Charles Shi : Thank you, Aart. Maybe a follow-up question back to this question, another analyst had just asked. On the operating margin side, very pleasantly surprised by the 41% operating margin of your Design IP business in Q1 ’22. Just want to really come back to the point. I think there’s a premise that the IP may be structurally lower margin than EDA, well, partly because it’s more labor-intensive Aart, as you mentioned, but it looks like it’s probably not always the case, at least on a quarterly basis, but on an annual basis going forward, shall we be thinking about IP operating margin is kind of in line with design automation or there may still be some gap despite there may be some quarter-to-quarter fluctuations from here? Thank you.
Shelagh Glaser : So 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, just as already even talked about for multiple nodes, multiple IP standards. So we’re always moving to the next domain. And there is a lumpiness, just an inherent lumpiness with the customer pull down. And over time, we think about that margin is slightly lower than the overall corporate margin and EDA as being slightly higher.
Charles Shi : Thank you, Shelagh. Thank you, Aart.
Aart de Geus : Thank you.
Operator: We’ll take our next question from Gary Mobley with Wells Fargo Securities.
Gary Mobley : 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. I’m curious if this assumption is based on higher upfront licensing and I guess more specifically, maybe some lumpiness related to the hardware verification business. Or is this fully supported by the remaining performance obligations or in general, the backlog?
Shelagh Glaser : It’s a combination really of all those things. So as we think about our business, our design IP business has a lumpiness to it just in terms of aligning with customers’ product starts our schedules aligned with that. We do, as you mentioned, have a significant backlog that we balance through the year, and then hardware does have some lumpiness with customers depending on when their schedules to take possession of it. Aart?
Aart de Geus : Yeah. By the way, just building on the comment that Sheila made earlier. If you look at our revenue quarter-by-quarter over, I’d say, four, five, six, seven years, you would see that 2022 was actually an anomaly with a particularly high push early in the year. And you may recall that at that point in time, there was also euphoria in the market. Actually, the much more normal is essentially 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 : Got it. Okay. Aart, I haven’t heard you mention silicon life cycle management recently or maybe I missed it. I did. But maybe if you can just give us an update on where that new product set stands in terms of customer adoption?
Aart de Geus : Sure. Actually, recently, must be the last 30 minutes because it’s actually a topic I love to talk about because we’re making excellent advances in there. And we’re finding that the domains of applicability are broader than what initially motivated us. And the initial motivation came somewhat from the automotive field, which is clearly going into a very deep redo of what a car is all about. And I’m not thinking here of the electrification, which is also happening that the whole notion of essentially a software-driven device literally. And with that comes the question, when you have very sophisticated chips in there, how do you know they still work? And that is where the life cycle management is essentially a set of steps that start at the very development of the chip of putting certain sensors inside of the chip, having the ability to query them in a smart way about potential failures or abnomalies, I should say, and then do that through the manufacturing, through the installation through the early years but also over life cycle, literally of the car.
And so that was a key driver. Turns out that the other fields that have life cycle stresses that are in a different way just as high, such as compute centers that are really very sensitive about some servers going down and wanting to hide that from their customers or, I should say, protect their customers from that. And so the opportunities are broad. And this fits very well, I think the Synopsys profile because One of our skill set is that we have skills in many different phases of the whole system design development and utilization. And there are things that are truly close to silicon physics here all the way to very sophisticated test techniques and AI utilization to assess the results. And so we see excellent growth here and see that this will be a long-term broad project for us.
Gary Mobley : Thank you, Aart.
Aart de Geus : Thank you, Gary.
Operator: Our next question comes from Jay Vleeschhouwer with Griffin Securities.
Jay Vleeschhouwer : Yeah, thank you. Good evening. Aart, one of the interesting phenomenon in your organic headcount growth over the last number of years has been the seemingly large investments you’ve made in AE capacity. And so the question is, could you speak generally about the utilization that you’re seeing of that AE capacity investment. And specifically, what kind of resources are being called upon for DSO.ai SLM, which you just mentioned or any other newer product areas to which AE capacity is being directed. And then I’ll ask my follow-up.
Aart de Geus : Well, it’s a great question because whenever we introduce new technology, you have two or three different steps. The first thing is, obviously, how quickly can 1 make it useful for a customer given their flows, their ways of doing things and adapt it essentially to their situation while at the same time, teaching them the basics of how to run it to get good results. Once you have done that, it never ends because once you get good results, they want great results. And of course, there’s a lot we can do by optimizing things for their circumstances. And this is going to be somewhat different for different types of products, of course. By the time you talk about something like SLM, it goes in many different directions because now you have the intersection of testing techniques, built-in sensor or techniques all the way to how ultimately does this get designed into the system with learning capabilities and fast interpretation on chip.
And so in general, I think we are going to broaden the skill set to be more and more multidisciplinary as we have some people that obviously are very deep in different areas. And the people that can handle a broader swath of the design flow for the customer or with the customer, I should say, is important. The last two comments is with some of the newer entrants into chip design, they really are looking for a lot of automation as much as possible upfront. And sometimes that’s helpful because there are also no preconceived notions of how things should be done. And one can start right away with brand new flows, reuse of IT and so on. So in general, it’s a multiplier on our business and the quality of our people and the trust relationship becomes more and more important as we are working deep in the production designs of our customers.
Jay Vleeschhouwer : Okay. So with regard to segment reporting, once upon a time, which is to say, back in the primary era of 2018, one of the segments you used to report was DFM which is reasonably sizable at the time, and I imagine it’s grown as a whole physical verification category has grown. But with all of the new fab construction activity that’s underway, particularly here in the U.S., could you perhaps talk about the progress of that business? Or how are you looking at the growth of that DFM business since you last talked about it, at which time was already $0.25 billion.
Aart de Geus : Well, while we don’t disclose in detail what the size is of this, it is part of our Design Automation segment. And as you can imagine, the technology has become dramatically more complex as we also go to much smaller device sizes. But that very complexity is also the reason why we are more and more involved in the development of advanced technologies with the customer. And there’s absolutely a great return for the customer in doing that because more and more doing and the fab is extremely expensive, but it also takes a long time before you have results. And so the more you can essentially build what today would be called digital twins of how things are manufactured and model it electrically the better. So this is an area that we see good growth in and certainly very high strength for Synopsis. And again, I’ll use the word trust because — this — we are really very much inside of the silicon kitchen here.
Jay Vleeschhouwer : Thank you, Aart.
Aart de Geus : Thank you, Jay.
Operator: We’ll take our next question from Vivek Aria with Bank of America Securities.
