新思科技 (SNPS) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Synopsys Inc.'s earnings conference call for the first quarter of fiscal year 2009.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

Instructions will be given at that time.

(Operator Instructions).

Today's call will last one hour.

Five minutes prior to the end of the call, I will announce the amount of time remaining in the conference.

As a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations.

Please go ahead.

Thank you, Marla.

Good afternoon, everyone.

With us today are Aart de Geus, Chairman and CEO of Synopsys, and Brian Beattie, Chief Financial Officer.

During the course of this conference call, Synopsys may make forecasts, targets, and other forward-looking statements regarding the Company and its financial results.

While these statements represent our best current judgment about future results and performance as of today, the Company's actual results and performance are subject to significant risks and uncertainties that could cause actual results to differ materially.

In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our 10-K for fiscal year ended October 31, 2008, and in our earnings release for the first quarter fiscal year 2009 issued earlier today.

In addition, all financial information to be discussed on this conference call, as well as the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures, and supplemental financial information can be found in our first quarter earnings release and financial supplement.

All of these items are currently available on our website at Synopsys.com.

With that, I will turn the call over to Aart de Geus.

Good afternoon.

I am pleased to report that our first quarter fiscal 2009 was characterized by solid financial performance, continued technology momentum, and visible customer success.

Let me begin with our financial results.

In Q1 we delivered revenue of $339.8 million, 8% growth year-over-year.

Non-GAAP earnings per share were $0.50, well above our target range.

We achieved these results under our predictable business model, with more than 90% time-based revenue.

With the recession in mind, we continued to focus on expense controls and operating efficiency, and we expect our earnings to be solidly on track for the year.

Finally, we exited the quarter with $842 million of cash and no debt.

Turning to the overall landscape, we see that in the deepening recession, our customers are derisking every aspect of their business and our strong position clearly sets us apart from other suppliers.

In other words, because of our financial stability, we can and do continue to invest in technology development and provide vital support.

This customer scrutiny of vendor stability is unlikely to change any time soon.

I just spent a number of weeks traveling to the customers in the United States and Europe and attending the World Economic Forum.

As we tally the perspectives of nearly 100 executives I talked to, most believe that the recession will be deep and are preparing for it to last well into 2010.

It is fair to say that all customers are battening down the hatches and focusing on reducing risk and even more importantly, reducing costs.

At the same time many of our customers are also keeping an eye on the future.

These companies are explicitly using this difficult time to streamline the processes and better focus on the most important customers, technologies, and current projects.

Fortunately for the EDA industry semiconductor expense cuts have been mostly on the manufacturing side.

As gross margin is sensitive to share volume.

On the R&D side design is clearly continuing, albeit with some caution.

Many customers are reassessing their design flows with the goal of coming out of the recession streamlined, more efficient and recovery ready with compelling new product to sell into an improving economy.

This trend plays well for Synopsys' strength, and we fully intend to emerge as an even more vital partner to our customers.

Not only are we their safest steps based on our financial stability and the completeness of our product portfolio, so we can actually help them attack their total cost of design and with our advanced methodologies and tools help ensure they remain technically robust.

The proof of this trend is evident in our steadily growing number of primary partner relationships.

Today, for example, we announced that LFI has joined a number of other key companies in selecting Synopsys as its primary EDA partner.

Across our portfolio, ranging from digital design to digital and analog verification, to IP and low power solutions, LFI is betting on Synopsys to jointly drive design cost efficiency and technology leverage.

Meanwhile, we're actively working with several other important companies on transitions to similar partnerships.

While we intend to weather the storm and expect to come out of the recession in an even stronger position, we are very mindful of the economic uncertainty and of the challenges our customers are facing.

Since January, we have seen a couple of companies filing for bankruptcy protection and an increase in late payments.

Bookings were lighter than expected, and we anticipate that some customers hesitant to make commitments with little visibility in their business will renew contracts closer to their expiration.

