Zacks_Analysts' Blog : SNPS Acquires nSys Design - Analyst Blog

Leading software, IP design, verification and manufacturer of electronic components, Synopsys, Inc. (SNPS) recently completed the acquisition of a leading independent provider of verification IP (VIP), nSys Design Systems Private Limited (nSys). With this acquisition, Synopsys intends to increase investment in VIP technology to address the growing verification challenges that designers face while developing complex systems on chips (SoCs) to serve the demand for 'smart' electronics.

However, the company did not disclose the financial terms of the deal. It is estimated that Synopsys has acquired substantially all the assets and employees of nSys. This acquisition is expected to enhance the company’s ability to support the expansion objectives of its multi-national clients.

The recent acquisition will help Synopsys enhance its VIP product portfolio and will likely cover all the widely used interface protocols and many emerging titles. The acquisition is also expected to be accretive in terms of rolling out a new protocol compliance test-suite product line. Moreover, the supported verification methodologies include VMM (verification methodology manual), OVM (open verification methodology) and UVM (universal verification methodology).

Synopsys has adopted acquisitions as a growth strategy. The company completed a major acquisition of Virage Logic Corp. in 2010, for $12.0 per share in cash, or a total consideration of approximately $315.0 million.  The integration was pretty smooth, as the former provides semiconductor intellectual property (IP) for the design of complex integrated circuits. In a way, this acquisition is expected to supplement Synopsys' Designware platform, as well as its Intellectual Property product category.

Apart from acquisitions, product innovation remains a focal point for the company’s management. In the past, the company offered solutions, which enabled a 20% reduction in clock buffering to improve the routing congestion situation, as well as in lowering power dissipation, improving clock skew by a 30% reduction in total run time.

Synopsys also offers a variety of IT protection models, from methodology-driven project assistance to full turnkey development, to help satisfy customers’ business and project needs. We believe that the success of Synopsys’ manufacturing solutions will boost licensing revenue through additional customer wins going forward.

Synopsys delivered decent results in the recently concluded second quarter, with minimal improvement in operating performance. The third quarter 2011 guidance is encouraging. Although Synopsys is gaining traction from new products and acquisitions, we believe these will take some time to produce favorable results. Besides, the company is also facing competition from Salesforce.com(CRM)

We believe Synopsys’ time-based licensing model has good visibility, and the company’s cash position is decent.

The company currently has a Zacks #3 Rank (short-term 'Hold' rating).