Earnings Call Transcript - SNPS Q1 2023

Operator, Operator

Ladies and gentlemen, welcome to the Synopsys Earnings Conference Call for the First Quarter of Fiscal Year 2023. At this time, all participants are in a listen-only mode. Please follow the operator instructions. And as a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Phil Lee, Director of Investor Relations. Please go ahead.

Phil Lee, Director of Investor Relations

Good afternoon, everybody. With us today are Aart de Geus, Chair and CEO of Synopsys; and Shelagh Glaser, 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 information 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 risk factors that may affect our future results and performance are described in our most recent filings with the SEC, including our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q. In addition, we will refer to non-GAAP financial measures during the discussion. Reconciliations to certain of these non-GAAP financial measures to their most directly comparable GAAP financial measures a discussion of certain non-GAAP financial measures that we are not able to reconcile without unreasonable efforts 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 readily 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 the call over to Aart de Geus.

Aart de Geus, Chair and CEO

Good afternoon. Q1 delivered a very solid start to the year. Building on our strength and momentum from 2022, we met or exceeded all of our guidance targets. Revenue was $1.36 billion, with non-GAAP operating margin at 35.2%, resulting in GAAP earnings per share of $1.75. And non-GAAP earnings above the high end of our target range at $2.62. Based on the continued robust design activity, we remain confident in our business. We are reaffirming our full year guidance for revenue and non-GAAP operating margin improvement while raising guidance for non-GAAP EPS. In the last few years, Synopsys has grown and evolved substantially. Commensurately, we are evolving our financial reporting. Starting in Q1, we are reporting our business in three segments: Design Automation, which includes design software, verification software and hardware and other EDA products. Design IP, a broad portfolio, including libraries, embedded memories, connectivity solutions, processor cores and security devices. And Software Integrity, which remains unchanged from previous reporting and delivers solutions to improve software quality and security. To give you a relative sense of proportion, Design Automation is about 65% of our revenue. Design IP is approximately 25% and Software Integrity is about 10%. While these numbers are approximate, the 65%, 25%, 10% split is easy to remember and represents well how we think of our present business. We have leadership positions and excellent outlooks in all three segments. As the market leader in design automation, we see continued technical innovation towards much more complex silicon and system designs. As the company with the broadest portfolio of IP, we see a continuation of designs, needing more communication bandwidth, processing, storage and security in more advanced silicon technologies. And for our Software Integrity business, we are a key enabler of modern software security with a leading portfolio of products for developers, DevOps groups and corporate security teams. Shelagh will discuss the financials in more detail. Looking at the overall market picture, already 12 years ago we identified the intersection of big data and machine learning as leading us into the age of Smart Everything. Today, smart everything is in full swing. You may have seen the fantastic new capabilities showcased recently by applications such as ChatGPT. It clearly shows how far Smart Everything has come and also how much further the opportunity space reaches. Indeed, this is playing out as every vertical market is now driving towards more sophisticated solutions with an insatiable need for compute. While some present market undercurrents drive many companies to strive for efficiency, our semiconductor and systems customers continue to prioritize investments in the design of complex chips and software to make all of this possible. Synopsys is in the midst of this quest, and we see our purpose to be a key catalyst enabling the smart everything world. With our customers and partners, our role is to make this all work to the state-of-the-art solutions ranging from the deep physics of silicon to the heights of performance, power and security of complex hardware and software systems. Over the past several years, we have successfully invested in groundbreaking innovations that radically advance how silicon and system design is done. So let me begin with the Design Automation segment, which accounts for about 65% of our revenue and share some highlights around our groundbreaking DSO.ai artificial intelligence design solution. With already over 100 commercial production designs, DSO.ai continues to deliver amazing results for our customers. Applied simultaneously to multiple steps of the design flow, it reduces efforts from months to now weeks while simultaneously delivering higher performance and lower power. Customer adoption continued to accelerate across a wide range of process nodes and market verticals. We have already put in production designs by nine of the top 10 semiconductor leaders. Customers such as Samsung, Intel, MediaTek, and ST Microelectronics are reporting impressive achievements. In Q1, we saw multiple additional deployments across verticals, including mobile, data center and memory designs. Meanwhile, we have extended our machine learning capabilities