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Earnings Preview: Synopsys Inc. - Analyst Blog

Synopsys Inc. ( SNPS ) is scheduled to announce its third quarter 2011 results on November 30, 2011, and we do not see any variation in analysts' estimates at this point.

Second Quarter Overview

The company reported second quarter 2011 earnings per share ( EPS ) of 39 cents, exceeding the Zacks Consensus Estimate of 34 cents. However, revenue of $393.7 million grew 16.4% on a year-over-year basis.

Revenue in the second quarter was $393.7 million, up 16.4% from $338.1 million reported in the year-ago period. The significant revenue growth was attributable to strong orders in the quarter and a faster business run rate. Moreover, the company benefited from the healthy electronics industry and higher demand for new products during the quarter.

Gross profit in the second quarter was $307.6 million (78.1% of revenue), up 14.3% from $269.0 million (79.6% of revenue) in the year-ago quarter. The improvement in gross profit was attributable to the shift in product mix to high-margin products. The operating margin was 13.1% versus 13.3% reported in the year-ago period.

GAAP net income in the reported quarter was $81.1 million or 53 cents per share compared with $39.5 million or 26 cents per share in the second quarter of fiscal 2010. Including special items like amortization, acquisition-related costs, facility restructuring charge and tax benefit from the IRS settlement, non-GAAP net income in the second quarter was $59.9 million or 39 cents per share compared with $52.3 million or 34 cents in the comparable quarter last year.

Guidance

For the third quarter of fiscal year 2011, the company expects revenues in the range of $378.0 - $386.0 million. Non-GAAP expenses are estimated to be in the range of $292.0 - $302.0 million. GAAP earnings per share are projected at between 25 cents and 31 cents and non-GAAP earnings per share in the range of 41 - 43 cents.

For fiscal 2011, revenue is expected to be in the range of $1.50 billion to $1.52 billion, GAAP earnings per share to be between $1.33 and $1.46 and Non-GAAP earnings per share in the range of $1.70 - $1.77. Cash flow from operations are expected to be approximately $300.0 million.

Agreement of Analysts

The single analyst providing estimates for the October quarter left them unchanged over the last 30 days. Similarly, the two analysts providing estimates for fiscal year 2011 and 2012, kept their estimates unchanged over the last 30 days.

We believe that Synopsys is slowly growing through acquisition. The company recently completed the acquisition of privately held electronic design automation (EDA) company, Extreme DA in the month of October. As both companies have the same line of business, the integration of Extreme DA will be easier for Synopsys.

Not only will Synopsys gain from Extreme DA's technology, it will also gain from its people, particularly engineers and sales agents. The combined effort will aid Synopsys to deliver advanced solutions, helping customers to achieve scalability, convergence and throughput needs while designing ICs.

Magnitude of Estimate Revisions

The analysts do not foresee a meaningful change in the fundamentals of the company, so they have kept their estimates unchanged for the upcoming quarter and also for the fiscal years 2011 and 2012.

Recommendation

Synopsys delivered decent second quarter results, although there was minimal improvement in operating performance. The third quarter 2011 guidance is encouraging.

Although Synopsys is gaining traction from new products and acquisitions, we believe these will take some time to produce favorable results. The company is also facing competition from Salesforce.com ( CRM ). We believe Synopsys' time-based licensing model has good visibility, and the company's cash position is decent.

The company currently has a Zacks #3 Rank (short-term Hold rating).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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