Synopsys Embarks on an Acquisition Spree

| About: Synopsys, Inc. (SNPS)

recently disclosed that it was moving ahead with the acquisition of technology, engineering resources and other such assets of Synfora, Inc. The company provides C/C++ design technology, which is used to design complex system-on-chips (SoCs) and other such Field-Programmable Gate Arrays (FPGAs).Electronic design automation (“EDA”) software provider and IP service provider Synopsys, Inc. (NASDAQ:SNPS)

Synopsis did not disclose the financial details of the acquisition but said that it expects the acquisition to strengthen its position in the FPGA-based prototyping solutions business. By using Synfora's technology, designers will be able to manufacture better ICs. In short, the acquisition will enhance Synopsys’ technical efficiency and augment its product and service portfolio.

The company seems to be on an acquisition spree, as it is also acquiring a rival company Virage Logic Corporation, in a deal worth $315.0 million. This acquisition is expected to help Synopsys enhance its comprehensive set of software offerings, since the acquisition would provide Synopsys access to the technical expertise of the competitor company, with the option to utilize its customer base.

This apart, Synopsys provides customers with increased hardware efficiency, enabling significant reductions in both CPU memory consumption and manufacturing turnaround time. Synopsys has extended its multi-core capability to VCS functional verification, which resulted in doubling the speed. VCS functional verification is a technology that allows designers to de-bug quickly and easily, significantly improving the quality of the most complex designs. As this multi-core technology is used in many of the advanced chips in the world, a speed-up of this magnitude has a major positive impact as customers are able to reduce expenses for costly computer hardware.

On the other hand, Synopsys delivered mediocre second-quarter results, without any improvement in operating performance. The 2010 guidance does not reflect any meaningful growth. Although Synopsys is gaining traction from new products, recent acquisitions, and new EDA partnerships, we believe these will take some time to produce favorable results.

We believe Synopsys’ time-based license model has good visibility and the company has a decent cash position. Additionally, the semiconductor industry is stabilizing and demand picking up. This apart, the company is facing customer concentration risk.

We currently have a long-term Neutral recommendation on the shares.

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