to other EDA workloads ranging from verification to test to custom design. These new solutions are already in customers' hands showing excellent impact and promise. Critical to the success of DSO.ai are the powerful design engines that sit underneath. The DSO.ai is thus also driving significant cross-selling and accelerated growth across our EDA products. Specifically, our Fusion Compiler momentum is manifested across a wide spectrum of market verticals and manufacturing processes. During the quarter, we achieved multiple advanced node design wins, including a key win at a large hyperscaler and a three-nanometer node design at a leading mobile provider. Fusion Compiler is used in 95% of advanced node designs at three nanometers and below with the majority exclusively using Synopsys flows, stimulated by a wave of high-value innovations. Customers from high-performance computing to hyperscalers continue to expand their reliance on Synopsys throughout our portfolio. Our custom solutions, for example, saw continued market momentum in Q1 and as we added nine new logos in the quarter with a robust market pipeline. All these highly complex designs need to work correctly and under multiple conditions and scenarios like temperature, voltage, manufacturing variability and so on. That's where our verification tools come in. While verification is fundamentally an unbounded problem, our state-of-the-art simulation, emulation and prototyping products tackle these tough challenges at unparalleled speed with the fastest engines, highest capacity and lowest cost of ownership. Building on another record year in 2022, we continue to see excellent growth in hardware with both our ZeBu emulation and HAPS prototyping products. This quarter, we achieved major expansions with our ZeBu EP1 and HAPS 100 hardware at several of the largest semiconductor systems and hyperscaler companies in the world. Meanwhile, multi-die system design, sometimes called chiplet-based design, is opening a whole new era of silicon complexity. In Q1, our differentiated multi-die solution around 3D IC Compiler continued its strong momentum deployed on production tape-outs at the top high-performance computing chip supplier and a large networking systems company. Let me move to Design IP, which is about 25% of our business. Third-party IP, think of it as the LEGO blocks of chip design, continues to grow in complexity and importance. Our market-leading IP portfolio, by far the broadest in the industry, continues to grow with high demand in high-performance compute, automotive and mobile markets fueled by Smart Everything, multi-die systems and high speed and secure connectivity. While maintaining technical leadership, we've broadened our portfolio with new high-speed interfaces in three and four-nanometer processes to serve HPC and mobile applications at the leading edge. In the automotive market, we see strong adoption of automotive-grade IP solutions by OEMs and Tier 1 suppliers now developing their own chips. Meanwhile, multi-die systems require a whole new portfolio of state-of-the-art die-to-die interface IP. The recently introduced UCIA protocol, short for universal chiplet Interconnect Express, has become the standard of choice. Synopsys is leading in this area with an industry milestone, the tape-out of the first UCIE test chip on a major foundry three-nanometer process node. The increased silicon multichip and high-speed computation push enables enormous advances in the software world. This brings me to our Software Integrity segment, which accounts for about 10% of our revenue. As every vertical market is developing highly complex, big data-driven systems, their requirements for security and safety continue to expand. Our Software Integrity solutions enable organizations to improve and manage the security and quality of software across a wide range of industry verticals from semiconductors and systems to financial services, automotive, industrial, health and more. While this continues to be one area where we feel some caution from the macro environment, we had a good start to the year with several multiyear, multiproduct transactions and sustained momentum in our indirect channel. We continue to evolve and strengthen our multiproduct platform to help companies gain more comprehensive insight and drive increasingly robust top-down software risk management. Customers who purchased two or more solutions now account for the majority of our Software Integrity revenue as we drive cross-selling opportunities and continue to scale our application security testing platform. In summary, Q1 was a very solid start to the year, delivering strong financial results. We are reiterating our fiscal '23 revenue growth at 14% to 15% as well as non-GAAP operating margin expansion of more than 100 basis points. We are raising guidance for fiscal '23 non-GAAP EPS growth to 18% to 19%. Notwithstanding continued macroeconomic choppiness, our customers continue to prioritize their investments in chips and systems. In addition, our resilient business model provides a level of stability uncommon in most software companies. Meanwhile, our high-impact innovation pipeline across our entire portfolio is driving technical differentiation while solidifying our foundation for continued business growth. With that, I'd like to welcome Shelagh Glaser to our first Synopsys earnings call. We are thrilled to have her on board as her financial, operational, and scaling experience as well as a deep understanding of the semiconductor industry are a great asset to Synopsys as we drive exciting growth ambitions. With that, I'll turn it over to Shelagh.

