Synopsys (NASDAQ:SNPS) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
Synopsys exceeded Q2 guidance on revenue, non-GAAP operating margin, and EPS, driven by strong execution and AI-driven demand.
The company is raising its full-year 2026 revenue, operating margin, EPS, and free cash flow guidance, reflecting confidence in momentum and market signals.
Strategic initiatives include expanding the multiphysics fusion technology and agentic AI capabilities, with trials in progress and commercial availability expected in the second half of 2026.
Synopsys reported revenue of $2.276 billion for Q2, with non-GAAP operating margin at 39.5% and non-GAAP EPS at $3.35.
The company is progressing with the integration of Ansys, focusing on achieving synergies and improving operational efficiencies.
Synopsys is seeing strong demand across its portfolio, particularly in EDA and hardware-assisted verification, driven by AI and advanced node solutions.
The design IP segment is expected to improve sequentially in the second half of 2026, with a focus on high-value opportunities aligned to AI and hyperscaler demand.
A cooperation agreement with Elliott Management was announced, including the appointment of Jesse Cohen to the board, to drive value creation and operational efficiencies.
Full Transcript
OPERATOR
Ladies and gentlemen, welcome to the Synopsys Earnings Conference call for the second quarter fiscal year 2026. At this time, all participants are in listen only mode. Later we will conduct a question and answer session. If you would like to ask a question at that time, please press star1 on your telephone keypad to remove yourself from that queue. Press Star one again. If you require assistance during the call, please press Star zero and an operator will assist you. Today's call will last one hour. As a reminder, today's call is being recorded at this time. I would like to turn the conference over to Tushar Jain, Head of Investor Relations. Please go ahead.
Tushar Jain (Head of Investor Relations)
Good afternoon, everyone. Welcome to Synopsys' second-quarter fiscal year 2026 earnings call. With us today are Sasseen Ghazi, President and CEO of Synopsys, and Sheila Glaser, CFO. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets and other forward looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to certain non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the Earnings Press Release, financial supplement and 8-K that we released earlier today. In addition, as mentioned in our earnings press release today, we plan to host an Investor Day on September 30, 2026. All of these items plus the most recent investor presentation and the Investor Day information can be found on our website at www.synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I'll turn the call over to Sasseen Ghazi. Good afternoon. Synopsys has delivered a strong second quarter exceeding guidance on revenue, non-GAAP operating margin and non-GAAP EPS driven by solid execution and continued AI driven demand strength. This is an exceptional moment to be the leading engineering solutions provider. EDA, IP and multIPhysics simulation have emerged as essential capabilities in the AI supply chain. AI is scaling semiconductor demand, architectural diversity and complexity of both chips and the systems they power driving increased demand across our portfolio. Our opportunity is expanding as customers design increasingly complex systems from silicon to full scale AI infrastructure and physical AI requiring more integrated engineering solutions across design, simulation and system validation. Synopsys is uniquely positioned to capture this opportunity and our recent Synopsys Converge event showcased the depth of our expanded portfolio and the strength of our roadmap. Zooming out Q2 further reinforced my confidence in our strategy and trajectory. Our global team showed continued strong execution on the Synopsys Ansys integration disciplined focus on higher value IP opportunities and engineering excellence to advance our differentiated innovation pipeline with agentic AI and multIPhysics fusion technology. I look forward to diving deeper on these topics along with our strategy to increase value capture and expand margins at our investor day in September. Based on our momentum, leadership, roadmap and market signals, we are raising our full year 2026 Revenue, Operating Margin, EPS and free cash flow guidance. I'll cover segment highlights before handing over to Sheila for the financial details. Design automation delivered a strong quarter reflecting robust AI driven design activity and sustained demand for advanced node and 3DIC solutions where Synopsys EDA leads. Hardware assisted verification remained a key growth driver with particular demand from hyperscaler and leading semiconductor customers who are scaling, emulation and prototyping for increasingly complex AI designs. This drove multiple strategic System wins across ZS5 Zebu and HAPS200 in EDA. Our leadership in 3DIC is translating into production scale adoption. For example, in Q2 a leading HPC provider successfully taped out an incredibly complex next generation AI accelerator using Synopsys Unified MultIPhysics Aware designed to sign off solution. This demonstrates the production proven capability of our 3DIC compiler platform and we expect sustained adoption as