Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $17.7$46.4 billion. Aggregate market value excludes an aggregate of approximately 38.927.3 million shares of the registrant's common stock, par value of $0.01 per share (Common Stock) held by the registrant’s executive officers and directors and by each person known by the registrant to own 5% or more of the outstanding common stock on such date. Exclusion of shares held by any of these persons should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.
SYNOPSYS, INC.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this Form 10-K or the Annual Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the Private Securities Litigation Reform Act of 1995. Any statements herein that are not statements of historical fact are forward-looking statements. Words such as “may,” “will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,” “forecast,” “likely,” “potential,” “seek,” or the negatives of such terms and similar expressions are intended to identify forward-looking statements. This Form 10-K includes, among others, forward-looking statements regarding:
•our business, product and platform strategies;strategies and business outlook;
•the impact of macroeconomic conditions, increased global inflationary pressures and interest rates, potential economic slowdowns or recessions, legislative developments, trade disruptions, including export control restrictions, geopolitical pressures and conflicts, supply chain disruptions and fluctuations in foreign exchange rates on our business outlook;and our customers’ businesses;
•the potential impactexploration of strategic alternatives for our Software Integrity segment;
•regulatory changes in the COVID-19 pandemic onUnited States and other regions in which we operate;
•demand for our business;products and our customers’ products;
•the expected realization of our contracted but unsatisfied or partially unsatisfied performance obligations (backlog);
•customer license renewals;
•our ability to successfully compete in the markets in which we serve;
•our license mix, business model and variability in our revenue;
•the continuation of current industry trends towards customer and vendor consolidation, and the impact of such consolidation;
•prior and future acquisitions, including the expected benefits and risks of completed acquisitions;
the impact of macroeconomic conditions and trade disruptions on our business and our customers’ businesses;
demand for our products and our customers’ products;
the expected realization of our backlog;
customer license renewals;
•the completion of development of our unfinished products, or further development or integration of our existing products;
•technological trends in integrated circuit design;
our ability to successfully compete in •the markets in which we serve;status of litigation and/or regulatory investigations;
our license mix, our business model, and variability in our revenue;
litigation;
•our ability to protect our intellectual property;
•our ability to attract and retain senior management and key employees worldwide;
•the impact of newtax laws and recently adopted accounting pronouncements;changes in such laws on our business;
•our cash, cash equivalents and cash generated from operations; and
our available-for-sale securities; and
•our future liquidity requirements.
These statements are based on our current expectations about future events and involve certain known and unknown risks, uncertainties and other factors that could cause our actual results, time frames or achievements to differ materially from those expressed or implied in our forward-looking statements. Accordingly, we caution readers not to place undue reliance on these statements. Such risks and uncertainties include, among others, those listed in Part I, Item 1A, Risk Factorsand Item 3, Legal Proceedings; and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A, Quantitative and Qualitative Disclosures About Market Risk and Item 9A, Controls and Procedures of this Annual Report on Form 10-K. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in
the future. All subsequent written or oral forward-looking statements attributable to Synopsys, Inc. or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time with the Securities and Exchange Commission (SEC) that attempt to advise interested parties of the risks and factors that may affect our business.
Fiscal Year End
Our fiscal year ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 20202023, 2022 and 20192021 were 52-week years and ended on October 31, 202028, 2023, October 29, 2022, and November 2, 2019,October 30, 2021, respectively. Fiscal 2018was a 53-week year and ended on November 3, 2018. Fiscal 20212024 will be a 52-week53-week year.
For presentation purposes, this Annual Report on Form 10-K refers to the closest calendar month end.
PART I
Company and Segment Overview
Synopsys, Inc. (Synopsys, we, our or us) provides products and services used across the entire Silicon to Software™ spectrum to bring Smart Everything to life. From engineers creating advanced semiconductors to product teams developing advanced electronic systems to software developers seeking to ensure the security and quality of their code, our customers trust that our technologies will enable them to meet new requirements for low power as well asenergy efficiency, reliability, mobility, security and security.
more.
We are a global leader in supplying the electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips.chips or silicon. We provide software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them, including cloud-based digital design flow to boost chip-design development productivity. We also provide technical services and support to help our customers develop advanced chips and electronic systems. These products and services are part of our Design Automation segment.
We also offer a broad and comprehensive portfolio of semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. We provide software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. To complement these offerings, we provide technical services and support to help our customers develop advanced chips and electronic systems. These products and services are part of our Semiconductor & System Design IP segment.
We are also a leading provider of software tools and services that improve the security, quality and compliance of software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and industrials. These tools and services are part of our Software Integrity segment.
Corporate Information
We incorporated in 1986 in North Carolina and reincorporated in 1987 in Delaware. Our headquarters are located at 690 East Middlefield Road, Mountain View,675 Almanor Avenue, Sunnyvale, California 94043,94085, and our headquarters’ telephone number is (650) 584-5000. Our website is https://www.synopsys.com/. We have approximately 120122 offices worldwide.
Our annual and quarterly reportsAnnual Report on FormsForm 10-K, andQuarterly Reports on Form 10-Q, (including related filings in XBRL format), current reportsCurrent Reports on Form 8-K, and Proxy Statements, including those relating to our annual meetingsAnnual Meeting of stockholders (includingStockholders, and any amendments to thesesuch reports as well as filings made by our executive officers and directors)or other information filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available through the Investor Relations page of our website ((www.synopsys.com)https://investor.synopsys.com/overview/default.aspx) free of charge as soon as reasonably practicable after we file them with, or furnish them to, the SEC ((www.sec.gov)www.sec.gov). We use our Investor Relations page as a routine channel for distribution of important information, including, among other things, news releases, investor presentations and financial information.information and to comply with our disclosure obligations under Regulation Fair Disclosure. The contents of our website are not part of this Annual Report on Form 10-K.10-K and shall not be deemed incorporated by reference.
Background
In this era of Smart Everything, we have seen a remarkable proliferation of consumer and wireless electronic products, particularly mobile devices. The growth of the Internet and cloud computing has provided people with new ways to create, store, and share information. At the same time, the increasing use of electronics in cars, buildings, appliances, and other consumer products is creating a connected landscape of smart devices. Numerous software applications (apps) have been developed to expand the potential of these connected devices. The increasing impact of artificial intelligence (AI) and machine learning is driving an increase in the activity of new and existing chip and system design companies around the world.
These developments have been fueledenabled by innovation in the semiconductor and software industries. It is now common for a single chip to combine many components (processor, communications, memory, custom logic, input/output) and embedded software into a single system-on-chip (SoC), necessitating highly complex chip designs. The most complex chips today contain more than a billion transistors. Transistors are the basic building blocks for ICs, each of which may have features that are less than 1/1,000th the diameter of a human hair.
These devices are manufactured using masks to direct beams of light onto a wafer of silicon. At such small dimensions, the wavelength of light itself can become an obstacle to production, proving too big to create such
dense features and requiring creative and complicated new approaches from designers.approaches. Designers have turned to new manufacturing techniques to solve these problems, such as multiple-patterning lithography, FinFET 3D transistors and FinFET transistors,Gate-All-Around Field-Effect transistor structures, which in turn have introduced new challenges to design and production.
The popularity of mobile devices and other electronic products has increased demand for chips and systems with greater functionality and performance, reduced size, and lower power consumption. Our customers, who design those products, are facing intense pressure to deliver innovative offerings in shorter timeframes and at lower prices. In other words, innovation in chip and systemsystems design often hinges on providing products “better,” “sooner,” and “cheaper” than competitors. The designsdesign of these chips and systems areis extremely complex and necessitatenecessitates state-of-the-art design solutions. Over the past several years, market verticals including AI, 5G, automotive and cloud computing infrastructure have contributed to the ongoing demand for our products and services.
A similar dynamic is at work in the software arena, whether the software is embedded on a chip or as a standalone.used in other applications. The pace of innovation often requires developers to deliver more secure, high-quality software, which can include millions of lines of code, in increasingly frequent release cycles. Bugs, defects and security vulnerabilities in code can be difficult to detect and expensive to fix. But,Despite these challenges, it is crucial to have high-quality, secure code to ensure consumers' privacy and safety, especially at a time when software is critical in many industries across a growing array of smart devices, it is crucial to have high-quality, secure code to ensure consumers’ privacy and safety.devices.
Our Role—As the Silicon to Software Partner
Synopsys' Silicon to Software technologies and services are designed to help our customers—chip and system engineers and software developers—to speed up time to market, achieve the highest quality of results, mitigate risk, and maximize profitability.
Chip and systemsystems designers must determine how best to design, locate and connect the building blocks of chips, and to verify that the resulting design behaves as intended and can be manufactured efficiently and cost-effectively. This is a complex, multi-step process that is both expensive and time-consuming. Our wide range of products help designers at different steps in the overall design process, from the design of individual ICs to the design of larger systems. Our products increase designer productivity and efficiency by automating tasks, keeping track of large amounts of design data, adding intelligence to the design process, facilitating reuse of past designs and reducing errors. Our IP products offer proven, high-quality pre-configured circuits that are ready to use in a chip design, saving customers time and enabling them to direct resources to features that differentiate their products. Our global service and support engineers also provide expert technical support and design assistance to our customers.
Software developers are responsible for writing code that not only accomplishes theirits goals as efficiently as possible but also runs securely and is free of defects. We offer products that can help developers write higher quality, more secure code by analyzing their code for quality defects and known security vulnerabilities, adding intelligence and automation to the software testing process, and helping to eliminate defects in a systematic manner. To the extent thatAs developers make use of open source software in their code, our products can help developers better manage the composition and security of the code. Our products enable software developers to catch flaws earlier in the development cycle, when they are less costly to fix.
Products and Services
Semiconductor & System Design Automation Segment
Our Semiconductor & System Design Automation segment includes the EDA IP and System Integration and Other revenue categories.
groups.
EDA
Designing ICs involves many complex steps:steps, including, among others architecture definition, register transfer level (RTL) design, functional/RTL verification, logic design or synthesis, gate-level verification, floorplanning, place and route, and physical verification, to name just a few.verification. Designers use our EDA products to automate the IC design process, reduce errors and enable more powerful and robust designs.
As the availability and amount of cloud-based data storage grows, customer interest in accessing EDA on the cloud is also increasing as customers seek to benefit from the scalability and flexibility that cloud computing can offer to their flows and engineering teams. While many of our solutions have been used in cloud-based environments for years, such as in a customer’s own server and/or cloud environment, in fiscal 2022 we launched a Synopsys Cloud
offering that provides customers additional options for accessing our EDA products in their own cloud environments and in the industry’s first EDA Software-as-a-Service solution developed in partnership with Microsoft Azure.
Our platformssolutions comprehensively address the design process, featuring a large number of EDA products that generally fall into the following categories:
•Digital and custom IC design and field programmable gate array (FPGA) design, which includes software tools to design, verify, implement and prepare an IC;IC for manufacturing;
•Verification, which includes technology to verify that an IC design behaves as intended; and
•Manufacturing, which includes products that both enable early manufacturing process development and convert IC design layouts into the masks used to manufacture the chips.chips; and
•AI driven EDA solutions, which include AI and machine learning tools to complement our EDA software stack.
Digital and Custom IC Design
Our FusionDigital Design Platform™Family provides customers with a comprehensive digital design implementation solution that includes industry-leading products and redefines conventional design tool boundaries to deliver a more integrated flow than ever before, with better quality and time to results. The platform gives designers the flexibility to integrate internally developed tools as well as those from third parties. With innovative technologies, a common foundation, and flexibility, our FusionDigital Design PlatformFamily helps reduce design times, decrease uncertainties in the design steps, and minimize the risks inherent in advanced, complex IC design. The platform supports multiple technology nodes, including advanced nodes at 12nm, 10nm, 8/7nm, 6 nm, 5/4nm, and 3nm, with technology collaborations on next-generation process technologies.
Key design products are available as part of the FusionDigital Design Platform,Family and include Fusion Compiler™Compiler RTL to GDSII design implementation, Design Compiler® logic synthesis, IC Compiler™Compiler II physical design, Synopsys TestMAXTM test and diagnosis, PrimeTime® static timing analysis, StarRC™StarRC parasitic extraction, and IC Validator physical verification. In 2020, we launched two new solutions to address some of the most pressing challenges facing the industry.verification and 3DIC Compiler, is the industry’s first next-generation chip packaging solution, aimed at enabling customers to combine or stack multiple dice on a single chip. Our new DSO.ai™Many of our EDA solutions are bolstered by AI and machine learning capabilities. In addition, we offer Synopsys.aiTM, the first product in the market that brings AI to the entire design process. This groundbreaking solution utilizes artificial intelligencehandles design complexity and takes over repetitive tasks such as design space exploration, verification coverage and regression analytics, as well as test program generation, while helping to autonomously learnoptimize power, performance, and area. This frees up engineers to focus on chip quality and differentiation and enables them to quickly migrate their chip designs from thefoundry to foundry or from process of IC design and further enable design teamsnode to more efficiently reach design targets (performance, power, and area).process node.
Our Custom Design Platform™Family is a unified suite of design and verification tools that accelerates the transistor-level design of robust analog, mixed-signal, and custom-digital ICs. The platform features visually assisted layout automation, high-performance circuit simulation, reliability-aware verification, and natively integrated StarRC™StarRC extraction and physical verification. Platform tools include HSPICE® and FineSim® SPICE circuit simulators, CustomSim™ FastSPICE,This product family includes Custom Compiler layout and schematic editor, StarRC parasitic extraction, and IC Validator physical verification.
verification and PrimeSim. The PrimeSim solution integrates PrimeSim SPICE, PrimeSim HSPICE, PrimeSim Pro and PrimeSim XA. The PrimeWave design environment is also included and provides comprehensive analysis and improved productivity and ease of use across all tools in PrimeSim.
Our Silicon Lifecycle Management Platform(SLM) Family is a new data analytics-driven platform that uses on-chip monitorin-chip monitoring and sensor datasensing to optimize all phases of the silicon lifecycle—from design and manufacturing to in-field deployment and maintenance. This platform currentlyThe solution is integrated with the Digital Design Family for design calibration and analytics and includes the PrimeShield™ design robustness solution, the SiliconDash data analytics engine, Yield Explorer® design yield analysis,for product ramp analytics, SiliconDash for test and process, voltageproduction analytics, TestMAX ALE (adaptive learning engine) for intelligent data extraction and temperature sensors, with additional capabilitiescommunication to be rolled out over time.the SLM database and DesignWare PVT IP for in-chip monitoring and sensing.
FPGA Design
FPGAs are complex chips that can be customized or programmed to perform a specific function after they are manufactured. For FPGA design, we offer Synplify® (Pro® and Premier) implementation and Identifysoftware.
Verification
Our Verification Continuum® platformFamily is built from our industry-leading and fastest verification technologies, providing virtual prototyping, static and formal verification, simulation, emulation, FPGA-based prototyping, and debug in a unified environment with verification IP, planning, and coverage technology. By providing consistent compile, runtime and debug environments across the flow of verification tasks and by enabling seamless transitions across functions, the platform helps our customers accelerate chip verification, bring up software earlier, and get to market sooner with advanced SoCs.
