Synopsys delivered a robust performance in the third quarter of fiscal 2026, with revenue, non-GAAP operating margin, and earnings per share all surpassing the high end of its guidance range. Management used the earnings call to signal a clear inflection point: EDA growth is accelerating toward double digits, design IP has returned to a growth trajectory, and the synergies from the Ansys acquisition, now a year old, are beginning to materialize.
CEO Sassine Ghazi attributed the quarter's strength to a broad-based improvement in the company's product portfolio fundamentals. EDA benefited from intensive investment by AI and high-performance computing customers in advanced 3DIC packaging, with hardware-assisted verification revenue reaching a record high. The IP business posted sequential gains for the second consecutive quarter, driven by demand from AI infrastructure buildouts. Notably, the die-to-die business is on track to double year-over-year, and the company has secured over 95% win rates on PCIe 7 opportunities. A key highlight was the launch of Multiphysics Fusion, a joint solution with Ansys that has already been validated by marquee customers including Nvidia, MediaTek, and Samsung Foundry. Management indicated this product is expected to make a meaningful contribution to EDA growth starting in fiscal 2027, with early validation showing up to 10x faster design convergence.
Ghazi addressed the evolving role of AI in chip design directly, dismissing the notion that it poses a disruptive threat to the EDA industry. Instead, he argued, AI is creating exponential demand for software as customers build autonomous design workflows that increasingly rely on ground-truth physical verification. During the quarter, Synopsys demonstrated autonomous EDA agents in collaboration with Nvidia, Microsoft, and AMD, which have shown the ability to shorten verification cycles by 50x and reduce debug time by 40%. With more than 30 active agentic AI customer engagements, Ghazi highlighted a new consumption-driven growth model where AI agents orchestrate greater usage of underlying EDA tools as they take on more complex engineering tasks.
Looking ahead, management outlined a dual-pronged IP strategy. "Factory 1," the standard build-once-sell-many IP model, continues to benefit from steady chip starts across automotive and mobile sectors, with automotive ADAS platforms maintaining a design win rate above 90% for three consecutive quarters. "Factory 2" targets the growing custom silicon opportunity through a licensing-plus-royalty model, with Synopsys engaged in active discussions with multiple hyperscale cloud providers and ASIC suppliers. Further details are expected at the company's investor day on September 30. CFO Shelagh Glaser raised the full-year revenue guidance midpoint by $50 million, lifted non-GAAP EPS by $0.31 to a range of $15.04-$15.10, and increased free cash flow guidance by $600 million to approximately $2.6 billion, underscoring confidence in both the current fiscal year and fiscal 2027 growth prospects.
Executive Commentary
Tushar Jain, Investor Relations Lead, opened the call, welcoming participants and introducing CEO Sassine Ghazi and CFO Shelagh Glaser. He reminded listeners that forward-looking statements made during the call represent the company's best judgment as of today and are subject to risks and uncertainties detailed in recent SEC filings and the earnings release. He also noted that non-GAAP financial measures would be discussed, with reconciliations available on the company's website.
Sassine Ghazi, CEO, highlighted the strong quarterly performance, with revenue, non-GAAP operating margin, and EPS all exceeding guidance. He emphasized broad-based growth drivers, including strong EDA and Ansys performance and continued IP momentum. Full-year guidance for revenue, operating margin, and EPS has been raised, with EDA growth expected to accelerate in Q4 to achieve double-digit growth for the full year. Ghazi noted the one-year anniversary of the Ansys acquisition and the launch of the first joint solution, Multiphysics Fusion, which integrates thermal analysis into the chip design flow. Customers including Nvidia, Cisco, MediaTek, and Samsung Foundry have validated up to 10x design convergence acceleration and 3x runtime improvements. Ghazi also discussed the agentic AI opportunity, citing over 30 active customer engagements and early evidence that AI agents drive significantly higher consumption of Synopsys' underlying EDA tools.
