The operator introduces the Synopsys Earnings Conference Call for the second quarter of fiscal year 2024. The call will last one hour and is being recorded. The Senior Vice President of Investor Relations, Trey Campbell, introduces the President and CEO of Synopsys, Sassine Ghazi, and the CFO, Shelagh Glaser. The company will discuss forecasts, targets, and other forward-looking statements, and will refer to non-GAAP financial measures. The call will focus on the company's strong execution and momentum in the second quarter.

Synopsys has seen a 15% increase in revenue and a 26% increase in non-GAAP EPS, leading them to raise their full year guidance. The company is confident in their business due to the current trends of artificial intelligence, silicon proliferation, and software defined systems. They have a diverse customer base, including both semiconductor and systems companies, and recently held their annual user group conference where they received positive feedback from key customers. As a leading silicon to systems design solutions company, Synopsys has a strong market opportunity and is planning to expand their portfolio through the acquisition of Ansys.

Synopsys and Ansys have received approval from stockholders for their merger, with hopes of closing the transaction in the first half of 2025. In the second quarter, Design Automation revenue increased by 14%, driven by the adoption of synopsys.ai and customers' desire for more advanced process nodes. The company also saw success in analog and mixed signal design, with 10 displacement design wins and the use of ASO.ai for node migration. In digital, Synopsys maintains its leadership in advanced node design, with its Fusion compiler delivering impressive results for a U.S. CPU company and Samsung.

The Fusion compiler has shown excellent results, leading to wins at a U.S. hyperscaler and a top U.S. mobile CPU company. The combination of Fusion and AI optimization is considered a game changer. In Q2, multiple Asian design services firms exceeded maximum frequency targets with DSO.ai and a leading U.S. GPU company deployed DSO.ai for improved productivity. VCS and VSO.ai also had successful deployments with over 30 customers, showing significant improvements in turnaround time and coverage. Hardware assisted verification saw strong demand with four new customer wins and over 50 repeat customer wins. Design IP saw 19% revenue growth, particularly in the automotive sector. The acquisition of Intrinsic ID added physical and clonable functions technology to the IP portfolio, resulting in over 10 secure interface IP wins in the quarter.

Synopsys has seen a significant increase in demand for interface IP for AI and data center applications. They have launched a 1.6 terabyte Ethernet solution and secured multiple design wins for PCIe 6.0 and CXL 3.0 solutions. They also have a strong portfolio of die-to-die connectivity IP and have won a significant engagement with a leading Japanese foundry. Synopsys plays a critical role in enabling chip manufacturing for their customers and has strong relationships with major foundries such as TSMC and Samsung.

In paragraph 6, the speaker discusses partnerships and transformative milestones, including the sale of a business and continued momentum in the company's core EDA and IP businesses. They express confidence in the company's future growth and thank employees, partners, and customers for their support. The paragraph also mentions strong financial results for the quarter, with revenue and non-GAAP earnings exceeding guidance.

The company's strong Q2 results were driven by their focus on execution, leading technology, and a stable business model. They have raised their full year targets for revenue and non-GAAP EPS and have entered into an agreement to sell their software integrity business. They generated $1.45 billion in total revenue with a non-GAAP operating margin of 37.3%. Their Design Automation and Design IP segments both saw growth, and they ended the quarter with $1.66 billion in cash and short-term investments.

The company is confident in achieving revenue growth, non-GAAP operating margin improvement, and non-GAAP EPS growth in 2024. This is due to their leadership position, mission critical products, and resilient business model. The operator then opened the floor for questions, with the first one coming from Joseph Vruwink who asked about the company's analog and verification AI products gaining traction with customers.

The speaker is asked about the uplift in ACV due to the adoption of new AI products. They mention that last year's 20% uplift was mainly driven by DSO.ai, and it's too early to determine the average uplift from ASO.ai and VSO.ai. They confirm that customers using the technology in production can monetize it through the same approach. The speaker also mentions that Ansys is expecting double digit ACV and revenue growth in FY 2024, and their performance is tilted towards the second half of the year. They suggest referring back to Ansys for more information.