Our business model is well suited for times like these.

Timing of orders is less important, enabling us to focus on what is best in the long-term for our customers and ourselves.

The economic outlook is uncertain, though, and with an aim to deliver continued solid earnings, we have already taken a number of expense mitigation steps contributing to solid Q1 EPS.

Having said that, our top priority is to avoid any disruption to our customers in either technology or support.

So we continue to systematically reduce expenses in non-differentiating areas, and invest those resources to drive long-term customer success and commitments.

With this approach we feel confident we will be prepared if the market continues to soften.

If the market starts to improve, all the better.

Now let me turn to our technology, which has been a critical factor as customers select their key partners.

We have a comprehensive portfolio built over many years, from the system level through design and verification of both digital and analog mixed signal chips, and down to manufacturing.

Our leading IP portfolio stands the key connectivity protocols today, and our global engineering force is unmatched in terms of talented, scale, and expertise.

We continue to invest strongly in R&D, and are delivering technology enhancements across our core portfolio, focused primarily on performance and cost effectiveness.

Physical design, IT compile features a new router that delivers 10X faster performance and better quality of results.

Based on large amount of customer feedback, we feel our physical solution is stronger than it has ever been, and we're seeing significant competitive wins.

In December we delivered the much faster multi-core version of Primetime.

In addition, we are collaborating with companies such as XC Micro Electronics to deliver leading edge methodologies and flows for low power and high performance sign offs.

We now have multi-core capabilities throughout the digital design platform, a key differentiator for Synopsys.

In verification we delivered major performance and ease of use advances in DCS that have already driven competitive wins with both advanced and more mainstream customers.

In manufacturing, our key category is increasingly used by customers developing process technologies, especially advanced nodes.

Keycat simulation is able to reduce a good amount of expensive hardware based experimentation and thus helps to get better technology at lower costs.

Looking forward, we see a strong technical pipeline as well.

In March at our San Jose user group conference we will be introducing many new capabilities.

First, a single solution for custom simulation that combines accuracy and speed features into one flexible easy to deploy solution.

Second, an extension of our multi-core capabilities to VCS functional verification.

And finally, we will introduce a brand new topdown approach to helping customers reduce their total cost of design.

That is, streamline their design projects, optimize EDA investments and manage projects to get faster and more predictable results.

This new design system is architected for ease of adoption, providing both mainstream and advanced users a more efficient, lower risk, boundary ready path from design to silicon.

Stay tuned for more details.

I would like to highlight a few of our strategic investments.

Custom Design, and system level solutions.

In the first few months of limited customer availability, our new analog mixed signal design solution, Custom Designer has generated a substantial amount of customer interest, and new orders again in Q1.

Like more companies with little legacy infrastructure with a natural initial target customers we are increasingly seeing interest from larger customers wanting to evaluate our solution, general availability is currently on track for the spring.

At the system level, we are addressing the accelerating demand for more cost effective yet powerful hardware based certification solutions.

Last week we introduced and expanded rapid prototyping platform, Confirma.

It already includes the recently acquired CHIPit technology which significantly improves the economics of both embedded software development and system validation.

Synopsys now delivers a comprehensive software to silicon verification solution.

From system only to rapid prototyping and virtual platforms, to functional verification, and analog mixed signal simulation.

To conclude, while the economic weather became more turbulent, Synopsys began the year with solid Q1 results.

In addition, a number of customers have increased their reliance on Synopsys as they ride out the tempest.

While transitions are never simple, we are helping them reduce their total cost of design while capturing the benefits of a more streamlined design methodology.

As the saying goes, never let a crisis go unused, together with our customers we're doing exactly that.

In summary, our strategy for '09 is to weather the recession and emerge even stronger by being fiscally conservative, competitively aggressive and strategically focused.

With that I will turn the call over to Brian Beattie.

Thank you, Aart, and good afternoon, everyone.

