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Synopsys Faces Challenges Amidst Export Restrictions and Foundry Issues, Expects Record Revenue for the Year.
ByAinvest
Wednesday, Sep 10, 2025 6:32 am ET2min read
Synopsys' performance has been impacted by underperformance in its IT division due to export restrictions in China and foundry issues. The company expects record revenue by year-end but has taken a cautious outlook for Q4. Synopsys foresees a transitional year in its IP segment, projecting muted performance in FY 2026. The company's financial health is robust, with consistent revenue growth, high profitability metrics, and strong liquidity. However, there are warning signs such as insider selling and a low tax rate.
Synopsys Inc. (SNPS) reported its third-quarter (Q3) 2025 earnings, showcasing a mixed performance amidst various challenges and opportunities. The company delivered revenue of $1.74 billion, up 14% year-over-year (YoY), and non-GAAP EPS of $3.39, falling short of analyst expectations of $3.80 [2]. The results highlight the company's resilience despite headwinds in its IP business and the integration of Ansys.Revenue and EPS Performance
Synopsys' revenue for Q3 2025 was $1.74 billion, a 14% YoY increase, driven by strong performance in its design automation segment, which includes Ansys products [1]. However, the company's non-GAAP EPS of $3.39 was $0.41 less than the analyst consensus of $3.80 [2].
Design Automation and IP Revenue
The design automation revenue, inclusive of Ansys products, was up 23% YoY, reflecting the strength in hardware and the integration of Ansys' simulation and analysis solutions [1]. Conversely, design IP revenue declined 8% YoY, primarily due to new export restrictions affecting design starts in China and challenges at a major foundry customer [1].
Guidance and Outlook
For Q4 2025, Synopsys expects revenue to range between $2.23 billion and $2.26 billion, with non-GAAP EPS guidance of $2.76 to $2.80 per share [1]. The company also provided fiscal year 2025 (FY 2025) revenue guidance of $7.03 billion to $7.06 billion and non-GAAP EPS guidance of $12.76 to $12.80 per share [1]. However, the company has taken a cautious outlook for Q4 due to ongoing external headwinds and geopolitical challenges [1].
IP Business and M&A
The IP business underperformed due to export restrictions in China and foundry issues. Synopsys plans to reduce its global headcount by roughly 10% by the end of fiscal year 2026 to achieve greater scale and efficiency [1]. The company is also pivoting its resources to focus on higher growth opportunities, but the challenges in China and with the foundry customer are not expected to be resolved quickly [1]. The company is not planning to accelerate M&A to address these issues, as it is positioned to address customer needs organically [1].
Ansys Integration and Long-term Growth
The integration of Ansys has expanded Synopsys' capabilities in simulation and analysis, crucial for physical AI and 3DIC opportunities. The immediate opportunity lies in 3DIC, where Ansys' thermal, structural, and fluid analysis capabilities complement Synopsys' portfolio [1]. The company is confident in achieving the projected synergies of the merger.
Financial Health and Liquidity
Synopsys' financial health remains robust, with consistent revenue growth, high profitability metrics, and strong liquidity. The company reported a free cash flow of approximately $632 million for Q3 2025 and cash and short-term investments of $2.6 billion at the end of Q3 [1]. However, there are warning signs such as insider selling and a low tax rate.
Conclusion
Synopsys Inc. reported mixed performance for Q3 2025, with strong revenue growth in its design automation segment offset by underperformance in its IP business. The company's cautious outlook for Q4 and FY 2025 reflects the challenges it faces in the IP business and the ongoing external headwinds. However, the integration of Ansys presents long-term growth opportunities. Investors should closely monitor Synopsys' progress in addressing the challenges in its IP business and the integration of Ansys.
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