Ladies and gentlemen, welcome to the Synopsys Earnings Conference Call for the Third Quarter of Fiscal Year 2022. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Today's call will last one hour. And as a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Thank you, Kerry. Good afternoon, everyone. Hosting the call today are Aart de Geus, Chairman and CEO of Synopsys; and Trac Pham, Chief Financial Officer. 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 the 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 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. All of these items, plus the most recent investor presentation, are available on our website at synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I'll turn it over to Aart de Geus.

Good afternoon. We delivered another excellent quarter with enduring broad-based strength. Revenue for the quarter was $1.25 billion. GAAP earnings per share were $1.43, with non-GAAP earnings at $2.10. We generated $440 million of operating cash flow. Notwithstanding the normal ebb and flow of the semiconductor market, design activity remained robust. In addition, our business model sets us apart by adding a solid level of stability and resilience to the accelerated growth we're seeing. Based on this strength and confidence in our business, we are raising guidance for the full year. We expect to grow fiscal '22 revenue approximately 21% and pass the $5 billion milestone. We continue to drive notable operating margin expansion, and we intend to grow non-GAAP earnings per share by approximately 29%. In the process, we expect to generate $1.6 billion to $1.65 billion in operating cash flow. Trac will discuss the financials in more detail. Over the last five or so decades, semiconductor chips and software have transformed every aspect of our world. From traditional computers to networks, to mobile devices, from entertainment systems to home security, to medical wonder machines. Every vertical market is affected and expecting more. As a result, not only does the world demand more chips, but more chips are being designed by an expanded group of semiconductor and systems companies. Those chips are much more complex. They need to be designed faster due to time-to-market pressure and with increasingly constrained engineering talent resources. For the last 35 years, Synopsys has been privileged to grow as an essential catalyst of this transformation, delivering 10 million times in productivity. Today, Synopsys uniquely sits at the intersection of the dual system forces of semiconductors and software, enabling both with the bold ambition to capitalize on another 1,000 times this decade. We partner and collaborate with the most advanced companies in the entire supply chain. And while the technical challenges are huge, so are the opportunities. On top of this, security, safety and reliability are now a must for markets such as robotics, automotive and aerospace. Meanwhile, more and more systems companies from large hyperscalers to AI startups, to verticals like automotive have decided to own their destiny and design their own chips and systems to accelerate their differentiation. Today, Synopsys is successfully bridging technologies from silicon to software, to systems as we engage with all these companies. In the last few years, we have delivered a number of groundbreaking innovations that are making a tremendous impact. For example, in chip design, we're automating not only individual design steps, but entire sub-flows. Our preconfigured IP blocks not only speed up chip design but also let architects rapidly explore new market-specific chip and system configurations. Our emulation and prototyping solutions are now essential to verify and optimize the interplay between hardware and software in the system. And in addition, we continue to grow our solutions that enable high-quality and more secure software as well as provide security IP blocks. Leading the way is our award-winning DSO.ai artificial intelligence design solution, which is revolutionizing chip design. First to market over two years ago with technology that is still unmatched today, it delivers outstanding productivity improvements that are already driving substantial increases in customer commitments. The technical results are truly groundbreaking. Customers are seeing tremendous benefits from DSO.ai's ability to learn from prior designs. For example, two of the largest, most advanced semiconductor companies in the world achieved a 25% reduction in turnaround time and compute resources. DSO.ai is also driving significant low-power improvements exemplified by a large automotive chip maker achieving a 30% power reduction. These compelling outcomes are driving a high pace of adoption for production tape-outs across verticals and a broad set of process nodes. Examples this quarter include long-term business commitments at a marquee U.S. hyperscaler and a top consumer chip company. Our entire market-leading digital design solution both empowers and benefits from DSO.ai. This highly differentiated combination led to competitive displacement at a large automotive chip company in Q3. Our Fusion Compiler product continues to drive accelerated growth and competitive wins across market verticals and a broad swath of technology nodes. This quarter, we expect to pass the 1,000 tape-out milestone with successes in many different customer categories. Fusion Compiler is generating notable run-time and performance power area improvements at top graphics processor