Lee Simpson

Lee Simpson inquired about the drivers behind China's 22% contribution to Q2 sales (licensing vs. royalties) and Arm's confidence in the licensing pipeline for the remainder of the year, especially for Q4 renewal deals.

Answer

CFO Jason Child stated that demand in China is robust, with licensing being a slightly larger driver of overperformance in Q2, though royalties are also growing strongly. He expressed confidence in the strong licensing pipeline for the rest of the year, noting the typical six-to-nine-month deal cycles and sustained CapEx/AI cycles, promising more clarity on Q4 deals next quarter.

Lee Simpson inquired about the drivers behind China accounting for 22% of sales in the current quarter, specifically whether licensing or royalties were stronger, and asked about confidence in the licensing pipeline for the remainder of the year, particularly Q4 renewal deals.

Answer

Jason Child, Arm's Chief Financial Officer, noted strong demand in China, with licensing being a slightly larger contributor to the overperformance, although royalties also grew robustly. He indicated a strong licensing pipeline for the rest of the year, emphasizing that large deals typically have 6-9 month cycles. He expressed confidence due to current CapEx forecasts and sustained AI cycles, promising more clarity on Q4 deals next quarter.

Lee Simpson from Morgan Stanley asked about the roadmap for the Ethos NPU beyond 4 TOPS and the specific application for the new Xena CSS in the automotive market.

Answer

CEO Rene Haas explained that Ethos will scale beyond 4 TOPS for extremely low-power, battery-operated applications, not the data center. He positioned the new Xena CSS for L2 to L4 ADAS applications in automotive, noting a strong customer pipeline due to the benefits of accelerated time-to-market.

Lee Simpson from Morgan Stanley asked a broad question about Arm's strategy in the chiplet space, questioning if it's a path toward Arm making its own chips and what the larger value play is.

Answer

CEO Rene Haas explained that Arm's Amba interface is 'table stakes' for chiplet-based SoCs. He directly linked the value of CSS to the chiplet trend, as Arm IP can comprise the vast majority of a chiplet's area. He framed this as a natural extension of Arm's IP and standards role, not a move into manufacturing its own chips.

Lee Simpson asked about the drivers of licensing strength, particularly in relation to major AI projects like Stargate and Cristal intelligence, and inquired about the long-term earnings benefit for Arm from these initiatives.

Answer

CEO Rene Haas explained that Arm is positioned as the CPU of choice for the Stargate AI infrastructure project and that Cristal intelligence's agentic AI will drive demand for Arm's compute platform across all devices. CFO Jason Child added that Q3 licensing strength was driven by AI, v9, and CSS demand, and guided for approximately 60% year-over-year license revenue growth in Q4, fueled by the same trends.

Lee Simpson asked for details on the better-than-expected licensing revenue, its relation to the year-over-year decline in RPO, and whether any deals were pulled forward into the quarter.

Answer

CFO Jason Child confirmed there were no deal pull-forwards. He explained that while RPO was down year-over-year, the prior year was an all-time record, and the current quarter was the second-highest ever, showing a 10% sequential increase. He stated the licensing beat was due to the timing and size of deals and reaffirmed the full-year outlook remains reasonable.

Lee Simpson asked about the drivers behind Cadence's 53% year-over-year growth in China, which now represents 18% of the mix, and whether this momentum is sustainable beyond the return of business post-Q2 restrictions.

Answer

SVP and CFO John Wall confirmed broad-based strength in China, with design activity returning to normal after the lifting of export regulations in early July. President and CEO Anirudh Devgan added that Q3 included prioritized hardware deliveries from Q2 and that overall design activity in China remains strong, with no unusual pull-ins observed. He emphasized that Cadence's strength is broad-based across geographies.

Lee Simpson asked about the significant 53% year-over-year growth in China, which now accounts for 18% of the mix, seeking clarification on the drivers (IP, hardware, core EDA) and the sustainability of this momentum post-BIS letter restrictions.

Answer

SVP and CFO John Wall confirmed broad-based strength in China, noting that design activity returned to normal in the second half after export regulations changed in early July, and Q3 was slightly better than expected. President and CEO Anirudh Devgan added that the behavior in China is back to normal, with some Q2 hardware deliveries shifting to Q3, and overall strength is broad-based, not tied to any single geography.

Lee Simpson of Morgan Stanley asked about the business model and monetization strategy for Cadence's new 'Agentic AI' systems.

