Synopsys Inc. (SNPS) is on an acquisition spree. After the company’s acquisition of VaST Systems Technology Corporation, Synopsys has now announced an agreement to acquire CoWare, Inc.
The company expects this acquisition to augment Synopsys’ portfolio of design and verification products used in wireless, consumer and automotive design. CoWare is a global supplier of software and services for electronic systems design and will fit Synopsys’s business model really well.
The transaction is subject to customary regulatory approvals and Synopsys has not given the pecuniary or other details of this deal.
Although this is an intelligent business decision by the company as System-level design and verification solutions have been gaining momentum among chip developers, we believe that revenue contribution from CoWare Inc. in the coming quarter will be limited, as there will be some integration issues that Synopsys would need to address.
As per the findings of a research firm AMI-Partners, the enterprise software market will witness an upsurge in spending by small-to-midsize businesses (SMBs) this year. In fact, AMI reveals that spending will go up to a 6% compound annual growth rate (CAGR) over the next five years.
SMBs will be ready to spend this year and by 2013, this segment will push up demand for application software and services to $35 billion. This is good news for Synopsys, as the company deals with some software products as well.
Synopsys’ fourth quarter EPS of 33 cents beat the Zacks Consensus Estimate by 7 cents, while revenue of $338.3 million tumbled 4.1% compared to the year-ago quarter. The revenue decline can be attributed to the decline in both License revenue and Maintenance & Service revenue.
The company has provided a decent guidance for the first quarter and fiscal year 2010. It expects revenue in the range of $325 million − $333 million for the year, which we believe is achievable given the revival in demand for electronic goods and software.
The Zacks Consensus Estimate is for Synopsys to earn $1.30 in fiscal year 2010, an increase of 1.3% from 2009 levels. Analysts appear to be continuing with their earlier numbers, as there have been no upward or downward estimate revisions in the last month.
The company has provided an average earnings surprise of 5.06% over the last four quarters, and we believe that it may provide an earnings surprise in 2010, as Synopsys’s fiscal 2010 EPS guidance range of $1.52 − $1.62 exceeds the Zacks Consensus Estimate of $1.30.
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