In my comments today, I will summarize our financial results for the quarter and provide you with our guidance.

As a reminder, I will be discussing certain GAAP and non-GAAP measures of our financial performance.

We have provided reconciliations in the press release and financial supplement posted on our website.

In my discussions, all of my comparisons will be year-over-year unless I specify otherwise.

We executed well in the first quarter to deliver solid revenue and earnings growth, strong operating margin, and our balance sheet remains very healthy.

Total revenue increased 8% to $339.8 million at the high-end of our target range, with greater than 90% of Q1 revenue coming from beginning of quarter backlog.

One customer accounted for slightly more than 10% of first quarter revenue.

Turning to expenses, total GAAP cost and expenses were $272 million, which included $11.8 million of amortization of intangible assets and 14.1 million of share-based compensation.

Total non-GAAP costs and expenses were $250 million, an expected year-over-year increase due mainly to our Simplicity acquisition but also slightly below our target range due to company wide cost control and timing of quarterly expenses.

For the balance of the year, we expect typical quarterly expense profile with a sequential increase in total expenses in both Q2 and Q3 and a traditionally higher Q4.

For all of 2009, we continue to expect total costs and expenses to increase generally in line with or slightly less than our targeted revenue growth.

Non-GAAP operating margin was approximately 26% during the quarter, a very good start towards achieving our goal of 23% for the full year.

We intend to aggressively manage expenses to reach our margin targets and prepare for an uncertain outlook in 2010 while at the same time, aligning resources to Synopsys will add value to our customers.

Turning now to earnings, GAAP earnings per share was $0.37.

Non-GAAP earnings were share was $0.50, exceeding our target range.

Earnings outperformance was driven by solid top line growth and expense control, higher than expected other income, a slightly lower than expected tax rate, and fewer shares outstanding.

Our non-GAAP tax rate was approximately 26% for the quarter.

For modeling purposes, we think that a 27% non-GAAP tax rate is a reasonable estimate for the full year.

Our revenue visibility remains strong.

Up front revenue was 5% of total, well within our target range of less than 10%, even with the inclusion of hardware sales.

The average length of our renewable customer license commitments for the quarter was about 2.7 years.

Now turning to our cash and balance sheet items, our balance sheet remains very healthy with $842 million in cash and short-term investments and no debt.

Of this balance, 53% is held within the United States.

As expected, there was an operating cash outflow of $82 million in the quarter due primarily to the timing of our annual intentive compensation payments.

For all of 2009 we're closely monitoring cash collections as we have seen a recent increase in late payments from some of our customers.

However, at this time, we're maintaining our FY '09 operating cash flow target of approximately $200 million to $220 million.

Continuing on with our cash and balance sheet items, capital expenditures were $8 million in the quarter, and for the full year we expect to reduce capital spending by 15% to approximately $30 million to $35 million.

We did not repurchase stock in the quarter and have approximately $210 million remaining on our current authorization.

Also recall that we acquired the CHIPit assets of Pro Design during the quarter in an all cash deal funded from a combination of our international and U.S.

cash balances.

As always, we'll evaluate the best uses of cash each quarter, including the Company operations, investments, and stock repurchases.

Our strong cash balance has served us well in the current environment and in the near term, we value the flexibility that our cash provides.

We're also pleased with the high quality and conservative risk profile of our cash investment portfolio.

Q1 net accounts receivable totaled $150 million and we maintained industry leading DSOs of 40 days.

Deferred revenue at the end of the quarter was $609 million.

We ended Q1 with approximately 5,700 employees.

This was an expected year-over-year increase due primarily to our acquisition of Simplicity but also slightly down from our Q4 head count.

For all of 2009, we currently expect head count to be about flat with year end 2008.