On the IP business, Ghazi highlighted sequential and year-over-year growth driven by broad AI infrastructure demand. The company achieved over 95% win rates on PCIe 7 opportunities, secured 25 design wins for LPDDR6 this year, and the die-to-die business is on track to double year-over-year with cumulative design wins exceeding 100. He outlined the "Factory 2" strategy for custom IP, which extends the business model from licensing to licensing-plus-royalty to capture the fast-growing custom silicon market. Ghazi emphasized the company's strong progress in this area, with active discussions underway with multiple customers.
Shelagh Glaser, CFO, reported Q3 revenue of $2.477 billion, non-GAAP operating margin of 41.6%, and non-GAAP EPS of $3.91, all exceeding guidance. Backlog remained strong at $10.9 billion, slightly down due to the divestiture of the processor IP business. Full-year guidance was raised, with revenue now expected between $9.69 billion and $9.74 billion, non-GAAP operating margin midpoint of 41.5%, and non-GAAP EPS between $15.04 and $15.10. Free cash flow guidance was increased to approximately $2.6 billion. For Q4, revenue is targeted between $2.53 billion and $2.58 billion, with non-GAAP EPS between $4.10 and $4.16.
Q&A Session Highlights
Analysts questioned the drivers behind EDA growth acceleration. Ghazi cited increasing chip design complexity, the migration to advanced packaging and 3DIC, and AI as key tailwinds. He noted that hardware revenue reached a record high, and the company remains confident in achieving double-digit EDA growth for the full year despite a high comparison base from the prior year.
Addressing the impact of AI on the EDA industry, Ghazi dismissed concerns about disruption, arguing that AI models still require ground-truth physical verification, driving greater demand for Synopsys' software. He emphasized the company's active role in helping customers redesign their engineering workflows around AI, with consumption-based pricing models being explored for agentic AI offerings.
Regarding the IP business, Ghazi outlined the "Factory 2" opportunity in custom silicon, noting that hyperscale customers require Synopsys' interface IP to build their custom chips. He expressed excitement about the shift toward licensing-plus-royalty models and the potential for accelerated growth. The security IP business was also highlighted as a key growth vector following the divestiture of the processor IP business.
On Multiphysics Fusion, Ghazi explained that the integration of thermal and structural analysis into the design flow is a critical requirement for leading customers building 3DICs. The joint solution creates incremental revenue opportunities beyond existing point tools, with contributions to EDA growth expected from fiscal 2027. The company remains committed to achieving $400 million in synergies from the Ansys acquisition by year four.
Analysts also inquired about the acceleration in EDA growth, with Ghazi noting that non-AI design starts have stabilized over the past two quarters while AI-related starts continue to accelerate, providing a balanced growth profile. CFO Glaser confirmed that the decline in backlog was in line with expectations, primarily due to the processor IP divestiture completed during the quarter.
On the competitive landscape, Ghazi drew parallels between the current multi-physics product portfolio and the earlier transition from ICC to Fusion Compiler, emphasizing investments at the data model level to enable seamless integration. He also highlighted the importance of partnerships with Microsoft and AMD in advancing autonomous EDA workflows.
Regarding Ansys performance, Glaser noted strong execution, including in the channel business, with the accounting change previously discussed remaining within the same annual range. The largest Ansys deal of the quarter was a GPU-accelerated CFD solution for a multinational electronics component manufacturer's enterprise digital twin initiative.
Analysts questioned the potential for IP growth to exceed the mid-teens long-term target. Ghazi acknowledged that the assumption is reasonable given increased chip starts and the custom silicon opportunity, though the mid-teens target remains the current long-term guidance. Further updates are expected at the September investor day.
In his closing remarks, Ghazi thanked the team for their execution and highlighted the company's momentum as it marks one year since the transformative Ansys acquisition. He reiterated confidence in the company's strategic position and expressed anticipation for the upcoming investor day.