next generation AI designs increasingly move to multi die and chiplet based architectures. We also continue to lead at advanced nodes with over 30 full flow technical wins in the quarter driven by our ability to deliver superior PPA for increasingly complex deployment designs across our EDA portfolio. We are extending our competitive advantage by pioneering new capabilities including multIPhysics fusion, gpu, accelerated computing and AI driven automation. Early results for our forthcoming multIPhysics fusion technology demonstrate meaningful productivity gains including up to 3x faster design closure with higher Engineering Change Order (ECO) success rates and up to 2x faster turnaround times for complex analog designs compared to traditional flows. MultIPhysics fusion is currently in expanding trials with leading customers and will begin ramping into commercial availability in the second half of 2026 as we deliver more value to customers. We expect to share in that value creation as contracts are renewed and expanded. For example, we're seeing early signs of monetization with GPU accelerated eda a premium capability driving both increased customer value and contract uplift. We're also advancing AI driven design. Our agentic EDA capabilities are gaining traction with 20 customers now evaluating solutions across more than 25 specialized AI agents. Spanning front end verification, implementation and analog flows, this agent engineer technology represents a meaningful long term opportunity to further increase productivity and drive higher value customer engagements. We are maintaining our EDA leadership position supported by the success of recent renewals, pipeline activity and monetization trends. Turning to Ansys which delivered another strong quarter, Ansys extends our reach into system level design and multIPhysics simulation, strengthening our position as the leader in engineering solutions from silicon to systems. In Q2 we saw continued demand for system level digital engineering and physics based simulation against across industries. For example, the AI data center buildout is driving SNA demand including and beyond semis as customers use the power of Ansys simulation from chip to grid. In aerospace and defense, customers are adopting ANSYS simulation to generate physics based synthetic data to train AI models for highly complex operating environments. And in automotive, manufacturers are increasingly digitizing engineering workflows and relying on simulation for safety critical systems. Together these trends reinforce our opportunity to deliver differentiated value at the intersection of silicon systems and physics. Turning to design IP we are increasing our alignment with hyperscaler demand for custom AI silicon where our differentiated portfolio first to protocol leadership and silicon proven quality enable higher value engagements. Demand for high speed interconnect IP continues to accelerate driven by AI's massive data requirements. In Q2 our PCIe Gen 7 IP achieved a greater than 90% win rate with 18 new licenses and a growing pipeline. We also continue to see strong momentum in advanced connectivity technologies including 224Gig with multiple wins across leading and emerging innovators. The shift to multi die and chiplet architectures is driving demand for die to die interoperability. In Q2 we secured additional UCIE design wins and achieved a 64 gig tape out on a 2 nanometer process bringing total UCIE lifetime wins to over 150. We're strengthening our position in memory IP with design wins across hyperscalers, AI startups and leading semiconductor companies. In Q2 we also delivered the industry's first HBM4 IP test chip. While we continue to expect muted IP growth For fiscal year 2026, we believe the IP segment bottomed in Q1 and has begun its recovery. We expect sequential quarterly improvement throughout the second half supported by our roadmap execution and pipeline. Importantly, we are focusing our IP business on the highest value opportunities aligned to AI driven demand and hyperscaler customization. These engagements enable us to provide greater value as they increasingly involve deeper collaboration, customized IP solutions and even broader synopsis participation in the design process. Also advancing our IP strategy. We expect to close the pending sale of the processor IP solutions business shortly. I'm increasingly confident in the long term growth of this business and look forward to sharing more at our investor day. I'm also pleased to share that today we announced a cooperation agreement with Elliott Management and the appointment of Jesse Cohen to our board as an Independent Director. Jesse has deep appreciation for the company and our mission. We welcome his constructive insights and I look forward to working with him. In summary, the expansion of AI positions Synopsys for sustainable growth and margin expansion as AI scales both chip complexity and system level design requirements. Our leadership portfolio of engineering solutions across EDA, IP and multIPhysics simulation enables us to deliver differentiated value to customers and to capture a larger share of this expanding opportunity. I want to thank the Synopsys team for an impactful Q2 with disciplined execution, continued technology leadership and engineering excellence driving our next gen solutions.
