Synopsys sells the software that chip engineers cannot work without. When a company wants to design a new computer chip, it uses Synopsys tools to plan the circuit, check that it works correctly, and prepare it for manufacturing. Customers pay for multi-year software licenses, typically two to three years at a time, which means Synopsys collects money steadily even when the chip industry slows down. After completing its acquisition of Ansys in July 2025, Synopsys also now sells simulation software used by engineers in aerospace, automotive, healthcare, and dozens of other industries to test how products behave before they are built. Revenue comes from two main segments: Design Automation (which includes both the chip design tools and the new Ansys simulation products) and Design IP (pre-built circuit blocks that chip makers plug into their designs to save time). The diagram below traces where the money goes.
How Synopsys Makes Money
flowchart LR
A["Chip Design Companies
Need Tools"] --> B["EDA Software Licenses
3.5B upfront"]
A --> C["Design IP Blocks
Pre-built Circuits"]
A --> D["Simulation Software
Ansys Tools"]
B --> E["Software Subscriptions
3.5B time-based"]
C --> F["IP Royalties
Per Design Fees"]
D --> E
E --> G["Maintenance Support
1.6B annual"]
F --> G
B --> H["Customer Success
Training Services"]
C --> H
D --> H
G --> I["Total Revenue
7.1B"]
H --> I
I --> J["Reinvest in R&D
AI Features"]
J --> B
J --> C
J --> D
I --> K["Operating Cash
1.5B"]
K --> J
Five years of financial data tell a consistent story about revenue growth, but a more complicated one about cash and debt. Revenue climbed from $4.2 billion in 2021 to $7.1 billion in 2025, nearly doubling in four years. Gross margin held remarkably steady across most of that period, staying above 79% every year through 2024. That kind of stability is unusual and reflects the software subscription model: once a customer is locked into a multi-year license, the cost of serving that customer stays low.
Annual Revenue 2021 to 2025 ($B)
Revenue has grown every year. The 2025 jump includes $756.6 million contributed by Ansys after the deal closed in July 2025.
The cash picture tells a different story. Free cash flow (the cash left over after paying for operations and capital spending) actually declined from $1.6 billion in 2022 to $1.3 billion in 2025, even as revenue rose sharply. And the debt position flipped dramatically. Through 2024, Synopsys carried more cash than debt, a comfortable position known as net cash. By the end of 2025, the company owed a net $10.6 billion, because it borrowed heavily to fund the Ansys purchase.
$1.4B cash surplus
Net Cash Position (2024)
$10.6B debt
Net Debt Position (2025)
The Ansys acquisition transformed the balance sheet overnight. Synopsys went from having more cash than debt to owing a net $10.6 billion.
Gross margin also slipped in 2025, falling to roughly 77% from above 80% in the prior two years. The 10-K explains this partly as the effect of absorbing Ansys, which has a different cost structure than Synopsys's legacy software business. How quickly the combined company brings margins back toward historical levels is one of the key numbers worth watching.
2025
milestone
The Ansys Merger Changes Everything
Synopsys completed its acquisition of Ansys in July 2025, paying for it with roughly $13.5 billion in borrowed money. Ansys contributed $756.6 million in revenue in the months after closing. The deal expanded Synopsys far beyond chip design tools into simulation software used across aerospace, automotive, and industrial engineering. It also created a company with approximately 28,000 employees and left Synopsys with a net debt load of $10.6 billion to manage.
The risks Synopsys faces are specific and documented, not just generic warnings. Three stand out as directly affecting near-term results. First, China is already hurting. Revenue in China fell 22% in fiscal 2025 (excluding Ansys) after the U.S. government imposed new export controls on chip design software. Those restrictions were briefly enacted, then rescinded, but the disruption they caused to customer design activity in China was real and the 10-K warns that similar restrictions could return. Second, the Design IP segment underperformed in 2025, hit by those same China restrictions plus weaker demand from a major foundry customer. Management acknowledged that some internal roadmap and resource decisions did not produce the intended results. Third, the $13.5 billion borrowed to acquire Ansys limits Synopsys's financial flexibility at exactly the moment it needs to integrate a large new business.
What Are Export Controls?
Export controls are U.S. government rules that restrict which products and technologies can be sold to certain countries or companies. In 2025, the U.S. government imposed restrictions on selling specific chip design software to Chinese customers. These rules can change quickly, making it hard for companies like Synopsys to plan their China business.
22%
Decline in Synopsys China revenue in fiscal 2025, excluding Ansys, reflecting the direct impact of export control disruptions on one of the company's major geographic markets.
There is also a broader macroeconomic headwind. The 10-K notes that customers in industrial, automotive, and consumer electronics markets have been slow to recover from recent economic uncertainty. Some customers are delaying purchases or slowing the pace at which they draw down on contracts they have already signed. This does not immediately damage revenue because the subscription model spreads recognition over time, but it does signal softer demand ahead. Management has said it expects a challenging near-term environment and muted growth in the Design IP segment in fiscal 2026.
What Is a Backlog in This Business?
Backlog is the total value of contracts customers have signed but that Synopsys has not yet converted into recognized revenue. As of October 31, 2025, Synopsys reported a backlog of approximately $11.4 billion. About 45% of that is expected to become revenue within the next 12 months. A large backlog gives visibility into future revenue, but customers can sometimes slow how fast they draw it down.
$11.4B
Contracted backlog as of October 31, 2025, representing revenue Synopsys has already locked in from signed customer agreements but not yet recognized. This provides meaningful forward visibility despite near-term headwinds.
The three-company structure of the chip design software market (Synopsys, Cadence, and Siemens EDA) controlling 75 to 85 percent of the total market is an important part of the context. Customers who design chips cannot easily switch vendors mid-project. The tools are deeply embedded in engineering workflows. That stickiness is what has kept gross margins above 79% for four consecutive years and what keeps renewal rates high even when customers cut costs elsewhere. The question is whether Ansys's simulation software, which serves a much broader and more competitive market, will eventually contribute similar economics.
Synopsys sold its Optical Solutions Group to Keysight Technologies in October 2025, just after the fiscal year ended. That business had been part of the Other product group. The divestiture suggests management is narrowing focus toward its core chip design and simulation businesses rather than expanding in optics.
The Bet
Synopsys borrowed $13.5 billion to become a broader engineering software platform, not just a chip design tool company. That bet pays off only if Ansys's simulation business, which serves aerospace, automotive, healthcare, and industrial customers, can be grown and integrated in a way that justifies the debt load and the margin compression already visible in 2025. The chip design software side of the business has spent years proving it can hold pricing power and keep customers locked in through multi-year subscriptions. Ansys must prove it can do the same across a far more fragmented set of industries, while Synopsys simultaneously repairs its Design IP segment and manages a $10.6 billion net debt position.
Open question
Synopsys enters 2026 as a larger company with a proven core business, a damaged China revenue line, a struggling Design IP segment, and more debt than it has ever carried. The $11.4 billion backlog provides a cushion, and the subscription model means near-term revenue is largely predictable. But the Ansys integration is still very early, gross margins have already slipped, and the geopolitical environment around chip design software remains unpredictable. Can Synopsys restore Design IP growth, absorb Ansys without further margin erosion, and service $10.6 billion in net debt, all at the same time, while U.S. export rules toward China remain in flux?
Compiled · 10-K · FY2025
