Aart de Geus
Chairman and Chief Executive Officer at Synopsys
Good afternoon. Q1 delivered a very solid start to the year. Building on our strength and momentum from 2022, we met or exceeded all of our guidance targets. Revenue was $1.36 billion with non-GAAP operating margin at 35.2%, resulting in GAAP earnings per share of $1.75. And non-GAAP earnings above the high end of our target range at $2.62.
Based on the continued robust design activity, we remain confident in our business. We are reaffirming our full-year guidance for revenue and non-GAAP ops margin improvement while raising guidance for non-GAAP EPS. In the last few years, Synopsys has grown and evolved substantially. Commensurately, we are evolving our financial reporting. Starting in Q1, we are reporting our business in three segments: Design Automation which includes design software, verification software and hardware, and other EDA products; Design IP, a broad portfolio, including libraries, embedded memory, connectivity solutions, processor cores, and security devices; and Software Integrity, which remains unchanged from previous reporting and deliver solutions to improve software quality and security.
To give you a relative sense of proportion, Design Automation is about 65% of our revenue; Design IP is approximately 25%; and Software Integrity is about 10%. While these numbers are approximate, the 65%-25%-10% split is easy to remember and represents well how we think of our present business. We have leadership positions and excellent outlooks in all three segments. As the market leader in Design Automation, we see continued technical innovation towards still much, much more complex Silicon & System Design.
As a company with the broadest portfolio of IP, we see a continuation of designs needing more communication bandwidth, processing, storage and security, and still more advanced silicon technologies. And for our Software Integrity business, we are a key enabler of modern software security with a leading portfolio of products for developers, the DevOps groups, and the corporate security teams. Shelagh will discuss the financials in more detail.
Looking at the overall market picture, already 12 years ago, we identified the intersection of big data and machine learning as leading us into the age of Smart Everything. Today's Smart Everything is in full swing. You may have seen the fantastic new capabilities showcased recently by applications such as ChatGPT. It clearly shows how far Smart Everything has come and also how much further the opportunity space reaches. Indeed, this is playing out as every vertical market is now driving towards more and more sophisticated solutions with an unsatiable need for compute.
While some presenet market undercurrents drive many companies to strive for efficiency, our Semiconductor and Systems customers continue to prioritize investments in the design of complex chips and software to make all of this possible. Synopsys is in the midst of this quest, and we see our purpose to be a key catalyst enabling the Smart Everything world. With our customers and partners, our role is to make this all work through the state-of-the-art solutions ranging from the deep physics of silicon to the heights of performance, power and security of complex hardware-software systems.
Over the past several years, we have successfully invested in groundbreaking innovations that radically advance how Silicon & System Design is done. So let me begin with the Design Automation segment which accounts for about 65% of our revenue and share some highlights around our groundbreaking DSO.ai Artificial Intelligence design solution. WIth already well over 100 commercial production designs, DSO.ai continues to deliver amazing results for our customers. Applied simultaneously to multiple steps of the design flow, it reduces effort from months to now weeks while simultaneously delivering higher performance and lower power.
Customer adoptions continue to accelerate across a wide range of process nodes and market verticals. Already put in production Design by nine of the top 10 semiconductor leaders, customers such as Samsung, Intel, MediaTek, STMicroelectronics and many others are reporting impressive achievements. In Q1, we saw multiple additional deployments across verticals, including mobile, data center and memory designs. Meanwhile, we have extended our machine learning capabilities to other EDA workloads, ranging from verification to test to custom design. These new solutions are already in customers' hands, showing excellent impact and promise.
Critical to the success of DSO.ai are the powerful Design engines that sit underneath. DSO.ai is also driving significant cross-selling and accelerated growth across our EDA products. Specifically, our Fusion Compiler Momentum is manifest across a wide spectrum of market verticals and manufacturing processes.