The individual products and solutions included in the Verification Continuum platform are reported in our EDA and IP and System Integration revenue categories. The solutions reported in our EDA revenueFamily include the following:
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• | VC SpyGlass™ family of static verification technologies including lint, CDC (clock domain crossing), RDC (reset domain crossing), Constraint Checking, Synopsys TestMAX Advisor, and low-power analysis and verification;
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• | VCS® functional verification solution, our comprehensive RTL and gate-level simulation technology, including Fine-Grained Parallelism (FGP);
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• | Verdi® automated debug system, the industry’s most comprehensive SoC debug;
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VC Formal™SpyGlass family of static verification technologies including lint, CDC (clock domain crossing), RDC (reset domain crossing), Constraint Checking, Synopsys TestMAX Advisor, and low-power analysis and verification;
•VCS® functional verification solution, our comprehensive RTL and gate-level simulation technology, including Fine-Grained Parallelism;
•Verdi® automated debug system, the industry’s most comprehensive SoC debug;
•VC Formal, our next-generation formal verification product;
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• | •ZeBu® emulation systems, which use high-performance hardware to emulate SoC designs so that designers can accelerate hardware, software and power verification of large complex SoCs and perform earlier verification and optimization of the SoC together with software;® emulation systems, which use high-performance hardware to emulate SoC designs so that designers can accelerate verification of large complex SoCs and perform earlier verification of the SoC together with software; and |
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• | Other principal individual verification solutions, including CustomSim™, FastSPICE and FineSim® SPICE/FastSPICE circuit simulation and analysis products, HSPICE® circuit simulator, and CustomExplorer™ Ultra mixed-signal regression and analysis environment.
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The verification IP,•HAPS® FPGA-based prototyping systems, which are integrated and scalable hardware-software solutions for early software development and faster time to market;
•Virtualizer virtual prototyping solution, which addresses the increasing development challenges associated with software-rich semiconductor and FPGA-based prototypingelectronic products by accelerating both the development and deployment of virtual prototypes; and
•Platform Architect solution, which provides for early analysis and optimization of multi-core SoC architectures for performance and power; and
•Other principal individual verification solutions, that are part of our Verification Continuum platform are included in our IPincluding the PrimeSim solution and System Integration category and further described below.thePrimeWave design environment.
Manufacturing
Our Manufacturing Solutionsmanufacturing solutions include Sentaurus™Sentaurus technology computer-aided design (TCAD) device and process simulation products, Proteus™Proteus mask synthesis tools, CATS® mask data preparation software, Yield Explorer® Odyssey, and Yield-Manager® yield management solutions.solutions and QuantumATK atomic-scale modeling software.
We also provide consulting and design services that address all phases of the SoC development process, as well as a broad range of expert training and workshops on our latest tools and methodologies.
AI Driven EDA Stack
Our EDA software stack spanning design, verification, and manufacturing is augmented with AI and machine learning through our Synopsys.ai suite of complementary solutions. Starting in design with design space optimization that autonomously learns through quickly exploring potential design alternatives, enabling engineers to develop superior design outcomes with significantly reduced effort as well as learning-based design retargeting to derivative processes, improved test coverage through AI-driven models while reducing test vectors and tester time, and analysis of silicon performance and quality that is leveraged for optimizing next-generation revisions of design. The Synopsys.ai solutions include:
•DSO.ai – Design Space Optimization for best quality of results and productivity with scaling of exploration design workflows;
•VSO.ai – Verification Space Optimization for improved functional verification coverage & faster turnaround time;
•TSO.ai – Test Space Optimization for reduced pattern count, turnaround time and higher coverage;
•ASO.ai – Analog Space Optimization for analog layout optimization & migration;
•Design.da – Design data analytics for actionable insights to unlock untapped power, performance, and area;
•Silicon.da – Silicon data analytics for root-cause analysis and part-level traceability of failures; and
•Fab.da – Manufacturing data analytics for improved process control, time-to-market, and user productivity.
Other
Our Other product group includes revenue from sales of products to university programs as well as our optical products, mechatronic simulation, and the impact of gains and losses from foreign currency hedges.
Design IP Segment
Our Design IP segment includes our Design IP products, which service companies primarily in the semiconductor and System Integrationelectronics industry.
Design IP Products
As more functionality converges into a single devicechip or even a single chip, and as chip designs grow more complex,multi-die system, the number of third-party IP blocks incorporated into designs is rapidly increasing. We provide the largest and broadest, most comprehensive portfolio of high-quality, silicon-proven IP solutions for SoCs. Our broad DesignWareSynopsys IP portfolio includes:
•High-quality solutions for widely used wired and wireless interfaces such as USB, PCI Express, DDR, Ethernet, SATA, MIPI, HDMI, and Bluetooth Low Energy;
•Logic libraries and embedded memories, including memory compilers, non-volatile memory, and standard cells andwith integrated test and repair;
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• | •Processor solutions, including configurable ARC® processors, Neural Network processors, Digital Signal Processor solutions, including configurable ARC® processor cores, software, Embedded Vision processor cores and application-specific instruction-set processor (ASIP) tools for embedded applications; |
IP subsystems for audio, sensor, and data fusion functionality that combine IP blocks, an efficient processor, and software into an integrated, pre-verified subsystem;and application-specific instruction-set processor tools for embedded applications;
•Security IP solutions, including cryptographic cores and software, security subsystems, platform security and content protectionsecured interface IP;
•An industry-leading IP offering of IP for the automotive market, optimized for strict functional safety and reliability standards such as ISO 26262; and
Analog•SoC infrastructure IP, including data convertersdatapath and audio codecs;building block IP, mathematical and
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• | SoC infrastructure IP, datapath and building block IP, mathematical and floating-point components, Arm® AMBA® AMBA® interconnect fabric and peripherals, and verification IP.
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Our IP Accelerated initiative augments our established, broad portfolio of silicon-proven DesignWareSynopsys IP with IP Prototyping Kits and customized IP subsystems to accelerate prototyping, software development, and integration of IP into SoCs.
We offer a broad portfolio of IP that has been optimized to address specific application requirements for the mobile, automotive, digital home, internetInternet of things, and cloud computing markets, enabling designers to quickly develop SoCs in these areas.
Our Verification IP portfolio, part of our Verification Continuum platform, is also part of the IP Products category.
System Integration Solutions
Our System Integration verification solutions include the following elements of our Verification Continuum platform:
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• | HAPS® FPGA-based prototyping systems, which are integrated and scalable hardware-software solutions for early software development and faster time to market;
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Virtualizer™ virtual prototyping solution, which addresses the increasing development challenges associated with software-rich semiconductor and electronic products by accelerating both the development and deployment of virtual prototypes; and
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• | Platform Architect solution, which provides for early analysis and optimization of multi-core SoC architectures for performance and power.
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We also provide a series of tools used in the design of optical systems and photonic devices. Our CODE V® solution enables engineers to model, analyze and optimize designs for optical imaging and communication systems. Our LightTools® design and analysis software allows designers to simulate and improve the performance of a broad range of illumination systems, from vehicle lighting to projector systems.
Other
Our Other revenue category includes revenue from sales of products to academic and research institutions.
Software Integrity Segment
Our Software Integrity segment provides a comprehensive solution for building integrity—security, qualityhelps organizations align people, processes and compliance testing—into our customers’technology to intelligently address software development lifecyclerisks across their portfolio and supply chain. Theseat all stages of the application lifecycle. The testing tools, services, and programs enable our customers to manage open source license compliance and detect, prioritize, and remediate security vulnerabilities and defects across their entire software development lifecycle. Our offerings include security
and quality testing products, managed services, programs and professional services, and training.training offered as on-premises and cloud-based delivery.
The Polaris Software Integrity Platform is designed to bring our products and services together into an integrated, easy-to-use solution that enables security and development teams to build secure, high-quality software faster.
Key offerings in the security, quality and compliance testingthis space include:
Polaris Software Integrity Platform™,•Intelligent Orchestration solution, which is designedenables DevOps to provide customers with an easy-to-use and integrated platformbuild a testing pipeline that enables organizationsa company to intelligently orchestrate software testingdefine—within its particular policy guidelines—the rules to determine which tests to run, including the Synopsys portfolio tests, third party products, or integrateopen source tests;
•Software Risk Manager, which correlates and prioritizes findings from the Synopsys portfolio, third party products, and third-partyopen source tools, into DevOps workflows. Introduced in April 2019 with its initial configuration, Polaris Software Integrity Platform™ will be enhanced throughout 2021providing a comprehensive view of software security risk;
•Coverity® static analysis tools, which analyze software code to find crash-causing bugs, incorrect program behavior, the latest security vulnerabilities, memory leaks and beyond;other performance-degrading flaws;
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• | Coverity® static analysis tools, which analyze software code to find crash-causing bugs, incorrect program behavior, the latest security vulnerabilities, memory leaks and other performance-degrading flaws;
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Black Duck™Duck software composition analysis tools, which scan binary and source code for license and compliance issues and other known security vulnerabilities stemming from incorporated third-party and open source code;
•WhiteHat® Dynamic, our latest dynamic application security testing solution, which rapidly and accurately finds vulnerabilities in websites and applications;
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• | •Seeker® IAST tool, which identifies exploitable security vulnerabilities while web applications are running, thereby verifying results and eliminating false positives; and •Defensics®® IAST tool, which identifies exploitable security vulnerabilities while web applications are running, thereby verifying results and eliminating false positives; and |
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• | Defensics® fuzz testing tools, which examine security vulnerabilities in software binaries and libraries, particularly network protocols and file formats, by systematically sending invalid or unexpected inputs to the system under test.
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Managed services allow developers to test code across many dimensions, and to rapidly respond to changing testing requirements and evolving threats. This includes Mobile Application Security Testing (AST)mobile application security testing services to find vulnerabilities in mobile applications as well as Dynamic Application Security Testing (DAST)dynamic application security testing services, which identify security vulnerabilities while web applications are running, without the need for source code.
Programs and professional services address unique security and quality needs with specialized consulting by skilled experts, including the Building Security in Maturity Mode, (BSIMM), which measures the effectiveness of software security initiatives by assessing the current state as compared to industry benchmarks, and the Black Duck™Duck on
demand audit services, which provides open source compliance and software vulnerability assessments as part of the due diligence process for mergers and acquisitions.
Finally, training includes eLearning and instructor-led training that prepares developers and security professionals to build security and quality into their software development process and remediate found vulnerabilities and defects.
Customer Service and Technical Support
A high level of customer service and support is critical to the adoption and successful use of our products. We provide technical support for our products through both field-based and corporate-based application engineering teams.
Post-contract customer support includes providing frequent updates and upgrades to maintain the utilityutilization of the software due to rapid changes in technology. In our Semiconductor & System Design segment,Automation and Design IP segments, post-contract customer support for our EDA and IP products also includes access to the SolvNet® Plus portal, where customers can explore our complete design knowledge database.database, get self-help and get support. Updated daily,regularly, the SolvNet Plus portal includes technical documentation, design tips and answers to user questions. Customers can also engage, for additional charges, with our worldwide network of applications consultants for additional support needs.
In our Software Integrity segment, post-contract customer support for our products includes access to our support community portal, where customers can access our product documentation, self-service training materials, customer forums and our product knowledge base. Customers can also raise support tickets, request replacement license keys and validate the terms of their active license keys through the portal. Our support community portal is
frequently updated with new and supplemental materials on a variety of topics. Customers may engage dedicated support engineers for an additional charge.
In addition, we offer training workshops designed to increase customer design proficiency and productivity with our products. Workshops cover our EDA products and methodologies used in our design and verification flows, as well as specialized modules addressing systemsystems design, logic design, physical design, simulation and testing. We offer regularly scheduled public and private courses in a variety of locations worldwide, as well as online training (live or on-demand) through our Virtual Classrooms.
Product Warranties
We generally warrant our products to be free from defects in media and to substantially conform to material specifications for a period of 90 days for our software products and for up to 6six months for our hardware products. In manycertain cases, we also provide our customers with limited indemnification with respect to claims that their use of our software products infringes on United States patents, copyrights, trademarks or trade secrets. We have not experienced material warranty or indemnity claims to date.
Support for Industry Standards
We actively create and support standards that help our EDA and IP customers increase productivity, facilitate efficient design flows, improve interoperability of tools from different vendors and ensure connectivity, functionality and interoperability of IP building blocks. Standards in the electronic design industry can be established by formal accredited organizations, industry consortia, company licensing made available to all, de facto usage, or through open source licensing.
In our Semiconductor & System Design Automation segment, our EDA products support many standards, including the most commonly used hardware description languages: SystemVerilog, Verilog, VHDL and SystemC®.SystemC. Our products utilize numerous industry-standard data formats, APIs and databases for the exchange of design data among our tools, other EDA vendors’ products and applications that customers develop internally. We also
In our Design IP segment, we comply with a wide range of industry standards within our IP product family to ensure usability and interconnectivity.
In our Software Integrity segment, our solutions support several existing and emerging industry standards for software coding and security, such as the Motor Industry Software Reliability Association (MISRA) coding standards for the automotive industry. In addition, our products support multiple major programming languages, including C/C++, Objective C, C#, JavaScript (including many commonly used frameworks), and others. In addition, we support many common compilers, development environments, frameworks, and data and file formats.
Sales and Distribution
Our Semiconductor & System Design Automation and Design IP segment customers are primarily semiconductor and electronics systems companies. The customers for products in our Software Integrity segment include many of these companies as well as companies from a wider array of industries, including electronics, financial services, automotive, medicine, energy and industrials.
We market our products and services principally through direct sales in the United States and our principal foreign markets. Our Software Integrity segment continues to grow its indirect sales partner program, enabling our Software Integrity segment to engage geographies beyond the reach of our direct sales force and opening opportunities in targeted vertical markets. We typically distribute our software products and documentation to customers electronically, but provide physical media (e.g., DVD-ROMs) when requested by the customer.
We maintain sales and support centers throughout the United States. Outside the United States, we maintain sales, support or service offices in Canada, multiple countries in Europe, Israel and throughout Asia, including Japan, China, Korea, India and Taiwan. Our international headquarters are located in Dublin, Ireland. Our offices are further described under Part I, Item 2, Properties.Properties of this Annual Report on Form 10-K.
Information relating to domestic and foreign operations, including revenue and long-lived assets by geographic area, is contained in Part II, Item 8, Financial Statements and Supplementary Data.of this Annual Report on Form 10-K. Risks related to our foreign operations are described in Part I, Item 1A, Risk Factors.of this Annual Report on Form 10-K.
Revenue Attributable to Product CategoriesGroups
Revenue from our products and Segmentsservices is categorized into four groups:
•EDA, which includes digital and custom IC design software, verification hardware and software products, manufacturing-related design products, FPGA design software, AI driven EDA solutions, and professional services;
•Design IP, which includes our Synopsys IP portfolio;
•Software Integrity, which includes solutions that test software code for security vulnerabilities and quality defects, as well as professional and managed services; and
•Other, which includes university programs, optical products, mechatronic simulation, and the impact of gains and losses from foreign currency hedges.
Revenue attributable to each of our four product categories (with EDA, IP & Systems Integration, and Other comprising our Semiconductor & System Design segment)groups is shown below as a percentage of our total revenue for those fiscal years.
Aggregate revenue derived from one of our customers and its subsidiaries through multiple agreements accounted for 12.4%, 12.8%11.7% and 15.4%10.6% of our total revenue in fiscal 2020, 20192023, 2022 and 2018,2021, respectively. In each such year, the revenue derived from such customer and its subsidiaries was primarily attributable to our Semiconductor & System Design segment.
Product Sales and Licensing Agreements
We typically license our software to customers under non-exclusive license agreements that restrict use of our software to specified purposes within specified geographical areas. The majority of licenses to our EDA products are network licenses that allow a number of individual users to access the software on a defined network, including, in some cases, regional or global networks. The majority of licenses to our Software Integrity products are capacity or user licenses that allow a number of users to access the software based on a specified number of team members or specified code-bases in a defined territory. License fees depend on the type of license, product mix, and number of copies of each product licensed.
For a full discussion of our software product offerings, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations of this Annual Report on Form 10-K.
We typically license our DesignWareSynopsys IP products under nonexclusive license agreements that provide usage rights for specific designs. Fees under these licenses are typically charged on a per design basis plus, in some cases, royalties. See Note 22. Significant Accounting Policies and Bases of Presentation of the Notes to Consolidated Financial Statements for further information.