Shelagh Glaser, Chief Financial Officer

Great. Thank you, Aart, and thank you to the Synopsys team for such a warm welcome. It's an honor to join a company with a long heritage of innovation and market leadership. I look forward to taking part in driving Synopsys into the next phase of growth in the era of smart everything as well as meeting all of you in the investment community. We delivered a very solid start to the year with revenue above the midpoint of our guided range, non-GAAP operating margin of 35.2%, and non-GAAP earnings above the high end of our target range. Our Q1 results were driven by our execution and strong technology portfolio that is expanding customer commitments. Robust chip and system design activity despite lower semiconductor industry revenue growth and a resilient, stable, time-based business model was $6.9 billion in non-cancelable backlog. We remain confident in our business, and as a result, we are reaffirming our full year 2023 targets for revenue and non-GAAP operating margin improvement and raising our full year outlook for non-GAAP EPS due to a lower tax rate. I'll now review our first quarter results. All comparisons are year-over-year unless otherwise stated. We generated total revenue of $1.36 billion. Total GAAP costs and expenses were $1.11 billion, which includes approximately $41 million in restructuring costs. Total non-GAAP costs and expenses were $882 million, resulting in a non-GAAP operating margin of 35.2%. GAAP earnings per share were $1.75, non-GAAP earnings per share were $2.62. As Aart mentioned, we are expanding our segment reporting to align with how we're managing the business. Starting in Q1, we are now reporting three segments: Design Automation, Design IP, and Software Integrity. Design Automation segment revenue was $890 million, with both EDA software and hardware performing well. Design Automation adjusted operating margin was 38.9%. Design IP segment revenue was $344 million, and adjusted operating margin was 34.2%. Software Integrity revenue was $128 million and adjusted operating margin was 12.1%. We are on track to reach our 15% to 20% revenue growth objective for Software Integrity with increased adjusted operating margin in 2023. Turning to cash. We generated $115 million in operating cash flow. We used $306 million of our cash for stock buybacks. We ended the quarter with cash and short-term investments of $1.3 billion and total debt of $21 million. Now to guidance. For fiscal year 2023, the full year targets are: revenue of $5.775 billion to $5.825 billion. Total GAAP costs and expenses between $4.54 billion and $4.59 billion. Total non-GAAP costs and expenses between $3.81 billion and $3.84 billion, resulting in non-GAAP operating margin improvement of more than 100 basis points. Non-GAAP tax rate of 16%. GAAP Earnings of $7.12 to $7.30 per share, non-GAAP earnings of $10.53 to $10.60 per share. Cash flow from operations of approximately $1.65 billion, which includes approximately $40 million to $50 million in restructuring costs. Now for targets for the second quarter. Revenue between $1.36 billion and $1.39 billion, total GAAP costs and expenses between $1.085 billion and $1.105 billion, total non-GAAP costs and expenses between $917 million and $927 million, GAAP earnings of $1.62 to $1.72 per share, and non-GAAP earnings of $2.45 to $2.50 per share. In conclusion, we delivered a very solid start to the year. While the underlying macroeconomic environment is choppy, we continue to execute and for the year, expect 14% to 15% revenue growth, non-GAAP operating margin improvement of more than 100 basis points and 18% to 19% non-GAAP EPS growth. Our confidence reflects our innovative technology portfolio, ongoing design activity by our customers who continue to invest through semiconductor cycles, and the stability and resiliency of our time-based business model. With that, I'll turn it over to the operator for questions.

Operator, Operator

Thank you. We'll take our first question from Joe Vruwink with Baird.

Joe Vruwink, Analyst

Thank you, everyone. I’d like to start by discussing how your relationship with customers is evolving as they start using DSO.ai. How does this impact the share of project budgets you can capture? Additionally, how close are we to seeing this product gain broader buy-in at the enterprise level instead of just project-specific buy-ins? The core of my question is this: during the upcoming period of significant enterprise renewals, when we would normally anticipate an increase in your backlog, do you believe that tools like DSO will lead to a substantial and noticeable increase in total contract values?

