Synopsys Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
November 30, 2022

Key Takeaways

  • Record Fiscal 2022 Results: Revenue grew 21% to $5.08 B, non-GAAP operating margin expanded to 33%, non-GAAP EPS rose 30%, and operating cash flow hit a record $1.7 B.
  • Strong Fiscal 2023 Outlook: Company expects 14–15% revenue growth, over 100 basis points of non-GAAP margin expansion, and approximately 16% non-GAAP EPS growth.
  • Robust Design Activity & Backlog: Design demand remains solid through cycles, supported by a time-based subscription model with $7.1 B of non-cancellable backlog.
  • AI-Driven Design Adoption: DSO.ai customer count more than doubled in FY 2022, with 7 of the top 10 semiconductor firms using it to reduce turnaround by ~25% and power by up to 30%.
  • Multi-Die & Chiplet Solutions: Synopsys now supports 100+ multi-die designs with integrated tools like 3DIC Compiler and leading UCIE interface IP for advanced system-on-chip architectures.
AI Generated. May Contain Errors.
Earnings Conference Call
Synopsys Q4 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Ladies and gentlemen, welcome to the Synopsys Earnings Conference Call for the Q4 of Fiscal Year 2022. At this time, all participants are in a listen only mode. Today's call will last 1 hour. And as a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Lisa Eubank, Vice President of Investor Relations, please go ahead.

Speaker 1

Thank you, Lisa. Good afternoon, everyone. Hosting the call today are Art DeGeus, Chairman and CEO of Synopsys and Trac Pham, Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during the call, Important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release.

Speaker 1

In addition, we will refer to non GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP Financial measures and supplemental financial information can be found in the earnings press release, financial supplement and 8 ks that we released earlier today. All of these items, plus the most recent investor presentation, are available on our website at synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I'll turn the call over to Art DeGeus.

Speaker 2

Good afternoon. I'm happy to report that Synopsys completed an outstanding year With sustained forward momentum. Since about 4 years ago, we communicated our dual objectives of accelerating growth and expanding margin, Synopsys has delivered on and in fact exceeded those expectations. This is visible through over 60% revenue growth since that point, 11 percentage points higher non GAAP operating margin and more than doubled EPS. This quarter, we also Building on this, we delivered another record year in fiscal 2022.

Speaker 2

Revenue grew 21 percent to $5,080,000,000 with double digit growth in all product groups and across geographies. We further expanded non GAAP operating margin to 33%, grew earnings by 30% And generated record cash flow of $1,700,000,000 While Semiconductor Industry revenue growth has moderated, Design activity remains robust. In addition, our time based business model with $7,100,000,000 of non cancelable backlog While fully mindful of the macro dynamics around us, including the most recent U. S. Government export restrictions, Synopsys is poised for strong results in fiscal 2023.

Speaker 2

We intend to grow revenue 14% to 15%, Continue to drive notable ops margin expansion and aim for approximately 16% non GAAP earnings per share growth. Chuck will discuss the financials in more detail. Looking at the landscape around us, some of you have asked us Why customers' design activity remains solid throughout waves of the business cycle? Two reasons. 1st, The Macroquest for smart everything devices and with it AI and big data infrastructure is unrelenting and expected to drive a decade of strong semiconductor growth.

Speaker 2

2nd, semiconductor and systems companies, be it traditional or new entrants, Prioritize design engineering throughout economic cycle precisely to be ready to field competitive new products when the market turns upward again. We've seen this dynamic consistently in past up and down markets and expect it to continue. Today, Synopsys aims to be a key engineering catalyst Towards this smart everything world, as our mission is to enable innovation at the critical interplay between semiconductors and software. Our customers are racing to differentiate along 3 axes. 1st, still higher complexity chips with massive compute capability.

Speaker 2

2nd, super tightly integrated systems of chips optimized for the software that will run on them. And third, increasing focus on security and safety across both software and hardware in virtually all vertical segments. Synopsys is uniquely positioned to address these challenges as we provide the most advanced and complete design and verification solutions available today, The leading portfolio of highly valuable semiconductor IP blocks and the broadest set of software security testing solutions. In the past few years, we've introduced some truly groundbreaking innovations that radically advance how design is done. Let me begin the highlights with our dso.ai artificial intelligence design solution.