Our hardware products, which principally consist of our prototyping and emulation systems, are either sold or leased to our customers. Risks related to disruptions in our supply chain affecting our business are described in Part I, Item 1A, Risk Factors of this Annual Report on Form 10-K.
Our professional services team typically provides design consulting services to our customers under consulting agreements with statements of work specific to each project.
Competition
The EDA industry is highly competitive. WeWithin our Design Automation segment, we compete against other EDA vendors and against our customers’ own design tools and internal design capabilities. The EDA industry is highly competitive. In general, we compete principally on technology leadership, product quality and features (including ease-of-use), license terms, price and payment terms, post-contract customer
support, flexibility of tool use, and interoperability with our own and other vendors’ products. We also deliver a significant amount of engineering and design consulting for our products. No single factor drives an EDA customer’s buying decision, and we compete on all fronts to capture a higher portion of our customers’ budgets. Our competitors include EDA vendors that offer varying ranges of products and services, such as Cadence Design Systems, Inc. and Mentor Graphics Corporation (now part of Siemens AG).EDA. We also compete with other EDA vendors, including new entrants to the marketplace, that offer products focused on one or more discrete phases of the IC design process, as well as with customers’ internally developed design tools and capabilities.
Within our Semiconductor & System Design IP segment, Synopsys also competes against numerous other IP providers, including Cadence Design Systems, Inc., and our customers' internally developed IP. We generally compete on the basis of product quality, reliability, and features, availability of titles for new manufacturing processes, ease of integration with customer designs, compatibility with design tools, license terms, price and payment terms, and customer support.
Our Software Integrity segment competes with numerous other solution providers, many of which focus on specific aspects of software security or quality analysis. We also compete with frequent new entrants, which include start-up companies and more established software companies. For example, competitors named in the Gartner Magic Quadrant for Application Security Testing include Checkmarx Ltd., Veracode, (now part Inc., Open Text Corporation, GitHub, Inc. and Snyk Ltd.
Risks related to competitive factors affecting our business are described in Part I, Item 1A, Risk Factors of Thoma Bravo, LLC) and Micro Focus International plc.this Annual Report on Form 10-K.
Proprietary Rights
We primarily rely upon a combination of copyright, patent, trademark, and trade secret laws and license and non-disclosure agreements to establish and protect our proprietary rights. We have a diversified portfolio of more than 3,300 United States and foreign patents issued, and we will continue to pursue additional patents in the future. Our issued patents have expiration dates through 2040.2044 and generally have a term of twenty years from filing. Our patents primarily relate to our products and the technology used in connection with our products. Our source code is protected both as a trade secret and as an unpublished copyrighted work. However, third parties may independently develop similar technology. In addition, effective copyright and trade secret protection may be unavailable or limited in some foreign countries. While protecting our proprietary technology is important to our success, our business as a whole is not significantly dependent upon any single patent, copyright, trademark, or license.
In many cases, under our customer agreements and other license agreements, we offer to indemnify our customers if the licensed products infringe on a third party’s intellectual property rights. As a result, we may from time to time need to defend claims that our customers’ use of our products infringes on these third-party rights. We license software and other intellectual property from third parties, including, in several instances, for inclusion in our products. Risks related to our use of third-party technology are described in Part I, Item 1A, Risk Factorsof this Annual Report on Form 10-K.
CorporateEnvironment, Social Responsibility atand Governance Matters
At Synopsys,
We recognize that our significant role in shaping a future of Smart Everything brings important responsibilities. The future is not smart if it is not sustainable, fairFuture Environment, Social and secure. Our "Smart Future" Corporate Social Responsibility (CSR) programGovernance (ESG) strategy provides a focus and structureframework for how Synopsys addresses bothwe manage our own operational impact on the world and our ability to influence others around us.to do the same, as we
believe this approach supports the success of the business. We leverage our strategy and our corporate governance processes to assess and manage the ESG matters that are helping address global issues such as climate change, as well as focusing on the need for social justice and equality.
Through our CSR program, we are committed to taking actions relatedrelevant to our operational impact, suchbusiness as driving diversity and inclusion initiatives throughoutpart of our workforce and on our Board of Directors, building security into our products, and reducing our environmental impact. Synopsys has committed to ambitious CSR goals, including, for example, a pledge to reduce our Scope 1 and Scope 2 greenhouse gas emissions by 25% by 2024, compared with our 2018 baseline. Additional detail on our proactive efforts to address climateoperate in a sustainable manner.
We aim to influence positive social and environmental change are included inacross our Corporate Social Responsibility Report, CDP Climate Change Questionnaire, and on our website.1
1The contents of our website and our Corporate Social Responsibility Report and CDP Climate Change Questionnaire are referenced for general information only and are not incorporated into this 10-K.
Our Smart Future commitment also meansecosystem by applying our resources, competencies, and team-based problem-solving approach, people, technology and other resources to influence those around us—including our customers, partners and suppliers—to join us in driving positive change in the world. Synopsysapproach. Our technology is in action in countless ways:ways, from bringing safety and security to the driverless car revolution to enabling the technologies that are an increasingly vital component of protecting human health and well-being. As the role
The Corporate Governance and Nominating Committee of computing increases exponentially, IoT, 5Gour Board of Directors is responsible for overseeing policies; practices; priority and machine learning applications risk driving similarly exponential energy consumptionassessments; risk management initiatives, goals and carbon emissions. This makes Synopsys’ workprogress toward goals; and public disclosures relating to enable low-power computing at the device level and in the cloud especially criticalESG matters, except to the industry’s sustainability. At the same time, we are advancing global supply chain sustainabilityextent delegated to other committees of our Board of Directors, such as a member of the Responsible Business Alliancematters related to human capital management and diversity, equity and inclusion.
Additional information about our approach to our ESG priorities is available on our ESG website, including our Environmental Policy and our SynopsysESG Report. The contents of our website and ESG Report are referenced for Good program combines volunteer time, our technology expertisegeneral information only and financial donations to bring STEM education and other support to the communities in which we work.are not incorporated into this Annual Report on Form 10-K.
Human Capital Resources
At Synopsys, iswe are committed to empowering our employees to pursue their passion, challenge themselves and their peers, and make their mark on the world. We believe this creates value for us, our stockholders, and the lives of the people we impact every day. Our commitment to attracting, developing and retaining the brightesttop talent makes this goal possible and best talent, so investingour constant pursuit of improving our employees' experience promotes a culture where employees can thrive in human capital is critical to our success.their career. As of October 31, 2020,our fiscal 2023 year-end, Synopsys had 15,036approximately 20,300 employees, of whichwith approximately 35% are24% in the Americas,United States and 65%76% in other global regions.locations around the world. Approximately 80% of our employees are engineers, and almostover half of those employees hold Masters’ or PhD degrees. HumanThe human capital measures and objectives that Synopsys focuseswe focus on in managing its business include recruitment and retention; diversity, equity and inclusion; total rewards; employee health, safety, talent acquisition and retention,wellbeing; employee engagement development and training, diversitydevelopment; and inclusion,succession planning.
Risks related to our human capital are described in Part I, Item 1A, Risk Factors of this Annual Report on Form 10-K.
Recruitment and compensation and pay equity.Retention
COVID-19 and Employee Safety
During the COVID-19 pandemic, our primary focus has been on the safety and well-being of our employees and their families. Our global pandemic efforts include leveraging the advice and recommendations of infectious disease experts to establish proper safety standards and secure appropriate levels of personal protective equipment. We launched regional emergency response teams to ensure that our employees have the appropriate equipment and support to safely and productively work remotely. In addition, in order to reinforce a deep connection and establish clear direction with our employees, we have significantly increased leadership updates and management outreach. As part of our planning, we also solicited voluntary individual profiles from our employees, enabling us to efficiently and effectively address their unique needs. Our employees have been provided with a composite of benefits and support initiatives to address the inherent challenges of working remotely during a pandemic. As the pandemic continues, the health and well-being of our workforce remains our top priority while we ensure productivity while working from home.
Engaging the Entire Team
We address employee engagement through three foundational areas: recruiting and retaining a diverse workforce, soliciting and addressing employee feedback, and frequent management outreach to ensure commitment, engagement, continuous learning and skills development.
Our workforce is representative of the industry we serve. We are highly technical, enjoy pushing the boundaries of what is possible and are individually innovative. In 2020,fiscal 2023, we grewincreased our global teamemployee headcount by approximately 8%7%, with a keencontinued focus on increasing the number ofpromoting gender diversity with respect to those in technical women in our workforceand senior level positions and ensuring a vibrant talent pipeline throughwith early career hiring. We had an external hiring rateand investment in training and development. As of 27% women and 29% early career hires (defined as within one year of a candidate’s most recent academic degree). In this same timeframe,our fiscal 2023 year-end, our undesired turnover rate has been notably low, compared to competitive benchmarks and historical trends.was 2.7%.1 We attribute ourthe strong retention of our talented workforce to a number of factors, including exciting and challenging assignments,assignments; growth opportunities; strong leadership and management, the opportunitymanagement; a culture of integrity; our commitment to learn new skillsdiversity, equity and advance careers,inclusion; competitive and equitable compensation and benefits; our leading products and technology; and the strength of our technology, customer relationshipsrelationships.
Diversity, Equity and business, alongInclusion
We seek to integrate diversity, equity and inclusion into our corporate values at every level—from our foundation of integrity to our execution excellence and from our dedicated leadership to our united passion for a better tomorrow. We strive to maintain a culture that values different perspectives and backgrounds, where everyone is treated with competitiverespect for who they are, and where people feel a sense of belonging. We believe this is not only essential for our success as a global leader in innovation, but also for the success of our employees in their own careers. We value the diversity of our teams, talent pipelines and pay and development programs, with a goal to ensure inclusive, equitable total rewards.practices. We carefully study retention trends and feedback from diverse groups to identify areas where we can improve.
To
1 We calculate undesired turnover rate by dividing the number of undesired exits from Synopsys by the average headcount for fiscal 2023, and we define undesired turnover as exits by high-performing employees who resigned from Synopsys (or its subsidiaries) to pursue other work opportunities. Undesired turnover does not include employees with low performance, mutual resignations, or resignations due to personal reasons (e.g., retirement or returning to school).
As of our fiscal 2023 year-end:
•Women comprised 25.4% of our global workforce;
•Women in senior level positions comprised 13.1% of all senior level positions at the company; and
•U.S. Black, Latinx, and Indigenous persons comprised 5.8% of our U.S. workforce.
We provide training designed to encourage equitable and inclusive behavior to attract, retain and develop our workforce. In addition, our Employee Resource Groups, which are vital to our Synopsys community, host events and implement actions to attract and engage diverse talent and foster an inclusive workplace.
In fiscal 2023, we included workforce metrics such as diversity, employee retention and employee engagement as incentive plan goals for our executive officers to advance key diversity and human capital initiatives. We believe these initiatives help to ensure a compelling total rewards philosophythat we continue to seek out strong, diverse, qualified candidates, and practice,that we develop and retain key talent.
Total Rewards
Our Total Rewards are designed to offer meaningful benefits and compensation for the time, energy, commitment, skills, and expertise employees bring to the company every day. We have practices in place that are intended to deliver fair and equitable compensation for employees based on their contribution and performance. We benchmark for market practices and regularly review our compensation and benefits against the market to help ensure that it remainsis competitive. We also offer a comprehensive and tailored set of benefits for employees and their families, providing protection from unexpected losses or medical expenses.focused on physical, mental and financial health and wellbeing. Our benefitscompensation and benefit programs are tailored to the various geographies in which we operate.operate, and for eligible employees may include:
•Market-competitive salary and cash bonus opportunity;
•Employee Stock Purchase Plan;
•Equity compensation;
•Robust medical, dental, vision, and wellness benefits;
•Comprehensive leave plans;
•Life insurance options;
•Retirement plans and associated benefits;
•Financial planning tools and employee assistance plans;
•Student loan repayment assistance;
•Cancer-specific prevention, early detection, treatment and support programs; and
•Parental resources and adoption benefits.
Health, Safety and Wellbeing
Our commitment to health, safety, and wellness was underscored this year by the support and resources we offered to help employees thrive in a hybrid work environment while balancing their personal lives. Through our Stronger Through Wellbeing campaign, our leaders and managers are encouraged to model the importance of health and wellbeing, and many create opportunities to engage in wellness-related activities as a team. We also offer a variety of programs and resources at no cost to employees and their family members to support their mental, emotional, and financial wellbeing.
Employee Engagement
We believe in continual improvement and usehave a comprehensive employee feedback program, and we use the feedback to drive and improve processes that support our customers and ensure a deepgain an understanding of the employee experience and to make improvements in a variety of areas—from how we interact with customers to how we share best practices, and more. Through our culturesemi-annual SHAPE Synopsys surveys, we obtain employee insight into our values, manager effectiveness, ability to innovate, perceptions on diversity, inclusion and vision amongbelonging,
and other critical factors. We also use the surveys to create space for important conversations about who we are, where we are going, and how we can connect with each other and our employees. We conduct a confidential employee survey twice a year, and in 2020 we had record-breaking participation—90%work.
Approximately 94% of our employees sharedparticipated in our SHAPE survey in May 2023. We received an engagement score of 82, which is calculated by computing the average score set to a 100-point scale, for all employee responses to the questions pertaining to employee satisfaction and job satisfaction. These results demonstrate Synopsys' stability, resiliency, and a global workforce that is highly engaged. We saw strong scores from our employees regarding their experiencesconnection to our culture, their personal investment in Synopsys’ strategies and provided feedback for improvement. Results show that Synopsys employees are highly engaged,objectives, and their team’s ability to innovate. As we grow, we aspire to maintain our results-oriented culture by balancing productivity with scores generally risingsmart investments in recent years. In addition, during 2020, we conducted several surveys to understand our employees’ well-being duringdevelopment, while also supporting individual wellbeing—two key drivers of the COVID-19 pandemic and to more effectively
guide our response. Those surveys showed high approval rates of our communication and response to the pandemic. Ninety percent felt that we were helping them feel connected to one another, providing a sense of community while working remotely.overall employee experience.
We also believe that ongoing performance feedback encourages greater engagement in our business and improved individual performance. Each year, our employees participate in our Performance Development Programperformance development process that summarizes key accomplishments for the preceding year, establishes new stretch goals, and identifies critical capabilities for development. WeAs part of this process, we encourage managers to solicit and share supportive 360-degreemulti-rater feedback, further strengthening the focus on teamwork and team success.
Empowering LeadershipTalent Development and Succession Planning
We regard every member of our global team as a leader. We sponsor a number of leadershipoffer several programs to addresssupport the career advancement and associated business impact of our employees, emerging leaders and executives.
Our management training is designed to increase capability in the areas of communication, engagement, coaching, inclusion and diversity, hiring and on-boarding, business skills and ensuring an ethical and supportive work environment free from bias and harassment. As employees advance in their careers, our training framework builds new capabilities on established foundational skills. Our regions and business teams also customize development programs for their specific needs.
Synopsys sponsors continuous learning and skills development throughemployees. Through our digital learning platform, that is utilized by 75% of ourwe foster and support an “always learning” culture where employees as the source for internalcan access training, and insights, as well as access to external articles, videos, and blogs. In addition, we host a series of in-person and on-demand learning sessions designed to build capability and adaptability required for the future. As employees advance in their careers, our training framework is intended to build new capabilities on established foundational skills.
Based upon the belief that our employees deserve great managers, our management training is designed to increase capability in the areas of communication, engagement, coaching, diversity, equity, and inclusion, hiring and on-boarding, and business skills and help promote an ethical and supportive work environment free from bias and harassment. In fiscal 2023, we introduced a new leadership training, and focused on helping our many managers thrive in connecting team work to company priorities while giving them the tools to be great coaches and leaders. In addition, our regions and business teams customize development programs for their specific needs.