Aart de Geus, Chair and CEO

Well, going backwards on your question, yes, I think it will drive positive growth for Synopsys. And starting at the beginning of your question, which was how does it change the relationship. It's been remarkable as we started to travel again this year that after a number of years of being at least physically distant, the relationship with many of our customers has evolved substantially. I think a big piece of that comes from the fact that they all realize that the technology is becoming way more complex. And actually, in a good way, meaning that both this continuation on the traditional Moore's Law, but there's also a whole set of systems interactions be it when you have multiple dies or if you have hardware and software interactions that all demand a degree of automation that is way more sophisticated. And so in the midst of that, comes the entry now for us a little bit over two years ago of capabilities that really change how design is done. Moreover, it changes them in a very similar fashion like Synthesis, literally many decades ago; it automates things that were previously thought to not be automatable. It does this in a fraction of the time and with better results. The engagements have been extremely fast. The fact that we can point at so many production designs, we're not talking about people trying stuff out. Many tried it out. Then in the midst of the trial, they said they wanted to reuse these results because they're better than what they had before, and that project is not finished yet. So the adoption is fast. What would slow it down? What slows it down is, are they sure that the tools don't make mistakes, that it's actually proven technology. The answer has been a resounding yes. That's why all these production designs are using it. I see extremely high opportunity space for us there. Moreover, I think that is touching the tip of the iceberg. Now how that turns into contract evolutions—well that's the negotiation scale that we will need to bring to bear and they will need to bring to bear. But fundamentally, I think we add a lot of value to what they can do. I think we will be rewarded in some way from that.

Joe Vruwink, Analyst

Okay. That's great. Thanks, Aart. Just in terms of the forecast you're presenting for the April quarter, how much different is this than maybe what you internally were planning for a quarter ago? I guess, has anything changed in terms of design starts influencing the IP business? And obviously, you're reiterating the full year. So do you still see the volumes unchanged but maybe a bit more in the second half than you were originally assuming?

Shelagh Glaser, Chief Financial Officer

So this year, we are more back half weighted, and that actually is traditionally what we were in 2020 and 2021. 2022 was a bit unusual, and that was quite balanced between the first half and the second half. I would say we're not seeing any change in design. We're not seeing projects be canceled or shifted out; we're seeing robust design activity. As you note, the timing of revenue is aligned with when we sign the big deals and when the customers pull down things for their own product schedules.

Joe Vruwink, Analyst

Okay. Thank you very much.

Shelagh Glaser, Chief Financial Officer

Thank you.

Operator, Operator

We'll take our next question from Jason Celino with KeyBanc Capital Markets.

Jason Celino, Analyst

Great. Thanks for taking my question. I think, first of all, thanks for breaking out the Design Automation margins and the IP margins. It's interesting to see that. When I think about the improvement potential for both, what are the levers that you have? Or how should we think about the improvement versus the other? Thanks.

Aart de Geus, Chair and CEO

Well, I think the first thing to think about is while it was not visible individually for these pieces, over the last four, five years, we have substantially improved the margins throughout the company. By disclosing some of the numbers, specifically on the IP, which you probably haven't seen before, I hope you realize that this was probably better than you were expecting. Developing IP is actually a sophisticated and somewhat labor-intensive job. Having said that, I think we have improved steadily largely because we're actually getting better at what we do and we do more of it. And so there's the benefit of scaling and the benefit of improving our processes. Hopefully, from our preambles, you understood that we will continue to improve the company from a profitability point of view. In IP, we see actually a very fertile horizon because with the increasing complexity that I mentioned earlier, there are a lot of companies that are coming into doing chips that have never done it before. They have no history, no reason to start to create a lot of IP themselves. They move quickly by acquiring IP and then taking it from there. In many ways, the same is true on the Software Integrity side but from a different perspective, which is as you grow as a software company, you get leverage out of the sheer business model and the leverage on the work that you have to do. We have said all along that by the time Software Integrity would be around 10% of our business, which it is, we will continue now to push on the ops margin while continuing to push on growth, and there's opportunity on both sides.

Jason Celino, Analyst

Okay. Maybe just as my quick one follow-up. Do you feel that the margin profile on the core design automation side still has some room?