Now moving onto guidance, for the second quarter of FY '09, our targets are revenue between $332 million and $340 million, total GAAP costs and expenses between $280.5 and $296 million which includes approximately $15 million of share based compensation expense, total non-GAAP costs and expenses between $257 million and $267 million, other income and expense between $0 and $3 million, a non-GAAP tax rate of approximately 27%, outstanding shares between 142 and 147 million, GAAP earnings of $0.25 to $0.30 per share, and non-GAAP earnings of $0.39 to $0.41 per share.

We expect greater than 90% of the quarter's revenue to come from backlog.

Now our fiscal 2009 outlook.

Based on what we know now, we expect revenue of approximately $1.37 billion to $1.40 billion.

Other income and expense between $6 million and $10 million.

A non-GAAP tax rate of approximately 27%, outstanding shares between 144 million and 149 million, GAAP earnings per share between $1.11 and $1.27, which includes the impact of approximately $60 million in share-based compensation expense.

Given the uncertain environment, we're maintaining our non-GAAP earnings per share target range of $1.60 to $1.72.

However, after delivering solid Q1 earnings, we have more confidence in this range and expect $0.01 or $0.02 of our Q1 over achievement to benefit full year earnings driven primarily by higher than expected other income.

As I mentioned earlier, we're still targeting cash flow from operations of $200 million to $220 million.

In conclusion, I am pleased with our first quarter execution given the many challenges in the global marketplace.

We delivered solid financial results, highlighted by top and bottom line growth and continued solid operating margins.

We exited Q1 in a strong financial position, providing us the flexibility to best position our business for long-term growth during this difficult period.

With that, I will turn it over to the operator for questions.

Thank you.

(Operator Instructions).

Our first question will come from the line of Rich b Valera with Needham & Company.

Please go ahead.

Good evening.

Aart, just wanted to ask a question on the bookings front.

You mentioned that bookings were a little lighter than expected in the quarter.

I know last quarter you mentioned that you were still seeing some increasing run rates on your renewals and just wanted to get your sense of what was it that caused a light bookings in the quarter?

Was it lower run rate renewals or was it just some company's deferring their actual orders into future periods?

Rich, clearly the second.

The run rates are flattish, the reason people tend to renew sluggishly if that's the word that they are clearly not seeing -- not having much visibility themselves, and so what I expect will continue to happen over the next many quarters is that people are just gradually going to drift more towards the end of the contracts because at this point in time, making no decision is often easier than making any decision.

With respect to the duration which was the lowest seen in quite a while, do you think there is anything to that?

Do you think customers are less willing to make long-term commitments now, or is this just noise in the statistics of that duration number?

I think it is mostly noise, although I think you're still aiming at a very interesting question, because I think that we're going to see more binary behavior meaning we clearly see some customer that is want to do business with us and that are banking on us, wanting to actually at times do longer deals where as people that are not sure will just try to minimize any decision they have to make, and so I think the sample set was not all that relevant in this case, but nonetheless I think it is not indicative of a major trend yet.

Great.

And then last quarter you had said that you sort of gave qualitative bookings guidance that you expected book-to-bill to be slightly less than 1 to 1 for the year.

Would you care to update that presumably maybe you would expect it to be slightly weaker than that?

I don't know if you would be tolling add any color to that previous guidance?

Well, largely I don't want to do that partially because I don't think I have necessarily the color.

I think that they are an enormous number of moving pieces right now in the economy, and so it is possible that number of people slowly decide to want to do longer deals with us, and it is also possible that we see a number of people just waiting for their contracts to end and be back more next year or the year after, so frankly I don't have the answer.

I think we're in a good situation that from a business point of view we're well placed and from a business model point of view we're of course in an outstanding position.

Thank you very much.

You're welcome.

Thank you.

Our next question will go to the line of Raj Seth with Cowen & Co.

Your line is open.

Thanks.

Brian, a question for you.

In the $2.6 billion of backlog that you exited last year, is there -- I notice in your supplement what looks like a new note sort of highlighting the fact that there may be some risk to the backlog, and I am wondering if you can expand a little bit on whether you have, whether you think you have exposure in the backlog and what it is that would move around in these what I thought were contractual commitments with customers?

