Synopsys Inc Q4 2020 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Just wanted to double-click a little bit on the operating margin implied guidance here. When I look at the EPS growth, it looks like you're implying somewhere around 12%, 12%, 13%. That would be kind of the lowest you guys have put up over the last 4 years, 5 years or so, just looking over the past performance. Just curious as to why the incremental margin driving for '21 would be lower relative to the last 3 years or so?

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Okay. Fair enough. And then just on the Software Integrity business, is there any sort of update you guys can give us for like the long-term trajectory there? I know you guys moved over a lot of the salespeople and kind of the strategy there. So maybe you can put up a big picture as to what that should look like over the next few years or so? Aart J. de Geus - Synopsys, Inc. - Co-Founder, Chairman & Co-CEO Sure. So aside of the go-to-market improvements and accelerations in some areas, there are 2 other things that we look at. One is to increase our consulting capabilities because there's demand for that, and they have a big impact on how well the rest of the business does. And secondly, on the product side, sort of a double focus. A focus on one hand of making sure that each one of our individual products increase more and more of their differentiation because they do battle with a lot of small companies. And simultaneously that the overall platform really becomes more and more integrated because there's a lot of demand from the larger companies to be able to look at their overall risk management picture as it applies to software. And the more we can provide multiple tools that are integrated and that can jointly report on the status, that is very helpful to the CSOs or heads of IT that are typically in charge of that.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Just, Aart, on the growth in Fusion, I think you mentioned it was like 140% growth in orders. Is that order count? And is that also -- I mean, are ASPs basically coming in line with what you had expected, so total contract value is also exceeding your expectations with Fusion Compiler? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 02, 2020 / 10:00PM, SNPS.OQ - Q4 2020 Synopsys Inc Earnings Call Aart J. de Geus - Synopsys, Inc. - Co-Founder, Chairman & Co-CEO Yes. Fusion is doing very well in every dimension. And as you know, this was a long road to get -- it's not only a product, but it's a whole platform to get it to really -- to the point that certainly is across the bridge where it became markedly differentiated versus any competition. And we see that not only with Fusion Compiler as -- is the core product, which, for those of you are not familiar, it does both synthesis and place and route, but also has embedded in it, timing and power and test and a number of other things. In other words, it's the intersection of many things that you look for on a design. It is also the linchpin for brand-new products such as 3DIC and also connected very well to the Silicon Lifecycle Management capabilities. And so in many ways, we feel that we have literally entered now the next decade of being able to build on that backbone that we have invested in for quite a number of years. And so both the technical stats, the booking stats and the revenue stats are all looking very encouraging.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : The first one for the team is just around China. If I did my calculation right based on your disclosure, it grew about 30% this year, even more than that. I guess I'm trying to look a few years out, and it now represents low teens in your revenue as a proportion of total revenue. So we've seen that it can reach -- if it continues to grow that rate, it could be up to kind of high teens. Is that something that you would expect to happen in the long term, especially considering your comments earlier that you have been really seeing pull forward that this is a structural growth the way you're seeing it? Aart J. de Geus - Synopsys, Inc. - Co-Founder, Chairman & Co-CEO Well, as you know, the Chinese economy has rebounded post-COVID, but in general, is in a phase of growth where technology is important to where that country is going. And we see many new companies entering the fray for chip design and other areas that we can provide them with tools with. And of course, we see many of the companies that have now a number of years under their belt designing much more sophisticated chips. So I expect that to continue for a long, long, long time. And when you say a decade, it doesn't phase me at all. On the contrary, I think that's absolutely what's going to happen. And so our job will be to service that market as well as we can because it's a great opportunity. Now I would add to that, that the countries around China are doing quite well also. And so the whole Asia environment is absolutely moving forward on technology. And we have -- we're thankful that we have a very good connection in all these countries, be it ranging from Korea, Taiwan, but also Japan that is rebounding somewhat with the China phenomenon. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 02, 2020 / 10:00PM, SNPS.OQ - Q4 2020 Synopsys Inc Earnings Call