The operator welcomes participants to the Synopsys Earnings Conference Call for the Third Quarter Fiscal Year 2024 and introduces the President and CEO, Sassine Ghazi, and CFO, Shelagh Glaser. The call will include forward-looking statements and non-GAAP financial measures, and the company's actual results are subject to risks and uncertainties. The company exceeded its guidance targets and set a quarterly revenue record in the third quarter.

The company's strategic goal is to maximize value for customers in the era of pervasive intelligence. They have seen strong operational execution and commercial momentum, with revenue and non-GAAP operating margin increasing. The CEO has met with many customers and partners, who have reinforced the company's importance in their innovation. Technology innovation is accelerating, especially in areas like artificial intelligence and software defined systems, which is good news for Synopsys.

The demand for high performance computing and AI is driving growth for Synopsys, as they provide solutions for complex silicon and advanced nodes. The company's customer base is expanding and their planned acquisition of Ansys will further expand their market. In the Design Automation segment, revenue was up 6% due to the increasing importance of verification in chip design and Synopsys' comprehensive solutions in this area.

The company's Verdi platform for advanced debug capabilities was adopted by a US-based GPU company and a US mobile SoC company, reducing failure debug time significantly. Their flagship verification tool, VCS, was also adopted by a large US HPC customer, a large Chinese mobile customer, and a large Chinese hyperscaler. Their AI verification product, VSO.ai, saw improvements in turnaround time, coverage, and verification quality. The company's hardware assisted verification business had a successful quarter with customers upgrading to their ZeBu EP product line. The company also saw significant ZeBu hardware expansion at a large US hyperscaler and increased adoption at a large European IP provider and two US HPC companies. The company also had success in physical verification, with 20 tapeouts in Q3. They also had several successful analog design displacements and full flow wins at various companies worldwide.

Synopsys has successfully displaced competition in analog simulation at multiple companies and has become the go-to provider for modernizing analog flows using AI. In digital EDA, they have achieved several customer-first tapeouts at advanced nodes and are seeing adoption of their AI engine in the automotive industry. Their Design IP segment has also seen strong growth, with a focus on HPC, AI, automotive, and mobile chips. They have announced the world's first PCIe 7.0 IP solution and have secured major customers for their GenAI capabilities. In the multi-die space, they have a strong lineup of products for customers.

In summary, we have seen significant growth and success in our multi-die portfolio, with the launch of 3DIO foundation IP and the tape out of a multi-die design for an automotive application. We also announced Intel Foundry EMIB and achieved silicon success on various processes. We are working towards finalizing the sale of our software integrity business and our founder, Aart de Geus, has been recognized with a prestigious industry award. Overall, our business is resilient and we are focused on investing in areas with the most potential for growth.

In the seventh paragraph, Shelagh Glaser thanks the employees, partners, and customers for their support and trust in the company. She then goes on to review the strong third quarter results, highlighting record revenue and non-GAAP EPS above the guidance range. The Design Automation and Design IP segments both saw growth, and the company's cash flow and free cash flow were strong. She also provides guidance for the full year, with targets for revenue and operating margin improvement.

The speaker asks a question about the company's performance and acknowledges their success in the quarter. They mention the acceleration of chip design at advanced nodes and the growth of AI and accelerated compute. However, they also note the recent downturn in the semiconductor industry and the layoffs at a major customer.

The speaker, Sassine Ghazi, responds to a question about Intel's recent announcement to focus on driving efficiencies around IP and EDA solutions. He explains that this is not a new development for Intel, as they have been transitioning to external EDA and IP since 2007. Ghazi believes that this transformation will provide opportunities for further ecosystem leverage and that there will not be a significant impact on their agreements with Intel in the short or midterm.

In the past 90 days, there have been challenges for semiconductor customers due to the heat generated by advanced chip designs and their interactions with packaging, causing yield and reliability issues. More customers are also moving into the systems market, making Ansys' systems analysis solutions a valuable asset. Customers continue to support the Ansys acquisition, and Synopsys is helping with chip package and systems level challenges. These challenges go beyond electronics and also involve structural, fluid dynamics, and thermal considerations.

Sassine Ghazi, CEO of Synopsys, discusses the company's approach to designing chips for manufacturing and packaging. He explains how they consider the workload and complexity of the system to determine cooling, power supply, and other factors. Ghazi also mentions that Synopsys is focused on providing a comprehensive solution for customers, from silicon to software to systems. Analysts have predicted that the company's growth in traditional EDA (electronic design automation) could reach 12-14% due to the increasing complexity of systems and the introduction of AI technology, such as DSO.ai, VSO.ai, and ASO.ai. These tools are already being adopted by customers and are expected to drive growth for Synopsys.