Yes.

Absolutely, Raj.

The contracts that we have as bookings are all firm commitments legally binding, no escape clauses, so they're really, really locked down.

What we saw in the quarter was a couple of our customers filing for protection under Chapter 11 under the bankruptcy court, so in that case to the extent there is some of their business still in the backlog, then we will debook that as a conservative approach to take out any forecasted revenues and any forecasted bookings that will come in there.

Up to this point, though, it is a very immaterial number for our total backlog, but we'll continue to monitor it, continue to look at cash payments, collections, and credit status of the customers, but as you know, the majority of our customers are very large semiconductor companies who are financially pretty stable, albeit with uncertain times in front of them.

Thanks.

Aart, wonder if you could just abstract away from some of the detail of the quarter, et cetera, the industry is probably in the worst downturn, semi industry, certainly capital equipment side, the worst downturn ever.

I have heard people like Mike Splinter suggest we're going to see profound structural changes in this industry, there's obviously a push to consolidation, et cetera.

How do you think and maybe it is too early, but what do you think happens to the industry and what are the implications of likely consolidation and some of what's going on on EDA and specifically Synopsys in your view?

Well, first, I think I agree with Mike's perspective, that the entire semiconductor industry is going to shift towards a more efficient model one way or another, but I don't think it is unique at all to the semiconductor industry.

It is clearly part of a massive recession that initially had nothing to do with semiconductor industry.

Having said that, the first corollary is that many of the products on the market today may have hiatus or working down on inventory, but over time it is an industry that will come back and will continue to deliver and develop many new products.

Having said that, though, I think that the entire industry looking for efficiency will also look at how to do better design, and fortunately we are in a very good position because we started to focus on total cost of design already a few years ago, and you certainly have heard me say many, many times that includes much more integrated design flows, it includes better and better utilization of the most advanced tools and technologies, and gradually a more consolidated spending picture.

In that context, next month in March we'll be rolling out specifically a tool set around making the design flow much more manageable, so we are very much aimed at how do we help not only the technology future but also the cost equation of our customers, so notwithstanding the huge economic waves around us, I think our ship happens to be particularly robust at this point in time.

One more quick question if I might, Aart.

How do you think about M&A in this environment?

You clearly indicated that you're going to be very careful with cash, that cash is king.

I think that's good.

There is a lot of really wounded companies in this ecosystem here that you can almost buy for free.

Is this something that you still consider or not really looking at M&A at this point or is it indeed a mechanism you can use to get even further ahead?

You know, I think we are always keeping our mind open and looking at everything.

At the same time in M&A right now the A in many cases stands for attrition, meaning there are a lot of changes occurring with companies that I don't think will survive period.

Of course one may be tempted to look at spending money on those, but upon closer inspection, often one finds that it will take more money than it brings in in the future.

Having said that, I think that it is very difficult to predict the whole makeup of the recession going forward.

We will be careful.

We are fiscally I think at this point in time very conservative, because we realize full well that in these ways one needs to be very careful with the cash.

Having said that, I think we just acquired a small asset this past quarter, CHIPit, that fits particularly well into our offering in an area that is seeing very great customer demand which is the rapid prototyping, and so I think it shows you that we will be open to interesting opportunities, but we're not rushing into things that are not -- that don't have a very safe outlook.

Right.

Thank you.

You're welcome.

Next we'll go to the line of Matt Petkun with D.A.

Davidson & Co.

Your line is open.

Just a quick question, Brian, on the expense line.

That was where we saw some of the upside obviously in Q1 and you did mention that there were some cost cuts.

Looking to the guidance for Q2, I know you said to expect expense growth as revenues grow, but looks like revenues this quarter could be flattish, but we're still going to see about $11 million increase in non-GAAP expenses.

