Synopsys Stock Plummets 36% on Earnings Miss, Outlook Cut
Shares suffer their worst day in decades after Q3 revenue falls short and the company lowers its full-year guidance, citing weakness in its IP segment and China headwinds.
Shares of Synopsys (SNPS) cratered on Wednesday, plunging nearly 36% on staggering volume after the electronic design automation (EDA) giant reported disappointing third-quarter financial results and slashed its full-year forecast. The sell-off was triggered by a significant revenue miss and concerns over the company's high-margin intellectual property (IP) business, exacerbated by U.S. export restrictions impacting its operations in China.
The software firm, critical to the global semiconductor industry, announced Q3 revenue of $1.74 billion. While this marked a 14% increase year-over-year, it fell short of Wall Street expectations. The miss was primarily attributed to underperformance in its Design IP segment, a key growth and profitability driver. and specific customer delays as primary factors behind the weakness.
The market reaction was swift and severe, with trading volume surging to more than nine times the daily average, wiping out billions in market capitalization. The sharp decline reflected investor anxiety over the , which signaled that the headwinds are expected to persist. Adding to the pressure are the significant integration costs associated with its recent high-profile acquisition of Ansys.
In response to the challenges, Synopsys announced plans for a major strategic realignment, including a workforce reduction of approximately 10% by the end of fiscal 2026. The company intends to pivot its IP roadmap toward more specialized, higher-growth opportunities to better navigate the complex market environment. This restructuring aims to streamline operations and refocus resources amid the ongoing integration of its Ansys acquisition.
The disappointing report prompted immediate reactions from Wall Street. Bank of America, for instance, downgraded the stock from "Buy" to "Underperform," citing the persistent challenges and integration risks. Other analysts pointed to the IP business weakness as a core concern. , highlighting the weaker-than-expected performance in that segment.
Synopsys's struggles present a stark contrast to the broader semiconductor industry, which is experiencing robust growth fueled by the artificial intelligence boom. While the company's core EDA software business remains strong, the unexpected downturn in its IP division has raised questions about its near-term growth trajectory in a fiercely competitive and geopolitically sensitive market.