MOUNTAIN VIEW, Calif. Though revenues were down substantially in its recently-completed fiscal quarter, Synopsys Inc. has declared success with two major transitions. One is a shift to subscription-based licensing, and the second more significant change is Synopsys' evolution into an IC physical design company.
In an analysts conference call Wednesday (Nov. 29), Synopsys chief executive officer Aart de Geus made it clear that he sees the company's Physical Compiler physical synthesis tool as Synopsys' flagship product going forward. "I predict Physical Compiler will become the most successful product in the history of EDA," he said.
Revenues for Design Compiler, Synopsys' long-time leading product, have "peaked," de Geus said, and the company is placing Design Compiler on a "long term upgrade cycle" that is expected to shift most of the product's 15,000 current users to Physical Compiler within the next three years.
Moreover, de Geus said Synopsys is aggressively moving ahead with detailed routing, which will give the company a complete IC physical design solution. Synopsys has already engaged with four major customer partners in this area, he said, and will install software in selected customer sites during the first fiscal quarter of 2001, which began Oct. 29, 2000.
Synopsys has scheduled a press conference for Tuesday (Dec. 5) to announce the latest enhancements to Physical Compiler and to update its road map in the physical design area.
Meanwhile, Synopsys booked 80 percent of its fourth-quarter orders under its new subscription-based licensing scheme, which has replaced a time-based licensing model. The company said that shift was the reason for its decreased revenues in the quarter ended Oct. 28, but company officials put a positive spin on the news.
For the quarter ended Oct. 28, 2000, Synopsys reported revenues of $133.2 million, down from $228 million in the same quarter last year. Synopsys reported a net loss of $21 million for the most recent quarter.
The entire reason for the revenue decline was the switch from time-based to subscription-based licenses, said Brad Henske, chief financial officer at Synopsys. Under this licensing model, revenues are recognized rateably over a period of two-to-three years, not all at once. Thus, there's a substantial but short-term revenue drop while the shift is under way.
The shift, said de Geus, will result in a licensing model that's more stable for Synopsys, more flexible for customers, and more conservative and predictable for Wall Street. He said it also strengthens Synopsys' negotiating position towards the end of the quarter, when customers typically hold out for large discounts.
"We had a very successful fourth quarter," said Henske. "Both revenues and earnings were over targets, and we continue to build extensive backlog." Fourth-quarter orders were the highest in Synopsys' history, he said.
So far, investors appear to be impressed with the developments. On an otherwise down day for tech stocks, Synopsys' shares rose 11.83 percent Thursday to close at $39.00.
On the conference call, de Geus noted that Physical Compiler revenues in fiscal 2000 were $57 million, above the company's target of $50 million. He predicted $120 million in revenues for fiscal 2001 from this product alone. There are now 71 customers using Physical Compiler, de Geus said, and over 50 tapeouts.
De Geus also said that Synopsys' verification, intellectual property, and services business are all doing well, and he noted that Synopsys will "aggressively grow" its design services operation. The one downside, he said, is transistor-level design, which has "clearly had a tough year." This category includes the tools acquired from Epic Design Automation.
Overall, Synopsys is predicting revenues between $680 million and $690 million for fiscal 2001. That's a decline from fiscal 2000 revenues of $783 million, but the switch to subscription licenses will have an impact for two to three years, Henske noted. Synopsys expects $152 million to $157 million in revenue in the next fiscal quarter.