Synopsys Q3 FY10/25 Earnings Review
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Market Or Execution Issues?
by Alex King, CEO, Cestrian Capital Research, Inc
That is the whole question with the terrible reaction to $SNPS earnings.
The company cited issues in their IP licensing division as the cause of weakness in the fundamentals, specifically (i) that China trade policy was causing Chinese customers to not commit to long-run purchasing decisions (ii) that a fab customer had put a material order on hold (this is rumored to be Intel, but I have no proof of that) and (iii) … if you read between the lines … that their IP portfolio appears to be on the lower value end of the spectrum - I say this because they state that they will be re-focusing on higher value technologies to match where AI capex dollars are being spent.
So the question is very simple - is SNPS the canary in the coalmine - will others in the semiconductor market run into the same issues and see, finally, revenue weakness? Or are its issues specific to the IP portfolio and the company is seeking a folk devil - two folk devils, China and Intel, both hated! - to blame for this?
The easiest way to find out is to look for the next set of earnings from Cadence (CDNS) which will cover the quarter ending September. Certainly, CDNS earnings for the June quarter were solid and the stock has performed perfectly well since then. So for now I think it prudent to say this is a Synopsys issue but … I think watching semiconductor earnings very closely over the next 1-2 quarters is probably wise.
On the subject of which: the news about a move to six-monthly earnings in place of quarterly earnings - my guess is that this does happen. This means that technical and quantitative analysis will increase in importance, and fundamental analysis decrease. It may also be that fewer line items are required under US GAAP as time goes by; our data provider YCharts is already cutting back on breaking out key lines such as stock-based compensation, current deferred revenue, and so on. The tables you see below are a new format we have developed to accommodate this. In fundamental analysis, as long as you have revenue, a good measure of real cashflow (after capex), and a clear picture of balance sheet health, the rest is less important. If companies move to a less frequent cadence (it’s not unknown - in the UK companies report half-yearly), our earnings reports will follow suit.
OK - let’s get into it.