OPERATOR
Thank you. Before we begin the Q and A session. I would like to ask everyone to please limit yourself to one question and one brief follow up to allow us to accommodate all participants. If you have additional questions, please re enter the queue and we'll take as many as time permits. Please stand by while we compile the Q&A roster. Your first question comes from the line of Siti Panitray from Mizuho. Please go ahead.
Siti Panitray
Thanks. It's Siti Panitray from Mizuho from Mizuho. So, Sasseen, congrats on a good quarter. I want to ask about the IP, business. That's one of the questions we get from investors after the weakness last year it's, good to see that Q1 is kind of bottom and sequential improvement. And you talked about some of the shift towards the higher value more customized IP, segments with hyperscale. Can you give us a sense how these deals are compared to traditional IP, and what other factors give you that confidence? Second half re-acceleration and how should we think about the growth opportunity going forward in IP?
Sasseen Ghazi (President and CEO)
Thank you, CT for the question. Overall I cannot be more enthusiastic and confident about our portfolio in particular the IP opportunity. If you look at the synopsis IP opportunity we have the broadest portfolio serving many markets from artificial intelligence, High-Performance Computing and data center build out to mobile to consumer, automotive, et cetera and that portfolio is available across multIPle foundries. The area that we are focused on when we talk about high value IP opportunities is how do we capture the value that we're delivering to the customers and a different monetization and business model. We're making actually very good progress. As I mentioned number of quarters ago, by the end of this fiscal year we will have few customers with signed agreements with a new business model that provide the opportunity to capture more dollar than the traditional use fee or some level of NRE. The reason the customers is willing to entertain that change in the business model is their entire strategy, especially if you're a hyperscaler to build your own chIPs like the cot. Direction and trajectory is built on the availability of the Synopsys' IP and that discussion is very positive. I'm confident that we will get to the direction I communicated a number of quarters ago which will accelerate our opportunity of growth in IP. And as you mentioned for the short term for this fiscal year what we committed is sequential quarter over quarter growth and as you could see we achieved the 12% Q2 to Q1 Q1 we hit the bottom. I have no doubt we'll continue on delivering that sequential growth for the rest of the year.
Siti Panitray
That's Good to hear that Royalty update on IP and Sheila, I have a follow up question on your margin guidance you raised for the fiscal year. And if I heard you correctly, you said half of that committed ans is cost synergy expected for this year. So can you help us find the magnitude of the remaining synergy opportunity in the back half or in fiscal year 2027? And how should we think about the primary driver for further margin expansion? Any other additional levers you can talk about beyond synergy.
Sheila Glaser (Chief Financial Officer)
Yeah, Thanks for the question,, really. Since we finalized Ansys last year, we've been focused on how we achieve synergies as quickly as possible. As I said, by the end of this fiscal year we'll have achieved about half of our committed synergies and we're doing that in a very systematic way, ensuring that we're continuing to invest in building out the multiphysics portfolio. So in making sure that that's happening and making sure that we've got the right go to market resources, but really looking at areas where we have overlap and duplication and reducing those both in terms of head count and in terms of where we might have had a third party contract with a vendor combining those contracts. And so we've been working through in a very disciplined way to make sure that we're achieving efficiency in really everything we're doing in terms of when we'll achieve the rest of the synergies. I'll talk more about that in our investor day. But we really do want to get through the synergy work as quickly as possible because we want the teams really focusing on building the innovation going forward. Great. Thank you both. Thank you.
OPERATOR
Your next question comes from the line of Joe Kotrochi from Will Spargo. Please go ahead.
Joe Kotrochi
Yes, thank you for taking the questions. I was wondering if you could help us just kind of understand of the 35 million increase to the full year guide on the revenue outlook from business performance. How much of that was related to EDA, versus IP?
Sasseen Ghazi (President and CEO)
Yes, we saw strength across the business. The key driver for the strength is the continued AI semiconductor from a chIP point of view. Opportunities that our customers are seeing and therefore translating into ChIP Start or Design Start and system companies, that is the hyperscales integrating the silicon or expanding into their own chIPs. The Custom Off-the-Shelf model for us it's a great opportunity on both ends on the semiconductor suppliers as well as the hyperscales because for any of these designs you will need EDA, software, you need hardware assisted verification to verify the chIP in the context of the software and IP for Any chIP start you need IP. So the strengths was across the portfolio. The other part that is actually proving to be increase in demand and essentialness is the System and Network Architecture solution. Most of these chIPs are advanced, package thermal is essential. All the physics, simulation like fluid structure, et cetera are essential. So we're seeing the strengths across the portfolio.