Answer

President & CEO Anirudh Devgan explained that agentic AI solutions, like Cerebras AI Studio, are packaged and sold as value-add solutions on top of Cadence's base tools. The company's monetization strategy is to deliver significant productivity and performance gains to customers, who are generally willing to pay for that value. He noted Cadence has flexible business models to capture this value as the technology is adopted.

Lee Simpson inquired about Cadence's potential exposure to U.S. tariffs on China, given that its main offerings are software and services and its hardware is based on ASICs from TSMC.

Answer

CEO Anirudh Devgan stated that software and services are not subject to tariffs. For the hardware business, he explained that Cadence's diversified supply chain, with manufacturing both in the U.S. and abroad, mitigates any direct impact. He concluded that due to this resilience and their ratable business model, they do not believe tariffs will affect their business.

Lee Simpson of Morgan Stanley inquired if the strength in chiplet reference designs was primarily concentrated in China's EV sector and how the China forecast might be affected without this business.

Answer

CEO Anirudh Devgan clarified that chiplet design is a global phenomenon occurring across all verticals, not just one region or industry. He explained that while it began in high-performance computing, it is now proliferating into automotive and laptops worldwide. He highlighted Cadence's long-standing and comprehensive investments in 3D-IC, positioning the company well for this accelerating trend.

Lee Simpson inquired about the breadth of customer interest in the Millennium platform beyond NVIDIA. He also asked about the timing and potential vertical market impact of the expanded collaboration with ARM on its Compute Subsystems (CSS).

Answer

CEO Anirudh Devgan explained that the ARM partnership is expanding to support their total design and compute subsystem strategy, driven by markets like HPC and automotive. Regarding Millennium, he expressed high optimism for its use in accelerating system design and analysis (SD&A) workloads like CFD, noting strong interest from aerospace and automotive customers.

Lee Simpson from Morgan Stanley asked about the unexpected weakness in Synopsys's design IP business, specifically the magnitude of the $120 million shortfall, the permanence of the China and foundry customer headwinds, and the specific areas of roadmap and resourcing realignment, clarifying if the focus is on foundational or interface IP.

Answer

President and CEO Sassine Ghazi acknowledged the aggressive IP plan for FY2025 following strong prior-year growth and noted that signals regarding the magnitude of China and foundry impacts were missed during the Ansys acquisition period. He indicated that these factors are not limited to Q3 and anticipate a transitional and muted year for IP into FY2026. Ghazi clarified that the realignment involves pivoting resources and methodology to serve multiple markets and foundries for both Interface IP and Foundation IP, with a focus on higher-value subsystem delivery due to increasing customization demands.

Lee Simpson inquired about the unexpected weakness in the design IP segment, specifically asking for more detail on the magnitude of the $120 million shortfall and the permanence of the challenges related to China and the major foundry customer. He also sought clarification on whether the roadmap and resourcing realignment primarily targets foundational IP or interface IP.

Answer

Sassine Ghazi, President, CEO & Director, Synopsys, acknowledged an aggressive IP plan for FY2025 following strong prior-year growth, noting that signals regarding the magnitude of the China and foundry impacts were missed during the Ansys acquisition process. He stated that these factors are not limited to Q3 and anticipate a transitional and muted year for IP into FY2026. Ghazi explained that the permanence of the issues depends on market conditions and customer technology choices. He clarified that the realignment addresses both interface and foundation IP across multiple markets and foundries, focusing on higher-value subsystem deliveries and potential business model changes to capture value from increased customization.

Lee Simpson inquired about the unexpected weakness in design IP, specifically the estimated $120 million shortfall, how much advance notice Synopsys had, and the perceived permanence of the China and foundry-related challenges. He also sought clarification on whether the IP roadmap and resourcing realignment primarily targets foundational or interface IP.

Answer

President and CEO Sassine Ghazi acknowledged an aggressive IP plan for FY2025 and that signals regarding the magnitude of headwinds were missed due to focus on the Ansys acquisition. He anticipates a transitional and muted year for IP in FY2026, noting China challenges are not Q3-only and foundry impact depends on their technology choices. He clarified that Synopsys serves multiple markets and foundries for both interface and foundation IP, with increasing customization for interface IP moving towards subsystem delivery, requiring business model changes for higher monetization.

Lee Simpson from Morgan Stanley inquired about the outlook for Synopsys's China business, noting its decline in the revenue mix, and asked about the potential margin impact from any new BIS export controls. He also sought clarification on the payment schedule for the company's recent $10 billion bond issuance.