During the quarter, we achieved multiple advanced node design wins, including a key win at a large hyperscaler, and the 3-nanometer node design at a leading mobile provider. Fusion Compiler is used in 95% of advanced node designs at 3-nanometer and below, with the majority exclusively using Synopsys flows. Stimulated by a wave of high-value innovations, customers from high-performance computing to hyperscalers, continue to expand their reliance on Synopsys throughout our portfolio. Our customer solutions for example saw continued market momentum in Q1 as we added nine new logos in the quarter with a robust market pipeline. All these highly complex designs need to work both correctly and work under multiple conditions and scenarios like temperature, voltage, manufacturing variability and so on. That's where our Verification tools come in. While the Verification is fundamentally an unbounded problem, our state-of-the-art simulation, emulation and prototyping products tackle these tough challenges at unparalleled speed with the fastest engines, highest capacity, and lowest cost of ownership.
Building on another record year in 2022, we continue to see excellent growth in hardware with both our ZeBu Emulation and HAPS Prototyping products. This quarter we achieved major expansions with our ZeBu EP1 and HAPS-100 hardware as several of the largest semiconductor systems and hyperscaler companies in the world. Meanwhile, Multi-Die System Design, sometimes also called chiplet-based [Phonetic] design, is opening a whole new era of silicon complexity.
In Q1, our differentiated Multi-Die Solution around 3D IC Compiler continued its strong momentum deployed on production tape-outs at a top, high-performance computing chip supplier and a large networking systems company.
Let me move to design IP, which is, as I mentioned, about 25% of our business. Third-party IP, think of it as the Lego blocks of chip design, continues to grow in complexity and importance. Our market-leading IP portfolio, by far the broadest in the industry, continues to grow with high-demand and high-performance compute, automotive and mobile markets, fueled by Smart Everything Multi-Die systems and high-speed and secure connectivity.
While maintaining technical leadership, we've broadened our portfolio with new high-speed interfaces in 3- and 4-nanometer processes to serve HPC and mobile applications at the leading edge. In the automotive market, we see strong adoption of automotive-grade IP solutions by OEMs and tier 1 suppliers now developing their own chips. Meanwhile, Multi-Die systems require a whole new portfolio of state-of-the-art die-to-die interface IP. The recently introduced, UCIE protocol, short for Universal Chiplet Interconnect Express, has become the standard of choice.
Synopsys is leading in this area with an industry milestone. The tape-out of the first UCIE test chip on a major foundry 3-nanometer process node. The increased multi-chip and high-speed computation push enables enormous advances in the software world.
This brings me to our Software Integrity segment, which as mentioned, accounts for about 10% of our revenue. As every vertical market is developing highly complex, big data-driven systems, their requirements for security and safety continue to expand. Our Software Integrity solutions enable organizations to improve and manage the security and quality of software across a wide range of industry verticals from semiconductors and systems to financial services, automotive, industrial, health and more. While this continues to be one area where we see some caution from the macro environment, we had a good start to the year with several multi-year multi-product transactions and sustained momentum in our indirect channel.
We continue to evolve and strengthen our multi-product platform to help companies gain more comprehensive insight and drive increasingly robust top-down software risk management. Customers who purchase to more solutions now account for the majority of our Software Integrity revenue as we drive cross-selling opportunities and continue to scale our application security testing platform.
In summary, Q1 was a very solid start to the year, delivering strong financial results. We are reiterating our fiscal '23 revenue growth at 14% to 15%, as well as non-GAAP operating margin expansion of more than 100 basis points. We are raising guidance for fiscal '23 non-GAAP EPS growth to 18% to 19%. Notwithstanding continued macroeconomic choppiness, our customers continue to prioritize their investments in chips and systems.
In addition, our resilient business model provides a level of stability uncommon in most software companies. Meanwhile, our high-impact innovation pipeline across our entire portfolio is driving technical differentiation, while solidifying our foundation for continued business growth.
With that, I'd like to welcome Shelagh Glaser to her first Synopsys Earnings Call. We're thrilled to have her on board as her financial, operational and scaling experience as well as a deep understanding of the semiconductor industry are a great asset to Synopsys as we drive exciting growth ambitions. With that, I will turn it over to Shelagh.
