Synopsys Q3 FY10/24 Earnings Review

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Nobody Likes Semiconductor Anymore

by Alex King, CEO, Cestrian Capital Research, Inc.

Institutional sector rotation usually does have the desired effect, which is to say, when a little selling takes place and capital moves to another hotter sector, the investing community at large gets the message, and decides that [fill in the blank] sector is So Over Right Now and then, once institutions have quietly accumulated down there at the lows and released the newsbots to talk up the sector once more .. then as it approaches new highs you can find those self same investors declaring We Are So Back etc. Happens everywhere like clockwork.

Well, nobody wants semiconductor stocks right now. You conclude what you want from that. Personally I am long $SOXX $SOXL $NVDA and $MU.

Synopsys sells two things, (1) software which can be used to design semiconductor devices and (2) intellectual property licenses for bits and pieces of larger semiconductor devices. You could think of this as fancy circuit diagrams. If semiconductor is up, so too will be SNPS; and if down, so too will be SNPS. Synopsys is a solid business, big and getting bigger with the acquisition of Ansys (formerly $ANSS). Together with Cadence Design Systems ($CDNS) it has most of the chip design market cornered.

Here’s the $SNPS headlines for the quarter ending 31 July. Absent a level of pro-forma analysis that won't be possible as an outsider - you would need to be sat in the CFO's office to do this properly - it's probably as well to pay not too much heed to the reported fundamentals in the coming quarters, as the company (i) digests ANSS and (ii) divests one of its business units to a financial buyer. Yes I know it is heresy to ignore the numbers. What I would do if I were an SNPS shareholder, or thinking of becoming one, is listen to the earnings calls to see how much pain the integration and divestment is causing them. Look to Okta / Auth0 for what bad looks like, and Northrop Grumman / OrbitalATK for what good looks like. Ask in Inner Circle chat for more on this.

Read on for the financial detail, valuation, our stock chart and rating.