companies, and we have gained majority positions at one of the largest mobile SoC providers and at multiple leading hyperscalers. Excellent progress and strong demand also for our modern custom design solutions. This area of growth is fueled by key segments that include hyperscalers, high-performance compute, and AI machine learning. In custom design, long dominated by older products, we've already surpassed last year's new logos with 36 additional year-to-date, including high-profile semiconductor and hyperscaler customers. Companies driving Smart Everything continue to innovate at breathtaking speed and are now embracing migration to multi-die system designs for next-generation systems. Our multi-die system solution that includes our 3DIC compiler platform and die-to-die IP portfolio is seeing strong demand. Not surprisingly, the key markets are high-performance compute, data center, and mobile. While we continue to expand deployment at a marquee U.S. IDM, we also experienced increased traction at prominent high-performance compute and hyperscaler customers for complex 3D multi-die and chiplet design. In mobile, we achieved a plan of record of leading semiconductor companies for their next-generation multi-die processors. In high-performance compute, multi-die systems incorporate a new interconnect IP standard, UCIe, which stands for Universal Chiplet Interconnect Express. As the term express captures, it is all about speed, and Synopsys is seeing great traction in this area with a healthy pipeline and multiple wins at 3-nanometer. More broadly, IP blocks are a must-have to meet intense time-to-market pressures. Our unique breadth of scale and quality of our high-quality IP portfolio with early availability as advanced processes continue to drive strong momentum. Demand is particularly high in markets such as high-performance compute, AI/machine learning, automotive, and mobile where systems are fueled by smart everything, high-speed and secure connectivity, and advanced process geometries. In this context, our ARC Vision Processor IP was named Best Automotive AI Solution by the Edge AI and Vision Alliance. Meanwhile, our industry-leading ARC, MPX, and VPX processor cores that accelerate neural networks continue to see strong adoption in augmented and virtual reality, automotive, and consumer applications with multiple wins in the quarter. In automotive, we closed significant transactions with new OEMs, Tier 1s, and semiconductor vendors. Security remains front and center across all market segments. We're gaining strong adoption of our security solutions for interfaces such as PCI Express, CXL, and DDR, with more than 30 design wins across all market segments. Now moving to the crucial intersection of hardware and software. In other words, verifying that the chips and system will do what was intended. Our market-leading emulation and prototyping hardware products are a unique strength and clear differentiator for Synopsys. With the fastest engines, highest capacity, and lowest cost of ownership, we're doing very well. Our products not only verify hardware/software correctness but also help find ways to reduce power consumption, one of the most vital metrics of any system. High demand continues for our ZeBu emulation and HAPS-100 prototyping systems, growing with many of the largest semiconductor and hyperscaler customers in the world. We are on pace for yet another record year of hardware revenue. With Smart Everything entering every vertical market, requirements for security and safety continue to expand. Our Software Integrity business is a key enabler of modern software security. Our leading portfolio of products and consulting is unique in its ability to provide high value for developers, the DevOps group, and the corporate security team. This business is rapidly approaching the $0.5 billion TTM revenue mark. This quarter, we again saw many multi-year, multi-million-dollar commitments in both renewals and new business. Business touched a broad set of verticals, including financial institutions, semiconductors, government, medical, and enterprise software. Our channel partner program progressed well this quarter, with notable new logos and expansions into new customer divisions. We also continue to increase business in new countries that we have never sold to before, and repeat business with partners that opened new markets as recently as the past 12 months. Finally, we further strengthened our broad product and consulting portfolio with the acquisition of WhiteHat Security and its leading solution in dynamic application security testing. We’re excited to have the outstanding WhiteHat team part of Synopsys and while it’s only been a few weeks, the integration is going well and customer response has been enthusiastic. In summary: we delivered another excellent quarter, and we are raising our outlook for fiscal ‘22. Multiple game-changing innovations are driving outstanding technical and business results reflected in our accelerated growth. Notwithstanding economic challenges, customers continue to invest heavily in critical chips, system designs, and immense amounts of software. Against this backdrop, our technology vision and execution drive growth, while our resilient business model provides a level of stability that stands out in the software industry. As we prepare to imminently cross the $5 billion revenue mark, I want to thank our employees around the world for their ongoing efforts and commitment. With that, I'll turn it over to Trac.

