Synopsys Pricing Spineometer: 2 of 5 Vertebrae

Synopsys, an electronic design automation (EDA), design intellectual property, and software integrity provider to the semiconductor industry, had a positive Q1 2024. Revenue rose 21 % to $1.6 billion and earnings before interest and taxes rose 41% to $360 million over the same period last year.

A review of Synopsys’ First Quarter 2024 earnings call held on 21 February 2024, and associated financial reports, provided insight regarding the importance of pricing on performance.

Sassine Ghazi, CEO of Synopsys, demonstrated an awareness of the ability to price proportionate to the value delivered.  In response to the release of new intellectual property, she stated: “That’s a great opportunity because what it means any time you’re going to the next version of that interface IP is a new opportunity to monetize because it’s a new IP with an uplift in our pricing in order for our customer to get access to the latest and the greatest.”

Other factors also demonstrate a high need for pricing capability at Synopsys:

1. Industry benchmarks would suggest between 12 and 60 people should be dedicated to pricing at Synopsys. The complexity and fast-changing nature of their business would suggest Synopsis would benefit from being toward the upper end of this range.
2. Synopsys is benefiting from high demand increases across end-market sectors including artificial intelligence (AI), automotive, cloud computing, and Internet of Things (IoT). With large demand increases come pricing opportunities.
3. Synopsys works with leading semiconductor manufacturers, cloud providers, and systems developers globally, including those in China. This client basis is fraught with negotiation opportunities and challenges.
4. Synopsys enables companies to create chips at the highest resolution possible, including 2 and 3 nm linewidths. This and many other opportunities create strong pricing opportunities.

We would expect to identify a number of professionals focused on evaluating the economic value to customers of many of their offerings.  We would also expect to find pricing professionals dedicated to supporting client managers in their negotiations with clients.

Unfortunately, our expectations were not fulfilled.

Research into the investment by Synopsys in pricing yielded underwhelming results.  Pricing responsibility was distributed among business development managers, product managers, strategy and operations managers, marketing managers, and finance professionals at Synopsys.  Pricing itself was not identified as a profession at Synopsys.

Given the importance and capability of pricing at Synopsys as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of March 2024.

Synopsys Pricing Spineometer: 2 out of 5 Vertebrae. (Management is aware of the importance of pricing to value delivered but has not chosen to invest in developing a unique pricing capability itself.)

SNPS (Synopsys, Inc.) rose from 548 the day prior to their earnings call to 573 one week later. FY 2023 revenue of $5.8 billion with a 21% operating margin and P/E ratio near 50.

For FY 2023, a 1% improvement in price would yield a 5% improvement in operating profits holding all else constant at Synopsys.