Synopsys Inc. (NASDAQ:SNPS) is a leader vendor of electronic design automation (EDA) and semiconductor IP. The firm’s software, IP and services help engineers address their design, system and manufacturing challenges, allowing logic synthesis and functional verification phases of chip design. Synopsis has a broad product portfolio which includes physical synthesis products, physical design products and physical verification products, and also provides Intellectual Property (IP) used in semiconductor design and manufacturing, helping simplify design and accelerate time-to-market for its customers. Through its professional Services, Synopsis provides turnkey design services, design assistance, methodology consulting and design manufacturing.
Revenue is reported in three segments: Time-bases license, Upfront license and Maintenance and Service. Time-based license segment reports revenue through Technology Subscription License (TSL), fees over the period of the license and installment costs. This segment currently provides the largest part of revenue, generating 83.0% of total revenue for fiscal 2012. Revenue from the Upfront license segment is a Tem license revenue, generated from term licenses in full after the completion of the shipment of the software. Finally, Maintenance and Service segment revenue is derived from maintenance fees along with professional service and training fees.
- Warning! GuruFocus has detected 5 Warning Signs with SNPS. Click here to check it out.
- SNPS 15-Year Financial Data
- The intrinsic value of SNPS
- Peter Lynch Chart of SNPS
Time-based license model has been showing good results, generating over 81.2% of total revenue. This system provides the company a steady revenue stream, as customers effectively rent the software, paying time-based fee. Fiscal first-quarter 2014 showed adjusted earnings per share (including stock-based compensation and excluding all one-time items) of $0.51, though above estimations decreased 14.9% year over year.
Synopsys’ Position Within the Market
The EDA market is thought to penetrate and customer are increasingly focusing on cost efficiencies. Therefore, Synopsys is constantly trying to provide better services as to strengthen its relationship with users. The firm’s efforts are directed towards increasing hardware efficiency, enabling significant reductions in both CPU memory consumption and manufacturing turnaround time, and extending multi-core capability to VCS functional verification — technology that enables designers to quickly de-bug — in order to double the speed and reduce manufacturing expenses.
The company is extending its relationships with companies such as Realtek, Juniper Networks Inc. (NYSE:JNPR), Toshiba Corporation (TOSBF) and Wolfson, seeking to build a strong business with innovative character and renewed technological approach. Moreover, Synopsys has been conducting different acquisitions as to develop its product portfolio while gaining access to diversified markets and technologies. Acquisitions are helping the company develop its EDA products more efficiently and fuel growth. The acquisition during 2012 of Springsoft has allowed Synopsys to access a higher level of automation in electro chip designing, and the addition of other companies like EVE, an emulation provider, independent provider of verification IP (VIP), nSys Design Systems Private Limited (nSys) and EDA Company Extreme DA are likely to increase furthermore the company’s penetration within the market.
News and Developments
Coverity Inc. is a Synopsys company, which provides software quality and security testing solutions. Recently, the company announced that the Coverity Scan service was named finalist for the 2014 SIIA Software CODiE Awards for Best Open Source Innovation. The Coverity Scan Services provides a testing platform which helps developers build quality and security into their software development process, at no cost to the open source community.
Furthermore, Synopsys’ management stated the expansion of its Virtualizer™ Development Kit (VDK) portfolio for Renesas' RH850 MCU with the new RH850/E1x series reference virtual prototype. This software development kit integrates Renesas' RH850 MCU virtual prototypes with software debug and analysis tools, and allows engineers to start software development and integration and test months before hardware is available.
The announcement of the publication of a practical guide for using virtual prototypes to develop, test and debug software produced by Synopsys press, entitled Better Software. Faster!, is likely to help the software developer community achieve earlier software development. John Koeter, vice president of marketing for IP and systems at Synopsys said: "Better Software. Faster! builds on Synopsys' tradition of collaborating with industry experts to educate through instructive publications, enabling companies to achieve and accelerate their development goals to be successful in an extremely competitive environment."
Customer concentration is always a threat to these companies, as depending on a single customer for large amounts of revenue represents indeed vulnerability. Therefore, Synopsys’ focus on constant innovative product launches is a key to customer retention and growth opportunities.
The company produces revenue thorough different geographical segments. Generating approximately 50% of its revenue outside the United States, introduces some uncertainties to company’s forecasts, as economic turmoil and currency risks are always posing challenges. The acquisition moves are certainly a food way to grow product pipeline, but they also carry large integration costs. Synopsys is in a good position with its acquisitions as the companies have already been adding promising results. Nevertheless, being the industry is faced with some challenges related to EDA spending, remaining subdued, acquisitions and expenditures might affect the company’s margins.
Currently, Synopsys Inc. (NASDAQ:SNPS) was identified as having a larger market cap than the smaller end of the S&P 500, like Joy Global Inc. (NYSE:JOY). This allows a true comparison of the value attributed by the stock market to the company's stock, with a market cap of $5.85 billion. Total revenue for the quarter was $478.9 million, up 0.8% versus 2013, driven by the higher adoption of Synopsys products. Analysts believe the combination of product launches, acquisitions and deal wins will boost results, in the near term. Still, competition from peers is always strong, and the challenging technology spending environment introduces some doubts.
Disclosure: James Miller holds no position in any of the stocks mentioned.