Thanks, Aart. Good afternoon, everyone. Q3 was another excellent quarter. We delivered revenue and EPS above our targets and achieved cash flow above our plan. For the full year, we are raising our outlook and are on track to deliver over 20% revenue growth, an increase in non-GAAP operating margin of approximately 250 basis points, non-GAAP earnings per share growth of approximately 29%, and $1.6 billion to $1.65 billion in operating cash flow. We continue to execute well, which is a testament to our innovative technology portfolio, ongoing design activity by our customers who continue to invest through semiconductor cycles, financial discipline, and the stability and resilience of our time-based business model. I'll now review the third quarter results. All comparisons are year-over-year, unless otherwise stated. We generated total revenue of $1.25 billion, up 18% over the prior year, with broad-based strength. Total GAAP costs and expenses were $1.01 billion. Total non-GAAP costs and expenses were $856 million, resulting in a non-GAAP operating margin of 31.4%. GAAP earnings per share were $1.43. Non-GAAP earnings per share were $2.10, up 16% over the prior year. Semiconductor & System Design segment revenue was $1.13 billion, up 18%, driven by continued strength in EDA and IP. Trailing 12-month Semiconductor & System Design adjusted operating margin was 35.8%. Software Integrity segment revenue was $118 million, up 21%, with trailing 12-month adjusted operating margin of 11%. We continue to expect Software Integrity to deliver 15% to 20% growth with expanded adjusted operating margin in 2022. Turning to cash, we generated $440 million in operating cash flow. We used $257 million of our cash for buybacks and have repurchased $972 million of stock over the past 12 months. In addition, we paid $330 million to acquire WhiteHat Security. Our balance sheet remains very strong. We ended the quarter with cash and short-term investments of $1.53 billion and debt of $22 million. Now to guidance. We are raising our full-year outlook for revenue, earnings and cash flow. For fiscal year 2022, the full year targets are: revenue of $5.06 billion to $5.09 billion, which represents 20% to 21% growth; total GAAP costs and expenses between $3.978 billion and $3.998 billion; total non-GAAP costs and expenses between $3.395 billion and $3.45 billion, resulting in a non-GAAP property margin improvement of approximately 250 basis points; non-GAAP tax rate of 18%; GAAP earnings of $6.37 to $6.49 per share; non-GAAP earnings of $8.80 to $8.85 per share, representing approximately 29% growth; cash flow from operations of $1.6 billion to $1.65 billion; capital expenditures of approximately $145 million. Now to the targets for the fourth quarter: revenue between $1.263 billion and $1.293 billion; total GAAP costs and expenses between $1.076 billion and $1.096 billion; total non-GAAP costs and expenses between $919 million and $929 million; GAAP earnings of $1.06 to $1.18 per share; and non-GAAP earnings per share of $1.80 to $1.85. Consistent with our prior years, we will provide additional comments and guidance for 2023 when we report next quarter. In conclusion, we again delivered revenue and non-GAAP earnings above our targets. Based on our excellent results year-to-date and strong outlook, we are again raising our targets for the full year. We continue to see strong momentum in the business and are executing well with our robust portfolio and resilient business model.

All right. Thank you. Before we begin the Q&A session, I would like to ask everyone to please limit yourself to one question and one brief follow-up to accommodate all participants. If you have additional questions, please reenter the queue and we will take as many as time permits.

Maybe I'll start with kind of two questions on backlog. One, just where it finished the quarter? And then two, you've been in this stretch of really remarkable sequential backlog growth. And I completely understand you only get a shot to renew an enterprise customer with a three-year deal every three years. So are we reaching a point where maybe the backlog metrics stabilize and you start to pull bigger ACV out of the backlog, and that starts to show up in maybe a more meaningful way in forward revenue metrics?