Information about our Executive Officers
The executive officers of Synopsys and their ages as of December 14, 202012, 2023 were as follows:
|
| | | | | | | | | | | | | |
Name | | Age | | Position |
Aart J. de Geus | | 6669 | | Co-ChiefChief Executive Officer and ChairmanChair of the Board of Directors |
Chi-Foon Chan | | 71 | | Co-Chief Executive Officer and President |
Sassine Ghazi | | 5053 | | President and Chief Operating Officer |
Trac PhamShelagh Glaser | | 5159 | | Chief Financial Officer |
Joseph W. LoganRichard Mahoney | | 61 | | Sales and Corporate MarketingChief Revenue Officer |
John F. Runkel, Jr. | | 6568 | | General Counsel and Corporate Secretary |
Aart J. de Geus co-founded Synopsys and has served as ChairmanChair of our Board of Directors since February 1998 and Chief Executive Officer since January 1994. He has served as Co-Chief Executive Officer with Dr. Chi-Foon Chan sincefrom May 2012.2012 until April 2022. Effective January 1, 2024, Dr. de Geus will transition into the role of Executive Chair of our Board of Directors. Since the inception of Synopsys in December 1986, Dr. de Geus has held a variety of positions, including President, Senior Vice President of Engineering and Senior Vice President of Marketing. He has served as a member of Synopsys’our Board of Directors since 1986, and served as ChairmanChair of our Board of Directors from 1986 to 1992 and again from 1998 until present.his upcoming transition to Executive Chair on January 1, 2024. Dr. de Geus has also served on the board of directors of Applied Materials, Inc. since July 2007. Dr. de Geus holds an M.S.E.E. from the Swiss Federal Institute of Technology in Lausanne, Switzerland and a Ph.D. in Electrical Engineering from Southern Methodist University.
Chi-Foon Chan has served as our Co-Chief Executive Officer since May 2012 and as our President and a member of our Board of Directors since February 1998. Prior to his appointment as our Co-Chief Executive Officer in May 2012, he had served as our Chief Operating Officer since April 1997. Dr. Chan joined Synopsys in May 1990 and has held various senior management positions, including Executive Vice President, Office of the President from September 1996 to February 1998 and Senior Vice President, Design Tools Group from February 1994 to April 1997. Dr. Chan has also held senior management and engineering positions at NEC Electronics and Intel Corporation. Dr. Chan holds a B.S. in Electrical Engineering from Rutgers University, and an M.S. and a Ph.D. in Computer Engineering from Case Western Reserve University.
Sassine Ghazi has served as our Chief Operating Officer since August 2020.2020, became our President in November 2021 and joined our Board of Directors in August 2023. Effective January 1, 2024, Mr. Ghazi will assume the role of President and Chief Executive Officer. Mr. Ghazi joined Synopsys in March 1998 as an Application Engineer and most recently served as General Manager of the Design Group. Prior to joining Synopsys, Mr. Ghazi was a design engineer at Intel.Intel Corporation. Mr. Ghazi received his bachelor’s degree in Business Administration from Lebanese American
University; a B.S.E.E from the Georgia Institute of Technology in 1993; and an M.S.E.E. from the University of Tennessee in 1995.
Trac Pham Shelagh Glaseris has served as our Chief Financial Officer. Mr. Pham joinedOfficer since December 2022. Prior to joining Synopsys, in November 2006Ms. Glaser served as Vice President, Financial Planning and Strategy. He became our Vice President, Corporate Finance, in August 2012, assuming additional responsibility for our tax and treasury functions, before being appointed Chief Financial Officer of Zendesk, Inc. from May 2021 to November 2022. Ms. Glaser previously served in senior finance roles at Intel Corporation, a multinational technology company, including serving as its Corporate Vice President and Chief Financial Officer and Chief Operating Officer for its Data Platform Group from July 2019 to May 2021 and serving as its Corporate Vice President and Chief Financial Officer and in various other senior roles in its Client Computing Group from December 2014. Mr. Pham2013 to July 2019. Ms. Glaser has served as a director and member of the Audit Committee at PubMatic, Inc. since June 2022. Ms. Glaser holds a Bachelor of ArtsB.A. in Economics from the University of California, BerkeleyMichigan and an MPIA (Master of Pacific International Affairs)M.B.A. in Finance from the University of California, San Diego. He is an active status California CPA.Carnegie Mellon University.
Joseph W. LoganRichard Mahoney serveshas served as our Sales and Corporate Marketing Officer. He becameChief Revenue Officer since November 2022. Mr. Mahoney joined Synopsys as a Special Projects Advisor in May 2022. Prior to joining Synopsys, Mr. Mahoney held several senior management positions with Ansys, Inc. from 2016 to 2022, including most recently as Senior Vice President of Worldwide Sales, in September 2006Marketing and assumed responsibility for our Corporate Marketing organization in August 2013. Previously, Mr. Logan was head of sales for Synopsys’ North America East regionCustomer Excellence from September 2001December 2016 to September 2006.May 2022. Prior to Synopsys,joining Ansys, from 2014 to 2016, Mr. LoganMahoney was head of North AmericanSenior Vice President, Design Enablement and International Sales, and Support at Avant! Corporation.Global Foundries, a semiconductor manufacturing company. Mr. LoganMahoney holds a B.S.E.E.an A.S. in Computer Science from the UniversityMaxwell Institute of Massachusetts, Amherst.Technology.
John F. Runkel, Jr. has served as our General Counsel and Corporate Secretary since May 2014. From October 2008 to March 2013, he was Executive Vice President, General Counsel, and Corporate Secretary of Affymetrix, Inc. He served as Senior Vice President, General Counsel and Corporate Secretary of Intuitive Surgical, Inc. from 2006 to 2007. Mr. Runkel served in several roles at VISX, Inc. from 2001 to 2005, most recently as Senior Vice President of Business Development and General Counsel. Mr. Runkel was also a partner at the law firm of Sheppard, Mullin, Richter & Hampton LLP for 11 years. HeMr. Runkel holds a Bachelor of Arts and a Juris Doctorate from the University of California, Los Angeles.
There are no family relationships among any Synopsys executive officers or directors.
A description of the risk factors associated with our business is set forth below. Some of these risks are highlighted in the following discussion, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, Legal Proceedings, and Quantitative and Qualitative Disclosures About Market Risk. The occurrence of any of these risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, operating results, financial condition, and stock price. These risks and uncertainties could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Investors should carefully consider theseall relevant risks and uncertainties before investing in our common stock.
COVID-19 PandemicIndustry Risks
The COVID-19 pandemicUncertainty in the macroeconomic environment, and its potential impact on the semiconductor and electronics industries, may negatively affect our business, operating results and financial condition.
Uncertainty in the macroeconomic environment, including the effects of, among other things, increased global inflationary pressures and interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures, fluctuations in foreign exchange rates and associated global economic conditions have resulted in volatility in credit, equity and foreign currency markets. This uncertain macroeconomic environment could lead some of our customers to postpone their decision-making, decrease their spending and/or delay their payments to us. Such caution by customers could, among other things, limit our ability to maintain or increase our sales or recognize revenue from committed contracts.
For example, we continue to experience an impact from the current macroeconomic environment in our Software Integrity segment as customers have applied elevated levels of scrutiny to purchasing decisions due in part to their own budget uncertainty, which has, in some cases, affected customer order size, pricing and/or contract duration. On November 29, 2023, we announced that we have decided to explore strategic alternatives for our Software Integrity segment. As a part of this process, our management is considering a full range of strategic opportunities. At this time we cannot predict the impact that such strategic alternatives might have on our business, operations or financial condition.This announcement and uncertainty could have a number of negative effects on our current business, including potentially disrupting our regular operations, diverting the attention of our workforce and management team and increasing undesired workforce turnover. It could also disrupt existing business relationships, make it harder to develop new business relationships, or otherwise negatively impact the way that we operate our business, which could negatively impact our business, operating results or financial condition.
If these macroeconomic uncertainties persist and economic conditions continue to deteriorate, then the semiconductor and electronics industries could fail to grow. Additionally, uncertain macroeconomic conditions could also have the effect of increasing other risks and uncertainties facing our business, which could have a material adverse effect on our business, operationsoperating results and financial condition.
The COVID-19 pandemic has caused minor disruptions to our business operations to date and Such risks that may be heightened by uncertain macroeconomic conditions could haveinclude China’s stated policy of becoming a material adverse effect on our business, operations and financial conditionglobal leader in the future.semiconductor industry may lead to increased competition or further disruption of international trade relationships, including, but not limited to, additional government trade restrictions. For example, we experienced limited hardware supply chainmore on risks related to government export and logistical challengesimport restrictions such as well as a slowdown in customer commitments in our Software Integrity segment. In response to the COVID-19 novel coronavirus pandemic, governmentsU.S. government’s Entity List and businesses have taken unprecedented actions to contain the virus, including social distancing, travel restrictions, shelter-in-place orders and restrictions on non-essential businesses. These restrictions have significantly curtailed global economic activity and have caused substantial volatility and disruption in global financial markets. We transitioned most of our employees in affected regions to work remotely in order to comply with applicable restrictions and government requirementsExport Regulations (as defined below), see “, and implemented travel restrictions and other changes to our business operations.Industry Risks – We are transitioning employees back into offices in select jurisdictions in conformity with local guidelinessubject to governmental export and regulations. Each office must follow physical distancing guidelinesimport requirements that could subject us to liability and affirmative health measures in compliance with different local and national requirements. Although we have been able to navigate workplace restrictions and limitations with minimal disruptions torestrict our business operations to date, we may further modify our business practices and real estate needs in response to the risks and negative impacts caused by the COVID-19 pandemic. We cannot be certain that these measures will be successful.
The extent to which the COVID-19 pandemic impacts our business operations in future periods will depend on multiple uncertain factors, including the duration and scope of the pandemic, its overall negative impact on the global economy, continued responses by governments and businesses to COVID-19, the ability to secure timely payment from customers, the ability to accurately estimate customer demand, reduced willingness of current and potential customers to purchasesell our products and services, which could impair our ability to compete in international markets.”
Adverse economic conditions affect demand for devices that our products help create, such as the ICs incorporated in personal computers, smartphones, automobiles and servers. Longer-term reduced demand for these or other products could result in reduced demand for design solutions and significant decreases in our average selling prices and product sales over time. Future economic downturns could also adversely affect our business, operating results and financial condition. In addition, if our customers or distributors build elevated inventory levels, we could experience a decrease in short-term and/or long-term demand for our products. If any of these events or disruptions were to occur, the demand for our products and services could be adversely affected along with our business, operating results and financial condition. Further, the negative impact of these events or disruptions may be deferred due to their own business and market uncertainties, the ability of our business partnersmodel.
Further economic instability could also adversely affect the banking and third-party providersfinancial services industry and result in bank failures or credit downgrades of the banks we rely on for foreign currency forward contracts, credit and banking transactions, and deposit services, or cause them to fulfilldefault on their responsibilities obligations. Additionally, the banking
and commitments,financial services industries are subject to complex laws and are heavily regulated. There is uncertainty regarding how proposed, contemplated or future changes to the laws, policies and regulations governing our industry, the banking and financial services industry and the economy could affect our business, including increased global interest rates and global inflationary pressure. A deterioration of conditions in worldwide credit markets could limit our ability to secure adequateobtain external financing to fund our operations and timely supply of equipment and materials from suppliers for our hardware products, and the ability to develop and deliver our products.capital expenditures. In addition, continued weakdifficult economic conditions may also result in impairment in valuea higher rate of losses on our tangible and intangible assets. The impactaccounts receivable due to credit defaults. Any of the COVID-19 pandemic may also have the effect of heightening many of the other risksforegoing could cause adverse effects on our business, operating results and uncertainties described in this “Risk Factors” section.
Industry Risksfinancial condition, and could cause our stock price to decline.
The growth of our business depends primarily on the semiconductor and electronics industries.
The growth of the electronic design automation (EDA)EDA industry as a whole, sales in our Semiconductor & System Design segment product sales,Automation and Design IP segments, and, to some extent, our Software Integrity segment product sales are dependent on the semiconductor and electronics industries. A substantial portion of our business and revenue depends upon the commencement of new design projects by semiconductor manufacturers, systems companies and their customers. The increasing complexity of designs of systems-on-chips, integrated circuits,SoCs, ICs, electronic systems and customers’ concerns about managing costs have previously led to, and in the future could lead to, a decrease in design starts and design activity in general, withgeneral. For example, in response to this increasing complexity, some customers focusing moremay choose to focus on one discrete phase of the design process or optingopt for less advanced, but less risky, manufacturing processes that may not require the most advanced EDA products. Demand for our products and services could decrease and our business, financial condition and operating results of operations could be adversely affected if growth in the semiconductor and electronics industries slows or stalls, including due to the impact of the COVID-19 pandemic.increased global inflationary pressures and interest rates, a continued or worsening global supply chain disruption, geopolitical pressures or economic slowdowns or recessions. Additionally, as the EDA industry has matured, consolidation has resulted in stronger competition from companies better able to compete as sole source vendors. This increased competition may cause our revenue growth rate to decline and exert downward pressure on our operating margins, which maywould have an adverse effect on our business and financial condition.
Furthermore, the semiconductor and electronics industries have become increasingly complex and interconnected ecosystems. Many of our customers outsource the manufacturemanufacturing of their semiconductor designs to foundries. Our customers also frequently incorporate third-party IP, whether provided by us or other vendors, into their designs to improve the efficiency of their design process. We work closely with major foundries to ensure that our EDA, IP and
manufacturing solutions are compatible with their manufacturing processes. Similarly, we work closely with other major providers of semiconductor IP, particularly microprocessor IP, to optimize our EDA tools for use with their IP designs and to assure that their IP and our own IP products whichwork effectively together, as we may each provide for the design of separate components on the same chip, work effectively together.chip. If we fail to optimize our EDA and IP solutions for use with major foundries’ manufacturing processes or major IP providers’ products, or if our access to such foundry processes or third-party IP products is hampered, then our solutions may become less desirable to our customers, resulting in an adverse effect on our business and financial condition.
Consolidation among our customers and within the industries in which we operate, as well as our dependence on a relatively small number of large customers, may negatively impact our operating results.
A number of business combinations, including mergers, asset acquisitions and strategic partnerships, among our customers in the semiconductor and electronics industries have occurred over the last several years, and more could occur in the future. Consolidation among our customers could lead to fewer customers or the loss of customers, increased customer bargaining power, or reduced customer spending on software and services. Furthermore, we depend on a relatively small number of large customers, and on such customers continuing to renew licenses and purchase additional products from us, for a large portion of our revenue. Reduced customer spending or the loss of a small number of customers, particularly our large customers, could adversely affect our business and financial condition. In addition, we and our competitors from time to time acquire businesses and technologies to complement and expand our respective product offerings. If any of our competitors consolidate or acquire businesses and technologies which we do not offer, they may be able to offer a larger technology portfolio, additional support and service capability, or lower prices, which could negatively impact our business and operating results.
Uncertainty in the global economy, and its potential impact on the semiconductor and electronics industries in particular, may negatively affect our business, operating results and financial condition.
Uncertainty caused by the recent challenging global economic conditions, including due to the effects of the COVID-19 pandemic, could lead some of our customers to postpone their decision-making, decrease their spending and/or delay their payments to us. Such caution by customers could, among other things, limit our ability to maintain or increase our sales or recognize revenue from committed contracts. Outside of a slowdown in customer commitments in our Software Integrity segment, we have not seen evidence of impacts on customer orders from the COVID-19 pandemic to date.
