The Synopsys Earnings Conference Call for the Fourth Quarter and Fiscal Year 2023 began with Trey Campbell, Senior Vice President of Invest Relations, introducing Aart de Geus, Chair and CEO of Synopsys, along with other executives. They reminded participants of the risks and uncertainties involved in discussing forecasts and targets. Non-GAAP financial measures were also referenced, with reconciliations and supplemental financial information available on the company's website. Aart de Geus highlighted the company's strong performance in Q4, exceeding all guidance targets and achieving a quarterly revenue high of $1.599 billion.

Synopsys had a record year, with strong revenue growth, improved operating margin, and increased EPS. They have sustained momentum over the past five years and have expanded their differentiation through AI-driven product capabilities and collaborations. The company thanks their employees and customers, and expresses compassion for those impacted by geopolitical conflicts. The CEO then shares thoughts on the state of the industry and Synopsys' role in enabling and navigating the exponential growth of the semiconductor industry. Their initial contribution of synthesis revolutionized digital design and led to a 10 million X increase in design productivity.

Synopsys has been at the forefront of technological advancements, particularly in the field of semiconductors. As the era of big data and AI emerges, Synopsys predicted and is now fulfilling the trillion-dollar growth in the semiconductor industry. This has led to the development of SysMoore, a new era of systemic complexity and exponential growth. Synopsys is at the forefront of this transformation, with investments in multi-die design, IP building blocks, and DeepLearning.AI in chip design. The recent announcement of GenAI capabilities further solidifies Synopsys' position as a leader in driving the state-of-the-art forward.

Synopsys is a company that is constantly growing and adapting to the changing technology landscape. The company is currently going through an executive leadership transition and has high hopes for their new CEO, Sassine Ghazi. Despite global economic uncertainty, the company has a strong foundation and expects solid growth in the future. However, they acknowledge that the growth environment in China may be challenging due to certain restrictions. The company is also focused on utilizing AI to drive productivity and help their customers overcome design resource shortages.

At the Microsoft Ignite conference, Synopsys announced a new Generative AI capability called Copilot, developed in collaboration with Microsoft. This tool will help chip designers by providing expert guidance, generative capabilities, and autonomous workflow creation. The company is already working with major chip makers like AMD, Intel, and Microsoft to implement this technology. The use of AI is expected to greatly increase productivity and the company is investing more in this area. Other factors such as the slowing of Moore's Law and the demand for performance and energy efficiency are also driving growth opportunities. Additionally, multi-die implementations and a systems-level approach are becoming increasingly important for customers. The Design IP business is also experiencing strong growth.

Synopsys, a leading technology company, is experiencing a growing demand for faster ingest and throughput applications, resulting in an increase in IP content value per device. They are prioritizing their investments in design automation and Design IP to capture more of this growing market. In addition, they have decided to explore strategic alternatives for their software integrity business, which has become a leader in application security testing with significant revenue and high margins. This decision follows a strategic portfolio review and consultation with the company's Board of Directors.

In the paragraph, the company shares their 2024 guidance targets and highlights their success in various segments, including design automation, verification, and test. They also mention their partnership with TSMC and the adoption of their Synopsys.ai tool by major customers. Additionally, they mention their success in winning key designs and delivering improved power and performance with their Fusion Compiler and Prime tools.

In the Design IP division, Synopsys had multiple successful engagements with PrimeTime, PrimeClosure, and PrimeShield, leading to the adoption of PrimeClosure by the top three data center providers for faster ECO closure time. They also received an industry award for their 3D IC design prototyping solution and announced a new AI-driven Verdi solution. In hardware assisted verification, they had a record year and won against competition at two large North American hyperscalers. They also expanded their HAPS footprint with a large North American systems company and a large Asian semiconductor company. In terms of Design IP, they won their first 2-nanometer interface IP engagement and are now in production at 3 nanometer with foundation IP for a high-volume PC chip. They also demonstrated key technology proof points for their Ethernet PHY IP and PCIe 6.0 IP, and announced a new addition to their ARC processor IP portfolio.

The company had a successful year in 2023, with record revenue, operating margin, and earnings. They saw growth in their automotive and software integrity segments, and were recognized as a leader in software composition analysis. The company is confident in their business heading into 2024, with a strong execution and leadership position, robust customer investment, and a stable business model. They expect to continue growing in 2024 despite uncertain macro conditions.

In 2023, our company saw strong growth with total revenue of $5.84 billion, a 15% increase from the previous year. Our non-GAAP operating margin was 35.1% and GAAP earnings per share were $7.92. Our three segments, design automation, design IP, and software integrity, all saw double-digit growth and strong adjusted operating margins. We also had a strong cash flow of $1.7 billion and ended the year with $1.59 billion in cash and short-term investments and $18 million in debt. For 2024, we expect to see continued growth with revenue targets of $6.57 billion to $6.63 billion and improved non-GAAP operating margin. Our GAAP earnings per share are expected to be between $9.07 and $9.25, and non-GAAP earnings per share between $13.33 and $13.41.