Well, I'm glad you started with that question and added some caveats to it. So backlog for the quarter ended at $7.1 billion. And as you alluded to, it will fluctuate quarter-to-quarter depending on the timing and recognition of revenue. The one thing I'll add to backlog, too, is that we target duration in the 2.5- to 3-year range. This quarter was on the lower end, running closer to 2.3 years. So it's slightly outside of our range.

Okay. That is helpful. And then in your financial supplement, obviously, you reiterated all of the long-term targets. And then as a footnote, they're current as of today, and they take into account all current entity list restrictions. There were some new updates to entity list restrictions. You've also had a much stronger current fiscal year. So, the baseline against which you expect to grow double digits, I guess it might be a bit harder. Is that kind of the right way, a literal interpretation of all of these things when thinking about what Synopsys intends to do next fiscal year?

Let me take the entity list part. All the forward projections that we always give you take into account anything we know about entity list or even suspected entity list increases. Typically, the entity list doesn't grow particularly fast or a lot, but we follow rigorously whatever the government decides there. And I would say at this point in time for our projections, it's not material in terms of changes.

Apologize for the background noise. I want to start with a question about headcount. If I read your supplemental data correctly, it's up about close to 2,000 quarter-over-quarter. Does that reflect just aggressive hiring, some acquisitions, all of the above? And is it part of the reason why we're starting to see a pretty sharp increase in the OpEx?

So Gary, the increase from Q2 to Q3 does reflect some amount of acquisitions for WhiteHat, but it also reflects the planned organic hire for the year. The increase in expenses for the quarter in Q4 that we're guiding to does reflect our expected hiring as well as, frankly, given how strong the year has been, we are accruing for some additional variable compensation.

Okay. And for the past two years, we've had a pretty good backdrop in which you license, right? So, we've had above-trend semiconductor industry revenue growth. But it's clear that the industry is entering a more challenging time, and we've heard from some companies about a minimum pulling back on hiring, just tightening down, so to speak. And so my question to you is, have you seen the hesitation on the part of customers in signing large deals? Or are you having to go to a higher level to get approvals for large deals?

We are well aware of companies having reduced their hiring at least temporarily somewhat. I have not heard of any significant pullback or hesitation. The design activities typically don't mirror immediately what happens in the market because the market is really a function of the end sales, i.e., the quantity of chips being sold. And so R&D is very stable against that. And more often than not, when there's a flat period or even a downturn, people invest in R&D to make sure that they have differentiation coming out of it. So as we, I think, said in the preamble, we feel that our business is actually very robust right now.

Gary, in addition to that, from a business metric perspective, we saw run rate up pretty strongly in Q3. So we're not seeing any indication of those concerns.

It's Arsenio for Gal. Congrats on the quarter. Just if you think about guidance again, it's been a year of putting us down the execution. If you look back at when you first guided, what surprised you most this year so far that has allowed you to kind of walk outside throughout the year?

Yes. If you look at the guidance we just provided for the first part of the year and compare it to where we were in December, at the midpoint, we're up more than $300 million in terms of our outlook for the year. The improved outlook is driven by strong performance across all our products. We anticipated a strong year, but the traction we've gained with our new products, the ongoing success of our IP business, and the sustained momentum in Software Integrity over the past four quarters have all contributed significantly. We experienced robust growth across our customer base, in all regions, and across all product lines. Overall, the business is performing exceptionally well.

Great. That's helpful. And just I have one quick follow-up. How was going to DSO.ai contributing financially to growth? Is it at any material level yet and just kind of your growth outlook on that? And what you guys are looking forward to that offering? Thank you.

Sorry, it was a little hard to understand the whole question. But on DSO.ai, you have to think of this as sort of a multiply on our existing products and it's a product working together in a flow. And so, DSO.ai really improves both the speed of getting results and the quality of the results in terms of typically the performance and the power utilization of the resulting chips. And so that is of super high value, but that also encourages our customers to work with our suites because the suite of tools is particularly well matched to DSO.ai. And so that is really one of the reasons that we see strong growth around that entire digital design solution.