The speaker, Sassine Ghazi, discusses the recent performance of Synopsys and the increase in their guidance for the year. He attributes this growth to continued demand for their EDA technology and IP portfolio. Shelagh Glaser adds that the hardware team also had a strong quarter and clarifies that the backlog number mentioned is for AppSec, which has moved into discontinued operations. She also provides relevant comparisons from previous quarters.

The company's IP business experienced a slight pause in the April quarter, but is expected to have a higher run rate in the third and fourth quarters. The growth in IP is expected to be strong throughout the year, with a particularly strong fourth quarter. The company had a 53% growth in IP in the first quarter and a 19% growth in the second quarter. The lumpiness of the IP business is due to the timeline in which customers need to ingest IP into their design. The company is cautious about the Chinese market due to macro and economic challenges, but still expects growth in China for the year.

Synopsys is seeing strong momentum in their analog design workflow and methodology, driven by their AI for analog platform ASO.ai. They have also seen competitive wins in the full flow offering. While they and Ansys are currently operating as separate businesses, they are already seeing changes in purchasing behavior from customers who are interested in the future potential of the combined business.

Sassine Ghazi discusses the partnership between Synopsys and Ansys, stating that there is no significant change in customer behavior and it is a continuation of their established relationship since 2017. He also addresses the regulatory approval process for the Ansys acquisition, mentioning that they have a thorough roadmap and have received positive confirmation from China regarding the merger notification threshold. They are currently working collaboratively with all jurisdictions to understand any potential concerns and are following the process.

The speaker, Sassine Ghazi, talks about a recent customer win with an Asian memory designer and how the memory market has been a sweet spot for growth for their company. He also mentions that memory design is becoming more complex and that memory companies are adopting new technology to deal with this complexity. The speaker then answers a question about IP and the new node being stood up at TSMC in mid-2025.

The speaker explains that when a new node comes online, they engage with TSMC early on to deliver a node entitlement and collaborate on power, performance, and area. This process starts with foundation IP and is followed by interface IP, with customer IP being pulled later on. The speaker also mentions the success of Fusion and its integration with Redhawk, which has resulted in recent wins at 2 nanometers and with a flagship mobile chip at Samsung. The speaker is interested in how Fusion will work with Redhawk in the future.

The speaker is asked about the adoption of their branded AI products by semi and systems customers. They respond that they have seen some adoption, but it is difficult to determine the relative adoption between the two customer groups.

The speaker discusses the potential impact of AI adoption on the economics of supporting different types of customers and notes that the rate of adoption is faster for new system companies. They also mention that customers are now more willing to use multiple AI technologies and that the strength of the hardware category has been a significant growth driver for the company and its peers for the past decade.

Sassine Ghazi, CEO of EDA hardware company, discusses the use cases for their hardware and the potential for growth in the market. He mentions the importance of software bring up and the potential for their solution in this area. In response to a question about AI, Ghazi mentions a leading American GP designer using their DSO and talks about the penetration rates and revenue generation from the broader XFO suite. He also mentions that the AI suite is included in their backlog.

During Investor Day, DSO.ai's TAM was discussed, with the company currently in the early stages and only at 20% adoption. VSO.ai is expected to have a faster adoption rate and ASO.ai is focused on modernizing workflows. The R&D expenses in the quarter grew above revenue, and the company is investing in various areas, such as DSO.ai, VSO.ai, and ASO.ai.

The company's main focus is on investing in design automation and design IP for AI technology, and they are continuing to improve their capabilities in this area. The 2 percentage point operating margin expansion mentioned is within continuing operations, and the company is working on scaling the business and driving better leverage across R&D and core infrastructure.

The company has a long-term expectation to drive operating margin to the mid 40s and is infusing AI into their operations. The SIG sale will bring in up to $2.1 billion in consideration, with $1.5 billion at close and $125 million over the subsequent five quarters. The balance of $475 million will be payable upon a specified rate of return. The company has had a good performance in the analog side of their business.

The speaker, Sassine Ghazi, is discussing the momentum in the analog part of the business for Synopsys. He mentions two main customer groups: those looking to improve productivity and efficiency through digitalization, and those who are interested in having a competitive alternative. He sees potential for growth in both of these areas. The call is then concluded.

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