WCM Stock in Focus | Synopsys: A Technology Company with an Expanding Economic Moat

A key focus of the WCM Quality Global Growth portfolio is to find quality global companies with durable, strengthening economic moats and corporate cultures aligned to this growth. An example of a company that demonstrates these characteristics is Synopsys.

Synopsys is an electronic design automation company that focuses on technologies for chip design, verification, IP integration, and quality testing. Synopsys is at the forefront of ‘Smart Everything’ with the world’s most advanced technologies that aim to help their customers innovate from silicon to software.

In this Stock in Focus Ryan Quinn, Client Portfolio Manager at WCM Investment Management (WCM), explains how Synopsys’ competitive advantages and culture makes it an industry leader in the market.

Transcript

Tom Hickey (TH): Hello and welcome to this ‘Stock in Focus’. My name is Tom Hickey and joining me from WCM Investment Management is Ryan Quinn. How are you, Ryan?

Ryan Quinn (RQ): I’m well, Tom. Thank you.

TH: Lovely. Today we are going to be talking about a company called Synopsys. Can you tell us a bit about what they do?

RQ: Absolutely. California-based Synopsys is a technology company that provides software, IP and software services used for both hardware and software developers. It’s a founder-led business that is best known for providing software to large semiconductor companies, that help them layout what a chip will look like and then how to manufacture it. Synopsys will find itself embedded with customers like Taiwan Semiconductor, working as an outsource research and development partner on complex problems for them. These deep relationships really create insurmountable barriers to entry, as well as high switching costs for that company.

TH: So those are probably some of their competitive advantages. Do you see those growing or contracting over time? Do you feel that the moat is expanding?

RQ: We see the basis of the moat really beginning with those relationships and switching costs. The company is a clear industry leader as most chip manufacturers utilize Synopsys in one-way shape or form. Their competitive advantage increases as Synopsys is able to climb the value chain within those companies – adding value at different levels for them. Synopsys, as we see, has a picks-and-shovels play benefiting from a number of different long-term tailwinds – like the proliferation of technology, high-performance computing and internet-of-things, as well as, just the growth of technology generally.

TH: And the culture within the organization, what are you liking about the culture?

RQ: There are some adjectives that Synopsys uses to describe its culture including integrity, execution, leadership, and passion. The company’s culture is outward-looking and has a strong, what we call, continuous learning mindset. These in turn reinforce the behaviours of being adaptable and innovative in a market that moves very quickly. These have been critical to Synopsys’ past success and we believe it’s going to drive the company to future performance.

TH: Fantastic. Thank you, Ryan, for joining us.

RQ: Cheers.