Speaker 2

With already well over 100 Commercial production design, it continues to deliver amazing results. Applied simultaneously to multiple of the design flow, dso.ai reduces efforts for months to now weeks, while also delivering superior performance and reduced power. Results reported by customers include 25% reduction in turnaround time and compute resources And up to 30% power reduction. With customers such as Samsung, Renata, Intel, MediaTek, Sony And many others reporting impressive achievements, customer adoptions have accelerated across a wide range of process nodes and market verticals. In FY 2022, the number of customers more than doubled, and we've already seen significant repeat orders and broadening proliferation.

Speaker 2

7 of the top 10 semiconductor companies have adopted DSO dot ai for production design. Meanwhile, We're also extending machine learning capabilities across other EDA workloads from verification to test to custom design. These next phase solutions are already in customers' hands, showing excellent impact and promise. Central to the impact of DSO dot ai The powerful digital design solution engines underpinning it, specifically our Fusion Compiler products. It drove numerous competitive wins with accelerated proliferation for a wide variety of customers.

Speaker 2

Key adoptions range from the largest processor firms to influential systems companies to major hyperscalers. Fusion Compiler is used in over 90% of advanced nodes down to 3 nanometer and 2 nanometer with the majority exclusively using Synopsys. In Q4, cumulative customer tape outs surpassed 1,000 more than doubling the combined total of FY 2020 2021. Our custom solutions also saw strong market momentum this year, continuing the drumbeat of competitive displacements. With adoptions ranging from large semiconductor companies at advanced nodes to automotive to memory vendors, as we added more than 45 new logos this year, Nearly 1 per week with double digit revenue growth.

Speaker 2

To address the highly advanced chip mentioned earlier, Multi die system design, sometimes also called chiplet based design, is opening a whole new era of silicon complexity. Having forecasted this a number of years ago, Synopsys now provides a differentiated multi die solution That enables architecture, analysis, design and sign off all integrated in one place. This includes our 3DIC Compiler solution Our industry leading portfolio of state of the art die to die interface IP. Today, we're already tracking more than 100 multi die designs For a range of applications, including high performance compute, data centers and automotive, seeing strong adoption of our broad solution. A notable example is achieving plan of record for multiple 3 d stack designs at a very large high performance computing company, as well as expanded deployment at a leading mobile customer.

Speaker 2

Meanwhile, the recently introduced UCIE protocol, Short for Universal Chiplet Interconnect Express has become the interconnect of choice for multi die systems. Both our UCIE interface IP and HBM3 memory IP are at the forefront of enabling multi die design with multiple wins at Tier 1 customers. More broadly, 3rd party IP is a must have For designs across the board, our market leading IP portfolio, by far the broadest in the industry, continues to drive significant adoptions and growth. In fiscal 2022, our IP business delivered another record year with more than 20% growth. We continue to see particularly strong demand in key markets such as high performance compute, automotive and mobile, Where the systems are driven by smart everything, high speed secure connectivity and advanced process geometries.

Speaker 2

While maintaining technical leadership in IP for advanced process technologies, we delivered multiple IP products In the most advanced 3 and 4 nanometer process nodes to our customers in high end mobile and HPC applications. Very strong adoption also of our automotive grade IP solutions as cars are being re architected towards both electrification And autonomous driving. The acceleration of car electrification driven by urgent climate considerations Notably, there is a slew of new sensor, actuator and control chip designs. Our automotive solutions had outstanding growth. Today, we have engaged with hundreds of designs from more than 30 leading semiconductor providers, more than 10 OEMs And 3 of the top 4 Tier 1 suppliers.

Speaker 2

At the core of these systems is the intersection of hardware and software. To optimize the system, our customers must verify both the software in the context of the hardware and the hardware in context of the software. While verification is fundamentally an unbounded problem, our state of the art simulation, emulation and prototyping products Tackle these tough verification challenges at unparalleled speed with the fastest engine, highest capacity and lowest cost of ownership. Specifically, our hardware based products delivered a record year with competitive momentum, adding more than 30 new logos and over 200 repeat orders. Moving now to software security, the critical nature of which continues to grow, as management teams and boards are keenly focused on ways to protect their companies and their customers from destructive cyber attacks.

