Synopsys Plunges on Gloomy Outlook - TheStreet

Synopsys Plunges on Gloomy Outlook

The company sees continued caution in customer spending.
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Updated from Aug. 18

Two weeks after announcing that lower bookings would hurt third-quarter results,

Synopsys

(SNPS) - Get Report

said earnings fell about 15% and delivered equally bleak news for the fourth quarter and next fiscal year.

As a result, the company's shares had recently plummeted $5.85, or 27.5%, to $15.43 in early Thursday trading.

The semiconductor design software maker said after the bell Wednesday that net income for its third quarter ended July 31 fell to $41.8 million, or 26 cents a share, from $48.5 million, or 30 cents a share, during the same period last year.

"Clearly, our third quarter was tough, mainly due to lower-than-expected bookings for upfront licenses, with several contracts being pushed out very late in the quarter," said Aart de Geus, chairman and chief executive. "In July, customers became markedly more cautious about extending existing commitments and spending cash, particularly impacting our upfront bookings, which under our model require front-loaded payment terms."

On an adjusted basis, which excludes the amortization of intangible assets and deferred stock compensation, earnings fell to $53.2 million, or 33 cents a share, from $66.9 million, or 41 cents a share, a year earlier.

Revenue fell 6% to $281.7 million from $300.4 million a year earlier.

While the results did edge the Thomson First Call consensus estimate of 32 cents a share, those expectations were lowered after the company

cut its estimates on Aug. 2 from 35 cents to 40 cents a share.

Synopsys did the same for the fourth quarter and fiscal 2005.

"Recent announcements in the industry of lower earnings and reduced forecasts suggest continued caution on customer spending," said de Geus. "This caution, and the fact that we anticipate 2005 will be a relatively low renewal year for Synopsys, will reduce our bookings expectations for fiscal 2005.

As a result of that caution and a strong existing backlog, Synopsys plans to move immediately toward a maximally subscription-based license model. "Moving away from upfront licenses will in the near-term lower our fourth quarter, fiscal 2004 and fiscal 2005 revenue expectations, but we believe it is the right action to put Synopsys on the strongest long-term footing," de Geus said.

For the fourth quarter, which reflects Synopsys' expected shift in the mix of licensing revenue, the company said it expects adjusted earnings of break-even to 4 cents a share on revenue of $220 million to $240 million -- well below current analyst expectations of 36 cents a share on revenue of $311.4 million.

In fiscal 2005, the company is targeting revenue of about $940 million and adjusted earnings of 28 cents to 38 cents a share.

Analysts had been expecting the company to earn $1.60 a share on revenue of $1.29 billion.