We cannot predict the stability of the economy as a whole or the industries in which we operate. Further economic instability could adversely affect the banking and financial services industry and result in credit downgrades of the banks we rely on for foreign currency forward contracts, credit and banking transactions, and deposit services, or cause them to default on their obligations. There is uncertainty regarding how proposed, contemplated or future changes to the complex laws and regulations governing our industry, the banking and financial services industry, and the economy could affect our business. In addition, economic conditions could deteriorate in the future, and, in particular, the semiconductor and electronics industries could fail to grow, including as the result of the effects of the COVID-19 pandemic and any disruption of international trade relationships such as tariffs, export licenses, or other government trade restrictions.
In the event of future improvements in economic conditions for our customers, the positive impact on our revenues and financial results may be deferred due to our business model. Any of the foregoing could cause adverse effects on our business, operating results and financial condition, and could cause our stock price to decline.
We operate in highly competitive industries, and if we do not continue to meet our customers’ demand for innovative technology at lower costs, our products may not be competitive or may become uncompetitive and obsolete, and our business and financial condition may be harmed.obsolete.
In our Semiconductor & System Design Automation segment, we compete against EDA vendors that offer a variety of products and services, such as Cadence Design Systems, Inc. and Mentor Graphics Corporation (now part of Siemens AG).EDA. We also compete with other EDA vendors, including new entrants to the marketplace, that offer products focused on one or more discrete phases of the IC design process. Moreover, our customers internally develop design tools and capabilities that compete with our products, including internal designs that compete with our IP products. In the area ofour Design IP products,segment, we compete against numerous othera growing number of silicon IP providers as well as our customers’ internally developed IP.
In our Software Integrity segment, we compete with numerous other solution providers, many of which focus on specific aspects of software security or quality analysis. We also compete with frequent new entrants, which include start-up companies and more established software companies.
The industries in which we operate are highly competitive, with new competitors entering these markets both domestically and internationally. For example, China has implemented national policies favoring Chinese companies and has formed government-backed investment funds as it seeks to build independent EDA capabilities and compete internationally in the semiconductor industry. The demand for our products and services is dynamic and depends on a number of factors, including, among other things, demand for our customers’ products, design starts and our customers’ budgetary constraints. Technology in these industries evolves rapidly and is characterized by frequent product introductions and improvements as well as changes in industry standards and customer requirements. For example, the adoption of cloud computing and artificial intelligence (AI) technologies can bring new demandsdemand and also challenges in terms of disruption to both business models and our existing technology
offerings. Our efforts in developing such new technology solutions, including, for example, our current efforts in creating cloud computing and AI solutions, may not succeed. Semiconductor device functionality requirements continually increase while feature widths decrease, which substantially increasingincreases the complexity, cost and risk of chip design and manufacturing. At the same time, our customers and potential customers continue to demand an overalla lower total cost of design, which can lead to the consolidation of their purchases withfrom one vendor. In order to succeed in this environment, we must successfully meet our customers’ technology requirements and increase the value of our products, while also striving to reduce their overall costs and our own operating costs.
We compete principally on the basis of technology, product quality and features (including ease-of-use), license or usage terms, post-contract customer support, interoperability among products, and price and payment terms. Specifically, we believe the following competitive factors affect our success:
•Our ability to anticipate and lead critical development cycles and technological shifts, innovate rapidly and efficiently, improve our existing software and hardware products, and successfully develop or acquire such new products;
•Our ability to offer products that provide both a high level of integration into a comprehensive platform and a high level of individual product performance;
•Our ability to enhance the value of our offerings through more favorable terms such as expanded license usage, future purchase rights, price discounts and other differentiating rights, such as multiple tool copies, post-contract customer support, “re-mix” rights that allow customers to exchange the software they initially licensed for other Synopsys products, and the ability to purchase pools of technology;
•Our ability to manage an efficient supply chain to ensure availability of hardware products;product availability;
•Our ability to compete on the basis of payment terms; and
•Our ability to provide engineering and design consulting for our products.
If we fail to successfully manage any of these competitive factors, fail to successfully balance the conflicting demands for innovative technology and lower overall costs, or fail to address new competitive forces, our business, operating results and financial condition will be adversely affected.
We are subject to governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets.
We are subject to export controls, laws and regulations that restrict selling, shipping or transmitting certain of our products and services and transferring certain of our technology outside the United States. These requirements also restrict domestic release of software and technology to certain foreign nationals. In addition, we are subject to customs and other import requirements that regulate imports that may be important for our business.
If we fail to comply with the U.S. Export Administration Regulations or other U.S. or non-U.S. export requirements (collectively, the Export Regulations), we could be subject to substantial civil and criminal penalties, including fines for the company and the possible loss of the ability to engage in exporting and other international transactions. Due to the nature of our business and technology, the Export Regulations may also subject us to governmental inquiries regarding transactions between us and certain foreign entities. For example, we have received administrative subpoenas from the U.S. Bureau of Industry and Security (the BIS) requesting production of information and documentation relating to transactions with certain Chinese entities. We believe that we are in full compliance with all applicable regulations and are working with the BIS to respond to its subpoenas. However, we cannot predict the outcome of the inquiries or their potential effect on our operations or financial condition.
We believe that the Export Regulations do not materially impact our business at this time, but we cannot predict the impact that additional regulatory changes may have on our business in the future. The United States has published significant changes to the Export Regulations with respect to Russia and China, and we anticipate additional changes to the Export Regulations in the future. For example, the United States government has implemented controls on advanced computing ICs, computer commodities that contain such ICs, and certain semiconductor manufacturing items, as well as controls on transactions involving items for supercomputer and semiconductor manufacturing end-users. The controls expand the scope of foreign-produced items subject to license requirements for certain entities on the U.S. government's Entity List. Future changes to the Export Regulations, including
changes in the enforcement and scope of such regulations, may create delays in the introduction of our products or services in international markets or could prevent our customers with international operations from deploying our products or services globally. In some cases, such changes could prevent the export or import of our products.
Consolidation among our customers and within the industries in which we operate, as well as our dependence on a relatively small number of large customers, may negatively impact our operating results.
A number of business combinations and strategic partnerships among our customers in the semiconductor and electronics industries have occurred over the last several years, and more could occur in the future. Consolidation among our customers could lead to fewer customers or the loss of customers, increased customer bargaining power or reduced customer spending on software and services. Further, we depend on a relatively small number of large customers, and on such customers continuing to renew licenses and purchase additional products from us, for a large portion of our revenues. Consolidation among our customers could also reduce demand for our products and services if customers streamline research and development or operations, or reduce or delay purchasing decisions. Reduced customer spending or the loss of customers, particularly our large customers, could adversely affect our business, operating results and financial condition.
In addition, we and our competitors may acquire businesses and technologies to complement and expand our respective product offerings. Consolidated competitors could have considerable financial resources and channel influence as well as broad geographic reach, which may enable them to be more competitive in, among other things, product differentiation, breadth of technology portfolio, pricing, marketing, services or support. Such consolidations or acquisitions could negatively impact our business, operating results and financial condition.
Business Operations Risks
The global nature of our operations exposes us to increased risks and compliance obligations that may adversely affect our business.obligations.
We derive roughly half of our revenue from sales outside the United States, and we expect our orders and revenue to continue to depend on sales to customers outside the U.S. We have also continually expanded our non-U.S. operations. This strategy requires us to recruit and retain qualified technical and managerial employees, manage multiple remote locations performing complex software development projects, and ensure intellectual property protection outside of the U.S. Our international operations and sales subject us to a number of increased risks, including:
Ineffective•Economic slowdowns, recessions or weaker legal protectionuncertainty in financial markets, including, among other things, the impact of intellectual property rights;increased global inflationary pressures and interest rates;
•Uncertain economic, legal and political conditions in countriesChina, Europe and other regions where we do business;business, including, for example, changes in China-Taiwan relations, regional or global military conflicts, and related sanctions and financial penalties imposed on participants in such conflicts;
•Government trade restrictions, including tariffs, export licenses,controls or other trade barriers, and changes to existing trade arrangements, between various countries such as China;including the unknown impact of current and future U.S. and Chinese trade regulations;
•Ineffective or weaker legal protection of intellectual property rights;
•Difficulties in adapting to cultural differences in the conduct of business, which may include business practices in which we are prohibited from engaging by the Foreign Corrupt Practices Act or other anti-corruption laws;
•Financial risks such as longer payment cycles, changes in currency exchange rates and difficulty in collecting accounts receivable;
•Inadequate local infrastructure that could result in business disruptions;
•Additional taxes, interest and potential penalties and uncertainty around changes in tax laws of various countries; and
•Other factors beyond our control such as natural disasters, terrorism, civil unrest, war and infectious diseases and pandemics, including COVID-19.such as the COVID-19 pandemic.
Furthermore, if any of the foreign economies in which we do business deteriorate or if we fail to effectively manage our global operations, our business and operating results of operations will be harmed.
There is inherent risk, based on the complex relationships between certain Asian countries such as China, where we derive a growing percentage of our revenue, and the United States, that political, diplomatic or military events could result in trade disruptions, including tariffs, trade embargoes, export restrictions and other trade barriers. A significant trade disruption, export restriction, or the establishment or increase of any trade barrier in any area where we do business could reduce customer demand and cause customers to search for substitute products and services, make our products and services more expensive or unavailable for customers, increase the cost of our products and services, have a negative impact on customer confidence and spending, make our products less competitive, or otherwise have a materially adverse impact on our backlog, future revenue and profits, our customers’ and suppliers’ businesses,business, operating results and financial condition. For example and as described above, the ongoing geopolitical and economic uncertainty between the U.S. and China, the unknown impact of current and future U.S. and Chinese trade regulations, and other geopolitical risks with respect to China and Taiwan may cause disruptions in the markets and industries we serve and our supply chain, decreased demand from customers for products using our solutions or other disruptions, which could, directly or indirectly, materially harm our business, operating results of operations.
and financial condition. For example, beginning in May 2019,more on risks related to government export and import restrictions such as the United States government placed certain entities on the “Entity List,” restricting the sale of U.S. technologies to the named entities. As a result of this government action, unless and until the restriction is lifted, we are not able to ship products or provide support to these entities. In addition, in May 2020, the United States government placed further restrictions on certain entities on the Entity List to prevent them from sharing designs developed using U.S. software or technology with other entities on thegovernment’s Entity List and obtaining semiconductors manufactured with processesthe Export Regulations see “Industry Risks – We are subject to governmental export and import requirements that use U.S. softwarecould subject us to liability and technology. In August 2020, the Entity List rules were further revised such that any company with knowledge that a customer will use certain U.S. technologiesrestrict our ability to design or produce any item for a Huawei-affiliated company on the Entity List must obtain a license priorsell our products and services, which could impair our ability to any export of such technologies. We believe that this latest restriction will not materially impact our business at this time, but cannot predict the impact that additional regulatory changes may have on our businesscompete in the future. international markets.”
In response to thesethe U.S. adopting tariffs and trade barriers or taking other actions, or similar actions taken by the United States, other countries may also adopt tariffs and trade barriers that could limit our ability to offer our products and services. Current and potential customers who are concerned or affected by such tariffs or restrictions may respond by developing their own products or replacing our solutions, which would have an adverse effect on our business. In addition, government or customer efforts, attitudes, laws or policies regarding technology independence may lead to non-U.S. customers favoring their domestic technology solutions that could compete with or replace our products, which would also have an adverse effect on our business.
In addition to tariffs and other trade barriers, our global operations are subject to numerous U.S. and foreign laws and regulations includingsuch as those related to anti-corruption, tax, corporate governance, imports and exports, financial and other disclosures, privacy and labor relations. These laws and regulations are complex and may have differing or conflicting legal standards, making compliance difficult and costly. In addition, there is uncertainty regarding how proposed, contemplated or future changes to these complex laws and regulations could affect our business. We may incur substantial expense in complying with the new obligations to be imposed by these laws and regulations, and we may be required to make significant changes in our business operations, all of which may adversely affect our revenues and our business overall. If we violate these laws and regulations, we could be subject to fines, penalties or criminal sanctions, and may be prohibited from conducting business in one or more countries. Although we have implemented policies and procedures to help ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, agents or partners will not violate such laws and regulations. Any violation individually or in the aggregate could have a material adverse effect on our operations and financial condition.
Our financial results are also affected by fluctuations in foreign currency exchange rates. A weakening U.S. dollar relative to other currencies increases expenses of our foreign subsidiaries when they are translated into U.S. dollars in our consolidated statements of operations.income. Likewise, a strengthening U.S. dollar relative to other currencies, including the renminbi or Yen, reduces revenue of our foreign subsidiaries upon translation and consolidation. Exchange rates are subject to significant and rapid fluctuations due to a number of factors, including interest rate changes and thereforepolitical and economic uncertainty. Therefore, we cannot predict the prospective impact of exchange rate fluctuations. Although we engage in foreign currency hedging activity, weWe may be unable to hedge all of our foreign currency risk, which could have a negative impact on our results of operations.operating results.
Our operating results may fluctuate in the future, which may adversely affect our stock price.
Our operating results are subject to quarterly and annual fluctuations, which may adversely affect our stock price. Our historical results should not be viewed as indicative of our future performance due to these periodic fluctuations.
Many factors may cause our backlog, revenue or earnings to fluctuate, including:including, among other things:
•Changes in demand for our products-especiallyproducts—especially products, such as hardware, generating upfront revenue-duerevenue—due to fluctuations in demand for our customers’ products and due to constraints in our customers’ budgets for research and development and EDA products and services;
•Changes in demand for our products due to customers reducing their expenditures, whether as a cost-cutting measure or a result of their insolvency or bankruptcy, and whether due to the COVID-19 pandemicincreased global inflationary pressures and interest rates and a sustained global semiconductor shortage or other reasons;
•Product competition in the EDA industry, which can change rapidly due to industry or customer consolidation and technological innovation;
•Our ability to innovate and introduce new products and services or effectively integrate products and technologies that we acquire;
•Failures or delays in completing sales due to our lengthy sales cycle, which often includes a substantial customer evaluation and approval process because of the complexity of our products and services;
•Our ability to implement effective cost control measures;
•Our dependence on a relatively small number of large customers, and on such customers continuing to renew licenses and purchase additional products from us, for a large portion of our revenue;
•Changes to the amount, composition and valuation of, and any impairments to or write-offs of, our inventory;assets or strategic investments;
•Changes in the mix of our products sold, as increased sales of our products with lower gross margins, such as our hardware products, may reduce our overall margins;
•Expenses related to our acquisition and integration of businesses and technology;technologies;
•Changes in tax rules, as well as changes to our effective tax rate, including the tax effects of infrequent or unusual transactions and tax audit settlements;
•Delays, increased costs or quality issues resulting from our reliance on third parties to manufacture our hardware products, which includes a sole supplier for certain hardware components;
•Natural variability in the timing of IP drawdowns, which can be difficult to predict;
•General economic and political conditions that affect the semiconductor and electronics industries, such as disruptions to international trade relationships, including tariffs, export licenses, or other trade barriers affecting our or our suppliers’ products, as well as impacts due to the COVID-19 pandemic;products; and
•Changes in accounting standards, which may impact the way we recognize our revenue and costs and impact our earnings.
The timing of revenue recognition may also cause our revenue and earnings to fluctuate. The timing of revenue recognition is affected by factors that include:
•Cancellations or changes in levels of orders or the mix between upfront products revenue and time-based products revenue;
•Delay of one or more orders for a particular period, particularly orders generating upfront products revenue, such as hardware;
•Delay in the completion of professional services projects that require significant modification or customization and are accounted for using the percentage of completion method;
•Delay in the completion and delivery of IP products in development as to which customers have paid for early access;
•Customer contract amendments or renewals that provide discounts or defer revenue to later periods; and
•The levels of our hardware and IP revenues, which are recognized upfront and are primarily dependent upon our ability to provide the latest technology and meet customer requirements.
