Synopsys Takes Over RSoft

Synopsys Inc. (SNPS - Analyst Report) recently completed the acquisition of privately-held software maker RSoft Design Group Inc. Financial terms of the deal were kept confidential.

New York-based RSoft is an independent provider of photonics design and simulation software. The company’s designs and software are used by OEMs (original equipment manufacturers) in the telecommunications, semiconductor and electronics segments.

Synopsys makes software used to design, test and develop semiconductor chips. It has its own set of electronic design automation products, which include optical design tools (imaging and illumination design products). This latest acquisition will complement its existing capabilities, enhancing its existing suite of optical designs.

Notably, Synopsys stepped into the optical design market with the acquisition of Optical Research Associates in 2010. Moreover, the acquisition will also enable Synopsys to expand its product line in the photonics market.

Strategic acquisitions have always been Synopsys’ plan to strengthen its product portfolio. In January 2012, the company acquired privately-held software maker ExpertIO Inc. During 2011, the company made a number of acquisitions. In October, Synopsys completed the acquisition of privately held electronic design automation company, Extreme DA.

In September, Synopsys completed the acquisition of a leading independent provider of Verification Internet Protocol, nSys Design Systems Private Limited. With the acquisition of Virage Logic Corp. in 2010, Synopsys added embedded memories, including SRAMs (static random access memory) and non-volatile memory, logic libraries, embedded test and repair IP and configurable processor cores, to its IP portfolio.

One thing to note here is that Synopsys has shown no initiative to diversify to other lines of business, although its acquisitions have consistently built its core competencies. Additionally, taking over the same line of business will enrich its portfolio, while also reducing integration time and cost.

Synopsys is set to announce its second quarter 2012 results on May 23. Though the company’s weak guidance for the current quarter is disappointing, back-to-back acquisitions, solid product portfolio and the recent tie-up with Advanced Micro Devices Inc. (AMD - Analyst Report) could provide some cushion, in our view.

We remain Neutral on Synopsys shares until we witness acquisition synergies. Stiff competition from Cadence Design Systems (CDNS - Snapshot Report) also makes us cautious.

Synopsys currently has a Zacks #3 Rank (short-term Hold rating).