Synopsys Posts Financial Results for Second Quarter of Fiscal 2004

MOUNTAIN VIEW, Calif. May 19, 2004 – Synopsys, Inc. (Nasdaq: SNPS), the world leader in semiconductor design software, today reported results for its second quarter ended April 30, 2004.

For the second quarter of fiscal 2004, Synopsys reported revenue of $294.6 million, a 1% increase over revenue of $292.0 million for the second quarter of fiscal 2003. For the sixmonth period ended April 30, 2004, revenue was $579.9 million, an increase of 4% over revenue of $560.2 million for the same period in 2003.

GAAP Results

On a generally accepted accounting principles (GAAP) basis, for the second quarter of fiscal 2004, net income was $28.7 million, or $0.18 per share, compared to net income of $22.3 million, or $0.15 per share, for the second quarter of fiscal 2003. GAAP net income for the six-month period ended April 30, 2004 was $60.9 million, or $0.37 per share, compared to $56.7 million, or $0.37 per share, for the same period in 2003.

Non-GAAP Results

On a non-GAAP basis, net income was $57.1 million, or $0.35 per share, for the second quarter of fiscal 2004 compared to non-GAAP net income of $61.2 million, or $0.40 per share, for the second quarter of fiscal 2003. Non-GAAP net income for the six-month period ended April 30, 2004 was $111.4 million, or $0.68 per share, compared to $113.7 million, or $0.74 per share, for the same period in 2003.

Per share data for the periods presented reflects the Company’s two-for-one stock split completed on September 23, 2003. GAAP and non-GAAP net income are reconciled under “GAAP Reconciliation” below.

“Recently, the overall spending environment for our solutions has firmed up,” said Aart de Geus, Chairman and Chief Executive Officer of Synopsys. “Customers are moving more aggressively to smaller geometries and we are unveiling some remarkable new technology that cements our position as the industry leader. These trends should bode well for us for the remainder of the year.”

Financial Outlook

Synopsys also announced its operating model targets for the third quarter of fiscal 2004 and revised targets for the full year. The following targets are forward-looking and based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see “Forward-Looking Statements” below.

Third Quarter of Fiscal 2004 Targets:

• Revenue: $300 million - $320 million
• Non-GAAP expenses: $220 million - $230 million
• Non-GAAP other income and expense: ($2.0) million – $1.0 million
• Fully diluted outstanding shares: 158 million - 166 million
• Tax rate applied in net income calculations: 31%
• Non-GAAP earnings: $0.35 - $0.40 per share
• Upfront licenses as a percentage of product bookings: 30%, plus or minus 5%

Fiscal Year 2004 targets:

• Orders: $1.4 billion
• Revenue: $1.20 billion - $1.23 billion
• Non-GAAP earnings: $1.37 - $1.47 per share
• Upfront licenses as a percentage of product bookings: 30%, plus or minus 5%

Effectiveness of Guidance

The targets set forth above represent Synopsys’ expectations as of the date of this release only. Although this release will remain available on the Synopsys website, its continued availability does not indicate that Synopsys is reaffirming or confirming its continued validity. Synopsys does not currently intend to report on its progress during the third quarter of fiscal 2004 or comment to analysts or investors on, or otherwise update, such targets until it releases its quarterly results in August 2004.

GAAP Reconciliation

Non-GAAP net income consists of GAAP net income excluding, as applicable, amortization of intangible assets and deferred stock compensation, in-process research and development charges, integration and other acquisition-related expenses (including, in the second quarter of fiscal 2004, the $10.0 million fee paid to Monolithic System Technology, Inc. (MoSys) in connection with the termination of the acquisition agreement between Synopsys and MoSys in April 2004), facilities realignment charges and continuing amounts relating to Synopsys’ workforce realignment announced in the fourth quarter of fiscal 2003. Intangible assets consist primarily of purchased technology, contract rights intangible, customer-installed base/relationships, trademarks and tradenames, covenants not to compete and customer backlog. Non-GAAP net income is reduced by the amount of additional taxes that Synopsys would accrue if it used non-GAAP results instead of GAAP results to calculate Synopsys’ tax liability.

Synopsys’ management evaluates and makes operating decisions primarily based on the bookings and revenues of its core software and services business operations and the direct, ongoing and recurring costs of those operations such as cost of revenues and research and development, sales and marketing and general and administrative expenses. Management does not believe amortization of intangible assets and deferred stock compensation, inprocess research and development charges, integration and other acquisition-related expenses and workforce realignment charges are ordinary, ongoing and recurring operating charges for Synopsys’ core software and services business operations. Therefore, management calculates the non-GAAP financial measures used in this earnings release excluding these charges and uses these non-GAAP financial measures to enable it to analyze better and more consistently the period-to-period financial performance of its core business operations. Management believes that, although it is important for investors to understand GAAP measures, providing investors with these non-GAAP measures gives investors additional important information to enable them to assess, in a way management assesses, Synopsys’ current and future continuing operations.

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