Speaker 2

Our Software Integrity solution enables organizations To manage the security and quality of software across a wide range of industry verticals from semiconductor and systems to financial services, Automotive, Industrial, Health and More. Industry groups such as Gartner and Forrester recognize Synopsys' leadership. Gartner positions us at the top and farthest right of its Magic Quadrant, rating us highly for technology depth, breadth, consulting capabilities and vision. While this is the one area where we did see some impact from the macro environment in the quarter, Revenue growth for the year accelerated over FY 2021. Notably, we saw good progress with the go to market and product initiative Introduced last year, our indirect channel partner business, for example, continues to ramp well by expanding our reach Into customer groups and geographies that we hadn't connected with in the past.

Speaker 2

We are building momentum with the goal of another significant increase in indirect sales FY 2023. On the product side, we expanded our offerings by launching 2 new SaaS services For static analysis and open source analysis integrated into our Polaris platform. We expect these SaaS capabilities to accelerate adoption End consumption of our solutions as they are particularly well suited to growth in the mid market. Early customer reception has been quite positive. Our continually evolving and strengthening platform also provides more and more valuable insights to help companies drive Increasingly robust top down software risk management.

Speaker 2

In summary, Synopsys exceeded beginning of year targets and delivered a record fiscal 2022 across all metrics with the additional spark of passing the $5,000,000,000 milestone. We enter FY2023 with excellent momentum and a resilient business model that provides stability and wherewithal to navigate market cycles. Notwithstanding some economic uncertainty, Our customers are continuing to prioritize their chips, system and software development investments to be ready with differentiated products at the next upturn. On our side, many game changing innovations across our portfolio position us well to catalyze a decade of semiconductor importance and impact. Finally, our execution and operational management continue to drive growth and margin expansion, we're particularly thankful to our employees around the world for their vitality and diligence throughout the year.

Speaker 2

One more comment. As you may have seen, yesterday we announced the appointment of Sheila Glaser to become our new CFO on December 2. She is here with us today listening in as we prepare to pass the torch from Track in a few days. Before I pass the microphone to Track For his review of fiscal 2022, it's wonderful to say a heartfelt thank you for his contributions that helped build the company we are today. With 16 years on our team, 8 as Synops' CFO, Track is a cornerstone architect and execution leader of the strong results of the past year.

Speaker 2

During his tenure, he strengthened our fiscal discipline and acumen, Engineered trusting and effective relationships with the other parts of the company and most importantly assembled and grew a great team that we will continue to build on. So it is all the more meaningful to voice our gratitude to Track at the very moment that we pass this unique revenue milestone. Thank you, Chuck. And now one more time, please give us your perspective on the state of Synopsys.

Speaker 3

Thank you, Art, for those kind of words. It has been a privilege to serve as the CFO at Synopsys. I'm immensely grateful to be a part of this team and I'm proud of what we've accomplished. While I'll miss the rich interactions with the Synopsys team and the investment community, I'll be here through the end of December to ensure a smooth transition. Synopsys is in a great position as reflected in strong results and outlook.

Speaker 3

FY 2022 was an excellent year and featured record results in all key metrics, including revenue, Non GAAP earnings and operating cash flow. We continue to execute well and are confident in our business heading into FY2023, Driven by our strong technology portfolio that is expanding customer commitments, robust chip and system design activity Despite moderating semiconductor industry revenue growth and a resilient and stable time based business model with $7,100,000,000 in non cancelable backlog. As a result, while the macro environment is stressed, we expect to grow revenue 14% to 15% And expand operating margin more than 100 basis points, driving non GAAP EPS growth of approximately 16% in 2023. Let me provide some highlights of our full year 2022 results. We generated total revenue of $5,080,000,000 Up 21% over the prior year with double digit growth across all products and key geographies.

Speaker 3

Total GAAP costs and expenses were $3,900,000,000 and total non GAAP costs and expenses were $3,400,000,000 resulting in a non GAAP operating margin of 33%. GAAP earnings per share were $6.29 and non GAAP earnings per share were $8.90 up 30% over the prior year. Semiconductor and Systems Design segment revenue was $4,600,000,000 driven by broad based strength across all product groups and geographies. Adjusted operating margin was 35.3%. Software Integrity segment revenue was 466000000 Up 18% with adjusted operating margin up slightly to 10.1%.

