新思科技 (SNPS) 2002 Q2 法說會逐字稿

Ladies and

gentlemen, thank you for standing by and

welcome to the Synopsys conference call,

regarding its second quarter fiscal year

2002 earnings and its merger with

Avanti! Corporation.

At this time, all participants are in a

listen only mode. Later we will conduct

a question and answer session and

instructions will be given at that time.

If you should require assistance during

the call, please press 0, followed by

star P today's call is scheduled to last

one hour, five minutes prior to the end

of the call, I will alert the conference

of the time remaining.

As a reminder, today's conference is

being recorded. During the course of

this conference call, Synopsys may make

predictions estimates and other

forward-looking statements regarding the

company. While these statements

represent the best judgment current

judgment about the company's future

performance, the company's actual

performance is subject to significant

results and uncertainty that could cause

actual results to differ materially from

those that may be projected. In

addition to any risks that's may be

highlighted during this conference call,

important factors that could cause the

company's actual results to differ

materially from those that may be

projected in this conference call are

described in the most recent 10K 10 Q F

3 F 4 and 8K reports of Synopsys and

Avanti!. On file with the Security and

Exchange Commission. At this time, I

would like to turn the conference over

to chairman and chief executive officer,

Aart de Geus, pleased go ahead, sir.

Good

afternoon, this is Aart de Geus, I have

with me Brad Henske, our CFO. I'm

pleased to report this morning the

shareholders of Synopsys and Avanti!

overwhelmingly approved the merger of

these two companies. We appreciate the

vet of confidence from our shareholders

and believe they will be recognized the

mergeger brings together the two

companies with the best technology in

EDA innovative passionate people and

deep customer relationships.

As we announced earlier today the agents

waiting period has expired. On today's

call I would like to explain our vision

of Synopsis 3, the name we are using to

describe the post merger Synopsys. I

will intermingle pertinent Q2 results as

we cover the different topics.

Our vision has sharpened up considerably

over the last 6 since months we

announced the merger as we have gotten

know Avanti!'s people and products.

During that time the two companies have

individually made excellent progress as

well. Most notably, both physical come

power and Astro the anchor point

products of our future continue their

penetration into top accounts and grew

more robust as point tools. We're

excited finally to start executing

together.

Following strong enthusiasm at the

announcement of the merger customers

have been very vocal about their support

and their expectations. Their messages

have been loud and clear. First, they

want greater integration among our

products between front end and back-end

tools, between design and signal

integrity tools, between analog and

digital simulation tools and between

timing analysis and everything else.

Second, they want us to continue to

offer best in class solutions that are

open and easily connectible to third

party tools as well as to their own

in-house technology.

And of course, they want road maps to

both the tools and their integration and

they want them now.

They understand the power of the

combined company's technologies and they

want to make design flow decisions and

choose their partners right away.

We are committed to making initiate road

maps available within 30 days of the

close.

For the purpose of sharing our vision,

it is useful to go back to basics.

IC design can be interviewed as two

fundamental task sets, design creation

and design verification. The design

creation flow implements the design from

a high level description invariable HTL

all the way down to the minute detail of

the layout point. The objective of

design creation flow is to optimize the

final results for speed, area and power,

all within the market window, of course.

In contrast, the design verification

flow is much and more aimed at checking

for absolute accuracy. This applies

from high level descriptions in which

functionality is checked all the way

down to the physical domain, where every

detail of the chip is rigorously

verified and signed off.

Although the benefits of Avanti! merger

have been highly touted in the design

creation flow, Avanti! actually adds

enterprise value to the verification

flow as well.

Let's talk about design creation. Top

to bottom the principle tasks are floor

planning, synthesis, placement, routing

extraction, signal integrity, and timing

analysis. Against this list be, the

combined company instantly has a broad

portfolio of best in class point tools.

This is great news. We will continue to

invest in point tools. They will not

only build our own flows, but will also

ton play a central role in customer's

flows that may use pieces from Cadence,

mentor, Magna or others.

Focusing only on point tools, though,

would completely miss the point of the

Synopsys Avanti! merger. The real point

is to deliver a next generation design

flow for .03 and .09-micron. Such a

flow requires a great deal of tool

integration.

To understand why the combination of

Synopsys and Avanti! is so powerful, let

me take you back about three years fo a

time when we predicted three successes

evolutions in the design creation flow

First, below point 25 micron the delays

on a chip move increasingly from gates

to the interconnect. For any high

performance designs, this trend requires

that synthesis and placement merge.

Synopsys let the solution to this trend

by introducing physical compiler.

Second, below .18-micron, previously

negligible physical phenomenon, such as

[cross talk] begin messing up signals in

unexpected and sometimes disastrous

ways. This trend requires that routing

and signal integrity verification merge.

Avanti! addresses this challenge with

Astro, which succeeds the Apollo

project, product.

Third, below .13-micron, chip complexity

is enormous. This trend requires an

entity great design flow book ended by

floor planning and a rock solid physical

database. And [signoff] is

state-of-the-art timing verification.

The reason the new Synopsys is so

exciteing to our customers is that the

merger greatly accelerates our momentum

in all three of these trends. Starting

with the first trend of integrated sin

think is the cities and placement we

have made great progress. Physical

compiler had a record quarter for orders

and revenue.

In Q2 there were 131st time purchases,

20 repeat customers. To date, we count

I68 customers for our physical synthesis

product. Although we can no longer

measure the take off count precisely, we

estimate there are well over 800

[tape-outs] using physical compiler.

Physical compiler is critical to many

customers today. Let me give you just

one in-depth example.

Texas instruments recently used PC to

tape-out multiple versions of their next

generation flagship digital signal

processor chip, the TMS 320C64X, a big

name. It's 600-megahertz .13-micron

64 million transistor device. This

platform enables full convergence of

video, voice, and data on all broadband

networks for TI large based station

systems market. These next generation

Eves which TI is shipping today not only

mark a performance milestone but also

become the platform for most of TI's

future ESP products. TI was able to

achieve timing closure and save two

months in design cycle time.

As this example shows, TI is making the

highest performance designs on our

physical compiler.

By the way, the layout of these devices

were done using the Avanti! router.

For flows requiring less performance

than physical compiler, design compiler

remains the industry workhorse. Just

last quarter, we issued a new release of

design compiler with impressive stats.

Up to two weekss faster flow times 16%

higher circuit speed and 14% smaller

area, not to mention a number of

enhancements aimed at ease of use.

A higher version of design compiler and

DC Ultra had record bookings in Q2. Our

thinking has evolved on how design

compiler and physical compiler play

together. We're finding that it is very

common for customers to buy a PC license

as an addition to their design flow

rather than unplug their DC licenses all

together. In many cases they use DC

quote on top of PC. DC helps them

design small portions of a larger block

then they feed those portions to PC to

finalize and place the entire block.

When used in this way our estimate is

that customers use 3 to 4 DCs to feed

one physical compiler

l this is called the technical

optimization and a cost opposition for

the customer.

