Synopsys (SNPS) reported better-than-expected fourth-quarter results on Wednesday. The chip design software provider also issued upbeat guidance for the first quarter.

Sassine Ghazi, Synopsys COO, President, and incoming CEO joins Yahoo Finance Live to discuss the results and why AI is a big catalyst for the company.

As Ghazi notes, AI chips are “still in an early stage of adoption” as there is no one size-fit-all chip, so application needs will differ. Speaking about today’s chips, Ghazi calls them “so complicated” and that Synopsys has “a number of AI offerings” to meet these needs.

When it comes to headwinds, Ghazi says that enterprise spending has softened and that he senses that softness will continue into 2024.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JULIE HYMAN: The last time when we spoke, you talked a little bit about the growing demand for AI, which I know played a role once again this quarter, led to revenue growth for you guys, led to that forecast going forward amidst just overall greater chip demand. But I wanted to start by drilling down into that AI demand a little bit last time we talked, it was about 10% of your revenue. Where does it stand now? And what more visibility do you have on its trajectory?

SASSINE GHAZI: Yeah. So if you look at the overall demand for AI, it's still in an early stage of adoption. From a-- if you look at the hyperscalers, for example, they're all trying to figure out how do they invest in their own AI chips in order to support their specific workloads, specific applications. And of course, companies like Nvidia, they have plenty of runway in terms of shortage in supply and a significant demand for their chips, with many other companies like AMD and other trying to fill that significant demand opportunity for all the various applications.

JULIE HYMAN: And also, even since the end of the last quarter, you guys introduced a new product in cooperation with Microsoft that is AI-focused. What are you hearing from your clients in terms of that product and the broader suite of services you're offering?

SASSINE GHAZI: So today's modern chips that they go into a car or a data center or your PC, et cetera, are so complicated, that getting the task done without having some sort of an AI support-- and the support, I mean optimizing the chip, getting time to market, reducing the effort required in order to get to the results that our customers are shooting for their product spec. And this is where we come in. We have number of AI offering that goes with our product in order for our customers to deliver to their customer and product innovation.

JULIE HYMAN: One of the things you all talked about on the call, and it sounds like demand is still quite strong. Your backlog is still quite strong. But you did talk about a couple of headwinds. One of them was China, which I want to get to in a minute. But you also talked about a potential headwind from enterprise spending. What is the pace of enterprise spending look like right now. And what do you think it will look like going into next year?

SASSINE GHAZI: So we have-- if you think of synopsis, we have really three businesses. The first business is design automation. And this is where we serve absolutely the semiconductor market. And that's a software business. The second business is design IP. And this is, again, focused on the semiconductor market. The third business is software security and quality. And there, the customer are the large enterprise customers.

And as you know, the enterprise spending in '23, enterprise software spending in '23, has softened. And going into '24, it does feel is going to be in the same type of an environment. So as we guided FY24, we guided a strong midpoint growth of 13%, taking into account those two headwind factors, the enterprise software spending staying the way it's been in '23 and the impact of China.