Aart de Geus, Chair and CEO

There's always room, right? When you look at yourself, you always wonder, wow, there are so many things we could do better. The key is how to implement it and move it forward. Yeah, I do think that there's opportunity there as well. But all three cylinders or three segments here of the engine have to all push themselves forward in the same direction in order to improve the company. I think we are well on track with that.

Shelagh Glaser, Chief Financial Officer

Yeah. And I would just reiterate that our goal that we have for the year is to improve greater than 100 basis points in our margin. So we're very committed to driving that.

Jason Celino, Analyst

Perfect. Thank you both.

Aart de Geus, Chair and CEO

Thank you, Jason.

Operator, Operator

We'll take our next question from Charles Shi with Needham & Company.

Charles Shi, Analyst

Hi, good afternoon. Thank you for taking my questions. Hey, I really want to come back and ask you around AI and ChatGPT. Some people are thinking about this as the competition mainly between Microsoft and Google, but others think this competes between GPU and TPU, meaning Tensor Processing Unit that Google internally developed. What is your view there? Are these trends in AI going to lead to more custom chip designs?

Aart de Geus, Chair and CEO

I want to agree with every statement you made, meaning the race is on in every dimension because whenever in our field, there are some major breakthroughs, everyone realizes, wow, this is possible. Therefore, other things must be possible. The fact that the usual suspects you mentioned will suddenly put a major emphasis on trying to catch up with each other is true. We have said for, I want to say, at least half a decade that from our perspective, chip design is increasingly driven by verticals down, meaning that every end market realizes they need to do something smart and that their domain can benefit by doing it specifically for their problem. Optimizing for agriculture is not the same as for automotive, and it's not the same as finance and phone. People want to win and they can win with better algorithms, but they can also win with better algorithms multiplied by much better chips. We see a continuation of new chips, derivatives of chips, and a fertile ground for the semiconductor industry and therefore for us.

Charles Shi, Analyst

Thank you, Aart. Maybe a follow-up question on the operating margin side; pleasantly surprised by the 41% operating margin of your Design IP business in Q1 '22. Should we think about the IP operating margin being in line with design automation or may there still be some gap despite some quarterly fluctuations?

Shelagh Glaser, Chief Financial Officer

Two things I want to make sure there are really quarterly fluctuations in IP. There's the natural ebb and flow when customers pull down, and they've got a design that we're supporting, and that is a bit more labor-intensive because we're building out IPs for multiple nodes and standards. We're always moving to the next domain. There is lumpiness, just an inherent lumpiness with customer pull down. Over time, we think of that margin as slightly lower than the overall corporate margin, and EDA as being slightly higher.

Charles Shi, Analyst

Thank you, Shelagh. Thank you, Aart.

Aart de Geus, Chair and CEO

Thank you.

Operator, Operator

We'll take our next question from Gary Mobley with Wells Fargo Securities.

Gary Mobley, Analyst

Good evening everybody. Thanks for taking my questions. Welcome to the call, Shelagh. Regarding the assumption that second half fiscal year '23 revenue is 12% higher than the first half, is this based on higher upfront licensing, or is it fully supported by the remaining performance obligations?

Shelagh Glaser, Chief Financial Officer

It's a combination really of all those things. Our design IP business has a lumpiness to it just in terms of aligning with customers' product starts. We do have a significant backlog that we balance through the year, and then hardware does have some lumpiness with customers depending on when their schedules take possession of it.

Aart de Geus, Chair and CEO

By the way, just building on the comment that Shelagh made earlier. If you look at our revenue quarter-by-quarter over, I would say, four, five, six, or seven years, you would see that 2022 was actually an anomaly with a particularly high push early in the year. The much more normal is a gradual slope moving up. And of course, there's some sales phenomena that the first quarter tends to be weaker than the last one because everybody works hard on the last one. But having said that, I think this is, in many ways, the profile of a normal year.

Gary Mobley, Analyst

Got it. Okay. Aart, I haven't heard you mention silicon lifecycle management recently. Could you give us an update on where that new product set stands in terms of customer adoption?

