Synopsys completed the acquisition of Ansys on July 17, 2025, for approximately $34.9 billion, comprising $17.6 billion in cash and $17.1 billion in common stock. This strategic move aims to combine Synopsys' EDA expertise with Ansys' S&A capabilities to address growing demand for integrated design and simulation tools.

The company completed the sale of its Software Integrity business for $1.65 billion in September 2024. Additionally, as a condition for the Ansys Merger, Synopsys is divesting its Optical Solutions Group and PowerArtist RTL business to Keysight Technologies, Inc., with assets held for sale totaling $74.3 million as of July 31, 2025.

Following weakness in the Design IP segment, which saw an 8% revenue decline for the three months ended July 31, 2025, management plans to reallocate resources to higher growth opportunities. This is a direct response to challenges like China export control restrictions, weaker demand from a major foundry customer, and roadmap issues.

Total cost of revenue and operating expenses increased by $408.9 million or 35% for the three months ended July 31, 2025, compared to the prior year. This was primarily driven by $196.8 million in employee-related costs from headcount increases, $65.7 million in legal and consulting fees for the Ansys Merger, and $63.7 million in amortization expenses from acquired intangibles.

The company is currently in the process of integrating Ansys' operations, control processes, and information systems into its existing environment. While Ansys' financial results for the current quarter were not material, management acknowledges the complexity and time-consuming nature of this integration, which is critical for realizing anticipated synergies.

The divestiture of the Software Integrity business and ongoing regulatory divestitures of OSG and PowerArtist RTL demonstrate management's commitment to optimizing the product portfolio. The planned reallocation of resources within the Design IP segment further indicates proactive management of underperforming areas to focus on higher growth opportunities.

Following the Ansys Merger, total debt increased significantly to approximately $14.3 billion as of July 31, 2025. This substantial indebtedness may limit financial flexibility, increase interest expense, and has led to the suspension of the stock repurchase program until debt levels are reduced.

China export control restrictions, including the Q3 2025 BIS Restrictions (though later rescinded), have negatively impacted the Design IP segment. The evolving nature of U.S. Export Regulations creates uncertainty, with potential for new restrictions to delay product introduction or prevent global deployment, posing an ongoing risk to international markets.

The scale of the Ansys Merger magnifies integration risks, including potential failure to realize expected synergies, business disruptions, and difficulties in retaining key employees. Ongoing regulatory divestiture commitments, with an interim hold separate order, further restrict integration efforts until completion, potentially delaying benefits and incurring penalties.

Synopsys operates in highly competitive industries, facing rivals like Cadence Design Systems and Siemens EDA in Design Automation, as well as a growing number of silicon IP providers. The dynamic demand for products and services, coupled with rapid technological evolution, necessitates continuous innovation to maintain competitiveness.

The company's growth strategy emphasizes expanding technology leadership and driving sustainable growth through R&D. Success hinges on its ability to anticipate and lead critical development cycles, rapidly innovate, and offer products with high integration and individual performance, particularly in AI-driven chip design.

Consolidation among semiconductor and electronics customers could lead to increased bargaining power and reduced spending. Additionally, national policies, such as China's efforts to build independent EDA capabilities, introduce new competitors and could adversely affect Synopsys' ability to compete internationally.

For the three months ended July 31, 2025, cost of revenue increased by 31% to $380.6 million, while total revenue grew by 14%. This disproportionate increase, driven by $35.7 million in hardware-related costs and $31.9 million in amortization of Ansys intangibles, led to a decrease in gross margin percentage from 80.9% to 78.1%.

Total operating expenses for the three months ended July 31, 2025, rose by 36% to $1,193.9 million. Key drivers include a $116.4 million increase in R&D, $48.0 million in Sales and Marketing, and $130.2 million in General and Administrative expenses, largely attributable to employee-related costs from organic headcount growth and the Ansys Merger.

Amortization of acquired intangible assets, included in both cost of revenue and operating expenses, saw a substantial increase. For the three months ended July 31, 2025, it rose by 220% in cost of revenue to $46.4 million and by 598% in operating expenses to $28.6 million, primarily due to intangibles acquired from the Ansys Merger.

Research and development expenses for the three months ended July 31, 2025, increased by 23% year-over-year to $625.3 million. This significant investment is primarily driven by headcount increases aimed at expanding and enhancing the company's product portfolio, including AI initiatives and integrated design tools.

The acquisition of Ansys is strategically positioned to combine Synopsys' expertise in electronic design automation (EDA) with Ansys' simulation and analysis (S&A) capabilities. This integration aims to accelerate AI-driven chip design across the full-stack EDA suite and meet the growing demand for advanced integrated design and simulation tools.

The company acknowledges risks related to new laws and regulations affecting AI technologies, particularly concerning intellectual property ownership and copyright protections. Uncertainty in how U.S. courts will address AI-related IP could expose the company or its customers to infringement claims, potentially requiring significant resources for compliance and defense.

The Ansys Merger, valued at $34.9 billion, was substantially funded by new debt. As of July 31, 2025, long-term debt increased dramatically to $14.3 billion from $15.6 million in October 2024, reflecting the issuance of $10.0 billion in Senior Notes and a $4.3 billion Term Loan Agreement.

The existing stock repurchase program, with $194.3 million remaining authorization, has been suspended. This decision was made in connection with the Ansys Merger, indicating a shift in capital allocation priority towards reducing the substantial debt incurred from the acquisition.

The sale of the Software Integrity business in September 2024 generated $1.65 billion in aggregate consideration. Additionally, the sale of an office building in Q2 fiscal 2025 yielded $74.3 million in cash. These divestitures provide liquidity, partially offsetting the cash outlay for the Ansys acquisition.

The company is subject to evolving corporate governance and public disclosure regulations, including new sustainability reporting standards like California's climate-related disclosure laws and the EU's Corporate Sustainability Reporting Directive. Compliance with these complex and evolving standards is expected to be costly, difficult, and time-consuming, potentially impacting financial performance.

Synopsys acknowledges its business is subject to evolving corporate governance and public disclosure regulations and expectations. Management is actively monitoring and evaluating the impact of these changes, indicating a commitment to adapting governance practices and disclosures, despite the inherent complexities and costs.

Uncertainty in the macroeconomic environment, including sustained global inflationary pressures and elevated interest rates, has led some customers to postpone decision-making, delay drawdowns, and decrease spending. This caution has limited the company's ability to maintain or increase sales from committed contracts.

U.S.-China trade policy, export control restrictions (such as the Q3 2025 BIS Restrictions that impacted Design IP), and other geopolitical pressures continue to create uncertainty. These factors have negatively impacted business in China and could lead to further disruptions in international markets, affecting revenue and operating results.

New legislative developments, including the One Big Beautiful Bill Act (OBBB), the 15% corporate alternative minimum tax (CAMT), and OECD Pillar Two Model Rules, will become effective in fiscal 2026/2027. Synopsys is evaluating the impact of these complex tax changes, which could affect its effective tax rate and require substantial compliance expenses.