The operator introduces the Synopsys Earnings Conference Call for the First Quarter Fiscal Year 2024 and reminds participants that the call is being recorded. Trey Campbell, Senior Vice President of Investor Relations, then introduces the speakers, President and CEO Sassine Ghazi and CFO Shelagh Glaser. He also mentions that the company will be discussing forecasts and targets, but will not comment on the financial results of their pending acquisition of Ansys. He reminds listeners that the actual results are subject to risks and uncertainties and directs them to the company's website for more information. Sassine Ghazi then greets the participants.

In the first quarter of the fiscal year, Synopsys exceeded its revenue and non-GAAP EPS guidance, with a 21% increase in revenue and a 36% increase in non-GAAP EPS. The company has also shown strong financial growth over the past three years. The market trends are driving a demand for more compute, new architectures, and new design methodologies, and Synopsys is well-positioned to capitalize on this with its EDA tools and semiconductor IP. The company is at the forefront of the shift towards pervasive intelligence and is well-equipped to help companies innovate for this era.

Semiconductor companies are now focusing on system-level design, while system companies are utilizing purpose-built chips and software-defined systems. The fusion of electronics design and physics simulation is becoming increasingly important for delivering high-performing solutions. Cadence recently announced their intent to acquire Ansys, which will expand their total addressable market and strengthen their silicon to system strategy. In the Design Automation segment, Cadence saw strong design win activity and partnered with customers for several industry firsts, including the world's first GAA-based next generation arm and multiple competitive wins in the analog mixed-signal market.

Synopsys has been successful in winning competitive deals due to the breadth and leadership of their EDA platform, which includes digital, analog, and architecture tools. Their synopsys.ai platform, which focuses on optimization, XSO.ai beat analytics, and generative AI, has been a key factor in these wins. This includes their XSO.ai family, which has been instrumental in driving revenue and improving PPA results. Their VSO.ai technology has also been deployed by multiple companies, resulting in faster turnaround time and improved test coverage. Additionally, their ASO.ai tool has multiple deployments in production at major semiconductor companies. Synopsys has also expanded their capabilities with TSO.ai, which offers design for test features, and their data analytics AI products have seen significant growth in logo engagement. One example is their Silicon.da production analytics, which covers the entire silicon lifecycle management process.

In the fifth paragraph, the company discusses the success of their product Silicon.da in identifying and correcting data outliers, as well as their collaboration with Microsoft for chip design. They also mention their momentum in multi-die packaging and the growth of their systems business, specifically in hardware-assisted verification and system software. Additionally, the company highlights their partnership with Continental and the growth of their Design IP business.

The company closed important agreements for the development of next-generation automotive and IoT platforms, demonstrated their leadership in PCIe technology at a recent conference, and had success with their multi-die packaging IP. They also launched a new portfolio of processors and continue to see success in their Software Integrity segment, despite challenges in the enterprise software market. The company is currently evaluating strategic alternatives for this segment but will continue to invest in and serve customers with their leading application security testing portfolio. Overall, the company had a strong start to the year and is supported by multiple growth drivers in the industry.

The company is focusing on portfolio investment to accelerate growth and thanks employees, partners, and customers for their support. They are confident in their business and have reaffirmed their targets for revenue and non-GAAP operating margin. In the first quarter, they had solid results with revenue in the upper end of their guided range and strong performance in all segments. The Design IP segment saw a significant increase in revenue, while the Software Integrity segment had a moderate increase. The company also provided details on their non-GAAP operating margin and earnings per share.

The operating cash outflow for the quarter was $88 million and the company ended the quarter with $1.27 billion in cash and short-term investments. For fiscal year 2024, the company is targeting revenue between $6.57 billion and $6.63 billion, with non-GAAP operating margin improvement of 2 percentage points. The company also expects a non-GAAP tax rate of 15% and GAAP earnings of $9.56 to $9.74 per share. For the second quarter, revenue is expected to be between $1.56 billion and $1.59 billion. The company is confident in its leadership position, strong design activity from customers, and its time-based business model. The first question in the Q&A session was about the initial fiscal year '24 guidance and the expected impact of China on overall revenue growth.

The speaker, Sassine Ghazi, responds to a question about the impact of sales in China on the company's overall growth. He mentions two potential headwinds for the year, one being the slow enterprise software market and the other being the macro and export control issues in China. He also mentions that the first quarter results were strong due to timing of business pull down, but the remainder of the year will be consistent with their initial guidance. The speaker and Shelagh Glaser also provide some additional financial information regarding backlog and other income.