Good afternoon and congratulations on the solid results and execution. Your long-term growth outlook, yes, with the passing of the CHIPS Act combined with the recent semiconductor supply chain disruptions that we've seen over the past 2.5 years, you've got growing geopolitical risk. Many of your semiconductor customers are prioritizing manufacturing diversification. And they're now starting to put in place plans to support one or more new foundry partners. So this is going to entail new library development, new IP blocks, and even in some cases, new design flows. I know that your customers have to add design engineers every time they add a new foundry partner. So Aart, is this focus on diversification driving both your EDA and IP businesses as well?

The answer in a nutshell is absolutely yes. And you actually explained the situation very lucidly because it's clearly visible that many factories in front of the mind of many countries because they want to make sure that they have supply. And the value of chips has suddenly been recognized by not having them, meaning a supply shortage immediately puts the attention on that. But from a development point of view, when you put more manufacturing in place, you need to have the complete enablement capabilities, which are the tools, the IP, the services, and so on, and you said correctly, and the talent. And if there is one thing that we cannot grow faster than a 20-year rate, it's talent in the world. That is going to be one of the shortages. And so, one of the interesting side ramifications for us is this is one additional reason why the value of being able to shorten design time is so valuable. But it's even better than that in some of the capabilities that we have; we can get these results with less skilled people and fewer of them. And so, by no means, with this reduced employment in the industry on the contrary, but it does help a little bit with the talent shortage and all of this ties together pretty much in the way you described it. Thank you.

I appreciate that. And then another growth turn I sort of wanted to touch bases on. You talked about the expansion of your customer base, right, in chip design, so a lot of your sort of systems level customers. And recently one of the largest ASIC semi companies, a big customer for Synopsys, did a deep dive into their ASIC business and they have helped customers like Google, Cisco, Facebook and many others bring their ASIC chips to the market and they have got a design win pipeline. I think of like some are over like 70 advanced chip designs. Now, obviously, this is the classical engagement model, right? The systems customer does much of the front-end design, which obviously has been a strong growth driver for Synopsys, the ASIC company like a Broadcom or Marvell does the backend physical design, design closure, verification, tape off. I'm wondering if you're trying to see the move by these ASIC systems customers to move more towards the full flow or COT model, which obviously would open up more growth opportunities for your team as well?

Well, we see them go in all of these directions. And for these large hyperscalers that you mentioned, they are all essentially discovering what the semiconductor world looks like. Because they have figured out that the semiconductor is a direct multiplier on their software, but you can also say the other direction in the software as a direct multiplier on the semiconductor underneath. And so if they can optimize solutions for just their applications with other words narrower solutions that is their hope to get much higher speed throughput and in some cases also much less power utilization. And you are absolutely correct that you can go having a full design flow yourself, you can have a full-service company do everything for you, or you can do something in between, which is the ASIC pathway where you design most of the functionality, structure the architecture and then let somebody else do the physical design. And I think these will all three stay alive, but the good news is a lot more people that want chips just for themselves. And that's where you see this broadening of different architectures, and certainly AI was a foreboding example of that because literally 100 or so AI companies are all designing the best chip ever, of course. And the reality is it's a race for different vertical segments.

Good afternoon and thank you for taking my question. Maybe, Aart, the first question, you sort of mentioned about ebbs and flows happening in the semiconductor industry and quite frankly the broader macro economy. Looking ahead to point, so I know you're not guiding '23, but what do you think that are you going to maintain your low double-digit growth into quite a challenging year in terms of macro next year? Because when I look at your historical numbers after you transition to basically a time-based revenue model, you probably only had one year that is kind of showing flattish kind of growth, which was away all night around that time. So maybe very specifically, my question is how bad a macro has to be for what happened in '08, '09 to repeat in '23, '24. Do you think that's going to happen, if not, and why?

