Synopsys Moves On

Synopsys Inc. (SNPS - Analyst Report) recently announced the addition of a new major customer, Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Snapshot Report). The latter has adopted Synopsys' HSIM hierarchical FastSPICE circuit simulator for its sub-40-nanometer, memory intellectual property characterization flow. 

The HSIM technology will be used in TSM's advanced SRAM compilers for improvement in timing and power simulation techniques. It will also facilitate the process of full chip simulation process. 

This new technology from Synopsys will help TSM improve memory characterization efficiency by almost 10 times. TSM has adopted this technology, as the Synopsys’ technology is expected to be superior to those offered by other software and semiconductor companies. 

We are encouraged by Synopsys' new technologies and its ability to attract new and important customers, which should improve the company's revenue and cash flows going forward. 

Synopsis has also been returning cash to investors. Recently, the company declared that its board had approved the buyback of up to $500 million of its common stock. Synopsys already bought back $290.3 million of common shares till April 30. 

We view the raised authorization as a positive, since the company has high stock-based compensation expense, which was almost 21.2% of third-quarter 2009 EPS. So increased share repurchases would help mitigate the dilutive impact of stock-based compensation expenses. 

Moreover, Synopsys is benefiting from the increasing complexity of semiconductors, and more challenging shrink cycles. The company is gaining traction through new products, acquisitions, and new EDA partnerships, which bode well for growth in 2009. 

Despite current macroeconomic concerns, Synopsys posted better-than-expected third-quarter results. Although industry-wide weakness is impacting the company, aforesaid actions will keep the ball rolling for the company.

Read the full analyst report on SNPS

Read the full analyst report on TSM