These factors, or any other factors or risks discussed herein, could negatively impact our backlog, revenue or earnings and cause our stock price to decline. Additionally, our results may fail to meet or exceed the expectations of securities analysts and investors, or such analysts may change their recommendation regarding our stock, which could cause our stock price to decline. Our stock price has been, and may continue to be, volatile, which may make it more difficult for our stockholders to sell their shares at a time or a price that is favorable to them.
Cybersecurity threats or other security breaches could compromise sensitive information belonging to us or our customers and could harm our business and our reputation, particularly that of our security testing solutions.
We store sensitive data, including intellectual property, our proprietary business information and that of our customers, and confidential employeepersonal information, in our data centers, and on our networks. Despitenetworks or on the cloud. In addition, our security measures,operations depend upon our information technology (IT) systems. We maintain a variety of information security policies, procedures, and infrastructurecontrols to protect our business and proprietary information, prevent data loss and other security breaches and incidents, keep our IT systems operational and reduce the impact of a security breach or incident, but these securities measures cannot provide and have not provided absolute security. In the normal course of business, our systems are and have been the target of malicious cyber attack attempts and have been and may be vulnerablesubject to attacks by hackers or breachedcompromise due to employee error, malfeasance or other disruptions that have and could result in unauthorized disclosure or loss of sensitive information. As aTo date, we have not identified material cyber security incidents or incurred any material expenses with any incidents. However, any breach or compromise could adversely impact our business and operations, expose us or our customers to litigation, investigations, loss of data, increase costs, or result in loss of the COVID-19 pandemiccustomer confidence and shelter-in-place orders, mostdamage to our reputation, any of which could adversely affect our employees in affected areas are working remotely, which magnifies the importance of the integrity ofbusiness and our remote access security measures.
For example, we discovered unauthorized third-party accessability to sell our products and product license files hosted on our SolvNet customer licenseservices.
Industry incidences of cyberattacks and product delivery system in 2015. While we identifiedother cybersecurity breaches have increased and remediated the incident, it is possible that our security measures may be circumvented again in the future, and anyare likely to continue to increase. We are using an increasing number of third-party software solutions, including cloud-based solutions, which increase potential threat vectors, such breach could harm our business and reputation. The techniques used to obtain unauthorized access to networks,as by exploitation of misconfigurations or to sabotage systems, change frequently and generally are not recognized until launched against a target.vulnerabilities. We may be unable to anticipate these techniques or to implement adequate preventative measures. Furthermore, in the operation of our business we also use third-party vendors that provide software or hardware, have access to our network, and/or store certain sensitive data, including confidential information about our employees, and these third parties are subject to their own cybersecurity threats. While ourOur standard vendor terms and conditions include provisions requiring the use of appropriate security measures to prevent unauthorized use or disclosure of our data, as well as other safeguards,safeguards. Despite these measures, there is no guarantee that a breachcompromise of our third-party vendors will not occur and in turn result in a compromise of our own IT systems or data. In addition, if we select a vendor that uses cloud storage as part of their service or product offerings, or if we are selected as a vendor for our cloud-based solutions, our proprietary information could be misappropriated by third parties despite our attempts to validate the security of such services. Many employees continue to work remotely based on a hybrid work model, which magnifies the importance of maintaining the integrity of our remote access security measures. We also periodically acquire new businesses with less mature security programs, and it takes time to align their security practices to meet our information security policies, procedures and controls.
The techniques used to obtain unauthorized access to networks or to sabotage systems of companies such as ours change frequently and generally are not recognized until launched against a target. We may still occur.be unable to anticipate these emerging techniques, react in a timely manner, or implement adequate preventative measures, or we may not have sufficient logging available to fully investigate the incident. Our security measures vary in maturity across the business and may be and have been circumvented. For example, we have identified instances where employees have used non-approved applications for business purposes, some of which do not meet our security standards. In addition, we discovered unauthorized third-party access to our products and product license files hosted on our SolvNet Plus customer license and product delivery system in 2015. Any security breach of our own or a third-party vendor’s systems could cause us to be non-compliant with applicable laws or regulations, subject us to legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, any of which could adversely affect our business.business and our ability to sell our products and services.
Our software products, including our hosted solutions as well as ourand software security and quality testing solutions are also targeted by hackers and may also be vulnerablecompromised by, among other things, phishing, exploits of our code or our system configurations, malicious code (such as viruses and worms), distributed denial-of-service attacks, sophisticated
attacks conducted or sponsored by nation-states, advanced persistent threat intrusions, ransomware and other malware. We leverage many security best practices throughout the software development lifecycle, but our security development practices vary in maturity across the business and may not be effective against all cybersecurity threats. Furthermore, due to cyber attacks. An attackgeopolitical incidents, including regional military conflicts, state-supported and geopolitical-related cybersecurity incidents against companies such as ours may increase. Attacks on our products could potentially disrupt the proper functioning of our software, cause errors in the output of our customers’ work, allow unauthorized access to our or our customers’ proprietary information or cause other destructive outcomes. As a result, our reputation could suffer, customers could stop buying our products, we could face lawsuits and potential liability, and our financial performance could be negatively impacted.
We also offer software security and quality testing solutions. If we fail to identify new and increasingly sophisticated methods of cyber attacks or fail to invest sufficient resources in research and development regarding new threat vectors, our security testing products and services may fail tonot detect vulnerabilities in our customers’ software code.
An actual or perceived failure to identifydetect security flaws may harmnegatively impact the perceived reliability of our security testing products and services, and could result in a loss of customers or sales, or an increased cost to remedy a problem. Furthermore, our growth and recent acquisitions in the software security and quality testing space may increase our visibility as a security-focused company and may make us a more attractive target for attacks on our own information technologyIT infrastructure. Successful attacksAs a result, we could damageexperience negative publicity and our reputation as a security-focused company.could suffer, customers could stop buying our products, we could face lawsuits and potential liability, and our business, operating results and financial condition could be negatively impacted.
If we fail to protect our proprietary technology, our business will be harmed.
Our success depends in part upon protecting our proprietary technology. Our efforts to protect our technology may be costly and unsuccessful. We rely on agreements with customers, employees and other third-partiesthird parties as well as intellectual property laws worldwide to protect our proprietary technology. These agreements may be breached, and we may not have adequate remedies for any breach. Additionally, despite our measures to prevent piracy, other parties may attempt to illegally copy or use our products, which could result in lost revenue if their efforts are successful. Some foreign countries do not currently provide effective legal protection for intellectual property and our ability to prevent the unauthorized use of our products in those countries is therefore limited. Our trade secrets may also be stolen, otherwise become known, or be independently developed by competitors.
From time to time, we may need to commence litigation or other legal proceedings in order to:
Assertto assert claims of infringement of our intellectual property;
Defend defend our products from piracy;
Protect protect our trade secrets or know-how; or
Determine determine the enforceability, scope and validity of the propriety rights of others.
If we do not obtain or maintain appropriate patent, copyright or trade secret protection for any reason, or cannot fully defend our intellectual property rights in certain jurisdictions, our business and operating results would be harmed. In addition, intellectual property litigation is lengthy, expensive and uncertain. Legal fees related to such litigation will increase our operating expenses and may reduce our net income.
We may not be able to realize the potential financial or strategic benefits of the acquisitionstransactions we complete, or find suitable target businesses and technology to acquire, which could hurt our ability to grow our business, develop new products or sell our products.products and services.
Acquisitions and strategic investments are an important part of our growth strategy. We have completed a significant number of acquisitions in recent years. We expect to make additional acquisitions and strategic investments in the future, but we may not find suitable acquisition or investment targets, or we may not be able to consummate desired acquisitions or investments due to unfavorable credit markets, commercially unacceptable terms, failure to obtain regulatory approvals, competitive bid dynamics or other risks, which could harm our operating results.
Acquisitions and strategic investments are difficult, time-consuming, and pose a number of risks, including:including, but not limited to:
•Potential negative impact on our earnings per share;
•Failure of acquired products to achieve projected sales;
•Problems in integrating the acquired products with our products;
•Difficulties entering into new markets in which we are not experienced or where competitors may have stronger positions;
•Potential downward pressure on operating margins due to lower operating margins of acquired businesses, increased headcount costs, and other expenses associated with adding and supporting new products;
•Difficulties in retaining and integrating key employees;
•Substantial reductions of our cash resources and/or the incurrence of debt;debt, which may be at higher than anticipated interest rates;
•Failure to realize expected synergies or cost savings;
•Difficulties in integrating or expanding sales, marketing and distribution functions and administrative systems, including information technologyIT and human resources systems;
•Dilution of our current stockholders through the issuance of common stock as a part of the mergertransaction consideration;
•Difficulties in negotiating, governing and realizing value from strategic investments;
•Assumption of unknown liabilities, including tax, litigation, cybersecurity and litigation,commercial-related risks, and the related expenses and diversion of resources;
•Incurrence of costs and use of additional resources to remedy issues identified prior to or after an acquisition;
•Disruption of ongoing business operations, including diversion of management’s attention and uncertainty for employees and customers, particularly during the post-acquisition integration process;
•Potential negative impacts on our relationships with customers, distributors and business partners;
•Exposure to new operational risks, regulations and business customs to the extent acquired businesses are located in regions where we are not currently conducting business;
•The need to implement controls, processes and policies appropriate for a public company at acquired companies that may have previously lacked such controls, processes and policies;policies in areas such as cybersecurity, IT, privacy and more;
•Negative impact on our net income resulting from acquisition or investment-related costs; and
•Requirements imposed by government regulators in connection with their review of an acquisition, including required divestitures or restrictions on the conduct of our business or the acquired business.
Additionally, we have divested and may in the future divest certain product lines or technologies that no longer fit our long-term strategies. Divestitures may adversely impact our business, operating results and financial condition if we are unable to achieve the anticipated benefits or cost savings from such divestitures, or if we are unable to offset impacts from the loss of revenue associated with the divested product lines or technologies. For example, if we decide to sell or otherwise dispose of certain product lines or assets, we may be unable to do so on satisfactory terms within our anticipated timeframe or at all. Further, whether such divestitures are ultimately consummated or not, their pendency could have a number of negative effects on our current business, including potentially disrupting our regular operations, diverting the attention of our workforce and management team and increasing undesired workforce turnover. It could also disrupt existing business relationships, make it harder to develop new business relationships, or otherwise negatively impact the way that we operate our business.
If we do not manage the foregoing risks, the acquisitionstransactions that we complete or strategic investments that weare unable to complete may have an adverse effect on our business, operating results and financial condition.
If we fail to timely recruit and/or retain senior management and key employees globally, our business may be harmed.
We depend in large part upon the services of our senior management team and key employees to drive our future success, and certain of such personnel depart our company from time to time, with the frequency and number of such departures varying widely. For example, we have recently experienced significant changes to our executive leadership team due to planned succession and other departures. The departure of key employees could result in significant disruptions to our operations, including adversely affecting the timeliness of our product releases, the successful implementation and completion of our initiatives, the adequacy of our internal control over financial reporting, and our business, operating results and financial condition.
To be successful, we must also attract senior management and key employees who join us organically and through acquisitions. There are a limited number of qualified engineers. Competition for these individuals and other qualified employees is intense and has increased globally, including in major markets such as Asia. Our employees are often recruited aggressively by our competitors and our customers worldwide. Any failure to recruit and/or retain senior management and key employees could harm our business, operating results and financial condition. Additionally, efforts to recruit such employees could be costly and negatively impact our operating expenses.
We issue equity awards from employee equity plans as a key component of our overall compensation. We face pressure to limit the use of such equity-based compensation due to dilutive effects on stockholders. If we are unable to offer attractive compensation packages in the future, it could limit our ability to attract and retain key employees.
We may pursue new product and technology initiatives, from time to time, and if we fail to successfully carry out these initiatives, our business, financial condition, or results of operationswe could be adversely impacted.
As part of the evolution of our business, we have made substantial investments to develop new products and enhancements to existing products through our acquisitions and research and development efforts. If we are unable to anticipate technological changes in our industry by introducing new or enhanced products in a timely and cost-effective manner, or if we fail to introduce products that meet market demand, we may lose our competitive position, our products may become obsolete, and our business, operating results and financial condition or results of operations could be adversely affected.
Additionally, from time to time, we may invest in expansionefforts to expand into adjacent markets, including, for example, software security, and quality testing solutions.solutions and AI. Although we believe these solutions are complementary to our EDA tools, we have less experience and a more limited operating history in offering software quality testing and security products and services, and our efforts in this areacreating AI technology solutions such as Synopsys.ai may not be successful. Our success in these and other new markets depends on a variety of factors, including, but not limited to, the following:
•Our ability to attract a new customer base, including in industries in which we have less experience;
•Our successful development of new sales and marketing strategies to meet customer requirements;
•Our ability to accurately predict, prepare for and promptly respond to technological developments in new fields, including, in the case of our software quality testing and security tools and services, identifying new security vulnerabilities in software code and ensuring support for a growing number of programming languages;
•Our ability to compete with new and existing competitors in these new industries, many of which may have more financial resources, industry experience, brand recognition, relevant intellectual property rights or established customer relationships than we currently do, and could include free and open source solutions that provide similar software quality testing, and security tools and AI solutions without fees;
•Our ability to skillfully balance our investment in adjacent markets with investment in our existing products and services;
•Our ability to attract and retain employees with expertise in new fields;
•Our ability to sell and support consulting services at profitable margins; and
•Our ability to manage our revenue model in connection with hybrid sales of licensed products and consulting services.
Difficulties in any of our new product development efforts or our efforts to enter adjacent markets, including delays or disruptions as a result of the COVID-19 pandemic,delays or disruptions, or export control restrictions, could adversely affect our business, operating results and financial condition.
We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively affect our operating results.
We devote substantial resources to research and development. New competitors, technological advances in the semiconductor industry or by competitors, our acquisitions, our entry into new markets or other competitive factors may require us to invest significantly greater resources than we anticipate. If we are required to invest significantly greater resources than anticipated without a corresponding increase in revenue, our operating results could decline. If customers reduce or slow the need to upgrade or enhance their product offerings, our revenue and operating results may be adversely affected. Additionally, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact our financial results. New products may not adequately address the changing needs of the marketplace. New software products may contain undetected errors, defects or vulnerabilities. The occurrence of any defects or errors in our products could result in lost or delayed market acceptance and sales of our products, delays in payment by customers, loss of customers or market share, product returns, damage to our reputation, diversion of our resources, increased service and warranty expenses or financial concessions, increased insurance costs and potential liability for damages. Finally, there can be no guarantee that our research and development investments will result in products that create additional revenue.
Product errors or defects could expose us to liability and harm our reputation and we could lose market share.
Software products frequently contain errors or defects, especially when first introduced, when new versions are released, or when integrated with technologies developed by acquired companies. Product errors, including those resulting from third-party suppliers, could affect the performance or interoperability of our products, could delay the development or release of new products or new versions of products and could adversely affect market acceptance or perception of our products. In addition, any allegations of manufacturability issues resulting from use of our IP products could, even if untrue, adversely affect our reputation and our customers’ willingness to license IP products from us. Any such errors or delays in releasing new products or new versions of products or allegations of unsatisfactory performance could cause us to lose customers, increase our service costs, subject us to liability for damages and divert our resources from other tasks, any one of which could materially and adversely affect our business, operating results and operating results.financial condition.
Our hardware products, which primarily consist of prototyping and emulation systems, subject us to distinct risks.
