Synopsys, Intel IP deal 'bodes well' for second-half backlog, Needham says
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The deal signed by Synopsys (NASDAQ:SNPS) and Intel (NASDAQ:INTC) to develop intellectual property using Intel's foundry services likely "bodes well" for Synopsys' second-half backlog, investment firm Needham said on Tuesday.
Analyst Charles Shi, who has a buy rating and $500 price target on Synopsys (SNPS), said the deal will use Intel's (INTC) 7 and 18A nodes and that Intel is likely to pay Synopsys and other IP providers for IP development, whereas deals with Taiwan Semiconductor (TSM), the IP provider usually bears the cost. 
"Given Intel's ambition to grow its foundry business under the IDM 2.0 model, we think this agreement may be worth billions of dollars and add handsomely to SNPS' backlog," Shi wrote in an investor note.
Shi added that with this deal in place, Synopsys's (SNPS) outlook for the second-half of 2023 now looks "solid."
"Between [electronic design automation] and IP, we think to reach the 11% [half-over-half] growth target, SNPS must show a 20%+ [half-over-half] growth for its IP business, as [electronic design automation] revenue growth is usually steady and mild (thanks to its ratable revenue model) and cannot provide a significant enough uplift needed for 11% corporate revenue growth H/H," Shi explained. "With SNPS signing the new IP agreement with Intel, we think SNPS' goal to grow IP revenue by 20%+ [half-over-half] now looks much more credible."
Looking to the company's fiscal third-quarter earnings, slated to be released on Wednesday, Shi is expecting the company may "slightly raise" guidance based on the Intel deal, but that's all.
A consensus of analysts estimate that Synopsys (SNPS) will earn $2.74 per share on $1.48B in revenue.

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