Speaker 3

For 2023, Even in light of some of the marginal macro related impact on Q4 orders, we expect revenue growth to be within our 15% to 20% objective with increased adjusted operating margin. Turning to cash. Operating cash flow for the year was a record 1,700,000,000 Reflecting our strong results, robust collections and approximately $100,000,000 in early collections. We ended the year with cash and short term investments of $1,570,000,000 and total debt of 21,000,000 During the year, we completed buybacks of $1,100,000,000 or 69 percent of free cash flow. Now to our targets, which reflects the impact from the recently announced export control regulations and assume no further changes for the year.

Speaker 3

Based on our current assessment, we expect quarterly revenue and non GAAP EPS to steadily increase through the year. For fiscal year 2023, the full year targets are revenue of $5,775,000,000 to 5,825,000,000 Total GAAP costs and expenses between $4,490,000,000 $4,537,000,000 total non GAAP costs and expenses Between $3,810,000,000 $3,840,000,000 resulting in a non GAAP operating margin improvement of more than 100 basis points, Non GAAP tax rate of 18%, GAAP earnings of $7.68 to $7.86 per share, Non GAAP earnings of $10.28 to $10.35 per share cash flow from operations of approximately 1,700,000,000 Now to the targets for the Q1. Revenue between $1,340,000,000 $1,370,000,000 Total GAAP costs and expenses between $1,033,000,000 $1,053,000,000,000 Total non GAAP costs and expenses between $875,000,000 885,000,000 GAAP earnings of $1.89 to $2 per share and non GAAP earnings of 2.48 to $2.53 per share. Our press release and financial supplement include additional targets and GAAP to non GAAP reconciliations. Finally, we are reiterating our long term financial objectives of annual double digit revenue growth, Non GAAP operating margin expansion of more than 100 basis points per year and non GAAP EPS growth in the mid teens range.

Speaker 3

In conclusion, we entered 2023 with excellent momentum and confidence, reflecting our innovative technology portfolio, Ongoing design activity by our customers who continue to invest through semiconductor cycles and the stability and resilience of our time based business model. With that, I'll turn it over to the operator for questions.

Operator

Thank you. Before we begin the Q and A session, I would like to ask everyone to please limit yourself to one question and one brief follow-up We'll take our first question from Joe Ruig with Baird.

Speaker 4

Great. Hi, everyone. And let me just start tracking all my best wishes. It's been a pleasure working with you. Maybe I'll just start.

Speaker 4

It seems your customers are heading towards a demand environment that Maybe as most akin to what we last saw in 2019 and if I just think about Synopsys in 2019, I think you grew your Recurring revenue at a low double digit pace, your non recurring revenue was down at a high single digit pace. I don't know. It seems both are probably trending better into 2022 than the last kind of down experience for the industry. Can you Just comparing, contrast, similarities, differences and maybe a little bit more detail on how those two revenue components might track next year?

Speaker 2

Well, first, actually, I think your comparison is pretty good, because 2019 was really just sort of Waiving around the medium for the growth of the semiconductor industry. And so in that sense, I don't see a long term change in the trajectory, which Essentially forecast that for this decade, semiconductors are making it to $1,000,000,000,000 and we see all the reason why it will get there. The fact that some years are higher, others are slightly lower is just a given. And in a context like that, Synopsys This has the good fortune to have a business model that is very stable and self sustainable, but also a set of customers that have no interest And going up and down in the R and D force because it's a continual investment over typically products that take 2 to 3 years to develop. And so I think we provide a good solidity in pretty much all the fronts.

Speaker 3

In general, Joe, I'd also add that we're seeing just Better momentum today than we did a few years back. When you look at it at where our products are and with regards to strength of the portfolio, how we're executing, the changes that we're making and just the overall strength of the business, I think we're heading into an environment that may be stress Outside, but we're well positioned to grow there.

Speaker 4

Okay, great. And then I was hoping maybe just reconcile some of the year over year changes with your cash flow outlook. Even I guess if I adjust for the $100,000,000 in early collections, I think cash from operations is growing a bit more slowly than your Core EBIT and earnings and then, there's it looks like a big step up in CapEx, maybe just what's behind that?

Speaker 3

So let me start with the cash from ops. The second thing, in addition to the $100,000,000 of early collections is the Our cash flow projections reflect the change in the tax rules that now requires us to capitalize R and D expense. And so as a result of that, cash taxes are going up in 2023. So that affects the number. With regards to the CapEx, it's a little higher than it's been over the last couple of years, primarily because of Our efforts to consolidate space and our facilities in the U.

