Drill Down Insider #23: Synopsys (SNPS:NASDAQ) CFO Shelagh Glaser

Cory Johnson (0:04)

Well, welcome to The Drill Down, and to the side of the business stories behind Stocks On A Move. I'm Cory Johnson, Chief Market Strategist of Episcopal Capital Research.

So much going on in Synopsys, so much breaking news. This long after, Nvidia put $2 billion into the company, and Elliott took a big position. And now, OpenAI and Amazon announcing big deals, what does it all mean? Shelagh Glaser, the CFO, joins us. What those relationships are worth. But first, it's sponsor time. The Drill Down brought to you by Aera. Never miss another critical event or insight ever. With Aera, customize your company, watch lists, track key events, mentions, filings and more. All within an easy to use, customizable interface. That's Aera, AI, eera.com.

Right, I'm Cory Johnson. Welcome to The Drill Down, where we explain the business stories behind the stocks and the moves. Synopsys stock moving on all kinds of news. At Investor Day this week, a multi-year Silicon IP deal with Amazon worth more than a billion dollars. Prices, license fees, plus royalties, Synopsys and OpenAI. Building a GPT Synopsys, a specialized chip design model sold under a revenue sharing agreement. Josh, explain it all. Shelagh Glaser, the CFO. Long time friend of the show, glad to have you.

Shelagh, so much news and I know your company reasonably well, but this does seem like it's the culmination of a lot of the things we've been talking about for the last, call it two or three years.

Shelagh Glaser (1:24)

Absolutely. Cory, it's great to be with you.

I always feel like we can get into some depth in this format. It is absolutely the culmination. As we described, we had our investor day here in New York yesterday. As we described, really what's happening in the industry is just the pace and complexity of product design, silicon to systems design is just at a rate that we've never seen before. Frankly, there's not enough engineering talent. What we've built is a portfolio of the tools and capabilities for those engineers to use to tame that complexity and ensure that they can get their product, their chip, their car, whatever it is, out right the first time. Because obviously, that's the economic underpinning of any company, making sure that whatever they're putting into R&D gets into a product, and that product's outcomes are reliable outcomes.

Cory Johnson (2:17)

It's funny to me also covering the company for so long, and I want to get into some details of the announcements, but it was interesting during the Q&A to listen to Saseem Ghazi, the CEO, who's got some questions.

Sort of fundamentally, the same kind of question the company is probably getting for the entirety of its 40 year existence, which is, are you going to really need this stuff? Are you going to give away the farm once somebody can design this stuff once? Why do they ever need to use Synopsys software to design back then? It was just chips or parts of chips, and now it's chips and systems. But again, this notion, working with OpenAI, is anyone going to really need this once they've done it once? What's the real value of Synopsys software, of software focused on complex design?

Shelagh Glaser (2:58)

Yeah, it's a great question, and one we get a lot, so I'm glad that you ask it. Because if you think about what do we do, what do we essentially give to our customers? We give design solutions. EDA is a design solution that you use to design your chip-in. Think about it as your workspace that ensures that whatever you have modeled and built, when you take it to a foundry like a TSMC or a Samsung or Intel, that's what that product is going to be. All your models are going to be right, and you do something called sign-off to ensure that what you're going to see in real life is everything you've modeled.

If everybody was super satisfied and nobody ever wanted a new chip in their entire life, and everybody thought that everything was great and wonderful, it's possible. We've just never seen that in the industry, that anybody was satisfied with anything. That's really what drives. That's what drives the industry.

Whatever you built today is not good enough for tomorrow because there's new opportunities, there's new problems that customers are trying to solve. If we think about the GPT Synopsys, that is a specialized model that OpenAI is building for semiconductor engineers. You can think about that as their model, their specialized model trains on the Synopsys tools, so becomes an expert at training on the Synopsys tools, and it really understands if you're going to use it. Let's say you're a chip design company and you're going to use that special GPT Synopsys, it's coming to you as an experienced engineer. It understands what it means to build a chip. When you're asking it to help you do part of the chip, it's coming in as an experienced player, and it understands what you want it to do. So you can give it a task, and then it can actually do the task, but it needs to rely on the underlying Synopsys tools. What we give people is ground truth physics, which physics doesn't negotiate. So you have to have ground truth physics. You have to know that that product is going to actually perform in the real world the way it's performing in your model. And the only way you can do that is with the tools that we build.