The growth in sales of our hardware products subjects us to several risks, including:including, but not limited to:
•Increased dependence on a sole supplier for certain hardware components, which may reduce our control over product quality and pricing and may lead to delays in production and delivery of our hardware products, should our supplier fail to deliver sufficient quantities of acceptable components in a timely fashion;
•Increasingly variable revenue and less predictable revenue forecasts, due to fluctuations in hardware revenue, which is recognized upfront upon shipment, as opposed to most sales of software products for which revenue is recognized over time;
•Potential reductions in overall margins, as the gross margin for our hardware products, is typically lower than those of our software products;
•Longer sales cycles, which create risks of insufficient, excess or obsolete inventory and variations in inventory valuation, which can adversely affect our business, operating results;results and financial condition;
•Decreases or delays in customer purchases in favor of next-generation releases or competitive products, which may lead to excess or obsolete inventory or require us to discount our older hardware products;
•Longer warranty periods than those of our software products, which may require us to replace hardware components under warranty, thus increasing our costs; and
•Potential impacts on our supply chain, due toincluding the effects of the COVID-19 pandemic.
Liquidity requirements in our U.S. operations may require us to raise cash in uncertain capital markets, which could negatively affect our financial condition.
As of October 31, 2020, approximately 52% of our worldwide cashincreased global inflationary pressures and cash equivalents balance is held by our international subsidiaries. We intend to meet our U.S. cash spending needs primarily through our existing U.S. cash balances, ongoing U.S. cash flows, and available credit under our term loan and revolving credit facilities. Should our cash spending needs in the U.S. rise and exceed these liquidity sources, due to the impact of the COVID-19 pandemic or otherwise, we may be required to incur additional debt at higher than anticipated interest rates, or access other funding sources, which could negatively affect our results of operations, capital structure or the market price of our common stock.and a sustained global semiconductor shortage.
From time to time, we are subject to claims that our products infringe on third-party intellectual property rights.
We are from time to time subject to claims alleging our infringement of third-party intellectual property rights, including patent rights. Under our customer agreements and other license agreements, we agree in many cases to indemnify our customers if our products are alleged to infringe on a third party’s intellectual property rights. Infringement claims can result in costly and time-consuming litigation, require us to enter into royalty arrangements, subject us to damages or injunctions restricting our sale of products, invalidate a patent or family of patents, require us to refund license fees to our customers or to forgo future payments, or require us to redesign certain of our products, any one of which could harm our business and operating results. For example, some customers have requested we defend and indemnify them against claims for patent infringement asserted in various district courts and at the U.S. International Trade Commission by Bell Semiconductor LLC (Bell Semic), a patent monetization entity, based on Bell Semic’s allegation that the customers’ use of one or more features of certain of our products infringes one or more of six patents held by Bell Semic. We are defending some of our customers consistent with the terms of our End User License Agreement. Further information regarding Bell Semic is contained in Part I, Item 3, Legal Proceedings of this Annual Report on Form 10-K.
We may not be able to continue to obtain licenses to third-party software and intellectual property on reasonable terms or at all, which may disrupt our business and harm our financial results.
We license third-party software and other intellectual property for use in product research and development and, in several instances, for inclusion in our products. We also license third-party software, including the software of our competitors, to test the interoperability of our products with other industry products and in connection with our professional services. These licenses may need to be renegotiated or renewed from time to time, or we may need to obtain new licenses in the future. Third parties may stop adequately supporting or maintaining their technology, or they or their technology may be acquired by our competitors. If we are unable to obtain licenses to these third-party software and intellectual property on reasonable terms or at all, we may not be able to sell the affected products, our customers’ use of the products may be interrupted, or our product development processes and professional services offerings may be disrupted, which could in turn harm our financial results, our customers, and our reputation.
The inclusion of third-party intellectual property in our products can also subject us and our customers to infringement claims. Although we seek to mitigate this risk contractually, weWe may not be able to sufficiently limit our potential liability.liability contractually. Regardless of outcome, infringement claims may require us to use significant resources and may divert management’s attention.attention from the operation of our business.
Some of our products and technology, including those we acquire, may include software licensed under open source licenses. Some open source licenses could require us, under certain circumstances, to make available or grant licenses to any modifications or derivative works we create based on the open source software. Although we have tools and processes to monitor and restrict our use of open source software, theThe risks associated with open source usage may not be eliminated despite our best efforts and may, if not properly addressed, result in unanticipated obligations that harm our business.
If we fail to timely recruit and retain senior management and key employees, our business may be harmed.
We depend in large part upon the services of key members of our senior management team to drive our future success. If we were to lose the services of any member of our senior management team, our business could be adversely affected. To be successful, we must also attract and retain key technical, sales and managerial employees, including those who join us in connection with acquisitions. There are a limited number of qualified EDA and IC design engineers, and competition for these individuals is intense and has increased. Our employees are often recruited aggressively by our competitors and our customers. Any failure to recruit and retain key technical,
sales and managerial employees could harm our business, results of operations and financial condition, and our recruiting and retention efforts may be negatively impacted by restrictions on travel and business activity due to the COVID-19 pandemic. Additionally, efforts to recruit and retain qualified employees could be costly and negatively impact our operating expenses.
We issue equity awards from employee equity plans as a key component of our overall compensation. We face pressure to limit the use of such equity-based compensation due to its dilutive effect on stockholders. If we are unable to grant attractive equity-based packages in the future, it could limit our ability to attract and retain key employees.
In preparing our financial statements we make certain assumptions, judgments and estimates that affect amounts reported in our consolidated financial statements, which, if not accurate, may significantly impact our financial results.
We make assumptions, judgments and estimates for a number of items, including the fair value of financial instruments, goodwill, long-lived assets and other intangible assets, the realizability of deferred tax assets, the recognition of revenue and the fair value of stock awards. We also make assumptions, judgments and estimates in determining the accruals for employee-related liabilities, including commissions and variable compensation, and in determining the accruals for uncertain tax positions, valuation allowances on deferred tax assets, allowances for doubtful accounts,credit losses, and legal contingencies. These assumptions, judgments and estimates are drawn from historical experience and various other factors that we believe are reasonable under the circumstances as of the date of the consolidated financial statements. Actual results could differ materially from our estimates, and such differences could significantly impact our financial results. In addition, we cannot predict the full impact
Liquidity requirements in our business operations. The uncertainty affects management’s estimates and assumptions,U.S. operations may require us to raise cash in uncertain capital markets, which could resultnegatively affect our financial condition.
As of October 31, 2023, approximately 52% of our worldwide cash and cash equivalents balance is held by our international subsidiaries. We intend to meet our U.S. cash spending needs primarily through our existing U.S. cash balances, ongoing U.S. cash flows, and available credit under our term loan and revolving credit facilities. Should our cash spending needs in greater variability in a varietythe U.S. rise and exceed these liquidity sources, we may be required to incur additional debt at higher than anticipated interest rates or access other funding sources, which could negatively affect our operating results, capital structure or the market price of areas that depend on these estimates and assumptions.our common stock.
Legal and Regulatory Risks
Changes in United States Generally Accepted Accounting Principles (U.S. GAAP) could adversely affect our financial results and may require significant changes to our internal accounting systems and processes.
We prepare our consolidated financial statements in conformity with U.S. GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC) and various bodies formed to interpret and create appropriate accounting principles and guidance.
The FASB periodically issues new accounting standards on a variety of topics, including, for example, revenue recognition and accounting for leases. These and other such standards generally result in different accounting principles, which may significantly impact our reported results or could result in variability of our financial results. For example, the new revenue recognition standard became applicable to us at the beginning of fiscal 2019 and there is an increased volatility in our total revenue with less predictability than the prior accounting standard.
Our results could be adversely affected by a change in our effective tax rate, as a result of tax law changes and related new or revised guidance and regulations, changes in our geographical earnings mix, unfavorable government reviews of our tax returns, material differences between our forecasted and actual annual effective tax rates, or future changes to our tax structure, or by evolving enforcement practices.structure.
Our operations are subject to income and transaction taxes in the United StatesU.S. and in multiple foreign jurisdictions. Because we have a wide range of statutory tax rates in the multiple jurisdictions in which we operate, any changes in our geographical earnings mix, including those resulting from our intercompany transfer pricing or from changes in the rules governing transfer pricing, could materially impact our effective tax rate. Furthermore, a change in the tax law of the jurisdictions where we do business, including an increase in tax rates, an adverse change in the treatment of an item of income or expense, or limitations on our ability to utilize tax credits, could result in a material increase in our tax expense and impact our financial position and cash flows. For example, in response to the fiscal impact of the COVID-19 pandemic, the State of California enacted legislation on June 29, 2020 that would suspend the use of certain corporate research and development tax credits for a three-year period beginning in our fiscal 2021, which could result in an impact in our tax expense.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (Tax(the Tax Act), was enacted, which significantly changed prior U.S. tax law and includes numerous provisions that affect our business. The Tax Act includes certain new provisions that began to affect our income from foreign operations in the first quarter of fiscal 2019. Since the beginning2019, while other sections of fiscal 2019, the U.S. Treasury Department has issued proposed regulations that
could have a material impact on our ability to claim certain tax benefits related to the Tax Act. While we continue to evaluate the potential impact on our estimated annual tax rate, certain of these regulations have not been finalized and are subject to change. As additional regulations and guidance evolve with respect to the Tax Act and related regulations began to affect our business in the first quarter of fiscal 2023. One of these provisions includes the requirement to capitalize and amortize research and development expenditures instead of expensing such expenditures as we gather more informationincurred. This results in a significant increase to our cash tax liability and perform more analysis,also decreases our results may materially differ from previous estimates,effective tax rate due to increasing the foreign derived intangible income deduction. On September 8, 2023, the Internal Revenue Service issued initial guidance for the Tax Act in Notice 2023-63 and those differencesindicated regulatory guidance will follow. Future regulatory guidance remains uncertain and may materially affect our financial position. Accounting for certain
On August 16, 2022, the Inflation Reduction Act of these provisions requires the exercise of significant judgment.
Further changes2022 (the IR Act) was enacted in the U.S. The IR Act includes a 15% minimum tax laws of foreign jurisdictions could ariserate, as a resultwell as tax credit incentives for reductions in greenhouse gas emissions. The details of the Programmecomputation of Workthe tax and implementation of the incentives will be subject to Develop a Concensus Solutionregulations to be issued by the U.S. Department of the Treasury. On August 9, 2022, the CHIPS and Science Act of 2022 (CHIPS Act) was enacted in the U.S. to provide certain financial incentives to the Tax Challenges Arising fromsemiconductor industry, primarily for manufacturing activities within the Digitalization ofU.S. We are continuing to monitor the Economy (Programme of Work) agreement byIR Act and CHIPS Act and related regulatory developments to evaluate their potential impact on our business and operating results.
On October 8, 2021, the OrganisationOrganization for Economic Co-operation and Development (OECD), announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Framework) which representsagreed to a coalitiontwo-pillar solution to address tax challenges arising from digitalization of memberthe economy. On December 20, 2021, the OECD released Pillar Two Model Rules (Pillar Two) defining the global minimum tax rules, which contemplate a 15% minimum tax rate. The OECD continues to release additional guidance, including Administrative Guidance on how the Pillar Two rules should be interpreted and applied and many countries including the United States.are passing legislation to comply with Pillar Two. The Programme of Work is evaluating potential changesFramework calls for law enactment by OECD and G20 members to numerous long-standing tax principles.take effect in 2024 and 2025. These changes, ifwhen enacted by various countries in which we do business, may increase our taxes in these countries. Changes to these and other areas in relation to international tax reform, including future actions taken by foreign governments in response to the Tax Act, could increase uncertainty and may adversely affect our tax rate and cash flow in future years.
Our income and non-income tax filings are subject to review or audit by the Internal Revenue Service and state, local and foreign taxing authorities. We exercise significant judgment in determining our worldwide provision for income taxes and, in the ordinary course of our business, there may be transactions and calculations where the ultimate tax determination is uncertain. We may also be liable for potential tax liabilities of businesses we acquire, including future taxes payable related to the transition tax on earnings from their foreign operations, if any, under the Tax Act. Although we believe our tax estimates are reasonable, theacquire. The final determination in an audit may be materially different than the treatment reflected in our historical income tax provisions and accruals. An assessment of additional taxes because of an audit could adversely affect our income tax provision and net income in the periods for which that determination is made.
In July 2017, the Hungarian Tax Authority (HTA) issued a final assessment against our Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA has applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $25.0 million and interest and penalties of $11.0 million. We paid the tax assessments, penalties and interest in the first quarter of fiscal 2018 as required by law and recorded these amounts as prepaid taxes on our balance sheet. On April 30, 2019, the Hungarian Administrative Court ruled against Synopsys Hungary. We filed an appeal with the Hungarian Supreme Court on July 5, 2019. The Hungarian Supreme Court heard our appeal on November 12, 2020 and issued a ruling from the bench to remand the case to the Hungarian Administrative Court for further proceedings. We expect to receive the Hungarian Supreme Court’s written decision in the first quarter of fiscal 2021. For further discussion on
our ongoing audits, see Note 15. Income Taxesof the Hungary audit, see Note 13 of Notes to Consolidated Financial Statements.Statements in this Annual Report under the heading "Non-U.S. Examinations."
We maintain significant deferred tax assets related to certain tax credits.credits and capitalized research and development expenditures. Our ability to use these creditsdeferred tax assets is dependent upon having sufficient future taxable income in the relevant jurisdiction and in the case of foreign tax credits, how such credits are treated under provisions of the Tax Act.current and potential future tax law. Changes to tax laws and regulations, and changes in our forecasts of future income could result in an adjustment to the deferred tax asset and a related charge to earnings that could materially affect our financial results.
Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters,that could expose us to numerous risks.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including, among others, the SEC, the Nasdaq Stock Market and the Financial Accounting Standards Board (FASB). These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by Congress, making compliance difficult and uncertain. In addition, regulators, customers, investors, employees and other stakeholders are increasingly focused on environmental, social and governance (ESG) matters and related disclosures. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For example, developing and acting on ESG initiatives, and collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements. We may also communicate certain initiatives and goals regarding environmental matters, diversity, responsible sourcing, social investments and other ESG matters in our SEC filings or in other public disclosures. These initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and ensuring the accuracy, adequacy, or completeness of the disclosure of our ESG initiatives can be costly, difficult and time consuming. Further, statements about our ESG initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change. We could also face scrutiny from certain stakeholders for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG goals on a timely basis, or at all, our business, financial performance and growth could be adversely affected.
Changes in the U.S. generally accepted accounting principles (U.S. GAAP) could adversely affect our financial results and may require significant changes to our internal accounting systems and processes.
We prepare our consolidated financial statements in conformity with U.S. GAAP. These principles are subject to interpretation by the FASB, the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. The FASB periodically issues new accounting standards on a variety of topics, including, for example, revenue recognition and accounting for leases. These and other such standards generally result in different accounting principles, which may significantly impact our reported results or could result in variability of our financial results.
We may be subject to litigation proceedings that could harm our business.
We may be subject to legal claims or regulatory matters involving stockholder, consumer, employment, customer, supplier, competition and other issues on a global basis. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting us from manufacturing or selling one or more products. If we were to receive an unfavorable ruling on a matter, our business and operating results of operations could be materially harmed. Further information regarding certain of these matters is contained in Part I, Item 3, Legal Proceedings of this Annual Report on Form 10-K.
Our business is subject to evolving corporate governance and public disclosure regulations that have increased both our compliance costs and the risk of noncompliance, which could have an adverse effect on our stock price.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, the Nasdaq Stock Market, and the FASB. These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by Congress, making compliance more difficult and uncertain. For example, our efforts to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act and other regulations, including “conflict minerals” regulations
affecting our hardware products, have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
There are inherent limitations on the effectiveness of our controls and compliance programs.
Regardless of how well designed and operated it is, a control system can provide only reasonable assurance that its objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Moreover, although we have implementedOur compliance programs and compliance training for employees such measures may not prevent our employees, contractors or agents from breaching or circumventing our policies or violating applicable laws and regulations. Failure of our control systems and compliance programs to prevent error, fraud or violations of law could have a material adverse impact on our business.
General Risks
Our investment portfolio may be impaired by any deterioration of capital markets.