Bringing up 2008 and 2009 refers to a time when many believed we were entering another Great Depression. During those years, there was little confidence that the situation would improve quickly. Despite this, we managed to achieve some growth each year, although overall, we remained flat. One reason for this stability was our strong business model, but also, companies tend to continue investing in research and development for as long as possible before making cuts, as they recognize that halting innovation jeopardizes their future. It's important to keep in mind that even during 2008 and 2009, technological advancements continued unabated—if you stop designing for two years, you're likely to fall behind in the tech race. As for whether we will see a repeat of the 2008-2009 economic conditions going forward, I do not expect that to happen. Current indicators, assuming no extreme political disturbances, suggest that our major clients are actively investing in technology and progressing rapidly.

So Aart, the references for DSO.ai, the customer wins, they're quite impressive. How are customers using DSO.ai today, is it more proof-of-concept type work? Is it leading-edge type work? And then are these customers evaluating Cadence Cerebrus simultaneously?

Well, the reason I mentioned that it has an impact on our business is because they're using this in production. And yes, of course, the most advanced people have always been the ones that first pick up on the most capable new tools. And so, these are very advanced often large companies that are doing now many designs with this capability because the value is high, and they are definitely seeing the issue of insufficient talent. And so that's sort of the main space. I don't know actually that we see much of our competition, not to put them down or anything like that. I'm sure they're doing good stuff. But the advances that we've made in the last year, even in my own view, are quite remarkable and are broadening, by the way, to more and more capabilities going forward. So I think we're into a whole next phase of what EDA will mean to our customers. And very often, advanced users try very quickly and then they're careful. They tried very quickly, and they're absolutely adopting.

Just to give you a sense of the WhiteHat for the year, it's about $15 million to $20 million in terms of revenue. So a large part of the raise for the full year is really coming from a very strong healthy organic business.

Aart, I have a technology question for you, followed by one for Trac. Regarding AI, could you explain how you handle your internal development for DSO.ai? I'm asking because there's substantial competition among software companies, all claiming to have AI capabilities, and clearly, you have those in production. I'm interested in how you differentiate your internal AI specifically for EDA purposes compared to the tools you develop. Additionally, how do you perceive the impact of AI on the IP business? I mention this because Synopsys recently discussed AI in relation to design reuse and design remastering at an ANSYS Conference, which could affect IT, where you're the leader in EDA. Trac, one figure that has become significant in your disclosures is your FSAs, which was $1 billion at the end of Q2. Can you discuss what contributes to that figure? Is it primarily IP? Moreover, how does it influence your guidance and revenue growth expectations?

Let me start by discussing AI. It's important to recognize that AI represents a highly advanced and distinct approach to solving a range of problems. We still employ traditional methods, but we also utilize pattern matching, which involves identifying situations where recognizing a scenario can lead to improvements. This concept varies depending on the specific domain being addressed. For instance, if we were to apply our DSO.ai to a field like blood diagnostics, we would initially have nothing to contribute because the AI's intent must align with the specific problem area. As mentioned, companies are optimizing their AI chips for their particular domains. We have optimized our AI for our domain, which is exceptionally complex due to the intricate search spaces involved in identifying solutions across various fields. Therefore, it's really about blending our expertise with AI exploration. In addition, we also use AI for intellectual property purposes. Synopsys is considered one of the leading design companies globally in our field, although we don't manufacture chips; we create IP blocks. The underlying concept is quite similar. You also raised an interesting point regarding the need to adapt existing designs to different technology nodes, a process sometimes referred to as remastering or retargeting. About a year ago, we conducted experiments transitioning from one node to another that was fairly similar, yielding excellent and rapid results. We learned from existing designs and applied those insights to new ones. Since then, we've made significant advancements, moving considerably forward in technology while achieving even better results. I believe we're just at the outset of a significant journey. So far, it's been an exciting experience.