Speaker 3

S. Mostly to drive better productivity in the employee base going forward.

Operator

We'll take our next question from Gal Munda with Wolfe Research.

Speaker 5

Hey, thank you for taking my questions. I'm track. Congratulations on your last quarter, Nico, as well. I hope you enjoy your retirement. The first one is just, I wanted to focus a little bit on the DSOI.

Speaker 5

You mentioned, Arch, that you've doubled the amount of customers in 2022. My question is, how early are you in that potential to penetrate the customer base, especially The ones that moved the needle in the matter. And within the ones that already adopted, do you feel it's just the beginning from them in terms of being productive? Do you think there's still a lot of room to sell deeper into those accounts?

Speaker 2

I think there's a lot of room. As a matter of fact, I think that the whole AI driven design wave is easily the next decade, because it fundamentally changes so many things at the very moment that, the customers One way or another are going to grow complexity dramatically because they see so many opportunities in this notion of smart everything. And so in order to do that, you don't want to just have tools that use AI and be better and faster and so on. You want actually to impact the very design flow. And to me, the big breakthrough in dso.ai felt very similar, as a matter of fact, of some 30 years plus ago synthesis, it changed how things are happening.

Speaker 2

Now in that sense, the adoption will on one hand take time, on the other hand, I think is very fast. Literally just a couple of days ago among the team we were discussing how do we manage the number of people who have interest because they all want support, they all want to be the first ones and it's a good problem to have.

Speaker 5

That's fantastic. Thank you. And then Just as a follow-up, you mentioned automotive solutions and the OEMs as well coming in, both from the semis companies and the OEMs kind of increasing demand and That's kind of driving part of the growth. I guess if I zoom out and I think about your growth vectors today, I'm thinking maybe specifically about next when you look at your pipeline, how does the reliance on the core semis, the leading edge companies Compared to the systems companies in terms of the growth, who's bearing the higher proportion of growth in terms of responsibility to kind of deliver those targets that are Pretty impressive. Thank you.

Speaker 2

Well, you I'm glad you bring up automotive because looking at the numbers, I was surprised myself how well we had done this year. At the same time, I think there's some good explanations for it. For starters, the very fact that there was a supply shortage in automotive, Suddenly everybody gets full attention of automotive. And then simultaneously, the world has now recognized that the cost of climate change is upon us. And I expect that the rate of change for electrification is absolutely going to accelerate.

Speaker 2

And so investments that started probably 7, 8 years ago, and we always felt, oh, automotive is so slow, it's so slow. Now suddenly are moving Forward very fast and it's along the entire supply chain that is reconfiguring itself around new architectures. So I think there's a lot of opportunity, lots of challenges there as well, but I think we're in a great position for it.

Speaker 6

Thank you so much.

Speaker 2

You're welcome.

Operator

We'll take our next question from Jason Celino with KeyBanc.

Speaker 7

Hey, thanks for fitting me in, track. It's been an absolute pleasure,

Speaker 5

bad luck goodbye. So hopefully, this is

Speaker 7

just to see you later.

Speaker 3

Thanks, Jason.

Speaker 7

The 14% growth guidance is very impressive, especially the year that you are coming out of. I'm curious though with the upfront business having a tough comp, you did 40% growth there this year. How much of Aperontra hardware, I'm using those terms kind of interchangeably, are you kind of taking into the guidance for 2023?

Speaker 3

I wouldn't naturally attach hardware to upfront. Of course, it will show up online, but keep in mind that we do have IP that It is reflected in that category as well. And remember in our statement, we Our IP business grew over 20% in 2022. So heading in 2023, really the 14% to 15% guide for Revenue growth is coming across all product areas and that's where we're that's all product areas and all key geographies. And so that's where the confidence and the comfort is in terms of our ability to execute against that plan.

Speaker 7

Okay. Excellent. And then, Art, DSO dot ai, it seems that you're getting a lot of traction there and you mentioned Some other areas where you're looking to add AI capabilities like verification, test and custom. Can you kind of talk about this roadmap and where we are with deployments and how customers are using it some of these other applications?