Joe Kotrochi
Thank you for that. And then I guess maybe as a follow up, wondering if you could just kind of provide us any sort of color on. You talked about the engagements that you're seeing on agent-based AI and agents. How should we think about just the structure of those contracts and then I guess as we look further, how should we think about agent-based AI driving EDA is share of R&D expenditure higher?
Sasseen Ghazi (President and CEO)
The whole artificial intelligence for EDA started from the journey of reinforcement learning where we insert AI in every part of our products to a copilot or an assistant for the human engineer. And we've always talked at some point the workflow, will change toward an autonomous set of engineers or agent engineers,. And we're seeing it happening right now. What we're witnessing is the traditional EDA product delivery where the focus was on the user interface simplifying out of the box results for the human engineer to manage and tame the complexity of the chips that they're designing to a combination of human engineer and agent engineers, running our tools. And that's a fantastic opportunity for us because in both cases you need more of our products in order to deal with the complexity and the new workflow, that our customers are trying to evolve to the current thinking and we're in early exploration with customers is how do we build from the subscription license that our customer has for the human engineers to run our product to subscription plus consumption for the agents, to utilize our products. So that's, that's absolutely an upside for our EDA and System and Network Architecture business as agents, become more pervasive in our customers workflow,. Thank you. Thank you.
OPERATOR
Your next question comes in line of Vivek Arya from BofA Securities from BofA Securities. Please go ahead.
Liam Fong
Hi, this is Liam Fong, Lack of Vivek. Thank you so much for taking our questions. So I guess just to start, in regards to your largest customer,, it sounds like 18A and 14A pipelines pipeline building. Have you seen any of that benefit? And if not, how and when does it start to impact your numbers?
Sasseen Ghazi (President and CEO)
So the great news for Synopsys is any new foundry or a new technology within the same foundry is a tailwind in particular for our IP business because you cannot on ramp a customer to any technology, process, technology or foundry without our IP, it starts with the foundation IP which is the library etc. And the interface IP. So when we see or you hear about customers like Intel, Intel Foundry expanding their engagements, we are of course aware of these engagements very early on when that target customers evaluationuating the technology. Now to remind you, we get paid once the customer commits to the technology and they want to go into production during the evaluation phase. It's just an evaluation. Once it goes into production, we get paid for it. So in terms of how are we taking it into account for fiscal year 2026 we're not accounting or taking into account or in our guidance any upside. But as these wins move from an evaluation into production, we'll absolutely see the upside.
Liam Fong
Makes sense. And for my follow up, new investors, new board members,, what do you expect to change from a pricing or an operational perspective.
Sasseen Ghazi (President and CEO)
You're referring to Jesse Cohen and Elliott Management. Actually from day one, our interaction with Elliot and in particular in number of interactions I had with Jesse, there was an immediate alignment on the value creation that synopsis provide the essentialness of our assets. There was no debate on that point. We're passionate about the portfolio and the leadership we have. The two other points that they were made. Given the value creation and essentialness of the asset, is there an opportunity to monetize further? And the third point, can we improve the efficiency, profitability and translating it into a better operating margin for the company as we've been talking about for at least three quarters now, we see the same thing. You need an inflection point in order to go from that value creation to broader value capture. And we're seeing it on the software side with artificial intelligence, as I mentioned earlier, with the opportunity to have broader set of users of our technology from human engineer to agentic engineers. And on the IP, side, with the move from a merchant silicon to Custom Off-the-Shelf and the essentialness of the IP, portfolio, we absolutely see the opportunity to change the business model and capture more dollar for the value we're delivering on the operating margin. There's no debate. There's an efficiency as well that we can drive. We're demonstrating it in the last number of quarters this year we're raising our operating margin by more than 300 basis points in terms of delivery to where we finished last year. And we see the opportunity to continue on improving on both the top line and bottom line. Thank you very much. Thank you.
OPERATOR
Your next question comes from the line of Jason Salino from KeyBank Capital Markets from KeyBank Capital Markets. Please go ahead.