Overall we're still in the early stages

of the upgrade cycle from DC to PC, and

we see the two co-existing for many

years. One aspect of our upgrade

strategy has been to enhance the power

of PC for use at the [ITL] level which

will promote more rapid replacements of

DC with PC. In any event, there is no

doubt PC and DC will be key products for

us in the foreseeable future and we

expect the combined revenue from both to

grow.

The second trend in merging is bringing

together of routing and signal integrity

solutions. Astro, the new backhand

system from Avanti! is just starting to

catch on to meet this need. Billed as a

replacement for Apollo, Astro's benefits

include parallel routing capabilities,

3 X faster run time than Apollo and an

array of signal integrity prevention and

repair features targeted at .03 and

.09 design. So what about Astro's route

compiler, you might ask?

Route compiler is an excellent piece of

routing technology and has progressed

remarkably in the past six months. We

have decided to focus first on

integrating physical compiler and Apollo

Astro. We have some important customers

who are using route compiler and we are

working closely with them to determine

how best to continue to meet their

needs. Some of you have also asked

about PC and Apollo Astro in terms of

placement. The two technologies are

complementary. In most cases, physical

compiler will be used for the placement

of high performance, timing critical

blocks and Apollo Astro will be used for

the rest of the chip placement routing

and assembly.

Customer acceptance of Astro is growing

rapidly. Last quarter, new license

bookings for Astro were equal to the new

license bookings for Apollo. To date,

Astro has already been licensed by

63 customers, including 6 of the

10 largest semi-conductor companies.

After your combined synthesis and

placement on the one hand and routing

and signal integrity on the other, the

next logical step is to combine both

sets of tools into a single

well-connected flow. That is by far the

number 1 wish of our customers. It's

what makes PC plus Astro an immediate

winner. We have made the integration of

these tools our top priority and expect

to deliver initial results to customers

in a matter of months.

Now, let's move to trend 3 from below

.13-micron. As you may recall, this

trend required and integrated design

flow book end by floor planning and a

rock solid physical database and signed

off with state-of-the-art timing

verification.

Over and above what we're doing with PC

and Astro, our immediate first step is

to integrate prime time with the milky

way database. Not surprisingly, this

has been the second most frequent asked

request from our customers.

Customers realize that the Milky Way

database brings together much of the

detailed information that ultimately

determines delays on a chip. During the

entire design process those delays have

to be verified buy sign-off timing

verifier over and over again. As you

can see, timing really is the backbone

of modern design.

A number of years ago, we also

recognized the impact of signal

integrity on timing. For that reason,

we have continued to improve prime time,

and recently added signal integrity

analysis capabilities to it. Since

then, it has continued to gain

acceptance as the most trusted static

timing analysis tool in the industry.

In Q2, prime time SI, where the SI

stands for signal integrity, had its

highest orders to date. We're still

thein the early stages of the upgrade

cycle, but by the end of the fiscal year

we estimate the SI option will Actuate

for over 10% of PrimeTime's over

bookings. Our customers request to

connect PrimeTime to Milky Way makes a

lot of sense. In Milky Way we have a

state-of-the-art very robust database.

In PrimeTime and PrimeTime SI, we have

the leading timing verification tool,

connecting the two brings the leading

advantages to our customers design tool

by establishing a consistent way of

verifying timing throughout the process.

Now that I've covered the database and

timing verification, let me spend a

minute on floor planning. Although most

customers prefer to design their chips

flat, for design over 5 million figs or

more a high graphical approach which

breaks the design up into smaller

components is critical. For these

designs floor planning tools have begun

to attract customer's attention. We

believe that about quarter of today's

designs would benefit from the use of a

floor planner. Current solutions still

work for large designs that don't push

the performance limits of the silly can.

But they choke on the demands of high

density, high-speed chips.

To meet this challenge we have been

retooling our floor, planner a project

most of you know as Hidden Dragon. This

product will be targeted as designs that

push the limits of timing congestion and

area. Stay tuned for more on this topic

at any design automation conference next

week.

Through the merger we will also acquire

Avanti!'s Jupiter which has a sizable

customer base. Jupiter will continue to

be sold into design floors that use

design power at the front end while the

Hidden Dragon product will be sold at

the high end on into design flows that

used physical compiler and as an upgrade

to Jupiter.

The summary of these three trends is

veryle. The core of the design creation

flow rests on four pillars, physical

compiler, Astro, PrimeTime, and Milky

Way. Each one of these is best in

class. Around this set of pillars,

Synopsys can sell additional

technologies. Our leadership in tests

and our number 1 position in extraction

complement this flow perfectly, in

addition Avanti!'s OPC, optical

proximity connection, adds the final

touch to the layout prior to making the

actual fabrication.

Moving forward we will approve product

integration to our leading edge

customers within months. We believe

there is no company so well-positioned

as Synopsys to deliver such a completes

high performance design flow with so

little risk to the customer.

Our product rollout approach will be the

same as it has been for the last 15

years. Deliver revolutionary technology

in an evolutionary manner. Existing

customers will see their design power in

Apollo investments migrate seamlessly

into the physical compiler Astro flow.

Potential customers are already

comparing the benefits of our solution

to others, with renewed interest.

As a result, we believe that Synopsys

will capture significant market share in

the quarters to come.

I have talked a lot about design

creation. Let's now move to design

verification.

Here I would like to highlight two

areas. First, our increased opportunity

in analog and mixed signals and second

the major announcement yesterday on our

move into smart verification.

Let me start with our increased

opportunity in analog and mixed signals.

This is an area in which both Synopsys

and Avanti! were each contenders but the

combination of the two makes us a major

force. With complex chips considerable

attention has been focused on the growth

and importance of analog design. What

is not well understood is that analog

design consists mostly of small discreet

components on a chip that will be

predominantly digital. So while the

design of the analog is certainly tricky

it is equally important to verify the

analog part of a design efficiently in

the context of the chip as a whole.

This combinational scenario is referred

to as mixed signal verification.

the market for analog mixed signal

verification tools is over 200 million.

It's a sizable opportunity and one that

we are only now fully able to address.

In practice, designers need very

detailed simulation of the transistor

level for the analog blocks. The gold

standard for comprehensive circuit

simulation today is called spice level

simulation. But designers also need

something called fast spice simulation

for transistor circuits that are very

large but can be verified with a bit

less accuracy. With fast spice you run

simulation 100 times faster, but you

give up some accuracy.

Last, but not least, designers need

[inaudible] simulation for the digital

portions. Following the same trends as

highlighted in design creation, ideally

one would like to have all these

simulators interact seamlessly with one

another. This is another area, where

the combination of Synopsys and Avanti!

is very powerful. We absolutely have a

set of best in class verification tools.

H-Spice from Avanti! is the market

cheerleader at the spice level.

[Nansyns] from Synopsys and [Starsyn]

from Avanti! make up the lion's share of

the fast spice market. And VCS is the

most advanced gate in RTL simulator on

the market today.

