Synopsys Downgrades Amid Restructuring Needs, China Headwinds

Synopsys reported downbeat Q3 results, with shares tanking 35% after missing expectations. Analysts flag restructuring needs and China headwinds, citing stiff competition with Arm Holdings, uncertainty around Intel's foundry potential, and higher costs from the Ansys acquisition. The company guided Q4 revenues of $2.25 billion, below Needham's estimate of $2.62 billion.

Synopsys (SNPS) stock plummeted by 35% on September 10, 2025, following the release of its third-quarter (Q3) earnings report. The chip design software provider missed analyst expectations, with revenue coming in at $1.74 billion, short of the estimated $1.77 billion. Adjusted earnings per share (EPS) were $3.39, falling below the expected $3.74 Synopsys Stock Sinks 22% As Revenue and Earnings Miss Estimates in Q3^[1].

The underperformance was primarily attributed to weaknesses in the Design IP business, which saw a revenue decline of 8% year-over-year. CEO Sassine Ghazi cited several factors, including new export restrictions disrupting design starts in China, challenges at a major foundry customer, and internal roadmap and resource allocation decisions that did not yield intended results Synopsys Stock Sinks 22% As Revenue and Earnings Miss Estimates in Q3^[1].

Analysts have expressed concerns about the company's execution issues in a historically strong segment. Bank of America downgraded Synopsys to "Underperform" from "Buy," citing uncertainty over the fiscal 2026/27 outlook, benefits from the Ansys acquisition, and missed IP revenue at Intel/China. The firm also highlighted the need for restructuring in the core IP business and persistent uncertainty around Intel's foundry potential BofA downgrades Synopsys on weak outlook and Ansys costs^[2].

Synopsys guided Q4 revenue to be between $2.23 billion and $2.26 billion, which was below Needham's estimate of $2.62 billion. The company expects continued headwinds and described the upcoming year as "transitional and muted" for the IP business. Additionally, Synopsys announced plans to reduce global headcount by approximately 10% by the end of fiscal 2026 to improve efficiency and realign resources toward higher-growth opportunities Synopsys Stock Sinks 22% As Revenue and Earnings Miss Estimates in Q3^[1].

Investors are advised to closely monitor Synopsys' integration of the Ansys acquisition and its ability to navigate the challenging IP market environment. The company's ability to execute on its strategic plans will be crucial in determining its future performance.

References:
Synopsys Stock Sinks 22% As Revenue and Earnings Miss Estimates in Q3^[1] https://www.tikr.com/blog/synopsys-stock-sinks-22-as-revenue-and-earnings-miss-estimates-in-q3?ref=tikrblog
BofA downgrades Synopsys on weak outlook and Ansys costs^[2] https://www.investing.com/news/stock-market-news/bofa-downgrades-synopsys-on-weak-outlook-and-ansys-costs-4233446