Summary: ON SALE
Share Price: $273
Sticker Price: $943
Wherever smart everything is, you’ll find Synopsys. Their technology is at the heart of innovations that change the way people work and play. They were founded in 1986 and are based out of Mountain View, CA. They have offices in the US, Canada, Chile, Armenia, Belgium, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Netherlands, Poland, Portugal, Romania, Russia, Sweden, Switzerland, UK, China, India, Malaysia, Singapore, South Korea, Taiwan, Vietnam, and Japan.
Synopsys is an electronic design automation company that provides three core services.
- Silicon design and verification. They have digital, custom, and analog design tools to help semiconductor manufacturers achieve the best quality, power, and performance. They have verification solutions that enable semiconductor companies to cut months off design schedules. They also offer TCAD (technology computer-aided design) that allows semiconductor companies to manufacture silicon and optimize yield down to 5nm (nanometers).
- Silicon intellectual property. Synopsys provides intellectual property solutions for USB, PCI Express, DDR, Ethernet, SATA, MIPI, HDMI, Bluetooth, and more.
- Software security and quality. 3 common goals emerge for companies that write software. 1. Develop and operate software that is secure. 2. Build high-quality software that doesn’t require patching in production. 3. Deliver software faster. Synopsys offers tools and services to help companies achieve all three.
Some of their silicon design and verification customers include AMD, Uniper Networks, Realtek, Teradici, NetLogic Microsystems, Toshiba, and Wolfson.
Some of their software security customers and case studies include the following.
- Citigroup: Synopsys provided App Security training to Citigroup engineering teams.
- Cryptsoft: Synopsys helped improved scan speeds while maintaining development velocity.
- Avira: Synopsys helped improved open source security while maintaining DevOps velocity.
- Calix: Synopsys helped implement a process of releasing secure code that meets rigorous standards.
- Finra: Synopsys helped improve development efficiencies and tighten up open source security.
Here is what the news has to say.
This article from Yahoo Finance states that Samsung will use the Synopsys PrimeShield to maximize energy efficiency and performance for next-generation designs spanning mobile, 5G, and automotive applications. As stated by Ilryong Kim, VP of System LSI Design Technology at Samsung “Samsung evaluated various solutions, and PrimeShield’s innovative technology successfully addresses these variation challenges and delivers the quality-of-results advantages. Our extensive collaboration with Synopsys allows us to leverage our combined technologies to improve advanced-node design robustness and achieve new levels of power and performance,”
This article from Yahoo Finance states that Synopsys has signed an agreement to buy semiconductor and flag plan display solutions from BISTel. Headquartered in South Korea, BISTel is a leader in engineering equipment and artificial intelligence for semiconductor smart manufacturing.
Now let’s take a look at the 4 M’s.
MOS (Margin of Safety): The MOS checks out. With a score of 17/20 and a MOS of 70%, we can tell from a financial standpoint the business is well-run.
Meaning: Synopsys offers three different high-demand services. Silicon design and verification, intellectual property, and software security. We currently have a shortage of semiconductors within the automotive industry which means semiconductor manufacturers will need to hire Synopsys to optimize output. Based on my experience with software security, we know cybersecurity will remain in-demand as long as the internet exists. With intellectual property services, it’s a perfect complement to silicon design and verification as well as software security services. These three core services make Synopsys a unique player in the tech industry.
Moat: There may be individual competitors for each of the three core services but there isn’t a company that offers all three. The multiple streams of revenue make Synopsys a well-diversified business model.
Management: Synopsys has two CEOs. Dr. Aart de Geus co-founded Synopsys in 1986. He is considered one of the world’s leading experts on logic synthesis and simulation. Dr. de Geus has been widely recognized for his technical, business, and community achievements with awards including Electronic Business Magazine’s “CEO of the Year,” the IEEE Robert N. Noyce Medal, the GSA Morris Chang Exemplary Leadership Award, the Silicon Valley Engineering Council Hall of Fame Award, and the SVLG Lifetime Achievement Award. Dr. Chi-Foon Chan joined Synopsys in 1990 and served in roles including VP of Applications and Services, President, and COO. He led acquisitions of Avanti, Virage Logic, Magma Design Automation, and Springsoft. Prior to working at Synopsys, he worked at NEC Corporation and Intel. Together, Dr. de Geus and Dr. Chan are a perfect team to lead Synopsys.
Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.
Revenue (Found on the Income Statement)
Revenue has increased consistently.
Net Income (Found on the Income Statement)
Net Income has increased consistently.
EPS (Found on the Income Statement)
EPS has increased consistently.
Free Cash Flow (Found on the Cash Flow Statement)
Free Cash Flow has increased consistently.
Total Assets (Found on the Balance Sheet)
Total Assets have increased significantly.
Total Liabilities (Found on the Balance Sheet)
Total Liabilities have increased which is okay.
Total Debt (Found on the Balance Sheet)
Total Debt is decreasing which is a good sign.
Total Equity (Found on the Balance Sheet)
Total Equity is increasing consistently.
With a score of 17/20 and a MOS of 70%, the financials look great. The ROIC is 5/6, Equity GR is 3/3, EPS GR is 3/3, and Cash GR is 3/3. With the meaning, we know all three core services will remain in demand for the coming years. With the moat, there are not any major competitors that offer all three services. This solidifies strong revenue streams that are hard to duplicate. With the management, both Dr. Aart de Geus and Dr. Chi-Foon Chan are doing an excellent job leading the company. Overall, this is a relatively boring company but they solve a lot of problems within the IT industry.