China Sales
Q: Do you still anticipate headwinds specific to China?
A: Despite a strong Q1 in China due to timing of business pull-downs, Synopsys continues to anticipate headwinds in China for FY '24 related to macroeconomic factors and export controls. They emphasize being pragmatic about China growth, and the remainder of the year aligns with their initial guidance. "

IP Growth and Demand
Q: What's driving the strong growth in IP, and how will it trend?
A: Synopsys experienced a 50% year-over-year growth in IP this quarter, driven by increased silicon proliferation, more chip starts, and new interface IP standards required for complex AI and data center chips. Multi-die designs also contribute to demand. They expect this secular trend of strong IP demand to continue as long as there's increasing demand for sophisticated silicon. "

Ansys Acquisition Impact
Q: How are internal investments progressing ahead of the Ansys acquisition?
A: Synopsys continues to invest in their core EDA solutions and expand into new markets like automotive by enhancing products and go-to-market strategies. The Ansys acquisition is expected to accelerate knowledge and presence in new market segments such as aero, auto, and industrial, but until the deal closes, Synopsys is maintaining its investment pace. "

Hardware Demand and Cycles
Q: How do you see hardware demand and cycles progressing?
A: Anticipating another record hardware year, Synopsys grew inventory by 17% quarter-over-quarter to meet customer demand. Unlike in the past, hardware is now essential for chip design verification before tape-out, leading to a constant need for expansion. The hardware demand is persistent and not subject to typical cyclical ebbs and flows. "

AI in Edge Devices
Q: Are you seeing increased design activity as AI moves to edge devices?
A: Synopsys is witnessing the rise of pervasive intelligence, with more devices becoming interconnected and requiring sophisticated silicon. This broadening of AI into edges and endpoints leads to complex chip designs and higher demand for IP and system-level analysis, presenting a significant opportunity for Synopsys's EDA and IP offerings. "

Customer Concentration Evolution
Q: How will customer concentration evolve over the next years?
A: Synopsys expects the market to experience phases of verticalization and horizontalization. They benefit both ways by selling IP and EDA to both chip companies and system companies. In the near term, customer concentration isn't expected to change significantly, but over the next 5+ years, as more system companies develop semiconductor capabilities, it presents an expanded opportunity for Synopsys. "

Backlog and RPO Changes
Q: Can you explain the sequential decrease in backlog and RPO?
A: The backlog at the end of the quarter was $8.2 billion, down from the record $8.6 billion in Q4 due to the natural lumpiness of timing of big orders. Year-over-year, backlog is up about 19%. There's nothing unusual about the sequential decrease, and timing of renewals usually evens out over a 12-month period. " "

Demand for Advanced Technologies
Q: How does demand for technologies like 2nm and GAA progress?
A: When new process technologies are introduced, Synopsys begins work at least two years prior to enable them with IP and EDA tools. Customers start designing with these technologies around 24 months after announcement. Therefore, the revenue impact from nodes like 2nm and 18A will be seen further into 2025 and beyond. "

Synergies with Ansys Customers
Q: Can you expand your customer base through Ansys?
A: Yes, many Ansys customers are not currently Synopsys customers. As industries move toward smarter, connected devices, these customers will require modeling and verification solutions that Synopsys provides. The combination with Ansys will enable cross-selling opportunities, expanding Synopsys's market. By year four, they're targeting $400 million in synergies, with cross-sell being a significant part of that. " " "