Jason Salino
Great. Thanks for taking my question. Wow, Cecile, not shying Away from, you know, tough questions. So, you know, for me, I wanted to ask about your IP business, You know, it seems like it was through the trough, as you might call it. Did you close, you know, any business earlier than expected or see some earlier, you know, drawdowns? I'm just trying to, you know, understand the sequential improvement commentary. Like are you upticking on IP here? Maybe? That's my first parter.
Sasseen Ghazi (President and CEO)
Yes. Jason, the current IP, sequential improvement is based on the pipeline that we've had and the closing. The engagements that we could see in our forecast with the existing business model that we have with our customers. Where you are seeing a strong confidence and enthusiasm is the engagements around the new business model. In particular in High-Performance Computing and the artificial intelligence based chips with the hyperscale.
Sheila Glaser (Chief Financial Officer)
Yes. And Jason, I would just add that as we talked about last time, a part of the sequential is as we move the resources to more fully deploy on hpc, there's title availability, that becomes, you know, available as we move throughout the latter half of the year. And so we need those titles obviously to be available for the customers to pull down.
Jason Salino
Okay, helpful. And then when we look at the Ansys, business, it looks like it's growing, you know, in the mid teens even when excluding the accounting stuff, but keeping the guidance the same for the year. I think the guidance assumes roughly 10% growth,. You know, help me understand, you know, the strength in Ansys, and why you're seeing these mid teens growth levels and what would, you know, drive that steep decel, you know, down to double digits and in the second half for the full year. Thank you.
Sasseen Ghazi (President and CEO)
So the one thing I'll start with is our very successful integration of the two companies. As you know, acquiring a company like Ansys with a broad portfolio as well as a go to market motion, making sure we're not missing a beat on both the technology integration as well as the go to market. I cannot be more thankful and happy to see that integration coming along from a market dynamics point of view. For the portfolio there is the semiconductor part of Ansys. Think of it like the EDA part of Ansys. And that's where the multiphysics fusion into the portfolio is taking place. The number of the engagements with customers with that new technology is happening at a rapid pace with very good outcome. Now the monetization of that is not happening yet because we're in an eval phase with those customers with the new technology. The part of Ansys that serves industrial, automotive, aerospace and defense, we're Seeing an uptick. And the reason we're seeing that uptick is picture those products that are being designed for the future. They're intelligent systems, they're very complex. The need for more simulation and analysis to reduce the cost as well as increase the fidelity of delivering to that product is the sweet spot of Ansys portfolio because it's the trusted multiphysics simulation for these markets. So that's the tailwind that we are outside, of the semiconductor.
Sheila Glaser (Chief Financial Officer)
And I would, Jason, I would just add there's a mechanical aspect, here. As we closed the acquisition of Ansys, in July last year, we retooled them to be on our fiscal year, which means that their December, their prior Q4 is actually our Q1. And so you saw kind of outsized growth in Q1, our fiscal Q1. And then as we go throughout the year, they're reprofiled to ours. And so we do see strong growth for Ansys,, but it's just kind of got a different seasonality,, seasonality, to it. And we anticipate that, you know, that seasonality, remains with their strongest quarter always being a Q1 because that, you know, traditionally had been their Q4. So there's a bit of mechanical nature to things too.
Sasseen Ghazi (President and CEO)
Okay, perfect. Wonderful. Thank you. Thank you.
OPERATOR
Jason, your next question comes from the line of Gary Mobley from Loop Capital from Loop Capital. Please go ahead.
Gary Mobley
Hi everybody. Thanks for taking my question. Just seen over the last several quarters, when describing chip design activity broadly, you talked about a tale of two cities where in the analog design community, I think you were, you know, hopeful you would see, some acceleration in chip design activity, but not quite yet. You know, I think the evidence is there in the marketplace that a lot of these, you know, big analog chip companies, are seeing, you know, much improved, a much improved business environment. So therefore, have you seen sort of a resurgence in that customer base from a renewal, activity perspective, or just in general chip design activity?