Answer

CEO Sassine Ghazi clarified that the company's full-year guidance already incorporates an anticipated year-over-year revenue decline in China, which is being offset by strong performance in other regions. He stated the company has not received any notice from BIS and declined to speculate on potential impacts. CFO Shelagh Glaser confirmed the bond payment schedule includes an initial catch-up payment followed by a regular biannual rhythm.

Lee Simpson from Morgan Stanley inquired about the financial impact of the expected decline in China revenue, particularly on margins, in light of potential new BIS export controls. He also sought clarification on the payment schedule for the company's recent $10 billion bond issuance.

Answer

CEO Sassine Ghazi confirmed that the reiterated full-year guidance already accounts for a year-over-year decline in China revenue, which is being offset by strong performance in other regions. He declined to speculate on the margin impact of a BIS notice that Synopsys has not received. CFO Shelagh Glaser clarified that the initial bond payment will include a catch-up period before settling into a regular biannual rhythm.

Lee Simpson asked about the drivers behind the flattening sales growth in China and the outlook for the region. He also questioned how Synopsys views the potential of 'Agentic AI'—as a driver for operating margin or for accelerating product development.

Answer

CEO Sassine Ghazi attributed the deceleration in China to the cumulative effect of trade restrictions and a slowing local economy. He confirmed that the company's guidance assumes China's growth will be below the corporate average for the year. Regarding Agentic AI, Ghazi described it as a transformative opportunity that will change engineering workflows and stated that Synopsys is already leveraging AI internally to enhance productivity across all corporate functions.

Lee Simpson asked if there was scope to flatten R&D spending to improve earnings or if the pace of innovation prevents it. He also asked about the growth potential from the automotive end market, given the shift to software-defined vehicles.

Answer

CFO Shelagh Glaser stated that R&D is not an area for savings, as continued investment is critical to stay ahead of accelerating industry innovation. CEO Sassine Ghazi described the automotive opportunity as very exciting, driven by the need for more sophisticated silicon and system-level design. He highlighted sales of virtualization solutions to OEMs and Tier 1s but did not quantify the segment's growth contribution.

Lee Simpson from Morgan Stanley inquired about pricing trends for general-purpose microcontrollers, citing channel checks of erratic pricing in June, and asked about the readiness timeline for the 800-volt DCDC power supply for NVIDIA.

Answer

President & CFO Lorenzo Grandi reported that general-purpose MCU pricing is seeing stable, low-single-digit erosion with no unusual behavior. Marco Cassis, President of Analog, MEMS & Sensors Group, described the NVIDIA project as a 'work in progress' but expressed confidence in meeting the technical challenges. He stated it was too early to provide a sales timeline but ST aims to be an early adopter.

Lee Simpson from Morgan Stanley asked about the pricing trends for general-purpose microcontrollers and the readiness of the 800-volt DCDC power supply solution for NVIDIA's AI data centers.

Answer

President & CFO Lorenzo Grandi confirmed that pricing for general-purpose MCUs is seeing stable, low-single-digit declines. Marco Cassis, President of the Analog, MEMS & Sensors Group, described the NVIDIA project as a challenging "work in progress" but expressed confidence in meeting the spec, though it was "too early to say" on the timing of a sales impact.

Lee Simpson asked about the end markets for the new PSOC CAPSENSE technology and for more details on the new trench superjunction technology for silicon carbide.

Answer

CEO Jochen Hanebeck explained the new PSOC CAPSENSE technology now includes inductive sensing, which works with wet hands, and is also used for liquid level sensing in industrial applications. He also confirmed the new trench superjunction for silicon carbide is a first that will propel them ahead of the competition. CFO Sven Schneider added that this demonstrates their commitment to innovation even while implementing the "Step-Up" cost-saving initiative.

Lee Simpson of Morgan Stanley inquired about new product developments, asking about the target end markets for the enhanced PSOC CAPSENSE technology and seeking details on the new trench superjunction concept for silicon carbide.

Answer

CEO Jochen Hanebeck explained the PSOC CAPSENSE IP is expanding from capacitive sensing (e.g., home appliances) to include inductive sensing, which works with wet hands, and liquid level sensing for industrial applications. For silicon carbide, he described the combination of trench and superjunction as a "perfect match" that will propel Infineon's technology ahead of competitors. CFO Sven Schneider added that these investments demonstrate their commitment to innovation even while focusing on cost discipline through the "Step-Up" initiative.