Shares of Synopsys crater after export restrictions derail China sales – News

Chip design software company Synopsys Inc. missed expectations on earnings and revenue today, hit by weakness in its chip designs segment, and investors sent its stock plummeting in extended trading.

The Sunnyvale, California-based company reported earnings before certain costs such as stock compensation of $3.39 per share, trailing Wall Street’s forecast of $3.80 per share by a huge margin. Revenue for the period came to $1.74 billion, up 14%, but below the analysts’ target. Wall Street had been modeling sales of $1.77 billion in the quarter.

The disappointing results had a negative impact on Synopsys’ bottom line, and the company’s net income slipped to $242.5 million in the quarter, down from $408 million in the same period one year earlier.

Synopsys is a big name in the semiconductor industry. It sells electronic design automation software that’s used by chipmakers such as Intel Corp., Qualcomm Inc. and Samsung Electronics Co. Ltd. to create new processors. With Synopsys’ software, these companies can automate much of the design process, and that’s just as well, for it involves an awful lot of steps, including the actual design, verification, signoff, physical verification and much more. Chipmakers use Synopsys’ tools in each of these steps.

Synopsys competes with rival chip design software maker Cadence Design Systems Inc., which sells similar tools. Almost every computer chip in use in the world today was designed using either Synopsys’ or Cadence’s software.

The company has been on a roll over the last three or four years, as the rise of artificial intelligence systems has put pressure on chipmakers to create more powerful chips that can satisfy the insane compute demands of large language models such as OpenAI’s GPT-4o and Google LLC’s Gemini 2.5 Pro. Its revenue has been growing fast, and last month, shares of Synopsys hit a record high of $625.80.

However, Synopsys seems to have hit a bump in the road, and in the latest quarterly revenue from its Design IP segment came in below expectations, declining to $427.6 million, from $463.1 million a year earlier. The unit accounts for Synopsys’ interface, security and embedded processor intellectual property, along with its IP implementation services.

On a conference call with analysts, Synopsys Chief Executive Sassine Ghazi (pictured) said the poor performance was the result of a number of deals in its pipeline that failed to materialize, as a result of new export restrictions to Chinese companies. He also pointed to “challenges” at a major foundry customer that he declined to name.

Ghazi was referring to the restrictions placed on chip design software imports to China in May, which have since been lifted by U.S. President Donald Trump’s administration as part of a broader trade deal.

The company had made substantial investments in building out IP for the unnamed foundry customer, Ghazi said, and had expected to see returns on that endeavor in the second half of the year. However, that customer suddenly pulled out on market factors beyond its control, he explained. “While I’m proud of how our team navigated external challenges in the quarter, our IP business underperformed expectations,” he admitted. “[But] we are taking action to enhance our competitive advantage and drive resilient, long-term growth.”

The poor performance of the Design IP business forced Synopsys to lower its full-year earnings guidance from a range of $15.11 to $15.19 per share to a new range of $12.76 to $12.80 per share. That’s a huge drop, and not surprisingly it trails the Street’s forecast of $15 per share in annual earnings.

Synopsys’ other business segment did better. The Design Automation segment chalked up $1.31 billion in sales, up from $1.06 billion a year earlier and just ahead of the Street’s target.

The long-term picture does look better for Synopsys, at least. During the quarter, it finally closed on its $35 billion cash-and-stock acquisition of the engineering design company Ansys Inc., which was announced in January 2024. The deal had faced intense scrutiny from antitrust regulators in the U.K., Europe and China, but finally received approval this summer.

“Against a challenging geopolitical backdrop, we closed the Ansys acquisition, expanding our portfolio, customer base and opportunity,” Ghazi said. “Now more than ever, Synopsys is the mission-critical partner technology R&D needs to design and deliver AI-powered products.”

Still, investors may have to wait a while before they see Synopsys reap the rewards of that acquisition, which is expected to improve its position in the EDA software market. For the current quarter, it’s forecast earnings of just $2.76 to $2.80 per share, some way below the Street’s target of $3.75 per share. Its revenue forecast is better, with the company looking for sales of $2.23 billion to $2.26 billion, ahead of the Street’s forecast of $2.09 billion.

Synopsys’ stock was down more than 18% in extended trading, but even with that sharp decline it’s still up more than 24% in the year to date.

Photo: Synopsys/YouTube