Synopsys Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual) Transcript

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

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : That's great. So we'll come back to kind of the results here. But just so that we get a lay of the land, the core EDA, IP, Software Integrity, can you just give us a little bit of a brief background on those major businesses that Synopsys is in? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 25, 2021 / 6:10PM, SNPS.OQ - Synopsys Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual)

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Okay. Great. Oh, sure, go ahead.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : So just speaking of core EDA, and whether it's the software piece or hardware with emulation and prototyping, about how big is this portion of your business? And then we'll get into some more detail.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : How did that core market -- either EDA and IP, how did that hold up during the pandemic?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : And just so that we're clear, I mean, design cycles for semiconductors are so long. When we hear about manufacturing hiccups or the next node actually coming to tape out, I mean, these are months and often years in the making. And so one thing that I'm always curious about is, well, in a world where some technology needed to be -- and digital transformation needed to be accelerated. I mean in terms of the actual design of the chips, how -- I mean, how much faster can people run, right, from what they were doing in 2019? And how did that accelerate in 2020?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : And these system companies that you often refer to, about how much of your core EDA actually comes from these system companies relative to traditional semiconductor?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : And what about the -- I know you guys have talked a lot about the automotive industry over the last number of years. Is the automotive industry also following these hyperscalers and designing chips specific for specific use cases? Or are they adopting more IP? What's the difference, really, in terms of some of these end verticals that are outside of semiconductors?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Is the automotive market probably -- is that the most successful end vertical in terms of selling everything core EDA, IP and Software Integrity as you look out into your customer base?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Okay. Now I want to be mindful that we're speaking to the Chief Financial Officer here, and I don't want to get terribly technical. But there are a couple of areas that Synopsys has really invested in over the last couple of years, and the one that I want to speak about first is Fusion Compiler. So can you just tell us why is Fusion Compiler such a game changer in terms of the way that the design flow works from front end to back end? And then also -- well, let's just start there and then I'll follow up after that.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : I remember, one time, in a conversation with Aart, he said this was basically a once call it, investment. Is that part of the driver as to, now, as we look out over the next few years? And you're really looking to expand margins and, certainly, part of that is in your semiconductor and systems business. Is feasting on the previous investments from Fusion Compiler part of why you're able to expand margins over the next couple of years?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Okay. Great. We've got a couple of questions coming in from the audience, but I just want to hit on one thing before we go there. You mentioned hardware, just announced a hardware refresh. What are some of the highlights you can give us? And then what do you tend to see with a brand-new hardware refresh? What do you tend to see, either competitively, or maybe in the numbers financially as the new hardware starts to head out into the market?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Great. All right. A couple of quick ones from the audience. So can you touch on pricing structure of your -- of the software first? And then a question about switching costs. But first, on the pricing structure of the software.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Yes. Just quickly, just to clarify, when we're talking about pricing structure as well, this is on a per seat basis or a per engine -- number of products per seat, correct, in terms of the structure of how you're actually pricing the tools?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Got you. So the second part of the question is really about the dynamics around switching costs. And how difficult is it for someone to switch from Synopsys to Cadence, Cadence to Synopsys, Mentor, what have you? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 25, 2021 / 6:10PM, SNPS.OQ - Synopsys Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual) And also, are there -- you've just mentioned full flow. Are you seeing more full flow adoption rather than going with the best individual product for each area of the design?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : And then another follow-up from the audience. How would you characterize the Synopsys competitive advantage? And I know that this is likely referring to your EDA tools, but as specific as commentary would be helpful.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : How are you guys thinking about China as a market, both as a semiconductor manufacturer? Are there local Chinese design houses that you will have to compete against? What do you think that market looks like over the next few years?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Can we just switch gears quickly to Software Integrity? I think you -- the company still feels confident in getting back to double-digit growth here at -- by the end of the year. But that implies we're going to have to do some work here sequentially to get back to double digits year-over-year in the Software Integrity business. What gives you the confidence that you can -- that, that can happen?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Got you. Okay, that's -- yes, that's good to hear. You don't often hear a company say, "Hey, this is on us." Not -- it's almost always a market issue, not a company issue.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Okay. So just speaking about both the long term and the short term, so you've put out some kind of 3-year midterm, mid-type targets getting to the Rule of 45 on a margin plus revenue growth basis. Where should we expect maybe those metrics to end as we exit fiscal '21?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Now then the growth rates through the year looked a little wonky, right? It grew a ton in the first half, second half looks odd, right? I mean it looks like you're going to end the year basically flat year-over-year. Can you just give us kind of what are the dynamics? What happened in the second half of 2020 that makes things look a little off?

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : Right. Right. All right. Great. Trac, we are out of time. This is fantastic. Really appreciate you doing this. And thanks to the audience for all the questions that came in. That was good feedback. So Trac, thanks again.

Question: Jackson Edmund Ader - JPMorgan Chase & Co, Research Division - Analyst : All right.