Aart de Geus, Chair and CEO

Sure. In fact, recently, it must be the last 30 minutes because it's actually a topic I love to discuss. We are making excellent advances in there, and we're finding the domains of applicability are broader than what initially motivated us. The initial motivation came somewhat from the automotive field, which is clearly undergoing a deep change in what a car is all about. When you have sophisticated chips, how do you know they still work? The lifecycle management is a set of steps that starts at the development of the chip by putting sensors inside the chip, having the ability to query them about potential failures and abnormalities across the manufacturing and use lifecycle. This was a key driver, but it turns out other fields also have lifecycle stresses that are just as high, such as compute centers that are sensitive to server downtime. The opportunities here are broad. This fits our Synopsys profile because we have many skills in different phases of the system design, development, and utilization. We see excellent growth here and believe this will be a long-term project for us.

Gary Mobley, Analyst

Thank you, Aart.

Aart de Geus, Chair and CEO

Thank you, Gary.

Operator, Operator

Our next question comes from Jay Vleeschhouwer with Griffin Securities.

Jay Vleeschhouwer, Analyst

Thank you. Good evening. Aart, could you speak generally about the utilization that you're seeing of your AE capacity investment and what resources are being called upon for DSO.ai SLM, the product you just mentioned?

Aart de Geus, Chair and CEO

It’s a great question because whenever we introduce new technology, you have different steps. The first thing is how quickly can we make it useful for a customer given their flows, their ways of doing things, and adapt it to their situation while teaching them how to run it to get good results. Once you have done that, it never ends because once they get good results, they want better results. There's a lot we can do by optimizing things for their circumstances. This is somewhat different for different types of products. When you talk about SLM, it intersects various testing techniques, built-in sensors, and many capabilities. In general, I think we will broaden our skill set to be multidisciplinary. New entrants into chip design look for maximum automation upfront. That can help because they do not have preconceived notions about how things should be done. In general, it's a multiplier on our business, and the quality of our people and trust relationships become more important as we work deep in our customers' production designs.

Jay Vleeschhouwer, Analyst

Okay. With regard to segment reporting, one of the segments you used to report was DFM. Could you talk about the progress of that business?

Aart de Geus, Chair and CEO

While we don't disclose in detail what the size is of this, it is part of our Design Automation segment. As you can imagine, technology has become dramatically more complex as we go to smaller device sizes. The complexity is also the reason we are becoming more involved in the development of advanced technologies with customers. There's a great return for customers in this focus because doing fabrication is extremely expensive and takes time to yield results. More you build digital twins of how things are manufactured and model them electrically, the better. This is an area that we see good growth in and certainly high strength for Synopsys. Trust is essential here because we are deeply engaged in the silicon kitchen.

Jay Vleeschhouwer, Analyst

Thank you, Aart.

Aart de Geus, Chair and CEO

Thank you, Jay.

Operator, Operator

We'll take our next question from Vivek Aria with Bank of America Securities.

Vivek Arya, Analyst

Thanks for taking my question. I'm probably nitpicking, but over the last few years, you were able to raise full year sales outlook almost consistently every quarter. What is different or do you think between this year versus the last few years in terms of how you saw steady upside but are not seeing it this year?

Aart de Geus, Chair and CEO

Let me remind you that last quarter, many commented that they were surprised we would do 14% to 15% given the uncertainty in the market. Where we stand right now is we have a solid understanding of what our customers are doing. We all understand there are open questions in the market. We feel correct about reasonable estimates for this year. We don’t see a need to change those numbers. It’s impossible to compare one year to another because all are so different. Right now, we’re on a really good track.

Vivek Arya, Analyst

Got it. As the cost to move to more advanced nodes becomes expensive, how does it net out for Synopsys? Does it mean fewer design starts but possibly more tool-intensive?

Aart de Geus, Chair and CEO

For starters, I don't think there are fewer design starts. The race is very much on. Secondly, we believe that complexity is a good thing for us because we are enablers. We have massive numbers of transistors, and I think we have a fantastic new horizon going from one to multiple closely spaced chips. There are exciting opportunities for the top leaders in the field with production designs working with us already.

Vivek Arya, Analyst

Thank you.

Aart de Geus, Chair and CEO

Thank you.

Operator, Operator

We'll take our next question from Ruben Roy with Stifel.

Ruben Roy, Analyst

Thank you. I had a follow-up on DSO. Can you talk about how customers are using the tool? Is it more cloud-based implementation? I have a quick follow-up after that.