Speaker 2

Sure. I'll be a little careful with giving too much of the roadmap, but I want to make sure that you understand that in all of these areas, we have worked on those now for already quite a while, and we have a number of Very positive results directly with customers. And at the end of the day, it's like the old VC, if the do the dogs eat the dog food, Pat, I would ever want to compare customers to dogs, of course, but the fact is, it's in the field that you realize What are the issues that one may not have contemplated? And the feedback is very positive because there too, While the tools have long been optimized with a variety of machine learning and AI capabilities, changing the very workflow Is how you get a more profound impact. And so we have a long opportunity space to grow into, But the engagement already signifies that we have results that customers want to keep and turn into production.

Speaker 7

Okay, perfect. Thank you.

Speaker 3

Thank you.

Operator

We'll take our next question from Harlan Sur with JPMorgan.

Speaker 8

Good afternoon and congratulations on the solid results and outlook and track. Best of luck and thanks for all the support. As you guys pointed out, chip design activity in leading edge digital is very strong, right? You have accelerated compute processors, next Gen networking, switching and routing chips, new ASIC programs, very strong, but also significant increase in design complexity and more importantly, chip design cycle times. Art, I'm wondering is the complexity and cycle time dynamic requiring your customers to use hardware emulation and prototyping As an integral part of the verification and software development process versus it being somewhat discretionary 5, 10 years ago and is this What's helping to sustain the hardware growth into next year?

Speaker 2

The answer is yes and another yes. Yes, it does require much more attention to the intersection of hardware and software. And in order to do that, you need simulation that is blindingly fast. That's why use hardware accelerators or we call them emulators or prototyping to be able to do that. But underneath your question, there There was another comment, which is really the comment that, is it true that complexity still is increasing massively?

Speaker 2

And the answer is very true, but it's going to be in a new form, meaning it's not one chip, it's multiple chips as close as possible. And it is architectures dedicated to whatever the end markets are. And so the race is absolutely on in all of these dimensions, But it brings a challenge for our customers that by now after many, many decades has certainly learned how to optimize for performance and power. They now have to optimize for making it all work, multiple chips, hardware and software, thermal issues. And that complexity is going to drive all kinds of new products on our side, but also necessitates to look to have Focus on the entire flow.

Speaker 2

And that's why I'm very encouraged by being at the dawn of Really multiple new decades of new technology.

Speaker 5

Thanks for that. And then on

Speaker 8

your IP business, We've got Intel and AMD. They're now starting to roll out their new processor chips, right, supporting next gen memory and storage interfaces, Right. Strong area for you guys, right? DDR5 for memory, PCI Gen 5, CXL for storage. These processors are starting to roll out now.

Speaker 8

Additionally, you have more of your customers bringing on additional foundries as a part of their diversification and restructuring efforts. I think this should drive higher adoption of your foundational So what are the other dynamics that are going to drive the IP business next year? And does this segment continue its strong double digit year over year growth in fiscal 2023?

Speaker 2

Well, we'll take 1 year at a time, but there's no doubt that there's an opportunity to continue to grow very well. And a great respect for you mentioning all the keywords of things that we sell. I would add one other That we alluded to, which is the category that actually looks at the new types of interfaces in these multi die Integrations, because those integrations are predicated mostly on one thing, how short and how fast can you make the wires between the chips. And therefore, it's another form of miniaturization with enormous connectivity between chips. And so, these connectors are Extremely sensitive to the speed, the voltage and all these things.

Speaker 2

And so there too, we are leading In providing the IP that makes this possible. And I think that's an area that will grow on top of what you mentioned.

Speaker 8

Thank you.

Speaker 5

You're welcome.

Operator

We'll take our next question from Charles Hsieh with Needham and Company.

Speaker 6

Hi, good afternoon. Thank you for taking my questions. I think the First question I want to ask is about China. This has been or maybe had been a major barricade We're stuck at least over the last 3, 4 months and especially after the very, I mean, unprecedented round of Restrictions that the USA implemented since the beginning of October. I understand you did Qualified that the impact is nonmaterial, but it seems to me that investors may still be a little bit skeptical.

Speaker 6

And Maybe can you just give us some sense from your perspective Why what you see as a reality being non material versus what among the investment community is being like a China restriction being a major, major bear case for you. Is there any way that you can provide us some Perspective, why that has been the case and what do you think that should help investors to really Change or I mean have a more grounded view about this issue? Thank you.

