How did Synopsys perform financially in fiscal 1999?

Revenue grew 12% to $806.1 million and net income reached $161.4 million, or $2.20 per diluted share, compared with $89.4 million in fiscal 1998. Fiscal 1998 results were depressed by merger costs, in-process R&D charges, and other one-time items, so the improvement reflects both growth and the absence of those charges.

What are the main growth drivers and risks?

Growth drivers include product licensing (up 17%) and new tools such as PrimeTime, VCS, Formality, and Physical Compiler. Key risks include competitors' aggressive discounting, the company's reliance on synthesis products that are growing more slowly, the unproven market for its new physical design tools, dependence on large customers, weak Asian demand, and a license-model transition that could delay revenue.

Is the company financially sound?

Yes, based on the filing. Synopsys held $704.2 million in cash and short-term investments against only $11.6 million of long-term debt, and generated $223.3 million in operating cash flow. Stockholders' equity grew to $865.6 million. The company also repurchased $95.4 million of its own stock during the year.

Why did the fiscal year-end change?

The board changed the fiscal year to end on the Saturday nearest October 31, beginning in fiscal 2000. The change creates a transition period from October 3 through October 30, 1999, whose results will be reported in the first-quarter fiscal 2000 Form 10-Q, so the filing's fiscal periods will not line up directly with future annual comparisons.

What are the Year 2000 implications for the company?

Synopsys reports about 99% completion of its internal Year 2000 remediation, with total costs capped at roughly $8.1 million, funded from operating cash flow. The main uncertainty is customer readiness, since customer Year 2000 problems could reduce purchases of Synopsys products, and the company has prepared contingency plans for a worst-case disruption of about one week.

SNPS 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed December 23, 1999. Cited figures are marked; the original filing is the authoritative source.

Synopsys, Inc. (SNPS) closed fiscal 1999 (year ended September 30, 1999) with record results.

Revenue rose 12% to $806.1 million^a from $717.9 million, and net income more than doubled to $161.4 million, or $2.20 diluted EPS, versus $89.4 million ($1.29) in fiscal 1998. Fiscal 1998 was distorted by $51.0 million of merger costs, $33.1 million of in-process R&D charges, and a $28.4 million extraordinary gain from the Viewlogic PCB/Systems spin-off, so the year-over-year comparison flatters the underlying improvement less than the headline growth suggests. Gross margin held at about 87%, and operating income reached $214.4 million versus $90.9 million a year earlier.

Product revenue grew 17% while service revenue grew 5%, and international revenue fell to 34% of the total from 39%, reflecting Asian economic weakness. The company ended the year with $704.2 million^b in cash and short-term investments, $1.17 billion in total assets, and $865.6 million in stockholders' equity, with long-term debt of only $11.6 million. Operating cash flow was $223.3 million.

Management plans to spend heavily on physical design, a market where Synopsys has only recently entered and faces entrenched rivals Cadence and Avant!. The filing is candid that its synthesis business is maturing, that customer demand for its physical design tools is not yet proven, and that the company may not offer a complete design flow to customers for the foreseeable future.

Investors should weigh the strong profitability and balance sheet against several risks flagged in the filing: aggressive competitor discounting that could pressure prices, dependence on a limited number of large customers, the shift to a new license and pricing model that could delay revenue, Asian demand weakness, and continued employee turnover. The company also changed its fiscal year-end to the Saturday nearest October 31, starting in fiscal 2000, which will create a short transition period.

02—Key points

Key Highlights

Revenue grew 12% to $806.1 million in fiscal 1999, with product revenue up 17% to $505.8 million and service revenue up 5% to $300.3 million.
Net income rose to $161.4 million ($2.20 diluted EPS) from $89.4 million ($1.29) in fiscal 1998, which included large merger, IPRD, and extraordinary items.
Operating income more than doubled to $214.4 million from $90.9 million, with gross margin steady at about 87% of revenue.
Cash and short-term investments reached $704.2 million, and long-term debt was only $11.6 million, leaving a very strong balance sheet.
Backlog stood at $276.0 million at December 1, 1999, up from $241.1 million a year earlier, supporting near-term revenue visibility.
International revenue fell to 34% of total revenue from 39%, and the company cited Asian economic weakness, particularly in Japan and Korea.
The company is expanding into physical design tools (Chip Architect, FlexRoute, Physical Compiler) to compete with Cadence and Avant!, and the filing warns of competitive pricing pressure and a shift toward design-flow competition.

03—Questions

Frequently Asked Questions

How did Synopsys perform financially in fiscal 1999?
Revenue grew 12% to $806.1 million and net income reached $161.4 million, or $2.20 per diluted share, compared with $89.4 million in fiscal 1998. Fiscal 1998 results were depressed by merger costs, in-process R&D charges, and other one-time items, so the improvement reflects both growth and the absence of those charges.
What are the main growth drivers and risks?
Growth drivers include product licensing (up 17%) and new tools such as PrimeTime, VCS, Formality, and Physical Compiler. Key risks include competitors' aggressive discounting, the company's reliance on synthesis products that are growing more slowly, the unproven market for its new physical design tools, dependence on large customers, weak Asian demand, and a license-model transition that could delay revenue.
Is the company financially sound?
Yes, based on the filing. Synopsys held $704.2 million in cash and short-term investments against only $11.6 million of long-term debt, and generated $223.3 million in operating cash flow. Stockholders' equity grew to $865.6 million. The company also repurchased $95.4 million of its own stock during the year.
Why did the fiscal year-end change?
The board changed the fiscal year to end on the Saturday nearest October 31, beginning in fiscal 2000. The change creates a transition period from October 3 through October 30, 1999, whose results will be reported in the first-quarter fiscal 2000 Form 10-Q, so the filing's fiscal periods will not line up directly with future annual comparisons.
What are the Year 2000 implications for the company?
Synopsys reports about 99% completion of its internal Year 2000 remediation, with total costs capped at roughly $8.1 million, funded from operating cash flow. The main uncertainty is customer readiness, since customer Year 2000 problems could reduce purchases of Synopsys products, and the company has prepared contingency plans for a worst-case disruption of about one week.

04—Continue

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