The company is using Generative AI for knowledge assistance and generation of a portion of the chip itself. They have been selling DSO.ai for four years and capturing an average uplift of 20% from the baseline of the contract. VSO is still in early monetization stage and ASO is in customer validation phase. The company expects to see a 2% growth in the future and believes that the value they deliver will justify this. The EDA growth has been up 9% so far this fiscal year, but the company expects to see double-digit growth in the trailing 12 months.

The mix of products in Design Automation is changing, with traditional ratable software, upfront hardware, and more customers using flexible spending accounts for software. The company cautions against comparing quarter-over-quarter growth and highlights strong trailing 12-month growth. IP revenue grew strongly in the quarter, with hardware assisted verification potentially contributing. The company's EP system is competitive for software bring-up, and there is strong adoption and demand from customers.

The company has identified simulation acceleration as a key use case where they need to be competitive. They have had a strong quarter with wins in this area and expect continued momentum due to the complexity of the market. The company also had a strong quarter in IP and backlog is up year-on-year. The guidance for the year has been narrowed.

The speaker acknowledges the company's frequent raises this year and gives them a pass for not raising this quarter. They ask about any areas that may have underperformed or offset the strong results. The company's CFO responds by saying they have seen strength in their product line and have raised their guidance for the year. They also mention the impact of the entity list and macro environment on their performance in China.

The question from Lee Simpson, an analyst from Morgan Stanley, is about the company's R&D investment and whether there is room to flatten it in order to improve earnings. Shelagh Glaser, a company representative, explains that the pace of the industry and new standards in IP is accelerating and they need to stay ahead of their customers, so R&D investment is a top priority. She also mentions that they will continue to invest in their hardware and EDA capabilities and do not see R&D investment as an area for savings. Lee Simpson then asks a follow-up question about the automotive market and the company's focus on it, and Sassine, another company representative, mentions the growing trend towards software-defined vehicles and custom silicon.

The automotive segment has been growing in the past few years due to the demand for smarter cars and more sophisticated silicon. Automotive OEMs are investing in the electronic systems of cars and working with suppliers to define the specifications for chips. Synopsys has an opportunity to sell their virtualization solutions to both semiconductor companies and automotive OEMs, contributing to the growth of their products. This trend is expected to continue as cars become more intelligent and connected.

Sassine Ghazi, CEO of a chip design company, responds to a question about the percentage of growth in various market segments by stating that they do not report that information. He also mentions that design cycles are contracting due to increasing chip complexity and that this trend could potentially spread across the industry. He explains that the traditional method of designing chips based on Moore's Law is changing, with more companies looking to reduce their design cycle to one year and opting for multi-die systems with advanced packaging to target specific customers.

The speaker is discussing the growth of the market in China and how it may impact their company's revenue. They mention that while there may be restrictions and macroeconomic factors affecting growth, they are still expecting a higher dollar amount from China this year compared to last year. They also note that China's growth may outpace the overall corporate growth, which was not initially expected.

The Q3 revenue from China was strong, but there were no unusual pull-ins or changes in customer engagement due to export controls. The quarter-over-quarter growth in specific regions is due to the product mix. The non-GAAP expenses were $10 million better in the July quarter and $25 million less for the full year compared to expectations. This is due to continued investments in building out IP titles.

The speaker explains that Intel's recent comments about layoffs and using EDA vendors more efficiently will not have an immediate impact on their business. They have long-term commitments with customers and any changes in IP usage will not affect their revenue until the next cycle. Therefore, they do not foresee any changes in their forward growth expectations.

Sassine Ghazi, from Intel, discusses the company's unique approach to IP build out and their straightforward process for EDA. Jay Vleeschhouwer asks about the development process and productivity for AI/ML products compared to conventional EDA products. Sassine explains that traditional EDA products were driven by foundry-specific PDK, while AI products require optimization and acceleration using AI. They are released based on the product's release cycle.

The company plans to release DSO.ai and VSO along with Fusion Compiler and VCS, Verdi, etc. Generative AI will be released at a different pace and customized for each customer's specific needs. The company sees AI becoming an expected part of the solution in the future. The analyst asks about the company's ambition for their custom business, which currently makes up a mid-teens percentage of the Design Automation industry.

The speaker, Sassine Ghazi, discusses the potential for their analog mix signal business to make up a significant portion of their Design Automation business. He explains that their focus is on the verification simulation of analog, where they have a strong portfolio, but they are aiming to grow in the analog design environment. This is driven by increased complexity and faster design cycles, and they are excited about their offering and customer interest. The call concludes with a thank you from the operator.

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