Synopsys reported weaker-than-expected fiscal third-quarter earnings, triggering its steepest single-day stock drop on record and a plan to lay off 10% of its global workforce as the company grapples with U.S.-China trade tensions and integration of its $35 billion Ansys acquisition.

For the quarter ended July 31, revenue rose 14% year-on-year to $1.74 billion, but still fell short of analyst expectations of $1.77 billion, according to LSEG data. GAAP net income dropped 43% to $242 million, with earnings per share down 45% to $1.50. Non-GAAP EPS came in at $3.39, also below the $3.80 forecast.

The shortfall was largely driven by weakness in the company's intellectual property (IP) business. CEO Sassine Ghazi cited disrupted chip design activity in China due to new U.S. export restrictions, challenges at a major foundry customer, and internal roadmap missteps. Analysts believe much of Synopsys' IP investment had been tied to Intel's 18A process technology, which has since been scaled back in favor of 14A, leaving near-term revenue exposure.

Meanwhile, design automation revenue rose 23% to $1.31 billion, beating expectations, but IP revenue fell nearly 8% to $428 million, well below estimates.

Looking ahead, Synopsys guided fourth-quarter revenue between $2.23 billion and $2.26 billion, above last year's $1.64 billion but still accompanied by weaker earnings expectations. Adjusted EPS is forecast at $2.76 to $2.80, down sharply from $3.40 a year earlier and far below consensus of $4.50. For the full year, revenue is projected at $7.03–7.06 billion, with EPS at $12.76–12.80, missing Wall Street's $15.13 estimate.

Alongside its results, Synopsys confirmed a 10% workforce reduction by fiscal 2026, which Ghazi said was planned even before the Ansys deal closed in July. The restructuring aims to streamline operations, reallocate resources toward high-growth areas, and improve efficiency as AI reshapes design automation workflows.

Shares of Synopsys (SNPS.O) fell more than 35% following the announcement, erasing its gains for the year. Rival Cadence Design Systems (CDNS.O) also slipped nearly 7% on the news.

Despite near-term pressures, Ghazi stressed that the Ansys integration expands Synopsys' portfolio and customer base, positioning the company as a mission-critical technology partner for AI and semiconductor R&D. Still, he acknowledged that geopolitical headwinds and execution challenges will weigh on results in the coming quarters.