financial information to be discussed on this call, as well as the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and supplemental financial information, can be found in the current report on Form 8-K that we filed today, our third quarter earnings release and our financial supplement. All of these items are currently available on our website at www.synopsys.com.

With that, I'll turn the call over to Aart de Geus.

Aart de Geus

Good .afternoon. Q3 was a strong quarter and I am happy to report that we met or exceeded virtually all of our targets. We delivered non-GAAP earnings per share of $0.39 with revenue of $337 million. We again carefully expenses and are on track to meet our ops margin target of 24% for the year. Our business outlook improved and we are raising our full year revenue and operating cash flow targets. We also announced a further expansion of our total addressable market with the pending acquisition of Virage Logic.

Let me start by addressing the customer environment and its effect on demand for our EDA systems and IP products. For 2010, industry analysts are now predicting semiconductor revenue growth of 25% to 30% after a 10% decline in 2009. Note that the 10% drop in semi revenue was much less than predicted through most of last year. The smaller than expected drop during the recession and the rapid bounce back illustrate the resilience in demand for electronics in a rapidly globalizing and test dependent society.

In fact, a new electronics wave is upon us with global demand for connected and smart everything: smartphones, pads, Netbooks, grids, and even smart toys. Management teams remain somewhat cautious in terms of the magnitude and sustainability of post recovery growth. However, today’s semiconductor capacity is effectively fully utilized and most semi executives are increasingly positive about the long term prospects for their products.

With this new electronics wave EDA is essential, especially as we now touch both hardware and software and provide the design infrastructure to reach all the way from end user functionality to chip manufacturing. Synopsys is the leader in providing that very infrastructure and our focus is now clearly aimed at growing our business.

Although we’ll provide specific 2011 guidance in our fourth quarter earnings report, I would like to share with you our long term financial thinking. Our top objective is to grow earnings per share on a sustainable basis by

one, growing revenue, both organically and through M&A; two, focusing resources increasingly towards growth businesses; three, maintaining emphasis on corporate efficiency, expense management and resulting ops margin; four, accentuating our differentiation through advanced R&D and highly-skilled global support; and five, keeping share count roughly flat.

We have used the last two years of the recession to put us on this trajectory and view our opportunity space primarily as gaining market share and technology strength in traditional EDA and broadening our offerings in our growth adjacencies, IP and systems. Let met expand on each. First traditional EDA whereby virtually any measure you consider, revenue, sales, customer budgets, we substantially gained share during the downturn. This has been accomplished with head-to-head competitive wins and customers choosing to consolidate largely on Synopsys.

We are doing well for four key reasons: state-of-the-art technology, scale and expertise of our global support, (inaudible) of our integrated product portfolio, and the financial strength to invest and maintain customer confidence. Let me provide some color around our technology differentiation first and verification.

In digital, our solution is the backbone for the vast majority of advanced designs, including 30% of 45 nanometer and 90% of 32 nanometer chips. We are especially strong in very demanding applications such as processors, graphics and networking SoCs. In our mixed-signal, our advanced solution is deployed at 19 of the world’s top 20 semiconductor companies. In digital implementation, in Q3 we saw a notable increase in penetration in a number of accounts as well as a large important competitive win that enables significant further expansion over time.

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