Speaker 2

It's a very good question and I understand why it's difficult because a lot of these things Written in terms of hard to understand technology. And so of course, whenever there's a change, we look Solidly at all the changes, I said the impacts and actually I think we explicitly communicated that our assessment showed that it was not material in the financial terms. We highlight that we have factored in to the best of our ability exactly what the situation is today in our forecast. And moreover, we have put a lot of emphasis on making sure that we are 100% compliant with all the rules, so that We act in a clean fashion. I would add only one more thing, which is China is a very broad market.

Speaker 2

And so there are many technologies that are not anywhere close So being touched by the advanced restrictions. So we see continued great opportunity, but we understand with you that it's an area Keep watching and to make sure that we grow in other parts of the world as well.

Speaker 6

Thank you, Art. Maybe the second question, Maybe this is for you, Trac. First off, congratulations on the retirement. But I want to ask you, I think 1 year ago when you Gave the guidance about fiscal 2022. You kind of guided fiscal 2022 maybe like first half, slightly first half loaded Over second half, but your fiscal 2023 guidance, if I hear you correctly, you're guiding second half Likely to be higher than first half and your number seems to imply that every quarter needs to be somewhere 4% to 5% higher than the preceding quarters throughout the entire 23.

Speaker 6

I wonder what exactly the assumptions there For steady growth into the year and do you have assumption like maybe the semiconductor industry needs to have a rebound or Recovery out of the downturn to the second half of your fiscal year. And if possible, can you give us some color We're exactly driving the second half rebound, I mean, the growth into the second half, which one will be the primary driver? It's EDA, it's IP, Is it hardware or is it the SIG part of the business? Thank you.

Speaker 3

Sure, Charles. Let me zoom out a little bit because Over the last couple of years, we've had some unusual profiles coming into the year, right. So 2020 was very back end 2021 was back end loaded, heading into 2022, we said it would be very front end loaded. When we look at the profile this year, keep in mind that it's based on backlog that we have scheduled out for our software business, IP and hardware, so there's good visibility into how it lays out throughout the year. And when you look at the profile, you're right, it's Slightly to the back half, but just marginally so.

Speaker 3

And if you look at the first half comparison, first half, second half comparison for 'twenty three And you go back in time, it's just actually in line with what we have historically seen, which is kind of unusual, but nice to get back to that profile. And it does imply that there is incremental increases in the business as we progress throughout the year. The basis for the forecast, as I said, is grounded very much on visibility of the backlog, but What we expect to book in the year and we are playing the year based on what we can execute Similar to what we have said in the past. So it's not a stretch to assume that it's dependent on major market forces or anything out of our control. We want to give guidance in terms of the outlook for the business, both top line and bottom line that really is heavily Dependent on our ability to execute.

Speaker 3

And at this point, given our visibility, the portfolio that we have and the our confidence in our execution, We feel really good about the 14% to 15% growth and driving 16% EPS growth. Thank you, Chuck.

Speaker 9

You're welcome.

Operator

We'll take our next question from Jay Plesshouwer with Stephens Securities.

Speaker 9

Thank you. Good evening. Art, for you first, a products question since the term roadmap came up a couple of times. I'm wondering if there are some potential developmental catalysts that you might be able to bring to market. For example, would it make any sense or would it be feasible for you to increasingly connect SIG with hardware based prototyping along the lines of an earlier question, you haven't mentioned silicon lifecycle management or SLM, but Would it make some sense there to connect it increasingly to your sign off business and so forth and other kinds of Intra company integrations that could be differentiators or new catalysts for product growth.

Speaker 9

And then my final question for TRAC. With regard to SIG, could you comment on the results that you've been seeing For your investments in international expansion for SIG over the last number of years, including in particular your investments In Security Consulting outside of the U. S.

Speaker 2

So let me zoom out a little bit on your question because generically, I think you're pushing absolutely on the right buttons, which is that, while many of the things we've done in the past have been sort of point efforts, point tools and so on. For the last decade, we have started to integrate many tools more forcefully together because that's the only way of solving Problems of complexity where power and speed and thermal and locations and reliability strongly intersect. Then if you move to the next level up, we have already mentioned the fact that there are strong interconnectivity between software and hardware because the hardware As one mission, make the software faster and the software has one mission, make the hardware work harder for it. And so these optimizations are already going hand in hand. SIG adds an additional Angle to that is the angle of security and quality.

