Synopsys (SNPS) - Get Report boosted the low end of its current-quarter financial targets early Monday and shares moved up nearly 3%, but investors might be gaining even more confidence amid growing speculation that the semiconductor software company has finalized a contract extension with Intel (INTC) - Get Report, its largest customer.
Intel, the world's largest chipmaker, had been paying Synopsys about $120 million a year during the past two years for Synopsys' design automation software and services. That deal expired in August and Synopsys management stated in December that renewal terms had not yet been reached.
Analyst Erach Desai with American Technology Research said he believes a contract extension between the two companies was recently struck.
"Some of our field contacts are suggesting that the Intel deal has been renewed for about $100 million per year for a three-year period," said Desai.
Likewise, analyst Jennifer Jordan with Wells Fargo Securities also stated last week in a research note that Synopsys had closed a deal worth $300 million over three years.
Synopsys didn't immediately return a call for comment. Its shares were recently up 40 cents to $18.38.
One interesting link between the two companies: Intel Chief Financial Officer Andy Bryant has been a member of Synopsys' board of directors since 1999.
Earlier Monday, Synopsys said it now expects a first-quarter loss of 12 cents to 15 cents a share on sales between $237 million and $243 million. In December, Synopsys predicted a loss between 12 and 17 cents a share on sales between $233 million and $243 million.
Excluding charges, the company's new earnings target range is 5 to 7 cents a share vs. an earlier range of 3 to 7 cents a share. Analysts had expected earnings excluding charges of 5 cents a share and sales of $237 million, on average, according to Thomson First Call.
Synopsys also said its full-year earnings target was not to be relied upon because the estimated amortization of intangible assets "was inadvertently not fully reflected in the prior target."
Synopsys now expects to lose between 21 cents and 32 cents a share vs. a target range issued in December of break-even to earnings of 11 cents a share. Its sales goals and other targets stayed the same.
Just how much was this amortization less than "fully reflected" in its earlier targets? A lot -- the company expects amortization to shave 50 to 51 cents a share from its bottom line in 2005. It pegged that impact at 18 to 19 cents a share in December.
Desai said he wasn't completely discounting the change, but that this noncash figure can change constantly based on acquisitions. He said he's more focused on the non-GAAP figure.