Synopsys (NASDAQ:SNPS) saw its stock drop sharply Tuesday after posting third-quarter results that missed analyst forecasts, alongside soft guidance for the upcoming quarter. The decline reflects ongoing pressure from U.S. restrictions on chipmaking equipment sales to China, which dampened demand.

Shares fell nearly 20% in premarket trading Wednesday following the report.

For the quarter ending July 31, Synopsys reported adjusted earnings per share of $3.39 on $1.74 billion in revenue, compared with analyst expectations of $3.80 per share and $1.77 billion in revenue, according to Investing.com.

Growth in the design automation segment remained robust, climbing 23% year-on-year, driven by electronic design automation tools and a $77 million contribution from Ansys.

However, the IP division slipped 8% from the prior year due to U.S. export restrictions to China, lower-than-anticipated fees from a major client, and internal resource allocation challenges. Management indicated these issues are likely to persist in the near term as Synopsys aligns its roadmap and investments with market demand.

During the quarter, the company faced U.S. limits on sales of chipmaking equipment to China in late May, though the restrictions were lifted on July 2.

Commenting on the results, Mizuho analysts said the outcomes “were a mixed bag as strength in design automation was offset by weakness in IP segment.” They added, “while SNPS shares may remain pressured near term due to IP-related weakness, we believe GenAI is a long-term secular tailwind, and as a solid growth compounder with transformative Ansys acquisition, we view SNPS as an attractive investment opportunity.”

Meanwhile, Baird analysts downgraded Synopsys to Neutral after the results, arguing that “this update and lack of forward visibility create overhang that likely takes time to clear.”

For Q4, Synopsys expects adjusted EPS of $2.76 to $2.80 and revenue between $2.23 billion and $2.26 billion, below consensus estimates of $4.14 and $2.59 billion, respectively. For fiscal 2025, the company forecast adjusted EPS of $12.76 to $12.80 and revenue of $7.03 billion to $7.06 billion, compared with expectations for $14.58 and $7.45 billion.

“While I’m proud of how our team navigated external challenges in the quarter, our IP business underperformed expectations,” the company said.

Synopsys stock price

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