Aart de Geus, Chair and CEO

Great question. It's both. The most advanced customers have massive clouds. Even there, we see a number that say they may want more compute for a couple of weeks. That's interesting because they can still do better. Nonetheless, we have customers that are driving to move their company towards more cloud-based computation. We're equipped for both. I think we'll continue to see both, but overall, it's going to spread among more customers.

Ruben Roy, Analyst

The beauty of AI and Generative AI revolves around the concept of learning as systems gather more information. Will that lead to accelerating use cases for DSO.ai?

Aart de Geus, Chair and CEO

It's absolutely a good way to think about it. When a product can improve itself over time, there's nothing negative about that. The results do get better. Not only is the product improving, but the understanding of the specific design is gaining ground. Many designs are derivatives of existing designs—it has fantastic evidence that DSO.ai applied to an earlier version has significant applications for the next version of the chip. We track these advances, and we see new breakthroughs every quarter.

Ruben Roy, Analyst

I appreciate that detail, Aart. Thanks.

Aart de Geus, Chair and CEO

You're welcome. Thank you.

Operator, Operator

We'll take our next question from Gianni Conti with Deutsche Bank.

Gianni Conti, Analyst

Hi, there. Thank you for taking my questions. Could you share some color on your performance this quarter? Have you seen any new wins versus clients pushing away some projects that were in the pipeline?

Aart de Geus, Chair and CEO

In any case, there are dimensions to the progress here. We've invested for a few years in a platform that brings multiple tools together. This is important because security problems are complex to diagnose requiring various diagnostics. Clients want overviews of what gets caught where. We're seeing that customers are increasingly buying multiple products from us rather than just one. Overall, this area continues to grow and has a lot of potential because many customers are at the beginning stages of automating this. We're looking at growing between 15% and 20% this year, precisely as we told you before.

Gianni Conti, Analyst

Great, that was really helpful. My follow-up would be regarding DSO.ai. Can you talk about the training time for existing engineers using the new tool? Is it time-consuming? And also, how does that compare to competition?

Aart de Geus, Chair and CEO

Training involves two types: tool training and user training. I have been surprised because when we achieved great results in early 2020, I thought it would take time for adoption. The results were so good that people couldn't resist adopting it even without fully understanding what it would take. Our AEs are well-trained to help them. The training hasn’t been an issue in discussions. I think we’re well-equipped to take the design processes that our customers have and adapt the tool and modify the process. It's hard for me to compare our competition, but I believe our results are staggering and we will continue to see excellent results.

Gianni Conti, Analyst

Great. Thank you. I appreciate it.

Aart de Geus, Chair and CEO

You're welcome.

Operator, Operator

We'll take our next question from Blair Abernethy with Rosenblatt Securities.

Blair Abernethy, Analyst

Thank you. I want to follow up. Is the margin opportunity following DSO.ai similar to your core EDA tools? Do you need to put more resources into getting this product to market?

Aart de Geus, Chair and CEO

Using simplistic terms, when you have a step that works in a third of the time and achieves another 10% speed with lower power, margin issues are not the driver. The question is whether they can find the budget. We work with people for many years. It's essential to enhance the ability for our customers to adopt and succeed in tough times. These are technical advances of extremely high value that multiply our customers' opportunity space.

Blair Abernethy, Analyst

Just one quick one for you, Shelagh. You mentioned $40 million to $50 million in restructuring costs. Can you tell us which areas are impacted?

Shelagh Glaser, Chief Financial Officer

It will come through over the first three quarters of the year. A portion of it is in Q1; about $41 million is in Q1. What we're doing is we're doing a small reduction and taking that investment to shift into some of the growth areas we've discussed today. It's a way to rebalance ourselves for future growth.

Blair Abernethy, Analyst

Got it. Thanks very much.

Shelagh Glaser, Chief Financial Officer

Thank you.

Operator, Operator

And that concludes the question-and-answer session. I would like to turn the call back over to our Chair and CEO, Aart de Geus.

Aart de Geus, Chair and CEO

Thank you very much for participating in the call. If nothing else, you probably heard in our voice some degree of enthusiasm for the advances that we're making. We will be looking forward to speaking to some of you later on today. With that, stay safe, and have a great day. Bye-bye.

Operator, Operator

And that concludes today's presentation. Thank you for your participation. You may now disconnect.