Citing revenue recognition issues, EDA market player Synopsys reported revenue for its financial third quarter ended July 31 of $251.5m, a three per cent increase compared to the Q2, but 11 per cent down from $281.7m in Q3 2004.

For the nine-month period ended July 31, revenue was $737.1m, a decrease of 14 per cent from $861.5m for the same period last year.

Synopsys said the year-over-year comparisons reflect the company’s shift to an almost-fully ratable licence model initiated in Q4 2004, under which most of the company’s licence revenue is recognised over time rather than upfront in the quarter shipped. As a result, in the most recent quarter more than 90 per cent of revenue came from backlog.

Optimistically speaking, Synopsys chairman and CEO Aart de Geus said on a call with analysts: “I am very pleased to report that in our third quarter, we continued in the strong direction set in the first half of the year, making excellent progress on all our objectives and strategies,” referring specifically to increase revenue, improve operating margin and grow earnings.

On a GAAP basis, Q3 net income was $17.3m, or 12 cents per share, better than the loss of three cents per share in Q2, but down from net income of $41.8m, or 26 cents per share in Q3 2004. Q3 results include a $33m litigation settlement received in connection with the acquisition of analogue/mixed-signal technology provider Nassda, which closed in May.

GAAP net loss for the nine-month period ended July 31 was $2m, or one cent per share, compared to net income of $102.7m, or 63 cents per share, for the same period last year.

The decreases in GAAP net income for these periods was attributed to lower revenues as a result of Synopsys’ shift to a more than 90 per cent ratable licence model.

Even with the mixed results, the company noted that the book to bill ratio was higher than expected, and orders should be higher than expected for the year driven by consumer and market needs.

Echoing statements following Synopsys’ Q2 earnings, de Geus said the company is on track with providing a completely tuned design solution, which customers have been moving towards, in order to simultaneously optimise tools for maximum productivity.

“We are gradually shifting our overall value proposition to one of overall productivity,” de Geus explained.

“The economic impact has more to do with overall productivity. How well to do the tools play together? We are starting to see the first indications of customer measurements and we expect that to accelerate,” he went on.

Further, de Geus said as customers move towards aligning with “preferred” vendors that provide the productivity and overall economic benefits, Synopsys will be able to provide the big productivity enhancements in aggregate – through the complete design flows.

Looking ahead to Q4, Synopsys expects revenue between $248m and $258m, with GAAP earnings to be between two cents per share loss to one cent per share.

For the full fiscal year, the company expects revenue between $985m and $995m, with GAAP earnings to be a loss of three cents per share to flat.

Bolstering the positive revenue growth is demand for effective distributed computing abilities, where the software processing workload is shared among many computers. Intel for example has more than 1,000 systems in its compute farm, de Geus said.

This is particularly an issue for Synopsys customers at the back end of the design process that connects with manufacturing, he explained.

“We are doing particularly well from that perspective…with the point moment [being] optical proximity correction,” he continued.

“When you have 25 layers [in a design], they require enormous computational power…also, our Hercules design rule checking software has strongly demonstrated distributing computing capabilities as well as the ability to support advanced geometries,” de Geus concluded.

Synopsys is still looking for a CFO. Rex Jackson, general counsel is currently serving as acting CFO.

www.synopsys.com