Sasseen Ghazi (President and CEO)
You know, Gary, we track chip start very, very closely. What we are seeing is a chip start increase or a design start, increase in anything artificial intelligence related in industrial, in automotive, while customers are reporting strength in revenue. There are multiple reasons for that. But the design start,s are not growing, definitely not growing at the pace as we're seeing for the other cohort now where we're seeing customers. Excitement in the analog space is things related to physical artificial intelligence, because you need sensors, you need actuators, you need the actual analog to interface, with the real world and translating it into the digital world,. But from a design start,, it's still fairly Muted design start, activity in that domain.
Gary Mobley
I appreciate that color. As my follow up I wanted to sort of get a gauge on the monetization of maybe the half dozen or so joined. The collaborated products between Synopsys and Ansys is outlined at at Converge. When would you expect the first phase of that $400 million in revenue synergies? You know, post acquisition and then eventually that $1 billion in revenue synergy
Sasseen Ghazi (President and CEO)
fiscal year 2027? Because the we released to limited set of partners the technology, we're expanding it further as we're getting more feedback and input from the early customers that they're evaluating the technology. And the key principle here, Gary, the key principle that we are putting guardrails around with the sales organization and the engagement with customers is one-plus-one must be greater than two,. Many of these customers, they have access to Synopsys technology, they have access to Ansys technology. The new multiphysics fusion, it's additive to the baseline. So one-plus-one must be greater than two, to get access to that technology. And that will start in FY27. We did communicate a 400 million in revenue synergy for that base. The base meaning the semiconductor related multiphysics opportunity. And we, I want to say had a thesis that is accelerating around the whole physical artificial intelligence digital twin, etc.. Etc. So we're still on track to what we have committed and actually the confidence is higher given the early customer feedback that we're receiving. Thank you. Thank you Gary.
OPERATOR
Your next question comes from the line of Andrew De Gaspari from BNP Paribas from BNP Paribas. Please go ahead.
Andrew De Gaspari
Yes, thanks for taking my question. I wanted to ask one on what you mentioned about the leading HPC provider successfully taping out the next generation of AI accelerator, and just wondering, is this like a first one in terms of what you've seen from a data center customer, and you know, how meaningful could this, be for you?
Sasseen Ghazi (President and CEO)
If you're referring to hyperscale taping out an accelerator, No, it's not the first one. There are of course different hyperscales at different stages of maturity when it comes to their ability to bring their own silicon inside their data centers. We in each one of these engagements, Synopsys, IP, hardware, eda, Ansys portfolio is in use. And when I say everyone is everyone, there are none of the Custom Off-the-Shelf that does not use the EDA hav, IP, and sna. The point I'm emphasizing for IP, in particular, as these customers are moving to more sophisticated complex cot, they need to make sure they have a customized ip, the latest IP, that is competitive with what they get from a merchant silicon. And that's the opportunity we're seeing that is expanding. And I'm very excited about and confident will be able to change the current engagement model,.
Andrew De Gaspari
That's helpful. And Sheila, I just want to ask a question on the organic revenue for the quarter. You know, just given the noise around the channel and also the divestitures, I mean we're shaking out somewhere between 3 and 4% ex ansys. Is that what you're seeing or are we missing something? Thanks.
Sheila Glaser (Chief Financial Officer)
Yeah, I think in terms of the channel piece, you saw US 60 million for the year that included the 12.5 that was in Q2. And you can think about that growing through the year as we're building with the channel. And we've talked about IP, sequentially growing, which you saw from Q1 to Q2. So we'll have sequential growth, And then really for the balance of the business, it's really timing of when, you know, because we've got the upfront hardware piece in EDA, so it's really timing between Q3 and Q4 of hardware.
Andrew De Gaspari
Got it, And referring to Q2, this quarter specifically, is the organic growth accurate?
Sheila Glaser (Chief Financial Officer)
Oh, in Q2, yes. In Q2 it's really, you know, the upfront piece, we saw IP grow, We had a good hardware quarter also in Q2. And then, you know, you got the specifics on Ansys performance too, Ansys obviously had the much bigger Q1.
OPERATOR
Got it. Thanks. Your next question comes from the line of Joe Vruink from Baird from Baird. Please go ahead.
Joe Vruink
Hi, thanks for the time. Tonight I wanted to go back to Multiphysics Fusion and is the greatest initial applicability really within sign-off? And I asked because you Synopsys's and Ansys already had very high market share, in sign-off respectively. But I think the opportunity is probably accelerating at the category level just given what's happening around advanced packaging,. And that certainly brings a lot more sign-off challenges into design efforts. And so is it really a case where the overall pie is starting to grow and the bringing together of your two companies into this new format is going to capitalize on that?
