Synopsys CEO: Client base expanding past chipmakers in AI boom

Shares of automation developer Synopsys (SNPS) jumped on its fiscal first-quarter earnings beat, coming as other chip stocks are being lifted as part of the Nvidia-AI rally. Synopsys CEO Sassine Ghazi joins Yahoo Finance Live to discuss the environment for chip design — amid Synopsys's $35 billion acquisition of ANSYS, Inc. (ANSS) — and core business catalysts.

"Our customer base has been the semiconductor customer, but if you look at Synopsys today, about 45% of our revenue are system companies: the hyperscalers, the automotive OEMs (original equipment manufacturers), the big mobile OEMs, et cetera," Ghazi explains. "The world is shifting towards more companies designing their own silicon in order to take advantage of an integrated stack of application."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: Another top mover in today's session, Synopsis, the chip software design maker reporting strong results last night after the close and also raised its full-year adjusted earnings guidance. Joining us now Synopsis CEO Sassine Ghazi. Sassine, it's good to see you.

SASSINE GHAZI: Great to see you, Julie.

JULIE HYMAN: So talk to me about what was driving the business. Something that struck me is that all of this talk of generative AI. And, of course, you talked about AI on the call.

But you also talked about what you call pervasive intelligence. What is pervasive intelligence mean? And how is that driving demand for your products?

SASSINE GHAZI: If you look at various market segments and say automotive, industrial, et cetera, and you envision the future 5 to 10 years from now, all these segments are going to be more connected and smarter which the underpinning for that inflection point is going to happen through semiconductor chips. So when we talk about pervasive intelligence, we're talking about the AI as the mega trend, silicon proliferation everywhere. And most of these system companies, they have to have a view of their silicon in order to support that software application ambition that they have.

- Sassine, we look at the industry the market you operate in. It's basically-- it's a duopoly, Sassine. It's you and Cadence. I mean, you design chips, that's where you go to. What for viewers who are listening right now, Sassine? What would you say your competitive advantages are there?

SASSINE GHAZI: So it's true that's our customer base has been the semiconductor customer. But if you look at Synopsys today, about 45% of our revenue are system companies, the hyperscalers, the automotive OEMs, the big mobile OEMs, et cetera. So the world is shifting towards more companies designing their own silicon in order to take advantage of an integrated stack of application.

One of the key competitive advantage we have is our leadership with AI for designing chips. We pioneered that in 2020. The other advantage is what we call design IP.

To simplify it, if you think of any chip design today, then think of it as LEGO blocks. And we provide many of these LEGO blocks semiconductor components for our chip customers to accelerate their chip design process.

JULIE HYMAN: And then, of course, you're hoping to maybe gain another competitive advantage with your acquisition of Ansys for $35 billion, which I know you're hoping to close in the first half of next year. What then does that sort of bolt on to the capabilities you were just discussing? And also what does that do to your client base do you see an expansion there?

SASSINE GHAZI: Absolutely. Because the current client base is semiconductor chip. Companies expanding into system companies that they're designing chips. But there are many other system companies.

Think about an automotive OEM or an industrial OEM that they have no skills or desire to go all the way down to the chip design part of their end product. But what they want to do is make sure their products are getting smarter. They're taking advantage of AI.

So the ability to architect that system or the end product what I refer by system is the end product, it can be the whole car. How do you interface between the electronics aspect of the car, the mechanical, the electrical, and you think of the whole product as a holistic approach to designing it?

What Ansys this brings in is a significant market presence and trust by those customers outside the semiconductor space where we have a very strong history and leadership in.

JULIE HYMAN: And, Sassine, how are you feeling about regulatory approval of that deal? As we know, it's been a little bit of a tougher environment.

SASSINE GHAZI: So we started-- so we just announced the deal roughly about five weeks ago. And we started the regulatory filing. We believe it will be manageable.

Otherwise, we would not have jumped into this significant bet that we're making. And we'll be filing an S-4 in the next few weeks in which we will outline the various jurisdictions approach to filing. So that's 0.1.

The other point we'd like to emphasize is the overwhelming support we're getting from customers both semiconductor and system companies that they're looking forward for such an integration of solution in order for them to drive their product innovation. So we have strong global customer willing to lean in and support the transaction. As well as we don't believe there should be much in terms of pushback given our portfolio is very complementary. We don't have much overlap in the portfolio.

JULIE HYMAN: Sassine, finally, I wanted to ask you about the NVIDIA effect since we've been talking about the NVIDIA effect all day. You know, we've talked about it mostly in the context of the market. But I'm curious from your perspective, and I believe NVIDIA is a client, what the effect is on the industry? In other words, is there as much enthusiasm for clients to push money at AI and just be spending on semiconductors and semiconductor-related products more generally because of what's going on with NVIDIA?

SASSINE GHAZI: Maybe let me give you a different perspective. Let me give you the silicon up perspective. So if you're in the semiconductor world, what you're seeing for sure is happening is the demand for more and more sophisticated semiconductor chips.

NVIDIA has done an incredible job. And, of course, NVIDIA is a very strong customer and partner. They've done a very good job to serve the AI training and data center which is exploding in terms of opportunities, as well as looking at opportunity for inferences, et cetera.

However, the use cases of AI are so broad that there are many, many opportunity to many other silicon and semiconductor companies. That's why you see, for example, Intel, AMD, many smaller companies are jumping into both the data center training, as well as the many opportunity for silicon and semiconductor chips for inferences for all the use cases I talked about earlier.

JULIE HYMAN: Interesting times indeed. Sassine, good to see you. Thank you so much.

SASSINE GHAZI: Great to see you. Thank you. Bye.

JULIE HYMAN: Bye.