Synopsys: AI Drives Chip Design, Strong Q1 Revenue

In its projection for the first quarter of the 2024 fiscal year (November to January), Synopsys anticipates a significant revenue surge fueled by the increasing demand for its advanced chip design software due to the widespread adoption of artificial intelligence (AI). The company expects first-quarter revenue to range between $1.63 billion and $1.66 billion, surpassing the consensus analyst estimate of $1.6 billion. Adjusted earnings per share for the first quarter are estimated to fall within the range of $3.40 to $3.45, exceeding the earlier analyst forecast of $3.05, according to data from LSEG. Synopsys also projects a full-year revenue between $6.57 billion and $6.63 billion for the fiscal year 2024.

In the fourth quarter of the 2023 fiscal year (ending October 31), Synopsys reported a noteworthy increase in revenue to $1.6 billion, signifying a remarkable 25% year-over-year growth, surpassing analysts' expectations of $1.59 billion. The quarterly profit also outperformed expectations, reaching $491 million, reflecting a substantial 65% increase compared to the preceding year.

The escalating demand for high-performance AI-compatible chips has bolstered the market standing of Synopsys and industry peers, such as Cadence Design System, within the realm of Electronic Design Automation (EDA) companies offering cutting-edge software and Intellectual Property (IP) solutions for chip design. Sassine Ghazi, President and Chief Operating Officer of Synopsys, underscored the growing necessity for specialized chips dedicated to supporting AI training, characterizing them as "significant and intricate chips." He views this trend as a substantial opportunity for the company.

The surge in demand for tailored chip designs from technology giants like Microsoft and Alphabet has further catalyzed market dynamics. Synopsys's software tools play a pivotal role in facilitating semiconductor design processes for industry leaders like Intel and supporting automotive manufacturers like Mercedes-Benz in the development of advanced Engine Control Units.

In a strategic move announced in November, Synopsys disclosed its collaboration with Microsoft to develop a proprietary chip design assistant, focusing on early bug and error detection. Ghazi highlighted that the heightened adoption of Synopsys's AI services contributes to a noteworthy 20% increase in the value of select contracts upon renewal. Ghazi is poised to assume the role of CEO, succeeding the company's founder, Aart de Geus, in the upcoming year.