Can you help us understand where we're going to see that increase?

Yes.

The expenses are going to fluctuate from quarter to quarter, just giving the level of accruals we make, the business levels of activity that we close in the quarter, and it is going to move around ailing bit, and this is pretty typical for us, Q1 typically is a lighter quarter, and then as various teams hit various compensation levels and so on throughout the year, the expense phase and commissions and so on gradually increases until basically you're into an accelerated mode in the fourth quarter, so that's what we're representing as far as the profile we expect for the rest of this year.

Okay.

And then any commentary, Aart, you might be willing to share in terms of the pricing environment, especially in light of your commentary about maybe some competitors facing more pressures?

Yes.

I think there is no question that some people will fight for survival at this point in time and will try to do that at the end of the day with pricing.

At the same time it is also clear that quite a number of customers have now become very concerned about a variety of suppliers, not just in our domain, and would be weary even if things are very cheap to commit their future on companies that they're not sure are going to be around, and so that doesn't mean that there is no price pressure, always been, but it is also clear that we have the opportunity to keep investing, that we have the opportunity by the way to also keep supporting on a global basis many of our customers, and that has not gone unnoticed.

Okay.

Then just one other quick question, Aart, on the last call you did talk about the opportunity with maybe a specific deal and a specific consolidation scenario where you guys might have an opportunity to improve your standing.

Have you seen that business come in this quarter and is there any way you can elaborate on that?

Actually we have seen that.

Actually one of them was I believe announced today which is with LFI where we had worked closely with them over a period of time to see how we could help them optimize their over autopsy design flow and solution, and they clearly picked us as their primary partner for the future, and so they are quite a number of these type of situations that we are working, and as you can imagine every company is different by virtue of their history, their type of designs, et cetera, but the common denominator in all of those things is the same which is how do I stay at the leading edge of technology point of view and how do I simultaneously reign in the costs, and that is a dialog that we absolutely seek with our customers.

Okay.

Thank you.

You're welcome.

(Operator Instructions).

Next we'll go to the line of Raj Kumar with RBC Capital Markets.

Please go ahead

Hi, guys.

Thanks for taking my question.

You mentioned that you expect people to drift closer to the contract renewal date as the year drags on.

Can I just comment on many, what fraction of customers that happened to and if that places any pressure on the target bookings which are for fiscal '09?

Well, from a salesforce point of view there is always pressure on bookings because that is the main role in the Company.

At the same time precisely because we have a business model that has been crafted over many, many years, we can plan ahead and sort of see what is going to happen in the economy and prepare the Company if the downturn is worsened, then we can plan ahead from an expense point of view.

if it starts to look up, we can take positive strides from there.

Be it as it may, I think we are in a relatively solid position and not likely to be sort of held hostage at the end of a quarter if that's the right terminology.

I think if one bubbles up from that picture, I think we ultimately have to realize that I think this is a very, very deep and long recession, and therefore for us the most important thing is really how do we help our customers do well during this time, how do we help them focus on their total cost of design, and at the same time make sure that the business we do is healthy for the long-term, and I think if we follow those premises, Synopsys will fare just fine

Okay.

Is it fair to assume that customers closer to their contract expiring, some of those contracts would simply slip into next fiscal year, and probably therefore that does not place your '09 guidance into any jeopardy?

Well, these are bookings contracts, and typically if you take a round number of three years, while the contract is running, fundamentally we keep reporting on revenue on a completely ratable fashion, so it really doesn't matter technically if a booking is on this side or the other side of a fiscal quarter or fiscal year.

Now, from a sales point of view we drive our salesforce to continue to work the customer interactions and close bookings, but from a revenue point of view it is very, very smooth transition, so I think I said earlier what is it very unique and very powerful about this business model is it allows us to plan much further ahead and take preventative action if necessary well ahead of the time that there may be challenges.

Okay, Aart.