Sasseen Ghazi (President and CEO)
Yeah, Joe, you're absolutely right. The sign-off is always an essential part before a customer commit to the next phase of the workflow. And we're fortunate that we have the sign-off leadership across multiple physics as well as timing, power, etc. The opportunity and the innovation we're driving is customers are moving more and more towards 3D IC and chiplet in an advanced package. The Complexity of beyond electronics into structure fluid thermal,. Taking these factors into account during the design phase, we have the leadership position in 3D IC compiler and fusion compiler bringing that technology in during the design phase. So our customers has a convergent flow so they're not running into surprises later in the flow is the value we're adding to customers as much as the sign-off piece is important. Bringing some of these algorithm and solvers early in the design phase is the value that we're engaged the customer on.
Joe Vruink
That's great. And then on backlog,, I know this is just really noisy right now, but the quarter-over-quarter declined to 11 billion. Is that as expected and is it relating to just when renewals happen to fall within the fiscal year?
Sheila Glaser (Chief Financial Officer)
Yeah, you got that right, Joe. It's, you know, there's the normal ebb and flow, We build and then we burn, And it's really based on when renewals are, and is very much what we expected.
OPERATOR
Thank you. Your next question comes from the line of Jave Leshower from Griffin Securities from Griffin Securities. Please go ahead.
Jave Leshower
Thank you. Question for you, Sheila. First on expenses, then I'll follow up with Sassim for the follow-up. Your headcount as of the end of Q2 was down about 7% from the peak at the close in Q3 after Ansys added about 6,000 or more employeess. So it would seem on the one hand that you have a few points left to go to fully complete the Reduction in Force (RIF) that you announced some time ago. On the other hand, what's interesting is that over the last number of months there's been an unmistakable sequential uptrend in your open positions for both Synopsys, Classic and Ansys Classic. As an example, you know, synopsis, Classic positions are more than four times the number at the end of Q4. Ansys Classic more than double where they were a few months ago. So maybe talk about what you're thinking of with respect to bringing people in as per those numbers versus on the other hand, reducing your headcount to keep the margins in line. And then my follow-up.
Sheila Glaser (Chief Financial Officer)
Yeah, and so you're right, Jay. We still have some more reductions to go for our 10%, So as we had said, we're you know, doing that through the course of the year. So there's still some more actions that are taking place. But at the same time we're also investing in critical areas and making sure that we've got the right technical folks both in the go-to-market and on the engineering side to deliver the roadmap. That Essene has been talking about. So we are doing a mix of reducing in areas that are not priorities for us while we are investing in key priorities for for ourselves. And we're being very disciplined about the roles that we're hiring for. And it's really about building the roadmap out and then making sure that we've got the right robust go-to-market team to be able to support that. But we are still committed to the 10%, You're right, we've done a majority of the reduction. So what we have left to go is a bit more measured. But nonetheless we're still investing in making sure that we've got Creek Key critical technologies funded.
Jave Leshower
Properly understood. Thank you. So seeing the accounting thing with regard to the Ansys channel is interesting, but I'm more interested in the operational plans that you have for that channel. In Ansys last year it was a more than $600 million business, overwhelmingly not EDA,. The first batch of the Multifusion cohort is largely about EDA, integrations. It probably would have happened anyway. So could you talk about what the product set has to look like beyond this first batch in Multiphysics, to really enable you to sell more conjoined products into that Ansys channel beyond just the EDA, products and then maybe speak more broadly about what your new Chief Revenue Officer (CRO) has been doing over the last half year.