In addition, Avanti!'s Taurus TCAD or

technology computer-aided design family

of products is a leader in this market.

These tools feed the key library data to

all these simulators, what makes our

simulation position so strong is all

these simulation tools are doing very

good business.

[Nanosyn] for example has an exceptional

Q2 reflect recent accuracy improvements

for transistor simulation and new links

to VCS. We saw strong renewals and new

sales especially in Asia Pacific. In

addition, [Nanosyn] recently displayed

[NAPA] in two top semi-conductor houses.

Integrating these tools with one another

is not only feasible but has already

begun. The connects between Nan no sand

VCS has turned out to be a major

positive for our customers, it is only a

matter of months before we will

integrate H-Spice in a similar fashion.

VCS as you know is a powerful anchor

point in high performance design.

The topic of VCF brings me to

yesterday's announcement while much of

the attention of Synopsys in the past

has been focused on the merger we have

quietly been putting the final touches

on the bold new approach to verification

which we call smart verification.

Personal verification in a particular

simulation has increasingly come to be

interviewed as a commodity business.

Not anymore, smart verification changes

the game although we call it VCS 7.0, we

have transformed VCS from a point tool

to a whole new verification platform.

It brings an integrated solution to high

level verification for the first time.

At the center of the platform is an

improved VCS simulator. As you are

aware, VCS is the platform of choice for

verifying large multi-million gauge

chips. The Lenix version has been

especially successful in large round the

clock computer farms. During Q2, major

VC customers included ANV, Broadcom,

[inaudible] [redback] and Teradyne. I'm

pleased to announce that also in Q2

microelectronics endorsed VCS for a

sign-off. With smart verification, we

have now revved up the core simulation

engines under the hood so to speak W a

host of powerful capabilities previously

available only as independent point

tools.

These include [Veralite] a subset of the

open Vera language, which produces

significant improvements in verification

productivity . Built-in support for

open [inaudible] assertions which helps

designers easily capture their design

specifics and use simulation to verify

to those specifics. Advanced code

coverage capabilities that provide

feedback to increase designer's

confidence about their verification

quality.

And [inaudible] cycle C support, which

enables up to 10X performance

improvement over HTL simulation for

[inaudible] RTL design.

Users see this new platform both as a

major technology step forward and as a

significant price performance

improvement since it reduces the number

of these point tools that they must buy.

As many of you know, I could talk to you

forever about technology. In fact,

looking at my watch, I nearly have. In

the end, however, technology is no good

if your customers aren't using it or if

you don't trust, or if they don't trust

you with their most complex chips. That

is why it was so gratifying for us to be

selected in April by Texas instruments

to receive their supplier excellence

award for 2001. We are the first EDA

company to receive this award since they

established it in 1983.

TI gives it annually to the top one-half

percent of their suppliers. In giving

us the award TI said that our

relationship Has the proved vital to

enhancing their ability to bring

advanced products to market with minimum

risk.

As far as I'm concerned this this type

of relationship we want to have with all

our customers.

In closing, let me say that the merger

is more than just the acquisition of a

technology powerhouse. We are also

bringing together two teams of people

with a passion for technology in the

service of customers and their designs.

Some of the people with this passion

include Paul Lo, former president of

Avanti! who is joining our executive

staff as a senior vice-president.

In addition, a majority of Avanti!'s key

managers will join us. Leading

technologists from both companies are

already fully engaged to bring our

product strategies together as rapidly

as possible.

Our field forces will be consolidated

within weeks and visiting customers with

road maps in 30 days.

There is no question in our mind that a

number of very talend and motivated

people are joining our team note

talented.

Now customers are eager to see us

deliver on the promise of the meger.

This is something they have asked for

and we will satisfy their wishes quickry

and comprehensively. The merger

accelerates our strategy and leased us

leapfrogs us into the next league. The

race is on and we've hit the ground now

running.

Let me now turn it over to Brad Henske

our CFO who will give you a brief view

from our financial perspective.

!!! Thanks,

Aart. I'd like to start with a brief

review of our perspective from the

quarter talk about the Avanti!

acquisition, now six months after

signing, and then describe our

perspective for future and guidance I

will then open the call to Q and A.

In a tough environment for 2002 was a

good quarter for Synopsys. Our revenues

came in at the middle of our guidance

range, expenses at the bottom, and

earnings per will good share was 39

cents, above the top of our target

range.

The semi-conductor environment continues

unchanged from last quarter. Shipments

continue to be flat although the

beginnings of somewhat modest uptic in

March and April. Almost no one expects

much incremental down side from here, at

the same time, few will profess to have

a confident few of the timing and

magnitude of the upturn. The volatility

of decision-making and timing on tool

purchases within our customers

continues.

In this environment, customers are

focusing on the critical needs and

consolidating their purchases with the

design partners they think will help

them be the most successful over the

next few years. We value being chosen

as such a critical partner expect to

become more so thin fureture. So

despite a tough environment continuing

we had a good quarter.

Let me now turn to the results. Total

revenue for the quarter, as I said, was

185.6 million. Total software revenue

including maintenance, drew 21% versus

the same quarter last year, while total

revenue grew 14% driven by lower

performance of our consulting and

training businesses.

Rateable life [inaudible] continues to

grow. It was 67.6 million for the

quarter or 40% of software revenue.

While our consulting and training

businesses continue to be under

considerable pressure, consistent with

what is reported, revenue and order

showed a modest uptic in the quarter

over Q1.

For the quarter, 79% of our software

product bookings were subscription

licenses. The average [audible]

bookings in Q2 02 was 3.2 years,

consistent with our target. We booked

only 21% of our software orders, and

licenses where the revenue was

recognized in the quarter, at the low

end of our target range for the quarter

and by far the lowest of any of the EDA

companies.

Services revenue totalled 65.8 million

download sequentially year-over-year

driven by the natural conversion of all

maintenance streams to TSLs and lower

levels of maintenance renewals as

customers continue to try and cut

corners by trying to get by temporarily

without support.

Overall growth margin was 81.5% revenue,

up 1.5% compared to prior quarter,

largely attributable to head count

reductions in our consulting group .

Our aggregate EGB operating expenses,

including cost of goods were

161.8 million which was at the lower end

of our guidance.

Operating earnings were 23.9 million, up

23.2 million from the same quarter a

year ago. Operating margin was 13%, as

we said before, we expect to exit the

year around 30%.

Other income was 11.2, million inclusive

of the termination fee from [Icode], net

of its expenses and two write-downs in

our venture portfolio. Earnings before

goodwill amounted to 39 cents per share,

above our guidance and up 63% from the

same quarter last year. Diluted share

account was 64.9 million. Cash and

short-term investments continued to be

strong with our Q2 balance ending at

532 million, up $93 million from the

prior quarter.

Accounts receivable totalled 152 million

for the quarter. DSO was 74 days.

Deferred revenue at the end of the

quarter was 397 million up 54% from the

same quarter a year ago and up 6% from

last quarter.

During the quarter we repurchased no

shares, as restricted throughout almost

all of the quarter in anticipation of

closing our acquisition of Avanti!. We

will resume the program this quarter.

Head count totalled 3056 employees for

the quarter, down 177 from the prior

quarter reflecting our work force

reduction undertaken early this quarter.

Let me now move to our view of where we

are today as we are about to close the

Avanti! acquisition versus what we

expected in December. It is almost all

positive news. We are closing on time.

The business did better than we expected

over the period for both orders and

revenue. We will be able to recognize

the bulk of Avanti!s pre-acquisition

deferred revenue and backlog in terms of

business going forward. We are getting

one hundred million dollars more cash

than we expected. A number of assets we

which adescribe no value including

investments aser labs in the venture

fund which are material future cash

flow. Pricing is held and attrition has

been low across the company.

On the negative side the cost of

facilities closes will be higher as the

real estate market has deteriorated in

silicone valley and across the world.

Also, we will inherited a complicated

tax situation which we'll have to

integrate into our tax planning going

forward.

Finally, I'd like to describe our

expectations for the future what the

transaction means for the commission and

reported results of our business. As I

mentioned earlier visibility continues

to be full poor in the semi-conductor

industry. Most estimates expect it will

grow in the mid teens next year not

reach its previous revenue high pointed

of 2000. The estimates R and D spending

will grow in the mid single digits we

don't necessarily have any unique

forecasting ability this is consistent

with our current view.

With these assumptions as a starting

point we expect the revenue for physical

2003 will be approximately 1.3 billion,

15% growth over the full 2002 year

combined companies. We expects expenses

of approximately 920 million, we expect

earnings will be $3.25 per share. We

will continue to reported earnings on a

proforma basis before certain costs and

charges, these will include the

amortization of goodwill and

specifically identified intangibles,

transition officer related to the avanty

acquisition and integration expenses.

Despite closeing the transaction in the

middle of the quarter with partial

quarter impact we have reasonable good

visibility in Q3 we expects revenues

between 230 and 240 million.

Total expenses of 189 to 193 million.

Other income expense to 12 to

14 million, including approximately

10 million investment sale gains.

Investment gains will be somewhat more

volatile going forward since the number

of Avanti! investments which we require

mark to mark on a quarterly basis.

Our outstanding shares of 75 to

78 million. A proforma tax rate of

34 1/2 percent proforma earnings of

43, say 48 to 53 cents per share. For

the full physical 2002, we expect

revenue between 905 and 925 million,

total expenses of 720 to 735 million,

other INE of 38 to 40 million, including

approximately 22 million investment sale

gains, outstanding shares of 75 to

78 million, a proforma tax rate of

32 1/2%, which will continue to 2003,

and proforma earnings of $2 to $2.10 a

share.

Judging from the number of questions

that we've received, considerable

efforts on the part of investors and

analysts is going into modeling our

business.

With that we'd like fo help with some

additional guidance and assumptions. On

license mix Avanti! license mix is

included 40 to 50% perpetuals with

remainder booked subscription licenses.

We will drive this toward Synopsys

stand-alone license mix of 20 to 25% per

perpetuals.

For the remainder of 2002, we expect a

combined mix of approximately 25 to 30%

perpetuals. For 2003, approximately

22 to 27% perpetual licenses. This

remains the lowest mix of licenses with

revenues in the quarter booked of any

major competitor in our industry. We

expect the duration of subsriptions will

be roughly between 3 and 3 1/4 years,

and like the impact of the original

change in Synopsys license mix, the

impact of moving the license mix of

Avanti! to be similar to Synopsys,

reduce reported revenue by about

$50 million in the remainder of 2002 and

about 60 million in 2003, versus the two

companies stand-alone rate of course to

the difference will go into backlog.

l as we announced previously the FCC is

concerned concurred with us with respect

to how we will recognize the revenue

from Avanti!'s pre-acquisition deferred

revenue and backlog. We will be able to

recognize approximately 70 to 80 % of

aggregate at closing. The impact of

this accounting haircut will be do

reduce reported revenue by approximately

45 million dollars to the remainder of

2002 and $15 million in 2003 again

versus the stand-alone rate of the two

companies.

In 2003 we expect our reported revenue

will be made up of approximately 15 to

20% product, 50 to 55% subscription, and

30 to 35% services revenue.

We expect integration expenses one time

charges in Q3 will be slightly more than

$100 million including $95 million for

our litigation insurance policy and

approximately 5 million for various

integration activities there will be

additional integration expenses in Q4

and 2003 in addition merger costs of

approximately 70 million for facilities

closure, 15 million for severance and

personnel related charges 27 1/2 million

for professional fees and 5.6 million

for other deal related expenses willing

be included in the the total purchase

price of Avanti!.

Our share count, as I mentioned the

average share count in Q3 will be

approximately 75 to 78 million. For Q4

in 2003 take into account the full

period fully diluted outstanding shares

will be approximately 80 to 84 million,

including over the 14.8 million shares

issues for the acquisition.

So in summary we're off and running very

excited about our future as a combined

company. Thank you for your attention

we are now open for questions.

Thank you. Ladies

and gentlemen, if you wish to ask a

question, please press the one on your

touch-tone phone. You will hear a tone

indicating you've been places in queue

and you may remove yourself from queue

at any time by pressing the # key. If

you are using a speaker phone please

pick up your handset before pressing the

numbers and your first question comes

from the line of Jessica [Coracklas] of

Goldman Sachs.

Hi everyone, I think

probably what the biggest question I

have is what-actually was the guidance.

I think people would have expected the

aincreasing to have been a little bit

better than what you're guideing to, can

you talk a little bit more about what

assumptions are there I guess what level

of orders growth you're expecting for

the combined company for this year and

for next year?

That would be helpful,, thank you .

Sure. So

let me take those in reverse order. As

I said, I think we expect our R and D

spending among our customers to grow in

the mid to high single digits next year

it's clearly in the single digits this

year. I believe that in 2003 we will do

modestly better than that given we're

now close to half of the industry our

business is our major competitive

business is going to be driven where

R and D spending goes with our customers.

In terms of assumptions more suspension

thing you're looking for?

Well, it's just more

again I'm just looking at my numbers and

for example the for the July quarter it

just seems like I'm not exactly sure

where the disconnect is between my

numbers and frankly your numbers and the

guidance you have for next quarter for

the July quarter I'm just trying to see

where the disconnect is, if it's in the

base Synopsys business where you are

becoming a little more conservative or

if maybe it's related to the

subscription late for this quarter of

what you think it is or is it related to

the Avanti! business in maybe thinking

there might be some sale disruption,

there again I'm just trying to figure

out what the disconnect is between my

model and your model, Brad, that's all.

It's hard

to compare without looking at both of

them but I suspect at least in Q3 the

biggest impact is going to be what

happens to deferred what we talked about

and the change in the license mix. Our

view of orders for the quarter, both for

our business and to the extent we had

one for the Avanti! business is not

changed.

Do you think it will

be immediate in terms of variable to

switch over to the Avanti! models on the

subscription side just to be clear?

Yes.

All right. Great.

Thanks.

Thank you. Your

next question comes from the line of Rog

[inaudible] from Fullen and company.

Yeah. Thanks.

Aart, I wonder if you can step back from

some of the detail you talked about in

terms of products and just cut your

business into segments and size those

for us?

Roughly, even and talk about what you

think relative growth is in each of the

major segments. You talked for example

about physical compiler and design

compiler growing together, growing, into

next year. How much of growth that

you're expecting comes for example from

that segment?

You've done that historically for

Synopsys as a stand-alone, can you talk

a little bit about the combined company

and where you see growth coming from?

Rog, as

you're asking this question I see a

whole bunch of people making faces at

the table here because yesterday we

debated for like an hour the fact that

we wanted to move away from these

segments because the problem is becoming

more and more integrated. So the very

direction we're seeing the market go is

towards having a central flow that's

made up both on front end tools and

back-end tools.

At the same time, I can sympathize with

some of the need of understanding a

little bit so what's hot and what's not,

where are the areas that we see good

moves forward.

So let me fall back a little bit on the

older cuts of on one hand having some of

the design creation that is very much

the front end. There, I think we are

very much in the middle of the growth

rate that the rest of our company has.

It's very much the company is a growth

rate.

For the site of Synopsys that was very

much towards the design integrity side,

which some people would have called in

the past, the epic tools there also,

some timing there, there, we have seen

remarkably strong growth, so we call

that a year-and-a-half or so ago that

was an area, that was lagging the

company, now, I think it is a little bit

ahead.

The area that is the verification,

meaning the simulation, and the system

side, is relatively solid, but not

outstanding growth. The picture I'm

trying to paint here is all in all a

fairly balanced picture. This is just

before we're now starting to scramble

this all up, and move toward much more

integrated flow.

Into this picture of course comes

Avanti!, Avanti! has had reasonably very

strong quarters, as customers are

starting to look at their technology

with renewed interest, and as they are

rolling out Astro. And so I think Astro

has just come out of sort of the alpha

beta phases and now is really a product

to go to the market with heavy duty

In that sense the timing is perfect.

As it relates to the

Avanti! business, can you give any more

detail, in terms of the portion of

Avanti!'s business, for example, that

comes from routing products relative to

some of their verification products and

other products, and Aart, is it your

view that there's any fundamental reason

that physical design products either

offered by Avanti! or others in the

industry, are growing at a higher rate

than products that have classic lie been

designed do be in the logic design

space, is there any reason for that

that?

Is that in fact true?

You know,

Avanti! has never had much of a product

split. And so I'm still a little bit

uncomfortable giving a lot of detail

partially because off the top of my

head, I wouldn't be able to cite that.

I think it is fair to say the routing

portion of the business is probably

about half of the company. And but

routing cannot be split from placement,

which cannot be split from the database,

which really cannot quite be split from

a number of the extraction tools.

They're very connected. And Avanti! has

done extremely well in doing that.

l I think that the, the back-end tools

have done well recently, partially,

because it is just unvoidble that you

need to have them, and because they have

been all in all quite capable of holding

their price at a high level

l and so as we now move forward we will

integrate more and more into that base,

and I think overall, that will help the

whole company hold price quite well.

Let me make sure I

understood your answer. Is it your view

that industry growth in product centered

in the physical design state is somewhat

higher than products in the logic on the

logic side?

Actually, it is

not my view, but I think these things

come a little bit in waves. You have

two or three-quarters where there's a

little bit more emphasis on the

back-end, there's two or three-quarters

where there's more emphasis on the front

end. The reality is you neneed a

complete flow and the competition on the

back-end has been fairly low. There

have been very few players, and so I

think that is why the back-end has been

able to hold price very, very well. But

in general, I'm fundamentally not a

believe that one segment will grow over

time more than another. I think they

are very much on par.

Okay. Brad, I'll

hang up after this last question. Can

you talk briefly about what you need to

do, in terms of sales force integration,

what's going on there?

sure. It's pretty

simple. You need to figure out who the

resulting sales groups are, who the

account teams will be and then get them

aligns with their accounts with quotas.

We will be done on Monday.

All right. Thank

you.

Your next question

comes from the line of David [Raiser]

with Morgan Stanley.

Just a question I

guess for Brad. It's just sort of a

follow-up to Jessica just to get some

clarification. Brad, could you just

give us some idea of what, from a

revenue and EPS standpoint the

stand-alone business, what in your

forecast for E 2 and 03 the stand-alone

business is contributing just so we can

get an idea here what Avanti! is

contributing versus a stand-alone

business so we can get an idea both from

a revenue and EPS standpoint really

what's implicit in your guidance.

David,

unfortunately, I can't, because given

how close the businesses are and how

rapidly we're going to integrate them,

all of the transactions with the

customers will be common. The cost

structure within a month or two will be

almost completely common. We did not

even, as part of our own planning

attempt to try and break out a separate

quote Synopsys and separate Avanti!.

If we're just

trying, I mean, is it possible you can

just give us even from an earnings

perspective. There were expectations

set even for this year, as to, you know

A bar for revenue growth in the

stand-alone business, and a bar of those

$2 in earnings for the stand-alone

business. And before we move on, I

think it would just help if we can get

some aappreciation of how is-what is

that stand-alone number now improvement

in the guidance?

Has that stand-alone number change

for '02 or '03 O is this something we

can view as being generally consistent

in the modifications to the numbers are

largely just Avanti! being followed in?

so, for '02, we

didn't do a plan. I think it's

consistent with what we had put out of

$2 before. For '03, we had not given

any guidance so there's nothing fo be

consistent with

You would say the

stand-alone business is still roughly

$2, there's really been no modification

there, roughly the revenue bar that was

sets for Synopsys, whatever people have

been looking for in a stand-alone basis

is roughly unchanged as well, and the

incremental changes here are basically

just Avanti! being followed in to

roughly you know, where people had gone

following the January quarter?

yeah. I think a

better way to say it is that the outlook

for our existing business has not

changed. There's obviously a lot of

moving parts with integration and all

the things that are going on with

deferred license yeah, the underlying

business is $2.

One other thing,

just on '03, you had stated that your,

you know, your bookings guidance really

hadn't changed for '02 and '03, either

for Avanti! or Synopsys. I don't

believe you had really given I believe

you had spoken to growth in bookings in

02 I guess that's single digit boxings

in 02 for stand-alone business. Can you

give us some appreciation of what it is

now for the combined entity

pore '02 and '03.

for the combined

entity I think in the same place

in '0 the 2. As I said in '03 the

expectations for our customers are

indeed spending up in the high single

digits.

You would expect the

book goes to track that.

yeah, I think we'll

do little boat ter 03 in the market as a

whole we get paid out of R and D spending

as do our competitors, therefore none of

us diverge wildly from that number in

any given year.

Great. Thanks a

lot.

Okay. Your next

question comes there the line of Gregg

[Wagenhoffer] from [GSSC].

You look at route

compiler versus Apollo Astro. You

talked about you got a lot of questions

on this. What caliber-it seems to me

like you're segmenting the marketed with

route compiler, physical compiler maybe

higher end flocks higher end design you

know DCNC then Apollo Astro kind of the

mid range what's the customer reaction

to that?

Has there been, how have the

conversations gone on as far as having

dual platforms?

Well, the

customers actually sympathize with there

at greatly because they all see their

designs are different, have different

retirements. The different customers,

those that have been steady Apollo

customers that are now moving to Astro

or route compiler, for them, anything

that's a lot better is of immediate

interest. Then obviously, the people

that have done good work with route

compiler that are very interested in us

looking at that technology and

preserving it in some form, and then

there are the customers that have

already started to move to Astro, that

see there's an immediate natural

migration path from Apollo to Astro.

Astro holds great promise. This not a

new phenomenon for us. We have

emergenciers in the past have situations

where we had multiple strong

technologies, and the lesson that we've

learned out of these mergers is don't

cut off what you do too early and for

sure, never put the customer in any

situation of risk. And so that is

exactly the plan that we are following,

while at the same time, stating, very

clearly, that our main emphasis is PC

plus Astro. That is the reason one of

the key reason We*s merged with Avanti!.

So we're going to go there as rapidly as

possible. But the route compiler

technology is quite valuable and we will

find a good way of integrating it in our

future releases.

Then you talked

about solid or I guess record quarters

on the order size. Physical compiler

and the DC family as well. Any

competitive lens you can talk about

either physics or in general?

Well, in

general, when we have the opportunity to

compete directly on technology

benchmarks, we do extremely well,

because that typically means that the

customer is truly interested in having a

solution that's technology-wise

superior, and there we have no fear. So

we go head to head. So I think the

reason PC is doing so well is fundmently

it executes on its promise. So you may

have noticed it is as much new accounts

as well as renewals by the way what was

not mentioned we also have a number of

customers that tend to remix into PC

from their installed basis. So overall,

that train is running really well I

would say.

Then, lastly, have

you guys looked at or have you tried to

break out the synthesis product orders,

as far as new seats versus renewals or

remixing of old seats?

I don't think

that we did that recently. I think in

general, you know, obviously, we have a

very good coverage of the market and so

there's a very steady stream of

renewals.

We still surprisingly enough do find new

seats and I'm always surprised to

discover that there's still some

companies that 13 years later are still

looking at a synthesis. Maybe more

important is the gradual move from

design compiler to what we call design

compiler ultra, so that is really a

strategy, whereby once somebody has used

synthesis well invariably they have some

additional needs and we can essentially

upgrade them.

Great. Thanks.

And your next

question comes from the line of Garitt

[Majanean] with RBC Capital Market.

Thanks. A couple of

questions for you. With strong bookings

growth sequentially and routeble

bookings coming in in the expected rank

can you explain why the routeble revenue

was up only about a million dollars from

quarter to quarter?

because the impact

of bookings on a quarter on revenue in

that quarter is largely a function of

when they are booked in the quarter. Q2

is not a quarter that had particular

good linearity. Most of what we booked

in the quarter did not get booked until

close to the end and therefore had

relatively little impact on revenue in

the quarter. Differently the growth in

rateable revenue from Q1 to Q2 is mostly

driven by the orders in Q1

Gotcha gotcha, okay.

Understand. I guess one of the things

I'm curious about also in terms of

semi-conductor bookings overall it

appears as to the according to recent

SEA data they are on the rise, one of

the things I'm curious about is what

will it take for customers to buy the

technology they have had on hold?

Is it better pick upin bookings on

customer side enough for them to start

looking at ordering some of the stuff

they've had to delay or does it really

take them to see their revenue picking

up?

well, I think, you

know, from their perspective bookings

are obviously the leading indicator

unless there's a segment where they're

particularly worried about

cancellations. Bookings picking unwill

clearly drive them to start thinking

about their expenses. The thing you

have to remember, and you know, it's

perhaps if you look at where we are peek

to trough, we're still in a spot that.

[] peak

More than 40% below the peak so an

upturn of 4 or five points is certainly

better than a downturn but we're a long

way from where they were a

year-and-a-half ago. Therefore, I think

you see relatively few customers, in

fact probably no customers have turned

on the expense spigot full blast.

Okay. So they're

shooting at a certainly level as well as

the growth data that's important.

yeah.

Lastly with respect

to civil litigation with Cadence, can

you give us a sense what the next steps

are there also give us a sense where you

think it is regarding trying to resolve

the case out of court?

so the next step or

the current step, which is actually not

different than we were six months ago,

is the question on trade secrets has

been referred to the California Supreme

Court who's picked it up. The lawyers

in the brief is is from both sides have

actually occurred. The lawyers tell me

that some outcome will come interbetween

three and 18 months, when they get

around it to, it's wholly unpredictable.

I think that's where it sits at least

for the near future. Until that

resolves nothing else will start.

Okay. So there

couldn't be any side kind of activity to

try to resolve that in court that goes

on in parallel.

the rest of the

cases is stayed.

Great. Thank you.

And your next

question comes from the line of Alex

[inaudible] with [inaudible] Webber.

Hello. Thank you

very much. I had a question that gets

to trying to size market penetration

with physical compiler and Astro and

then some of the opportunity that's

coming up with the combined tool that

you've mentioned will be coming up in a

couple of months here. Should we think

of the opportunity as really rolling in

as an upgrade to the 80 or 800, I'm

sorry licenses already sold for physical

compiler or is that just the tip of the

iceberg and really it's matter of

upgrading the 63 Astro customers to a

number something like 168, and then

rolling out across 800?

I think you

have upgrades on both sides. I think

what is what is exciting is that the

term "upgrade" is actually a good one.

I like that term because first and

foremost it says to the customer a low

risk transition, upgrade also implies

more money or new money coming towards

us. That is true both on the front end

with many more PCs possible in the

existing front end design environment.

And it's just as much true in the back

wend Astro being just at the very

beginning of completely replacing Apollo

over some period of time.

In addition to that, what is exciting is

that the combination of the two, I

think, is a flow that will be of very

high interest to people that in the

past, may have been hesitant to commit

to Avanti! in some form or another and

now suddenly we see some very, very

powerful tools be connected very well.

So in that sense, we do see that there's

a big opportunity, essentially opening

up immediately for us, and it's us to

executing them.

Is one of the

primarily drivers of this or the appeal

of this combined tool set, is it going

to be particularly useful is deep set

micron the .13 and below or is it across

all design flows?