Aart, you made a comment earlier which of course never let a crisis go unused.

Can you elaborate what do you mean by that comment?

Pardon if this is a little bit too popular management, but the many, many people will say that crises are opportunities to make changes that companies have wanted to do or should have done a long time ago, but so often the daily urgent takes precedence on the long-term imperative, and so as many of our customers are forced to relook at their P&L and are very much compelled to look at their cost equation, they also realize that not just spending in EDA but how they spend an EDA is often suboptimal including a lot of internal work that could be reduced or could be improved upon, and so one of the key values we think we can bring to our customers is to explain and show them how they can substantially streamline their design flows, follow standardization in IP reuse, for example, that allows them to cut the amount of expenses they have around these flows, and what happens in crisis situations is suddenly higher level management has a much higher degree of attention for these type of proposals than in the past and thus there is a better opportunity for us to advocate that perspective, and indeed we're seeing that we're having quite a number of high level dialogues with customers to help them save money in the long-term and in the process build a very strong relationship with Synopsys.

Lastly, maybe this is way too early to ask the question, but for those customers who are due to renew next year, what are you guys hearing from them?

Are they sort of coming back to you guys and telling you that they expect that things are still on track or is it too early to ask that question?

I guess what I am getting at, what is the quality sense you have on your customers due to early next year?

Well, frankly it is not always the best idea to start asking customers that renew way in the future now what they think as everybody is looking at a recession that is not fully understood, and so there is no reason to rush forward on that, and I think it is also fair to say that it is very difficult to predict what will happen, the stimuli may have some impact in the short-term, but maybe it is just sufficient to keep the economy going rather than to keep the economy going rather than prospering again.

Be it as it may, my own sense is that we probably do well to be very conservative and careful at this time, and that assumption of thinking that the recession could go well into 2010 is probably wise as we look at our resources, our cost base, and how to support our key customers, and so if the weather looks up before that time, all the better, but meanwhile I think we are very solidly on top of having all the mechanisms of cost control worked out and if necessary we will have the courage to take action.

Thank you

Thank you

Thank you.

Next we'll go to the line of Saket Kalia with JPMorgan.

Please go ahead

Hi, it is Saket here for Sterling.

Two questions from my side.

First, Aart, would you be willing to disclose how many primary EDA relationships you have worldwide?

Actually we have disclosed a few explicitly over the years and I think it is five we talked about.

we can get back to you specifically with those that were announced.

We have a few more that have been either de facto or have been accomplished without any communication, and then we have a slew of other relationships that are progressing in that direction.

Secondly for Brian, sales and marketing was down significantly in the quarter over last quarter.

Just wondering how much of that decline was related to the lighter bookings than you expected versus expense control in the quarter?

Thanks

Yes.

When you look at the spending in the sales and marketing expense, the head count is relatively flat if not down a little bit, so the rest of it really relates to commission expense that as I mentioned earlier hits accelerators typically in the fourth quarter and then in the first quarter you start accruing at a new base if you like, so as we achieve, that number as I mentioned continues to grow throughout the year, and so from an ongoing expense perspective as we held the operating margins where we are, we're sitting at the 23% mark and did very well in the first quarter with 26%.

We're looking at keeping the expenses as tight as we can going forward, but we did give you the profile of the expense increase from Q1 to Q2 and Q3 and then based on achievement of the targets in the fourth quarter that expense does go up.

Okay.

Thank you.

At this time there are no further questions.

Please continue.

Well, at this point given that there are no more questions as usual Brian and I will be available after the call.

We appreciate your support at this time, that is to say the least very interesting.

I would like to reiterate that although we see quite a number of clouds on the horizon, Synopsys is actually in a very good place to take advantage of our position, and we will continue to communicate very directly and frankly with you.

Thank you very much

Ladies and gentlemen, that does conclude our conference for today.

Thank you for your participation and using AT&T executive teleconference service.

You may now disconnect.