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Gabe Moretti
Gabe Moretti
In June 2012 Gabe Moretti will celebrate 44 years in EDA. Gabe has contributed to the industry first as a developer, then as a senior manager and now as an editor and industry observer. He is a Senior member of the IEEE and the recipient of the IEEE RonWaxman Meritorious Award. Gabe has worked … More »

Synopsys Defines A New Market Reality That Works

 
August 24th, 2012 by Gabe Moretti

Shortly after the announcement of the Springsoft proposed acquisition, Daniel Nenni published a very accurate and complete matrix showing the intersection of the products offered by all three companies. Although there was never an explicit statement in the article about the direct dependency between success and consolidating the matrix, it was implied that Synopsys had significant technical work ahead of itself in order to financially benefit from the acquisitions. I think that Synopsys principal motivation was not technological but market driven.

The EDA industry is a mature industry. It is fair to argue about the technical characteristics of various products and to compare products directly. But leading EDA companies all offer competitive products that get the job done, albeit in different manner and with varied localized results. Were this not so, the companies would no longer maintain their standing in the industry. I am sure that Synopsys sales organization will not be confused about selling more than one verification product. And, in the end, equilibrium will be reached as one of the products will establish itself. In fact, creatig a new product by merging technologies can be disruptive to sales since change, as we have seen more than once, is threatening to a trusted design flow.

The Ciranova acquisition provides Synopsys with a more direct input into the iPDK consortium, and increases the weight of the Pycell libraries as an alternative to the Cadence proprietary Pcells. As far as Springsoft is concerned, Jay Vleeschhouwer points out in his message about the transaction to his subscribers, the acquisition is immediately beneficial to Synopsys’ bottom line.

Jay wrote: “For the year ended December 2011, Springsoft reported revenues of $77 million and operating income of $21.9 million, or an operating margin of 28.5%. As a smaller company, Springsoft spends a higher proportion of revenues on operating expense than Synopsys, including sales & marketing (29.7% vs. 23.6%), but its reported gross margin is higher. For the half-year through June 2012, Springsoft reported a 10% increase in revenues.” So, one hundred million here, one hundred million there and pretty soon we are talking about a company with an income of $2 billion or so.

The Proof

If anyone still needed a confirmation that Synopsys’ strategy is working, it was delivered with the 3Q financial report this week. The company is on track to record income for 2012, with the possibility of reaching the $1.75 billion mark. Some of the highlights include:
Revenue for the third quarter of fiscal 2012 was $443.7 million, compared to $386.8 million for the third quarter of fiscal 2011, an increase of 14.8 percent.
GAAP net income for the third quarter of fiscal 2012 was $75.7 million, or $0.50 per share compared to $52.1 million, or $0.35 per share, for the third quarter of fiscal 2011.
On a non-GAAP basis, net income for the third quarter of fiscal 2012 was $82.3 million, or $0.55 per share, compared to non-GAAP net income of $68.1 million, or $0.46 per share, for the third quarter of fiscal 2011.
The GAAP results are especially important because they show that Synopsys was able to increase net income even after investing in acquisitions. Its revenue for the quarter increased by $56.9 million compared to last year.
As Jay Vleeshhouwer stated: “Synopsys’ results showed further momentum in terms of revenues, earnings, and bookings. The book/bill remains well above parity and the cash flow forecast has been again materially increased.”
The disparity between Synopsys and either Cadence or Mentor is such that these two companies need to stop comparing themselves with the leader and be content to aspire to second best. By 2014 is not unlikely that Synopsys income will be twice its nearest rival. Competing on technology alone is not a viable solution in gaining fiscal ground on Synopsys. A different approach is needed since the probability that either Cadence or Mentor can realize a technology breakthrough of such magnitude to significantly increase revenue while at the same time decrease Synopsys’ tends to zero.
Aart, Chi-Foon, and the rest of their team have shown that technological capability is a requirement but it is not sufficient to achieve leadership. I have written in the past about my admiration for Aart’s ability to discuss global events outside of EDA. EDA fortunes do not just depend on the semiconductors industry. The world is much more complicated that this simple equation that might have been true, although I never agreed, in the early years of our industry. Although Chi-Foon has a totally different personality than Aart, he also approaches market and financial issues in a global way. An EDA company needs a strong CFO and an insightful and knowledgeable CTO, no question about it. But to really shine it needs someone that can integrate the complexities of the financial world and derive the appropriate corporate directives. Synopsys has two such individuals.

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