It is useful on

all design flows. Invariably, it's the

people that drive the leading edge that

move first. And more Joeffer, they

become sort of the test market for

everybody else watching. So the people

that are designing today in .13 have

already reported, for example that Astro

is one of the only products that is

doing well at executing on all the

intricacs you need at .13 and .09 which

is the next node after that. So your

comment is sort of to the point, which

is the people at the leading edge are

the first ones moving.

Okay. And I know

this is a rather subjective question,

but what's your assess. Of what

percentage of the market is now moving

at the leading edge..

Well,

invariably, I would say it is about 25%

that is at the leading edge, as in using

the most recent production silicone. So

that would be today .13-micron. There

are a few, isolated cases of people

started to design .09 but the libraries

of technology for .09 are not really

there it's more pilot lines or pilot

project. Then there's still a large

contingent of people that design for

.18. So.

The other comment to that is the leading

edge people are also the ones that spend

the most money. So even if you look at

point-25% being at the leading edge,

they probably spend 50 or 60% of the

money.

I see. You

mentioned .09. Will that create another

as dramatic an opportunity for tool

upgrades for you to roll out to your

customers, or is this a less significant

product cycle for the semi-conductor

manufacturers.

Actually it is

a a very significant product cycle you

can see or gauge how significant it is

by reading recent announcements major

companies before were very independent

for example FT, Philips and Motorola are

actually lining up to develop

.09 technology together because it's

very expensive to do, it's very

difficult to do. From our perspective,

that's a great opportunity because much

of the technology that on our side in

design integrity we have been

developing, much of the technology that

Avanti! has been integrating and

connecting Astro to is precisely aimed

at the problems you encounter at .09,

and signal integrity is sort of the main

theme there.

the other observation I would have is as

you go to these much smaller geometrs

what used to be nicely behaving digital

circuits become increasingly really

mixed signal type circuits and that is

one of the reasons why we think that our

spice and fast spice products Nan no san

and H-Spice and the modeling around that

will doingr do very well especially at

those small gee om tris.

How is it going to

work between [Nanosyn] and [Starsyn]?

Are those going to held into one product

or market separately?

Undoubtedly

over time they will be held into one

product, right now they each have lair

own constituency of users, users send

tend to like certain features than

others, we will probably do follow a

similar path we did a few years ago when

we had two timing verifiers we supported

both for a long period of time to make

sure the customer would have no risks

and then gradually merged them into a

sting single better product. So again

good technology but introduced at low

risk for the customer.

Okay. A final

question, if I may, as we enter the back

half of this year and we have some very

impressive growth followed into this

model, would you please characterize

what's really driving the growth?

Is it is it average selling price

increases as we move into the new tool

sets?

Is it you know, three year renewals

really starting to kick in from the

period we have '98 '99 or is it some raw

seasonality that's really benefitting?

What's the ranking of those?

Okay. In

general we have some seasonality against

our fiscal year, really what is driving

things is the fact technology keeps

moving. You know, in our industry and

certainly Synopsys has always invested

well in excess of 20% in R and D, there's

a reason for that. We continually crank

out new technology. Our customers buy

this because that's the only way they

can be competitive.

In addition one of the reasons you see

very good reported growth almost two

years ago we moved to a rateable revenue

model that was a big step at that time

and we now see the fruits of that which

is we have a very big backlog that

cranks off regularly renewals and new

business. And so all of these together,

thick, make for a very good outlook for

2003.

Okay. Thank you

very much.

And your next

question comes from the line of Jennifer

Jordan with as well as Fargo securities.

And Ms. Jordan

your line is open, please go ahead.

Good afternoon

gentlemen and thank you congratulations

on what seems to be a pretty tough

environment out there in getting the job

done.

I want to go back one more time and kind

of revisit the numbers for Avanti!,

looking at it in a different way, Brad.

When I look at my model for Avanti!,

what I saw was about almost 500 million

in revenue for expected for fiscal for

their calendar year '03. And you had

said basically that you expected a

deferred revenue about 70 to 80 percent

of that to flow through.

So to my mind, that suggests maybe in

the period of your fiscal year '03 about

360 million or so and I guess the

question comes down to Avanti! had

extremely good operating leverage,

almost 45% leverage and if you had to

look at it in terms of what your

leverage would have been on those new

revenues, how do you see that?

let's see operating

leverage on new revenues. To be honest

I haven't broken it out. As I said, we

expect the combined companies to move

through the end of this year, or to exit

around 30%.

Okay.

we'll move slightly

above that for next year. I haven't

looked at what the marginal leverage

kind of revenue to the tune of Avanti!

is next year. I obviously the very

margin the leverage on marginal is on

a%. Eliminate right. Right. Right.

At the very margin. What I was thinking

for I looked at it said well if 45 if

they actually got the 45% margin you

could just add that in, we'd get a a

number that's those a 300, $3.65 number

on your number on what you had before.

If I assume that for instance the R and D

E suspensory lated to Avanti! has to go

up a little bit because you're working

on the integration, then your number

that's intera. Be of 325 starts to make

more sense to me.

so the way we

plotted through expenses is pretty

simle. We started with the run rate of

the two companies as they are today.

You know, as we said before we will take

about $50 million out of the operating

costs in short order in the next few

months. And then we've assumed that we

will have about 10% growth in that for

next year. Now, there's actually a much

more detailed plan below that but that's

the gist of it because we do expect the

business will grow the opportunities

will grow and we'll invest particularly

in the field and R and D and new things.

Okay. I think that

covers it for me. Thank you.

Do you have a

question from the line of Lucas Bianchi

with Robertson Stevens point.

[] you have

Hi. I was wondering

what your strategy was going to be with

regards to pricing going forward and how

you're going to price the Avanti!

products, kind of related to that, is

customers of Apollo going to get Astro

on you know, a maintenance fee?

Let me

answer those in reverse order they don't

get Astro for maintenance on Apollo.

Secondly from a pricing strategy, in the

very short-term we're essentially

bringing Avanti!'s pricing across in

tact, and then we will, over time, as we

sort through product marketing

strategies in all the groups, which

remember given the strictures of how

much integration work you can do before

a merger actually closes we really just

started on. Over time those will get

adjusted as we think appropriate.

How do you think

appropriate just from what you know now?

In our

industry, prices as a general matter

tend to grow 3 to 5% a year. You know,

I would expect that whatever adjustments

we make on average would be consistent

with that trend.

Okay. Then the it

seems to me that the switch in license

type at Avanti! books was higher than

50% just from the reported figures, and

that doesn't really mesh with what you

said. How-what's the discrepancy there

I guess.

When you

say higher than 50%, which way do you

mean?

Eliminate that

they're radical revenue was more like in

the 70% regone.

the Reeve new is

higher, it tends to be at least as being

historically Avanti! much more noisy

quarter to quarter so it will be higher

last quarter but their average over the

last year has been 40 to 50% anyplace

Okay. I think

that's it. Thanks a lot.