From time to time, our cash equivalent and short-term investment portfolio consists of investment-grade U.S. government agency securities, asset-backed securities, corporate debt securities, commercial paper, certificates of deposit, money market funds, municipal securities and other securities and bank deposits. Our investment portfolio carries both interest rate risk and credit risk and may be negatively impacted by thedeteriorating economic effects of the COVID-19 pandemic.conditions, increased global inflationary pressures and interest rates and bank failures. Fixed rate debt securities may have their market value adversely impacted due to a credit downgrade or a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall or a credit downgrade occurs. As a result of capital pressures on certain banks, especially in Europe, and the continuing low interest rate environment, some of our financial instruments may become impaired.
Our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of investments held by us is judged to be other-than-temporary. In addition, we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in the issuer’s credit quality or changes in interest rates.
General Risks
Catastrophic events and the effects of climate change, pandemics or other unexpected events may disrupt our business and harm our operating results.
Due to the global nature of our business, our operating results may be negatively impacted by catastrophic events and the effects of climate change, pandemics, such as the recent COVID-19 pandemic, or other unexpected events throughout the world. We rely on a global network of infrastructure applications, enterprise applications and technology systems for our development, marketing, operational, support and sales activities. A disruption or failure of these systems in the event of a major earthquake, fire, extreme temperatures, drought, flood, telecommunications failure, cybersecurity attack, terrorist attack, epidemic or pandemic, (including the COVID-19 pandemic), or other catastrophic eventevents or climate change-related events could cause system interruptions, delays in our product development and loss of critical data and could prevent us from fulfilling our customers’ orders. In particular, our sales and infrastructure are vulnerable to regional or worldwide health conditions, including the effects of the outbreak of contagious diseases, such as the government-imposed restrictions that curtailed global economic activity and caused substantial volatility in global financial markets during the COVID-19 pandemic. Moreover, our corporate headquarters, a significant portion of our research and development activities, our data centers, and certain other critical business operations are located in California, near major earthquake faults.faults and sites of recent wildfires, which may become more frequent, along with other extreme weather events, due to climate change. A catastrophic event or other extreme weather event that results in the destruction or disruption of our data centers or our critical business or information technologyIT systems would severely affect our ability to conduct normal business operations and, as a result, our operating results would be adversely affected.
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Item 1B. Unresolved Staff Comments |
None.
Not applicable.
Our principal officesoffices are currently located in two adjacent buildings in Mountain View, California, which together provide approximately 341,000 square feet of available space. This space is leased through August 2030, and we have two options to extend the lease term, the first to extend the term by ten years, followed by a second option to extend by approximately nine additional years.Sunnyvale, California. We alsocurrently lease approximately 350,0001.2 million square feet of space in three adjacent buildings in Sunnyvale, California, which we have leased through October 2031. These buildings in Mountain View and Sunnyvale are used for research and development, sales and support, marketing, and administrative activities for both of our business segments.
Additionally, we own one building in Sunnyvale, California with approximately 120,000 square feet of space that was vacated in February 2020 and is currently leased to a third party under a lease agreement that runs through February 2031.
We currently lease 29 other28 offices throughout the United States, andof which we sublet 340,000 square feet to third parties. We currently own two office357,000 square feet, of which we lease 238,000 square feet to third parties. We own buildings in Oregon one of which is leased to a third party.and California. These offices are used primarily for sales and support, marketing, and administrative activities as well as research and development for both of our business segments.
We currently lease additionalapproximately 2.9 million square feet of space in 30 countries other than the United States, and own buildings in Wuhan, China and Hsinchu, Taiwan as well as office space in Xiamen, China and Yongin-si, South Korea. These offices are used primarily for sales and support, service, and research and development activities for bothour business segments.
As our needs change, from time to time, we may relocate, expand, and/or otherwise increase or decrease the size of our business segments in approximately 29 countries throughout the world, including 25,000 square feet in Dublin, Ireland for our international headquarters, as well as significant sites in Yerevan, Armenia, Bangalore, India, Shanghai and Wuhan, China. We own several buildings in Wuhan, China with approximately 551,000 square feet of combined space. In addition, we own two buildings in Hsinchu, Taiwan with approximately 212,000 square feet of combined space. Beginning on March 2021, we will lease approximately 181,000 square feet of space in Shanghai with a term of ten years, and plan to vacate our existing lease in Shanghai, China.
operations, offices or personnel. We believe that our existing facilities, including both owned and leased properties, are in good condition and suitable for theour current conductneeds and that suitable additional or substitute space will be available on commercially reasonable terms as needed to accommodate any expansion of our business.operations.
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Item 3. Legal Proceedings |
We are subject to routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate outcome of any litigation is often uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on Synopsys because of the defense costs, diversion of management resources and other factors.
We regularly review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount is estimable, we accrue a liability for the estimated loss. Legal proceedings are inherently uncertain and as circumstances change, it is possible that the amount of any accrued liability may increase, decrease or be eliminated.
In July 2017, the HTA issued a final assessment against Synopsys' Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA disallowed Synopsys Hungary's tax positions taken during these years regarding the timingTax Matter
See Note 15. Income Taxes of the deduction of research expenses and applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $44.5 million and interest and penalties of $18.0 million. On August 2, 2017, Synopsys Hungary filed a claim contesting the final assessment with the Hungarian Administrative Court (the Court). On November 16, 2017, Synopsys Hungary paid the assessment as required by law, while continuing its challenge to the assessment in court. Hearings were held in February and July 2018, February 26, 2019 and April 30, 2019. On December 10, 2018, Synopsys withdrew its claim contesting the final assessment with regard to the timing of the deduction of research expenses, resulting in a remaining disputed tax assessment of approximately $25.0 million and interest and penalties of $11.0 million. On April 30, 2019, the Court ruled against Synopsys Hungary. The Court's opinion was received on May 16, 2019. Synopsys Hungary filed an appeal with the Hungarian Supreme Court on July 5, 2019. In the second quarter of 2019, as a result of the Court's decision, we recorded a tax expense due to an unrecognized tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits for the tax assessments. The Hungarian Supreme Court heard our appeal on November 12, 2020 and issued a ruling from the bench to remand the case to the Hungarian
Administrative Court for further proceedings. We expect to receive the Hungarian Supreme Court’s written decision in the first quarter of fiscal 2021.
For further discussion of the Hungary audit, see Note 13 of Notes to Consolidated Financial Statements in this Annual Report for a discussion of our Hungary audit under the heading "Non-U.S.“Non-U.S. Examinations."”
On April 27, 2022, Bell Semiconductor LLC (Bell Semic), a patent monetization entity, began filing a series of patent infringement lawsuits against certain technology companies alleging that certain semiconductor devices designed using certain design tools offered by electronic design automation (EDA) vendors, including Synopsys, infringe upon one or more patents held by Bell Semic. Bell Semic seeks money damages, attorneys’ fees and costs, and a permanent injunction prohibiting the defendants from using allegedly infringing EDA design tools.
On April 29, 2022, Bell Semic also began filing a series of complaints with the U.S. International Trade Commission (ITC) alleging violations of Section 337 of the Tariff Act of 1930 and seeking limited exclusion orders preventing the respondents from importing into the United States semiconductor devices designed using certain design tools offered by EDA vendors, including Synopsys, and cease-and-desist orders prohibiting respondents from importing, selling, offering for sale, advertising, or transferring products made using certain design tools offered by EDA vendors, including Synopsys.On November 8, 2022,the ITC instituted the investigations. On May 8, 2023, Bell Semic filed motions to voluntarily withdraw the pending ITC investigations.
Synopsys is not named as a respondent or defendant in any of the aforementioned actions; however, certain of the respondents and defendants are Synopsys customers and have sought defense and indemnity from Synopsys under their End User License Agreements in response to Bell Semic’s allegations. Synopsys is defending some of its customers consistent with the terms of its End User License Agreement.
In November and December 2022, Synopsys and other EDA vendors filed actions for Declaratory Judgment of invalidity and/or non-infringement as to each of the six patents asserted by Bell Semic in the aforementioned actions.Bell Semic’s motion to dismiss the Declaratory Judgment actions was denied on April 27, 2023.Synopsys and other EDA vendors also filed Motions for Preliminary Injunction seeking to enjoin Bell Semic from proceeding with the ITC investigations and patent infringement lawsuits.The Motions for Preliminary Injunction were denied without prejudice on April 27, 2023.Bell Semic responded to the Declaratory Judgment complaint on May 11, 2023, asserting counterclaims for patent infringement against the EDA vendors. On December 6, the Court granted Synopsys’ Motion for Summary Judgment of No Indirect Infringement of the Asserted Claims and stated it would entertain a motion for attorneys fees. The other EDA vendors settled with Bell Semic. The actions for Declaratory Judgment is set for trial on January 16, 2024.
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Item 4. Mine Safety Disclosures |
Not applicable.
PART II
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock trades on the Nasdaq Global Select Market under the symbol “SNPS.” As of December 10, 2020,6, 2023, we had 242219 stockholders of record.
Performance Graph
The following graph compares the five-year total return to stockholders of our common stock relative to the cumulative total returns of the S&P 500 Index, the S&P Information Technology Index and the Nasdaq Composite Index. The graph assumes that $100 was invested in Synopsys common stock on October 31, 2015November 2, 2018 (the last trading day before the beginning of our fifth preceding fiscal year) and in each of the indexes on October 31, 20152018 (the closest month end) and that all dividends were reinvested. No cash dividends were declared on our common stock during such time. The comparisons in the table are not intended to forecast or be indicative of possible future performance of our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
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*$100 invested on October 31, 2015November 2, 2018 in stock or October 31, 2018 in index, including reinvestment of dividends. Fiscal year ending October 28. |
The information presented above in the stock performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, except to the extent that we subsequently specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or Exchange Act.
Dividends
We have not paid cash dividends on our common stock.
Stock Repurchase Program
OurIn fiscal 2022, our Board of Directors (Board) previously approved a stock repurchase program pursuant to which we were authorized(the Program) with authorization to purchase up to $500.0 million$1.5 billion of our common stock, and has periodically replenished the stock repurchase program to such amount. Our Board replenished the stock repurchase program up to $500.0 million on June 19, 2020. The program does not obligate us to acquire any particular amount of common stock, and the program may be suspended or terminated at any time by our Chief Financial Officer or our Board. We repurchase shares to offset dilution caused by ongoing stock issuances from existing equity plans for equity compensation awards and issuances related to acquisitions, and when management believes it is a good use of cash. Repurchases are transacted in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) and may be made through any means including, but not limited to, open market purchases, plans executed under Rule 10b5-1(c) of the Exchange Act and structured transactions. stock. As of October 31, 2020, $457.92023, $194.3 million remained available for future repurchases under the program.Program.
In December 2019, we entered an accelerated share repurchase agreement (the December 2019 ASR) to repurchase an aggregate of $100.0 million of our common stock. Pursuant to the December 2019 ASR, we made a prepayment of $100.0 million to receive initial share deliveries of shares valued at $80.0 million. The remaining balance of $20.0 million was settled in February 2020. Total shares purchased under the December 2019 ASR were approximately 0.7 million shares, at an average purchase price of $149.75 per share.
In February 2020,August 2023, we entered into an accelerated share repurchase agreement (the February 2020August 2023 ASR) to repurchase an aggregate of $100.0$300.0 million of our common stock. Pursuant to the February 2020August 2023 ASR, we made a prepayment of $100.0$300.0 million to receive initial share deliveries of shares valued at $80.0$255.0 million. The remaining balance of $20.0$45.0 million was settled in May 2020. Total November 2023. Total shares purchased under the February 2020August 2023 ASR were approximately 0.70.6 million shares, at an average purchase price of $140.41$466.71 per share.
The table below sets forth information regarding our repurchases of our common stock during the three months ended October 31, 2020:28, 2023:
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Period | Total number of shares purchased (1) | | Average price paid per share (1) | | Total number of shares purchased as part of publicly announced programs | | Maximum dollar value of shares that may yet be purchased under the programs |
Month #1 | | | | | | | |
July 30, 2023 through September 2, 2023 | 610,574 | | | $ | 491.34 | | | 610,574 | | | $ | 194,276,393 | |
Month #2 | | | | | | | |
September 3, 2023 through September 30, 2023 | | | | | | | $ | 194,276,393 | |
Month #3 | | | | | | | |
October 1, 2023 through October 28, 2023 | | | | | | | $ | 194,276,393 | |
Total | 610,574 | | | | | 610,574 | | | $ | 194,276,393 | |
(1) Amounts are calculated based on the settlement date.
Our growth strategy is based on maintaining and building on our leadership in our EDADesign Automation products, expanding and proliferating our Design IP offerings driving growth in the software security and quality market, and continuing to expand our product portfolio and our total addressable market. In addition, due to our adoption of Accounting Standard Codification 606 (ASC 606), "Revenue from Contracts with Customers", in the beginning of fiscal 2019, the way in which we are required to account for certain types of arrangements has increased the variability in our totalOur revenue growth from period to period. Nevertheless,period is expected to vary based on the accounting impact has not affected the cash generated frommix of our business.time based and upfront products. Based on our leading technologies, customer relationships, business model, diligent
expense management, and acquisition strategy, we believe that we will continue to execute our strategies successfully.
Our fiscal year ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2018 was a 53-week year2023, 2022 and ended on November 3, 2018. Fiscal 2020 and 20192021 were 52-week years ending on October 31, 202028, 2023, October 29, 2022, and November 2, 2019,October 30, 2021, respectively. Fiscal 20212024 will be a 52-week53-week year.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, are:
Further disaggregation of the revenues into various products and services within these twothree segments is summarized as follows:
Changes in upfront products revenue are generally attributable to normal fluctuations in the extent and timing of customer requirements, which can drive the amount of upfront orders and revenue in any particular period.
Upfront products revenue as a percentage of total revenue will likely fluctuate based on the timing of IP products and hardware product sales. Such fluctuations will continue to be impacted by the timing of shipments and FSA drawdowns due to customer requirements.
We divide cost of revenue into three categories: cost of products revenue, cost of maintenance and service revenue, and amortization of intangible assets. We segregate expenses directly associated with consulting and training services from cost of products revenue associated with internal functions providing license delivery and post-customer contract support services. We then allocate these group costs between cost of products revenue and cost of maintenance and service revenue based on products and maintenance and service revenue reported.
The income or loss arising from the change in fair value of our non-qualified deferred compensation plan obligation is recorded in cost of sales and each functional operating expense, with the offsetting change in the fair value of the related assets recorded in other income (expense), net. These assets are classified as trading securities. There is no impact toon our net income from the fair value changes in our deferred compensation plan obligation and asset.related assets.
The success of our hedging activities depends upon the accuracy of our estimates of various balances and transactions denominated in non-functional currencies. Exchange rates are subject to significant and rapid fluctuations due to a number of factors, including interest rate changes and political and economic uncertainty. Therefore, we cannot predict the prospective impact of exchange rate fluctuations. To the extent our estimates are correct, gains and losses on our foreign currency contracts will be offset by corresponding losses and gains on the underlying transactions. For example, if the Euro were to depreciate by 10% compared to the U.S. dollar prior to the settlement of the Euro forward contracts listed in the table below providing information as of October 31, 2020,2023, the fair value of the contracts would decrease by approximately $7.6$26.1 million, and we would be required to pay approximately $7.6$26.1 million to the counterparty upon contract maturity. At the same time, the U.S. dollar value of our Euro-based expenses would decline, resulting in positive cash flow of approximately $7.6$26.1 million that would offset the loss and negative cash flow on the maturing forward contracts.
We enter into foreign exchange forward contracts with financial institutions and have not experienced nonperformance by counterparties. Further, we anticipate performance by all counterparties to such agreements.
Information about the gross notional values of our foreign currency contracts as of October 31, 2020 was2023 is as follows: