Synopsys, Inc.

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Synopsys, Inc.

700 East Middlefield Road
Mountain Valley, California 94043
U.S.A.
Telephone: (650) 584-5000
Toll Free: (800) 541-7737
Fax: (650) 584-4249
Web site: http://www.synopsys.com

Public Company
Incorporated: 1986 as Optimal Solutions, Inc.
Employees: 4,362
Sales: $1.09 billion (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: SNPS
NAIC: 541512 Computer Systems Design Services

Synopsys, Inc. is the leading developer of software used in designing semiconductors, a field known as electronic design automation, or EDA. The company's products help engineers to develop and test the design of integrated circuits before production, allowing designers to achieve the optimal standards of cost, power consumption, and size in the electronic "chips" used in innumerable products. Synopsys sells its products to semiconductor, computer, communications, consumer electronics, and aerospace manufacturers. The company operates more than 60 sales and research and development offices in North America, Europe, Japan, Israel, and the Pacific Rim.

Origins

Beginning in the 1970s, electronic design automation (EDA) software became a key factor in the dramatic advances of the electronics industry. Increasingly complex integrated circuits (ICs) and electronic systems, coupled with a scarcity of qualified IC engineers, created a need for software that could reduce the time to market and product design and development costs, while facilitating the design of reliable, high-speed, high-density ICs.

EDA design methods changed rapidly, with three new generations of enabling technologies. The 1970s brought the first generation of EDA: computer-aided design (CAD). Computer-aided engineering (CAE) was the technology of the 1980s, representing an even greater improvement over the archaic, manual design methods. CAE made great progress in automating the design of complex integrated circuits, but engineers were still spending needless hours connecting the thousands of nodes (or gates) used on silicon chips. CAE could not keep up with the fast-paced changes of the electronics industry, and increasing circuit complexity led to an opening for a third generation design method in the 1980s. It was at the crossroads of the third generation of EDA technology that Synopsys emerged.

Aart de Geus, who led a work team at General Electric Micro-electronics Center, developed a set of ideas for a new software technology called Synthesis. With Synthesis, engineers would be able to "write" the functionality of a circuit in computer language, rather than describing it in terms of individual gates. The software would automatically create the logic synthesis, saving design time and freeing engineers to focus on creative design solutions rather than manual implementation. Synthesis would create circuit designs from hardware languages (such as VHDL and, later, Verilog), supporting the new generation of EDA technology, hardware language design automation (HLDA).

In 1986, de Geus and several other engineers received support from General Electric and formed Optimal Solutions, Inc., dedicating themselves to the development of Synthesis software. After building the initial prototype, the company relocated to Mountain View, California, renaming itself Synopsys (SYNthesis OPtimization SYStems). In 1987, EDA entrepreneur Harvey Jones became president and CEO of the company, leaving Daisy Systems, where he had been president, CEO, and cofounder.

From 1986 until 1990, the company focused on becoming "The Synthesis Company," as well as on changing the methodology of modern electronic design. Synopsys quickly jumped to the forefront of top-down design companies, launching an era that would be defined by top-down design. In fact, Synopsys had virtually no competitors in the synthesis market.

Synopsys was successful in marketing its new synthesis technology by demonstrating improved circuit design quality through advances in timing optimization. Sales in the 1980s, and in fact throughout Synopsys' history, demonstrated dramatic increases each year. In 1987, Synopsys' revenues were $130,000. The next year, revenues rose by more than 700 percent, to $976,000. An even more dramatic increase occurred in 1989, when revenues skyrocketed by another 700 percent, to $7.3 million. The company entered the 1990s with a 204 percent increase, ending fiscal 1990 with $22.1 million in revenues.

Business Scope Widening in the 1990s

Recognition of the vital importance of hardware description languages (HDLs) led the company to broaden its focus in the 1990s. In 1990, Synopsys purchased a VHDL simulator from Zycad Corp. and introduced test synthesis products, anticipating the acceptance of VHDL as the computer language of choice. Although other companies had used HDLs, including VHDL, before Synopsys entered the market, usage was primarily to meet Department of Defense documentation regulations. Synopsys offered the first synthesis technology that was well supported and marketed, spawning widespread reliance on HDL as a productivity tool. In 1991, Synopsys ended its fiscal year with a 55 percent increase in sales, and revenues of $40.5 million.

By 1992, Synopsys counted among its customers nine of the top ten computer makers, the top 25 semiconductor companies, and many other prominent businesses. Using synthesis, companies cut their custom-chip design time by 30 percent. Synopsys' $50 million operation owned more than 75 percent of the logic synthesis tools market, which was EDA's hottest growth area. In 1992 and 1993, Synopsys would introduce both design-for-test products and Design-Ware methodology for smart design reuse.

Although clearly the industry leader, Synopsys faced its first real competitive challenge in 1992. Vantage Analysis Systems, Inc., the leading VHDL simulator vendor, based in Fremont, California, organized an alliance with eight synthesis vendors. Vantage joined broad-based EDA suppliers including Mentor Graphics, Cadence Design Systems, Racal-Redac, and Viewlogic, who purchased synthesis technology in a joint effort to unseat Synopsys as the synthesis market leader. Although Synopsys no longer had a monopoly on the synthesis market, the company remained in control of more than 50 percent.

Since capital budgets were loosening and only approximately 5 percent of electronics designers used HDLs at all in 1992, some companies looked to displace Synopsys. Cadence Design Systems and Mentor Graphics emerged as Synopsys' primary competitors. Both companies possessed greater financial, technical, and marketing resources, as well as larger installed customer bases than Synopsys. Synopsys' profits had fallen sharply, in large part due to a fivefold increase in the cost of software license revenues (from $722,000 in fiscal 1990 to $3.6 million in fiscal 1991).

In 1992, Peter Schleider, an analyst with Wessels, Arnold & Henderson, predicted in an interview with Electronic Business that Synopsys' market share would fall to the 40 percent range. Amidst talk that the company might be bought by a larger competitor, Synopsys announced that it would go public in the spring of 1992. Synopsys President Harvey Jones told Electronic Business, "We have no interest in being a tool vendor in someone else's strategy. We feel we can drive a paradigm shift all on our own."

Three corporate shareholders sold stock in Synopsys' 1992 initial public offering: Harris Corp., Sumitomo Corp., and Zycad. Synopsys also was backed by three venture capital firms, none of whom participated in the stock offering: Oak Hill Investment Partners, investment funds affiliated with Technology Venture Investors, and Merrill, Pickard, Anderson & Eyre IV. Synopsys announced the sale of two million shares of stock, at an initial selling price between $13 and $15 per share. The expected $19.6 million proceeds would be used for working capital and general corporate activity, including strategic acquisitions.

Also during the spring of 1992, Synopsys announced that it would link its suite of high-level design tools with Mentor Graphics Corp.'s Falcon framework. This announcement was a surprise to Cadence Design Systems, whose executives had expected their own framework to be chosen for the linkage. According to Electronic News, Synopsys' senior product marketing manager, Kevin J. Kranaen, attributed the selection of Mentor's framework over Cadence's to flaws in Cadence's interface, "based on inter-mediate files with shallow integration."

In June 1992, Synopsys introduced yet another breakthrough in synthesis technology: version 3.0 of its synthesis tools. The new tools further accelerated sequential timing of electric circuits, using a path-based timing verifier. Designers could take advantage of the new tools in applying synthesis to increasingly common multi-clock, multi-cycle, and multi-phase communications designs. In addition, timing-driven design of electronic circuits could be maintained throughout the design process. Although other companies owned products capable of sequential design, Synopsys' version 3.0 was the first product that could optimize sequentially in a timing-driven fashion, by manipulating data through a timing verifier.

Company Perspectives:

At Synopsys we talk a lot about commitment, and about what it takes to be a great, enduring company. A key element of Synopsys' success is our strong set of core values: Integrity, Execution Excellence and Leadership. We adhere to these principles because they are right, and because they achieve results. Our first commitment is to our customers. Synopsys is dedicated to enabling its customers to design amazing chips by delivering the most complete semiconductor design solution through a combination of software, services and intellectual property. Customer satisfaction is Synopsys' most critical measure. We track success "one chip at a time."

In September 1992, Synopsys introduced DesignWare, a new product area that would facilitate the "smart re-use" of electronic designs through methodologies, tools, and libraries. Synopsys entered into a cooperative agreement with Texas Instruments and Comdisc Systems, using DesignWare to link TI's custom digital signal processing (DSP) architectures to Comdisc's Signal Processing Worksystem. To increase the quality of its customer support, in 1993 Synopsys introduced SOLV-IT!, a 24-hour customer service that combined the company's complete design knowledge database with information retrieval technology.

Synopsys signed on as a supporter of a new initiative sponsored by Cadence in early 1993. The new effort, VHDL Initiative Toward ASIC Libraries (Vital), initially made Synopsys wary, when it seemed that Vital was focused on tying Verilog libraries into the VHDL language. Verilog, a competing hardware description language, was developed by a company that was later acquired by Cadence. Synopsys initially withdrew its support, not wanting to participate in the development of an initiative that could become competitive with its own products. It became apparent, however, that support of Vital could promote Synopsys as a leading vendor and that, without Synopsys, Vital would not succeed. In January 1993, Synopsys announced that it would support Vital with technical expertise and experience in ASIC libraries for synthesis, simulation, and test tools. This support was provided with the stipulation that the group must encourage the development of a VHDL ASIC library standard.

A new high-level design tool marked the expansion of Synopsys' line of electronic designs in January 1993. The FPGA Compiler was introduced, featuring architecture-specific logic optimization and mapping and state machine optimization to increase performance of FPGA designs. FPGA represented a major growth area for Synopsys, as the complexity and performance requirements of the FPGA marketplace demanded more efficient design methodologies, and only 10 to 20 percent of the people who could be using high-level FPGA design tools were actually using them.

Five years after its spinoff from General Electric Co., Synopsys held a 70 percent share of its chief market, specialized software to speed chip design. Synopsys' HLDA software was used by almost every major chip designer, from Intel Corp. to NEC Corp., as well as by such computer makers as Apple, Sun Microsystems, and Sony. In 1992, Synopsys' sales had skyrocketed, jumping by 56 percent to $63 million. Profits doubled, reaching $7.1 million, and Synopsys' stock closed at $36.50 in January 1993, 50 times its projected 1993 earnings.

One reason for Synopsys' success in 1992 was a 73 percent increase over the previous year in international revenue. This growth was achieved through two major investments. First, Synopsys restructured its European offices. Continental Europe was emerging as a center of electronic design, and Synopsys established its European headquarters in Munich, Germany. The company continued to cover the continent with additional offices in France and England. This restructuring allowed Synopsys to secure important contracts in growth industries, including three of its top ten clients. Second, Synopsys acquired an 82 percent interest in its former Japanese distributor, Nihon Synopsys, in July 1992. Synopsys maintained Nihon Synopsys offices in Tokyo and Osaka, along with Asia/Pacific offices in Korea and Taiwan. Moreover, two of Synopsys' top ten clients were located in Japan.

In March 1993, Synopsys filed a lawsuit against Cadence, charging misappropriation of trade secrets in connection with the new Leapfrog VIIDI simulator developed by Cadence. In a related complaint, Synopsys had filed suit against Seed Solutions, Inc., and its cofounders Paul M. Hubbard and Greg M. Ordy. Hubbard and Ordy served as employees of Zycad Corp. and Endot, a company acquired by Zycad, before founding Seed Solutions in 1988. From 1988 to 1990, they worked as consultants to Zycad in developing VIIDI simulation software. In 1990, Zycad sold the rights to simulation software to Synopsys. Synopsys claimed that Hubbard and Ordy had intentionally concealed information and misled Synopsys (and its Zycad subsidiary) about the best path for future software development. The day after Hubbard and Ordy's contract with Synopsys/Zycad was terminated, in October 1990, Seed Solutions had distributed a detailed business plan for Seed Solutions' "new" product: VIIDI simulation software that would compete directly with the software Synopsys had purchased from Zycad. In 1992, Cadence acquired the rights to Seed's software, leading to the 1993 lawsuit.

In June 1993, Synopsys joined Sunrise Test Systems in the purchase of a failed company, ExperTest. ExperTest had been founded in 1988, and although its fiscal operations failed, its technological advancements were valuable. In the joint purchase of the automatic test pattern generation (ATPG) technology, both companies integrated the technology into their own design-for-test-product lines.

In November 1993, Synopsys expanded its VIIDI System Simulator (VSS) line, introducing the VSS Professional and the VSS Expert. These products would help system designers reduce the number of simulators used in design creation. Synopsys targeted the VIIDI simulation market as its fastest growing segment. Synopsys identified three factors behind the accelerating sales growth of its simulation products: the market momentum designating VHDL as an industry standard for high-level design, Synopsys' ability to provide increased simulation speed and productivity for all phases of the design process, and the fact that Synopsys' VHDL simulator was the first to achieve application-specific integrated circuit (ASIC) signoff.

Due to both the expansion of its technological focus and the success of its international business in the Japanese market, Synopsys crossed the $100 million mark in sales in fiscal 1993, closing the year at $108 million (a 71 percent increase over the previous year). In addition, Synopsys almost doubled its cash position between 1992 and 1993.

Key Dates:

1986:: A team of engineers led by Aart de Geus forms Optimal Solutions, Inc., the predecessor to Synopsys.
1990:: Synopsys introduces test synthesis products.
1992:: Synopsys completes its initial public offering of stock.
1994:: Synopsys acquires Logic Modeling.
1997:: Approximately $1 billion is spent to acquire Epic Design Technology and Viewlogic Systems.
2002:: Synopsys acquires Avant! Corporation.

Synopsys began the new year in 1994 with the acquisition of Logic Modeling, a company that marketed a library of software models for more than 12,000 commercially available ICs, as well as a line of hardware modeling systems. The acquisition was achieved in March through a stock swap with a value of $116 million. Logic Modeling was established as a "differentiated business unit" in Beaverton, Oregon. The relationship was structured as a ten-year partnership with the goal of bridging a developing gap between EDA tools and ASIC process technology.

Later in 1994, Synopsys continued to expand its design re-use operations, acquiring CADIS GmbH of Aachen, Germany, an innovative company specializing in digital signal processing (DSP) design. CADIS was acquired for approximately $4 million, in a strategic move to take Synopsys into the digital signal processing market with second generation technology.

In March 1994, Synopsys signed a marketing deal with Quickturn Design Systems, allowing the companies to jointly design and market products and to provide each other with software to speed product integration. In 1994, Synopsys also began the process of selling its synthesis, VIIDI, simulation, test, and design re-use software and services to Texas Instruments. Another connection was strengthened when Synopsys made it possible for users of Altera's programmable logic devices (PLDs) to use Synopsys' DesignWare and VIIDI System Simulator (VSS). The companies had been working closely together since 1991, with more than 100 mutual clients, but only in 1994 could Altera users perform timing-driven synthesis by specifying clock frequencies and path delays using Synopsys' automation tools.

In what was referred to as the "Blockbuster Video approach to design tools" (by Bill Hood, a program manager at Locklead Sanders), Synopsys lent its expertise to a new plan to rent software over the Internet in April 1994. The rental idea was developed to appeal to military contractors who often needed additional capacity during some phases of a project, but for whom purchase of software would be inefficient in the long term.

Other new developments in 1994 included the announcement of Behavioral Compiler, a synthesis tool that simplified IC design by cutting specification time by five to ten times, allowing designers to use a higher level of programming and facilitating modification and reuse. For the first time, Synopsys announced that bus interface would become available in DesignWare, a kit that can be configured and synthesized into an ASIC design, through an agreement with Intel Corporation to offer Peripheral Component Interconnect (PCI) Local Bus solutions for the systems market.

In the mid-1990s, Synopsys was intent upon establishing itself as a leader in its three technological areas: synthesis, simulation, and test. The company's HLDA tools were marketed to a worldwide network of key accounts and were widely used on UNIX workstations, including Sun Microsystems, Hewlett-Packard, IBM, Digital Equipment Corporation, Solbourne, MIPS, and Sony. Synopsys provided customer service, training, and support as a component of its HLDA offerings. Synopsys had license agreements with more than 250 customers, including the world's leading semiconductor, computer, communications, and military and aerospace companies. In addition, Synopsys had invested in developing and maintaining cooperative market development relationships with leading semiconductor vendors worldwide. As electronics technology continued to experience fast-paced advances in the 1990s, Synopsys expected to continue doing what it did best—creating and marketing solutions that allow engineers to maximize their creative time while taking advantage of the latest technology.

Diversification in the Late 1990s

As Synopsys exited the mid-1990s, it embarked on a definitive period in its development, one that presented de Geus with his most difficult challenge in a decade. By all accounts, de Geus had created a market winner, taking Synopsys' pioneering role in the development of synthesis software and shaping the company into a dominant player. After roughly a decade of progress, the company controlled 80 percent of the synthesis software market, but, as de Geus was one of the first to perceive, the synthesis software market was a slow-growth business by the mid-1990s. De Geus realized he needed to develop a new portfolio of technologies and products "to expand beyond being a one-trick pony," as an analyst remarked in a June 1998 interview with Electronic Business.

De Geus pursued his objective by acquiring companies with the technology Synopsys needed to reinvent itself. The company's acquisition of Logic Modeling in 1994 was driven by de Geus's desire to gain new technology to enter new markets. A spate of acquisitions, each meant to give Synopsys new capabilities, followed, greatly expanding the company's revenue volume and its business profile. In 1995, the company purchased Silicon Architects because of its pioneering involvement in the development of next-generation gate-array technology, cell-based array. In 1997, de Geus spent $1 billion on acquiring two companies, Epic Design Technology, whose products were used in deep-submicron analysis, and Viewlogic Systems, which developed high-level simulation products.

As de Geus expanded Synopsys' operations dramatically through acquisitions, he was not the only chief executive officer to strengthen his position by purchasing the technologies developed by other companies. Cadence Design Systems, Inc. and Mentor Graphics Corporation also followed a growth-through-acquisition strategy. By 2002, Synopsys, Cadence, and Mentor, who controlled 45 percent of the EDA market in the early 1990s, controlled 75 percent of the market, creating a race that pitted the three market leaders against one another, with the rest of the industry's competitors trailing far behind. Of the three companies, Cadence ranked as the largest, but de Geus's achievements during the early years of the decade turned Synopsys into the dominant player.

Synopsys chased Cadence for years, at last passing the company in late 2003. One of the decisive moments in the final leg of the pursuit was Synopsys' acquisition of Avant! in 2002, which fleshed out de Geus's capabilities in the EDA's most lucrative market segment: developing software for creating the smallest and most complex chips. In the years that followed, de Geus made sure Synopsys held on to its market leadership, completing strategic acquisitions that bolstered hopes for a profitable future. After canceling a $432 million agreement to acquire Monolithic System Technology Inc. in June 2004, de Geus announced plans to acquire Integrated Systems Engineering AG, a Switzerland-based developer of software used to simulate and test chip manufacturing processes. In December 2004, Synopsys acquired Nassada Corp., a designer of chip design simulation and analysis software, paying $192 million for the company. The acquisition of Nassada was the eighth acquisition completed during the year, suggesting that in the years to follow de Geus would continue to target acquisition candidates to help keep Synopsys ahead of its two closest rivals.

Principal Subsidiaries

Avant! Software & Development Centre/(India) Private Limited; Nihon Synopsys KK (Japan); Numerical Technologies Canada Inc.; Synopsys Denmark ApS; Numerical Nova Scotia Company (Canada); Numerical Subwavelength Technologies B.V. (Netherlands); Synopsys S.A.R.L. (France); Synopsys Finland Oy; Synopsys GmbH (Germany); Synopsys (India) Private Ltd.; Synopsys (India) EDA Software Private Limited; Synopsys International Limited (Ireland); Synopsys Ireland Limited; Synopsys Ireland Resources; Synopsys Israel Limited; Synopsys Italia, S.R.L. (Italy); Synopsys Korea, Inc.; Synopsys (Northern Europe) Ltd. (U.K.); Synopsys Scandinavia AB (Sweden); Synopsys Singapore Pte. Ltd. (Singapore); Synopsys Taiwan Limited; Analogy UK Ltd. (U.K.); Angel HiTech Limited (Bermuda); Avant! Asia Investment Holdings, Ltd. (British Virgin Islands); Avant! China Holdings, Ltd. (Bermuda); Avant! Corporation GmbH (Germany); Avant! Corporation Limited (U.K.); Avant! Europe Manufacturing Ltd. (Ireland); Avant! France S.A.R.L.; Avant! Global Investment Holdings, Ltd. (Bermuda); Avant! Global Technologies Ltd. (Ireland); Avant! HiTech Corporation (Taiwan); Avant! International Distribution Ltd. (Ireland); Avant! Japan Corporation; Avant! Korea Co., Ltd.; Avant! LLC; Avant! Microelectronics (Shanghai) Company Limited (China); Avant! Software & Development Centre (India) Private Limited; Avant! Software (Israel) Ltd.; Avant! Taiwan Holdings, Ltd. (Bermuda); Avant! UK Ltd. (U.K.); Avant! Worldwide Holdings, Ltd. (Bermuda); Avanticorp Hong Kong Limited; CIDA Technology, Inc.; Co-Design Automation Ltd. (U.K.); Compass Design Automation Europe, EURL (France); Compass Design Automation International, B.V. (Netherlands); Crystal VC (Cayman Islands); inSilicon Corporation; inSilicon GmbH (Germany); inSilicon International, Inc.; inSilicon Limited (U.K.); Maingate Electronics, Inc. (Japan); Maude Avenue Land Corporation; Nexus IC Asia Corporation (Cayman Islands); Nexus IC Corporation (Cayman Islands); Nihon Synopsys KK (Japan); Numerical Technologies, Inc.; Numerical Technology, Inc. (Taiwan); Synopsys (India) EDA Software Private Limited.