Synopsys Inc.’s (SNPS) Taiwanese arm recently completed the previously announced (August 2012) acquisition of chip-design software provider SpringSoft for NT$12.2 billion ($417.0 million). This marked the fourth acquisition by the company year to date. Taiwan-based SpringSoft was established in 1996 to develop VLSI (Very-large-scale integration) chip design and debugging software.
Synopsys develops software used to design, test and manufacture semiconductor chips. SpringSoft’s offerings will therefore complement its existing capabilities and enhance its existing suite of chip design solutions. The combined solutions will help its customers to better address complex design requirements, thereby creating room for more demand.
The transaction is expected to be slightly accretive to fiscal 2013 non-GAAP earnings per share.
Strategic acquisitions have always been Synopsys’ plan to strengthen its product portfolio. In January 2012, the company acquired privately-held software maker ExpertIO Inc. Then, RSoft Design and Ciranova were acquired in May and July, respectively. Taking over similar businesses helped Synopsys in reducing integration time and cost.
Synopsys’ fortune is closely tied to the semiconductor industry. According to technology research firm Gartner Inc. (IT), worldwide spending for wafer fab equipment will decline 13.3% year over year in 2012 and 0.8% in 2013. But the firm predicts a 15.3% increase in semiconductor spending in 2014.
Hence, we believe that leveraging strength from the acquired units, Synopsys would be well-positioned to capitalize on the growth potential.
Synopsys’ healthy net cash balance and free cash flow position will allow smooth funding for further acquisitions. Also, Synopsys’ product innovation strategy, the popularity of its time-based license model and its tie-up with Advanced Micro Devices Inc. (AMD) are positives. But, stiff competition from Cadence Design Systems (CDNS), a challenging technology spending environment and uncertainty regarding proper time to realize acquisition synergies keep us on the sidelines.
Currently, Synopsys has a Zacks Rank #3 (Hold).
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