Jay, in response to your question about FSAs and their impact on our results, FSAs are mainly composed of intellectual property, but they also include a significant amount of EDA software. The most notable change with FSAs has been due to the implementation of ASC 606, which means that revenue is recognized at the moment a customer accesses the software, rather than being spread out over time as it was before. This shift has introduced more variability into our business. The positive aspect of FSAs from a commercial standpoint is that they provide our customers with greater flexibility in how they engage with our services. Customers will sign contracts, and we are continuously innovating and launching new products in this area. As a result, we will observe that customers are utilizing their FSAs more rapidly, leading to an acceleration in revenue from this business model.

This is Sachin Jain on behalf of Vivek. Thank you for taking the question. I want to focus on EDA. Obviously, you've raised your full-year guidance. But for EDA specifically, growth has slowed to just mid-single digits, and now it's below trend of 10% to 15%. So could you help us understand, what's causing the slowdown? And when do you expect it to go back to the trend line?

Let me clarify. The business is performing very well, and we are seeing growth in that business line within our double-digit growth model. What you're observing is primarily due to two factors: fluctuations and the comparisons to last year. This year, hardware is front-end loaded compared to last year, which was more back-end loaded. So it's mainly about the comparison. Additionally, if we break down our EDA software business, which constitutes about 65% of our total revenues, we are experiencing solid growth, certainly within our double-digit expectations.

Well, none of that is material, but gate-all-around in China doesn't exist yet.

Just, Aart, just wondering if there was anything you'd call out from the U.S. CHIPS and Science Act. Any change or opportunities it might present for Synopsys?

Well, as you know, many countries are putting big investments in the semiconductor area in general. And the U.S. has been hesitant to do that for a while, but that now came to conclusion. It's a magnitude similar to investments that Europe is committing to, that Korea is committing to. China has a larger commitment but over a longer period of time. And so, I think this is all in recognition that when you don't have chips, you really want them badly. And so supply shortages got a lot of attention. At the same time, I think there's also an increased understanding that the importance of chips is growing because the importance of adding intelligence in every aspect of life will require more computation. That computation needs to be really fast and that we're still at the beginning of exploring the full impact of AI. So people are investing in that from a strategic point of view. As somebody else noted, I think earlier, a lot of those investments are initially aimed at essentially putting manufacturing capacity in. Around that, there needs to be quite a bit of enablement, but there will also be investments made to look at newer ways of doing things, and we highlighted the whole multichip or multi-die 3DIC; there are many different names for it, very tight packaging, and there will most definitely be investments in that, but also specialty technologies that are needed so that one is not dependent on some singular location in the world to get those. In all of these, we are close partners to the companies that are the primary companies to respond to these requirements. And we are, in many ways, the enabler, we like to use the term the catalyst to make it happen. And so, if the industry around us does well, they will need us to really do well. And so I think it's only upside.

Thank you. I have a follow-up regarding DSO.ai. Can you provide insight into the level of interest in the product? Initially, it seems to be attracting more advanced customers, but are you noticing a broader appeal among your larger customer base and in systems companies? I'm curious about how significant the opportunity for DSO.ai is.

I think it is very broad. It will follow sort of the urgency of the individual companies and also the skill set of the individual companies. In the system houses, we already have a number of people using it there as well. And at the same time, we have also had some people say, 'Oh, no, let's not go too fast. Let me first put in a regular chip design approach.' Well, yes, that will take a year, and then they will want to go faster too. So fundamentally, this will continue to become a strong ingredient in any design flow over time. But we have a very wide and varied customer base, and some very advanced people and some people that can do just fine with not being necessarily on the most advanced versions. Well, at this point in time, thank you for your support and interest. We continue to do well against markets that certainly demand the skills that we have to provide. And we hope that we will be able to deliver to you what we said for this year. Actually, we don't hope, we plan, and that is passing the $5 billion mark, and that's an exciting moment. So thank you for your support, and thank you to our employees to help make this happen.

All right. Thank you. And ladies and gentlemen, that does conclude our call for today. Thank you for your participation and for using the AT&T Event Conferencing Service. You may now disconnect.