Speaker 2

And we have, by the way, sort of the equivalent of a SIG inside of The EDA side as well and the IP side because in the IP we have a variety of security capabilities being built in. I think it will take a little bit of time before you can see sort of Strong connectivity between those, but it has not taken that much time to see at a number of customers that they start to recognize That our vision moves up into the domain of software and moves down into the hardware at the very moment that they are learning about this. And the earlier mentioned automotive, but it could also be industrial and a few other segments are precisely now arriving at this junction of figuring out that they have make it all work at the same time. And so, while many of the specific things that we're working on, we'll talk about as we release them, The general direction of your question, I think, is very much the way we think about systemic complexity now being the hallmark of the next decade.

Speaker 3

Hey, Jay, this is Trac. So to your question regarding SIG and international expansion, you're right. That was a really Intentional focus for us a couple of years ago in terms of improving the go to market function both internationally, but Both internationally and with channel partners. And I would say that when you look at the results over the last couple of years, I think we've made really good progress with regards to how we're executing internationally And the additions and the execution with new channel partners, I'm optimistic not only because of the results have

Speaker 5

been good, but We're in

Speaker 3

the early stages of actually seeing strong results from that. So I think there's a lot of progress ahead of us and a lot of opportunities ahead of us In both those areas.

Speaker 9

Okay. Thank you, Art. Thank you, Track.

Speaker 2

You're welcome. Thank you, J. A.

Operator

We will take our last question from Reuben Roy with Stifel Nicolaus.

Speaker 10

Hi, thank you. And Track, congrats from me as well. Thanks for all the support over the years. I guess Track or Art, one thing I wanted to just touch base on again is on the SIG business. Art, you mentioned that you did see some impact from the macro during the quarter.

Speaker 10

The numbers look pretty good. I've got you down for 16% year over year growth. So maybe if you could just expand on that. Was that Towards the latter end of the quarter and looking ahead or any other detail you can give us, please?

Speaker 2

Sure. Well, first, I do think that the results were quite good. What we did See, and it probably started a little earlier than this quarter that some of the negotiations turned out to be a bit longer, maybe some more layers of approval. And actually that is very, very common when you see economy looking at well, it going to be a rest session or not? Are people a little bit worried?

Speaker 2

Well, they just start putting some brakes on the decision making first and foremost. But at the same time, we were encouraged by the fact that growth continues to improve over the previous year. And there's no doubt in our mind that this is a very good part of Synopsys and there's lots of opportunity. So we'll keep pushing.

Speaker 10

Okay, great. Thanks for that detail. And then A quick follow-up. On the dso.ai, you mentioned that that's you started gaining traction across a wide range of process nodes, which is Interesting to me. Can you maybe talk a little bit about the value prop across those nodes, proposition across those nodes?

Speaker 10

Is it Power reduction for some, reduction in turnaround time for others or how does that work?

Speaker 2

Okay. Well, the first one is turnaround time reduction Everybody. And that in itself is interesting because if you remember my other comments about moving into a whole different league of complexity, While people will continue to push on performance and power, right now they're pushing on making just sure that they can finish the job. And in that context, improving the turnaround time is extremely valuable. But the other thing is that in many areas, it opens up doors that they didn't have Because if you can work in multiple nodes, the question is, can you also start to translate from one node into another?

Speaker 2

And we have in the last 12 months specifically seen more and more really outstanding experiments and showcases where we helped People move from one node and design in, let's say, the next node or even some nodes that are quite different from the one where they started With the benefit of the learning from the original node. And I think that opens a fertile space because in reality, Most design is redesign. You try to always use what you did in the past. And the question is, how easy is that when the past becomes more and more complex? And that's where AI, I think, has a lot of potential going forward.

Speaker 2

So sometimes we call that retargeting or remastering, And I think it's going to be in a lot of need for that.

Speaker 10

Very good. Thank you, Art.

Speaker 2

Thank you.

Operator

And that concludes the question and answer session. I would like to turn the call over to Artigus for closing comments.

Speaker 2

Well, 1st and foremost, thank you for all the support and the good questions over the last year. I think we concluded a very strong year, Of course, again, it's a very strong market, but I think we also demonstrated that there's momentum going forward. And so that 20 3 even without Track will be a good year for us. And we thank Track one more time. We also thank you for your support And for your continued support of the our stock.

Speaker 2

With that, have a great rest of the year and we'll talk to you soon.

Operator

Thank you. And that does conclude today's presentation. Thank you for your participation and you may now disconnect.

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