The speaker responds to a question about the backlog and linearity of the company's growth, stating that there is nothing unusual and that the Q4 to Q1 decrease is due to the previous quarter being an all-time high. They also discuss the strong growth in the IP side of the business, attributing it to the increasing demand for IP in new standards and chip proliferation.

The company has made significant investments in internal resources and new technologies in anticipation of the Ansys acquisition, particularly in the areas of aero, auto, and industrial markets. These investments include both multi-die 3DIC and single die in a package, with the intention of bringing industry-leading sign-off technology to their design implementation portfolio.

The company has continued to invest in their own organic implementation portfolio in order to integrate key engines and correlate with the industry sign-off. As they have expanded into new markets, such as automotive, they have also made investments in product development and go-to-market strategies. The recent acquisition of Ansys will bring in additional expertise and brand recognition in these new markets. The company's customer concentration, particularly with one customer, may evolve as AI and other technologies become more pervasive in the industry.

Sassine Ghazi, along with Shelagh Callahan, both former employees of Intel, believe that the market will go through phases of both verticalization and horizontalization. This means that both system companies and traditional semiconductor chip companies are either trying to build a complete stack of the platform or going deeper into silicon to drive their own differentiation. This benefits Ansys because they can sell IP and EDA to both types of customers. Ghazi does not see this changing in the near term, but believes there may be expanded opportunities in the future as more system companies have a strong semiconductor arm. This was discussed in response to a question from Jay Vleeschhouwer of Griffin Securities during the earnings call.

The speaker discusses the progress made in working with a mobile SoC player and mentions the development of 2-nanometer products with leading semiconductor companies in Asia. They explain that this technology will be a significant driver in the second half of 2025 and that Synopsys has been working on designing IP and EDA products for this technology for at least two years prior to its release. This process involves early effort to provide the entitlement of the technology and then the development of IP and designs around three to four months after the announcement.

The speaker is discussing the potential impact of the recent Ansys announcement on the automotive industry, specifically in regards to the transition to software-defined vehicles. They mention the need for standards in software testing and how their company can help with this through their ability to model and test every aspect of the electronics in a car. This will allow automotive OEMs to adapt and change software without having to modify the physical components of the car.

The speaker discusses the growth of AI in the IP portfolio and how it has positively impacted margins. They mention their 25-year history in the business and the opportunity for monetization with each new version of interface IP. They also point out the importance of delivering high-quality IP to customers when they need it. The speaker encourages looking at the trailing 12 months for a better understanding of the situation.

The paragraph discusses the nature of IP and its consumption by customers, which can lead to fluctuations in operating margin and revenue. The company has seen a significant increase in inventory, in anticipation of another record year for hardware sales. This is important for customers who use the hardware to model software and improve their time to market.

The paragraph discusses the increasing demand for AI capabilities in various industries and how it is leading to more complex chip designs and a need for high-performance IP and systems-level analysis. This trend is seen across data centers, smartphones, automotive, PCs, and home appliances, indicating a broadening of AI into edges and endpoints.

The team is seeing a lot of activity and momentum in terms of IP licensing engagements and potential opportunities for Ansys due to the increasing prevalence of smart devices and the need for sophisticated chips. This is a great opportunity for the company, and their customers have given positive feedback on their recent acquisition of Ansys. The recent acquisition of Altium by Renesas for $6 billion further demonstrates the importance of having design and analysis capabilities in-house for the systems market.

The customer feedback for the potential combination between Ansys and Synopsys has been overwhelmingly positive. Customers are looking for a deeper collaboration to solve current and future challenges. They believe this combination will provide a strong solution for their needs. The system level perspective is also important, as different industries will go through inflection points in the future and both Ansys and Synopsys have a strong presence in this area. Ansys will bring more than just silicon aspects for 3DIC, but also help with silicon to system modernization for other market verticals.

Customers are excited about the Ansys acquisition because of the open platform structure that allows for integration with multiple industry platforms. The integration is especially beneficial for multi-die package design, where mechanical stress issues can occur. The deeper integration, which involves using algorithms and engines during the design phase, is what customers are most excited about.

The speaker explains that many advanced chip designers are already using both Synopsys and Ansys, but the integration of the two companies' technologies will provide even more opportunities. Additionally, there are also Ansys customers who are not yet using Synopsys, but may become customers in the future. For example, industrial OEMs who currently use Ansys for mechanical design may become Synopsys customers when incorporating more chip content into their products.

The Ansys and Synopsys merger will allow for the modeling and verification of chips, particularly in industries like automotive and over-the-air software updates. This will expand the Synopsys market and potentially make current Ansys customers also Synopsys customers. The expected synergies from the merger include cross-selling and further monetization within existing customers. An investor meeting is scheduled in less than a month.

The operator concludes the conference and instructs the participants to disconnect.

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