Sasseen Ghazi (President and CEO)
Yeah Jay, your observation is correct. The Ansys sales channel had the direct, the sales organization, had the direct sales and the channel. Most of the EDA,, were handled with direct. Very little was handled in the channel. So the semiconductor customers and the customers that they're classic to Synopsys and the multiphysics fusion that will continue on happening primarily through the direct channel. And in most of the direct channel is the Synopsys classic channel where we have integrated the Ansys EDA,, into the Synopsys classic go to market team. There's some co selling opportunity with some of these customers and that's what Mike, the CRO is working on and ensuring that there is a smooth interface to the customers. So far actually I've been very pleased with the way that integration is going from a go to market point of view then you have the channel partner that Ansys has built over decades which is truly impressive. The ability to go after long tail of customers and capture the opportunities is something that the classic Synopsys would like to leverage in areas of the portfolio that we did not have the similar investment or coverage. So we are moving some products from the classic Synopsis into the channel in order to just do what they do best, engage with customers in a light touch and broadly to sell that portfolio. Mike,, as you know brings in a very strong knowledge of both EDA,, Semiconductor and has a very strong view and experience in the whole system level design and the whole industrial, automotive, aerospace from just the fact where he came from. So he's been very deliberate on architecting the organization to deliver the current as we're building the future opportunities. Thank you. Thank you. Jake.
OPERATOR
Your final question comes from the line of Josh Tilton from Wolf Research LLC from Wolf Research llc. Please go ahead.
Josh Tilton
Thanks guys. I've never sounded so official in my life. I have two. The first one is more of a clarification question. I was just hoping that you can maybe you know, help us unpack some of the strength you saw from a geographic perspective. China was up sequentially, but North America and I think Europe declined. So anything to call out on what kind of drove the dispersion there. And then I have a follow-up
Sasseen Ghazi (President and CEO)
Overall, actually, I'll comment on China first but then the rest of the regions there are no surprises per se. And even with China there isn't much in terms of change from what we've communicated before. Where the design starts, environment in China remains challenged given all the restrictions and the cumulative impact of the restrictions. And as we've communicated we're fairly pragmatic when it comes to our guide in China as far as the US, Europe, etc. Where we are seeing strength as outlined in our System and Network Architecture portfolio in number of areas outside of semi like aerospace and defense, automotive, industrial and that's happening across
Sheila Glaser (Chief Financial Officer)
the board and on China in particular that did show strong growth and that's also the addition of Ansys, because we didn't have Ansys,. And then it also was a pretty easy compare versus Q2, So we haven't changed our anything in terms of our forecast of China for the year. We're continuing to be pragmatic about China.
Josh Tilton
Makes sense maybe, maybe just a follow up and a very high level on a kind of stepping back. I think a lot of investors listening to this call and even myself kind of look at synopsis and see a whole laundry list of reasons as to why we are all hoping and betting and you know, looking to a future where we think growth can be better whether it's pricing on multi physics, fusion, the IP business, recovering, you know, agentic opportunities, new hardware, like the list is endless. But Cecile, when I listened to you in the prepared remarks it felt like you used the word durability of growth, a lot more than kind of this talk track around improving growth. And I'm just kind of curious, you know, I don't want to ruin what you're going to give us, the investor day. But just like how do you think about the potential for synopsis to improve the growth rate from here versus more that durable type of growth, you were talking to? Anything you could just help us, you know, understand maybe the shape or just how you're thinking about, you know, the future growth potential of the business. Given that whole laundry list of opportunities I kind of just rattled off, that would be great.
Sasseen Ghazi (President and CEO)
Yeah. Thank you, Josh. The the part I want to emphasize is there's a beauty about having the durability of the business, but at the same time there are a number of inflection points you just as you said, rattled number of them the few I outlined that there is commitment, focus, discipline in changing the monetization. Capture is around, IP is around EDA and SNA. When it comes to the inflection point with artificial intelligence, we're not expecting the customer to pay 20, 30% more by just delivering the same. But as they're injecting a change in their workflow with agents, with collaborating with humans, and there's a massive increase in demand for licenses to train and influence these agents, we are absolutely expecting that the change in monetization and business model will happen and we will drive it and we'll make it happen. That's what I'm really looking forward for the investor day to share with you all. How are we thinking about it and this is not something new. We started thinking about it in the last couple months. We've been talking about it for a number of quarters that we are determined given the value we're delivering and creating, we will capture different value and different business model to drive it home. And we'll talk about it more at Investor Day. And I know we're out of time with that, I'll take the opportunity to just really wrap up with my enthusiasm to be the leading provider of engineering solutions from silicon to systems. Our portfolio spanning the eda, IP multiphysics simulation are all essential for the artificial intelligence innovation. A huge thank you to our global Synopsis team for an amazing quarter and thanks to our customers shareholders for your continued commitment. Thank you.
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