Synopsys reported 3QFY10 results ahead of my model, including slightly better revenues. The non-GAAP operating margin (23% vs. 21.6% estimate) and cash flow did well, and I infer that product bookings were ahead of the quarter-billion dollar forecast (with the book/bill getting closer to 1.0x than has been the case for most of the past two years). 4QFY10 guidance was in line for revenues and earnings, though the cash flow forecast was well above my prior $205 million forecast.

Revenues and non-GAAP earnings amounted to $336.9 million and $0.39 a share vs. $331.3 million and $0.36 estimate. Time-based license revenues of $286.6 million, vs. $276.7 million estimate; upfront licenses of $14.7 million in line; and maintenance & services of $35.7 million were $6 million below forecast. (ex-services maintenance-only revenues were$21.1 million vs. $26.2 million a year ago; trailing twelve-month maintenance was $89.9 million vs. $90 million).

Trailing twelve months time-based (subscriptions) licenses were $1.137 billion, vs. $1.156 billion, the small drop reflecting, at least in part, prior bookings trends. Both R&D and G&A expenses ere below the estimate, while sales & marketing was higher, reflecting some combination of acquisitions and the inferred bookings upside (variable compensation).

Cash flow
3Q operating cash flow of $208 million (vs. $232 million in 3Q09), included the annual prepayment under the contract with Intel (almost certainly more than $100 million). Notable too is the 3Q net change in deferred revenues, up $77 million in 3Q10 vs. up $25 million a year ago (there are multiple components to such a quarterly change). The new $300 million FY10 cash flow forecast includes a $30 million tax benefit: with year to date cash flow of $244 million, the implied 4Q10 cash flow would be about $56 million, vs. $61.5 million in 4Q09. The FY10 cash flow forecast does not imply a similar or higher number on FY11, subject to strong gains in net working capital (including deferred, which in turn depends on bookings). Estimated FY10 free cash flow of about $260 million implies a current free cash flow yield of about 7.4%.

Geographical results.
On a trailing twelve month basis, North America was $675 million, down 2%; Europe was $185.4 million, down 7%; Japan was $249.2 million, down 6%; and AsiaPac was $234 million, up 7%. Based on the EDA Consortium data, SNPS’ best regional share is in North America, followed by Japan.

Segment results.
Since quarterly segment results are not always terribly dispositive, then looking at the segments on a trailing twelve month basis, “core EDA” (formerly Galaxy implementation d Discovery verification) was $952 million, down 6%; systems & IP (which includes the recent small CoWare and VaST purchases) was $173 million, up 23%; Manufacturing was $161.7 million, up 1%; and services/other was $56.8 million, down 7%.

Bookings.
As always, bookings are inferred not disclosed. As such, it seems that 3QFY10 product bookings were in a range of $280-$290 million, the largest such quarterly amount for the year to date, and up by about a fourth year/year (that’s for gross bookings, not adjusting for duration). A component of the bookings improvement may have been renewed business with the combined Renesas/NEC (each of which had been important customers prior to the merger), just as there was a large re-spin with the then-new Renesas in 2QFY03 (as we can see from the large jump in Japan revenues in that quarter more than 7 years ago).

For the trailing twelve months, bookings appear to have been about $1 billion (roughly double those of Cadence), vs. $1.07 billion in the year-ago period. This single digit difference is down from the more than 20% decline inferred for FY09.

Bookings in 4Q10 should be up substantially year/year; the book/bill for FY10 as a whole may or may not exceed 1.0x but should at least be much closer to parity than the FY09 bookings were. Ex the Virage acquisition, I could foresee FY11 product bookings of about $1.3 billion, vs. about $1.1 billion this year, thus bringing bookings back to or above the FY08 pre-recession levels (even without an early Intel renewal).

Guidance.
4QFY10E range of $349-$357 million and $0.37-$0.39 compares with current model of $354 million and $0.40 a share.
Questions & comments are welcome.
Regards,
Jay Vleeschhouwer
Mobile: 917-459-0501