Synopsys, Inc. (SNPS) delivered mediocre third quarter results, with below-par operating performance. The 2010 guidance does not reflect any major growth. Although Synopsys is gaining traction from new products, acquisitions, and new EDA partnerships, we believe these are unlikely to show results in the near term.

We believe Synopsys’ time-based license model has good visibility and it has a strong balance sheet. On the other hand, the semiconductor industry has yet to stabilize and generate demand.

Synopsys is facing customer concentration risk. The industry-wide weakness is impacting its core business. We therefore downgrade the stock from Neutral to Underperform.

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