And your next

question comes from the line of daily

howker with Merrill Lynch.

Thanks, Brad, a few

questions. First on your last

conference call for Q1 you had mentioned

your cumulative subscriptions bookings

for the 6 quarters through Q1 were soak

in excess of 800 million can you provide

us with an updated booking for the

quarters with the model change.

Also respect to targeted expense

reduction is that $50 million reduction

in expense run rate inclusive of the

$35 million expense reduction you talked

about in the last call or is it over an

above that a couple follow understand.

The second

one either and above the first one is

we're now above 480 million. As we

talked about we're not going to get

bookings quart ter to quarter.

[] 480-million

the number we gave before was the

cumulative bookings, I don't have that

updated in front of me.

Okay. Might that be

available at some point?

Not

precisely.

Okay. If we can go

back do the integration issue, first on

the sales side, is there going to be a

net reduction in combined sales

capacity, that is, do you expect some

reduction of sales in the field on

either the Synopsys or Avanti! side and

on the product side a question for Aart

regarding product integration or product

road map. To the extent that you will

have the dual routers, might it make

some sense at some point, for instance,

to bundle up a route compiler with PC,

call it something like PC ultra, the way

you now have DC ultra for instance,

perhaps in that way lessen the apparent

overlap?

So to the

first question first due we have almost

100% common customers, the number of

sales people in the field ultimately

will be less than the sum of the two

today. That as you look at application

consultants who are the technical

support.

[] this is.

It looks a lot closer to the sum of the

two. Aart Aart

Regarding

the router, I think the way to look at

all of this is primarily as a basket of

fantastic technology and so the

technologies can be used in many

different ways. We have not committed

to any additional products beyond the

ones that we've announced so far. I

think on this call we want to emphasize

strongly something very simple, which is

PC Astro is the pathway of choice that

we're focusing on right now. I think

the whole discussion on route compiler

is primary lay technology discussion at

this point in time the type of things

you're suggesting are certainly being

bantered around.

The one thing we're

not planning to sell route compiler to

new customers beyond the ones we're

working with today.

[] that was.

now

Brad you talked at

some point post merger trying to do some

kind of contracts consolidation or

rationalization, that is for contracts

with common customers. Can you talk

about that and how active do you see

that being where you can consolidate

contracts even perhaps intercontract

area?

I think,

the thing that drives that ultimately

is, you know, the customers today have

all got a contract with us, say contract

with Avanti!., I think as a general

matter, either the coming close to

expiration of either of them, or the

customers desire to get, you know, some

meaningful new internal churning of

technology on either side will drive the

whole thing to be redone as one

integrated contract just by its nature,

you know, they view it as one

relationship now. So that will play out

over the coming months.

Is that something

that we, is implicitly taken into

account in your photographs forecaster?

It is.

It is. Okay. Thank

you.

And your next

question comes from the line of just

maycy with Needham and company.

Thanks a lot. Just

a couple quick questions. First of all

you mentioned your customers R and D, you

see that growing in the mid to high

single digits, I was wondering, are your

assumptions that the percentage that

they spend on EDA tools is going to

remain about flat with this year?

So I think

firstly, in terms of review of how R and D

spending is going, to some extent that's

the composite of what forecasters are

out there. I will tell you that we nor

anybody else I have found hat got great

visibility on what they think's going to

happen next year. That having been

said, I think we expect to your second

point that EDA as a proportion of the

R and D spending tends to fluctuate around

our suspicion over the next few years it

will inch modestly higher, the denam

mics a not going to change radically.

It doesn't change that fast.

Just a couple of how

keeping things. On the 100 million

charge for next quarter, maybe you

mentioned this but how much of that will

actually be cash?

about all of it

actually, so the Vass bulk of that is

the insurance company which we will

write a check for.

Could you tell me

what the capex and depreciation were for

this quarter?

yeah. Hang on.

[] Vass bulk

Go to the

next one, I'll find the number for you

in a second.

One last question

after that. Would it be possible to

comment at all on what you're planning

to do with the library business of

Avanti!?

No at this

point in time we don't want to comment

about that because we lav some

contractual agreements with Aart an,

we're looking what to do in this

situation and once we have resolved

those then we will comment about it.

depreciation was 14,

capex was about 9.

Okay. Good. Thanks

a lot.

A question from

the line of ar Lin chin dough with

Lehman Brothers.

Thank you. The

question about the otherincome, you

know, in terms of the gain that you're

talking about the $10 million for 30

quarter and the 22 for the fiscal year,

shouldn't that be considered sort of

non-continuing operations and therefore

for EPS are you recommending analysts

exclude that?

If you could shed a little color on

that?

his store Rickly

most people have included onincome

before goodwill but it is what it is so

I would say you can treat it in the way

you think most appropriate.

[] historically

Thanks.

[] income

Our final question

comes from the line of Tim Klein with

piper Jeffrey.

Yeah, just I want to

go back to just clarify a little bit,

since it sounds like you guys are not

changing your view on the core Synopsys

business I know obviously everything's

going to get increasingly intertwined at

this pointist it's a flex shun point

help us delineiate a bit. If you look

at assume we're basically add adding to

Avanti! model 2 the current Synopsys

model, can you help us understand, Brad,

for you look at the run rate for last

quarter from Avanti!, obviously you take

that run rate with current estimates

we're getting something who less than

that in our guidance, can you

characterize as a percentage rough

percentage contribution what that what

makes up that delta, how much of that is

not having the backlog come through, how

much of that is transitions to a

routeble, more of a routeble ex-and how

much of it is maybe other?

so the transition to

routeble is about 50 million. The

backlog is about 45 million, both those

pretax. After tax, with the shares

outstanding for the quarter that's about

a dollar per share for the remainer of

the year.

Okay. Then the

other question I had, was on just some

clarification, in terms of the product

sets that you're bringing foggy, you

know, there are some products it sounds

like in simulation space and others,

where you have sort of comparable

offerings, it sounds like you have some

sort of different strategies, can you

give us sort of review quickly where you

have comparable solutions and how you're

going to rationalize keeping both

solutions or maybe de-emphasizing one or

the other?

It's very

simple. We have actually very few areas

like that in the verification sized. In

many cases it's is being rationized as

we speak in a matter of two orb three

days this will be mostly done we'll be

at the design information conference

tomorrow not tomorrow next week, it

field like tomorrow note so this will

move very very quickly. Some of the

products will be held in parallel, some

will move quickly forced one or the

other.

[] towards

In no case will the customer being held

in a state of not knowing, because

within a month we will have road maps on

that.

Okay opinion great.

Thank you very much.

At this point

in time this concludes the earnings

release call and the call regarding the

Synopsys Avanti! merger. We appreciate

the time you spent with us, all the more

this is clearly a moment where Synopsys

is taking a turn into its next phase and

we think that this will reshape the EDA

industry positively so for us and so we

appreciate all your support in the last

few years and look forwardture

supportinging for ward. Thank you very

much.

Ladies and

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