The paragraph discusses the financial performance and targets for the first quarter of fiscal 2024 for a company. It mentions a cash flow from operations of $1.4 billion, an impact of $200 million for 2023 taxes, and higher cash taxes due to amortization of R&D expenses. The company also expects its cash tax growth rate to align with operating income growth in the future. It also mentions an upcoming Investor Day event and the stability and resiliency of the company's time-based business line. The first question from an analyst congratulates the company on their strong execution and fiscal 2024 guidance, specifically mentioning the contribution of hardware verification, emulation, and prototyping to the company's double-digit revenue growth in recent years.

The company is expecting a strong year in terms of hardware sales due to the increasing demand for software development and verification. The inventory levels are at a record high, indicating a strong pipeline. The IP business also saw strong growth due to the complexity of chip designs and transitions in interface and connectivity.

The company expects growth to continue in the IP business, driven by the increasing complexity of chip designs and the demand for sophisticated chips. The backlog has seen a significant increase, which is expected to positively impact revenue in 2024 and 2025. However, there may be a moderation in demand from China, which has been a significant contributor to revenue growth in the past 12 months. The company's overall growth guidance of 13% may be driven by factors other than China.

The company is taking a balanced approach in their forecast for FY '24, considering both headwinds and tailwinds in the market. Headwinds include export restrictions and enterprise software spending, while tailwinds include the demand for AI-driven silicon. The company has quickly developed a product incorporating Generative AI, which was requested by Microsoft's verification team at DAC in July. However, there was a lot of work that went into this development beforehand.

Synopsys.ai has four main pillars, the first being DSO.ai which was released in 2020 and focuses on optimizing the product using machine learning and AI. The second pillar is a collaborative capability called Gen AI, which was announced with Microsoft and is being used by companies like AMD, Intel, and Microsoft. The third pillar will focus on generative and autonomous capabilities using Gen AI and natural language. The early results of the co-pilot feature have been very productive for customers and users. When removing the $17 million impact of the extra week, Synopsys is guiding for 12% sales growth, which seems conservative compared to the strong backlog. The impact of China and enterprise software and AI is neutral, but the 12% growth is lower than the company's growth rates in the past three years, despite the excitement around AI.

The company is seeing strong growth in design automation and AI, but there are headwinds from the macro situation in China and a muted environment for enterprise software spend. The company plans to offer AI capabilities as a subscription license or on a consumption basis to customers.

The company's Copilot tool is still in the early stages of monetization and it is too soon to determine its overall contribution. The backlog number has seen a significant increase, driven by AI design activity and broad-based growth. On average, there has been a 20% contract-over-contract growth when customers add AI capability to their EDA agreements. The OCF guidance for next year is expected to be down due to a $600 million headwind from cash taxes and additional amortization, but it is expected to grow in line with net income growth.

The company's total impact from taxes is $600 million due to the new tax guidance on R&D capitalization. $200 million was already paid for 2023 and $400 million is for 2024, with the expectation that the cash tax rate will align with operating income growth in the future. The company anticipates that the growth of domain-specific architectures will be altered by the AI phenomenon, potentially requiring additional investments in areas such as AE capacity services.

The author discusses the increasing trend of customers, particularly hyperscalers, investing in domain-specific architecture for their silicon chips. This has led to a focus on optimizing for specific workloads, particularly in the area of AI, and has resulted in the development of new chips for training models. This trend has also opened up opportunities for Synopsys in terms of providing solutions for designing these complex chips, including IP and EDA tools such as 3DIC Compiler.

The company is excited about the growth opportunities in design, automation, and design IP. They have expanded their portfolio to support these opportunities and are optimistic about continued growth. The backlog includes a large number of FSAs related to IP consumption, and this has been consistent over time. The company has not seen a change in the mix of FSAs and there is no reason to believe that the pull down of FSAs for IP consumption will be faster or larger in the future. The backlog number may be lower than expected due to the average contract duration being longer or conservatism in guidance for the future.

The backlog was broad-based and across multiple customers, but there is no change in the duration of contracts. The company is balancing headwinds and tailwinds in the business, with strong momentum in design automation and design IP, but slower growth in China and a difficult software enterprise purchasing environment. The half-over-half profile for next year is relatively flat due to the balance of customer demand for hardware and IP. This trend is similar to what was seen in 2023 and 2021.

Sassine Ghazi and Shelagh provided some additional information on their previous comments. They stated that the design automation business accounts for 65% of their overall revenue, while design IP and software integrity make up 25% and 10%, respectively. The backlog of agreements in EDA and IP is $8.6 billion, but the consumption for these products may vary due to the timing of renewals and delivery. They also mentioned that they went through a strategic portfolio review and are considering SIG strategic initiatives, but did not provide further details.

The speaker expresses excitement about the opportunities in design automation and design IP over the next 5-10 years and discusses the decision to explore strategic alternatives for software integrity. They also mention that there won't be a substantial change in recurring revenue and express gratitude to the audience for their support and for never giving up on asking tough questions. The speaker then reflects on their time as CEO and expresses confidence in the incoming CEO.

The speaker praises Sassine's leadership qualities, experience, and customer relationships, and expresses their support for him. They also mention looking forward to staying in touch and end the call.

This summary was generated with AI and may contain some inaccuracies.