Ladies and gentlemen, thank you for standing by. Welcome to the Synopsys earnings conference call for the second quarter of fiscal year 2015. At this time, all participants are in a listen-only mode. Later we will have a question-and-answer session. Instructions will be given at that time. If you should require assistance during the call, please press star followed by zero. Today's call will last one hour. Five minutes prior to the end of the call, we will announce the amount of time remaining in the conference. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.
Thank you, Lori. Good afternoon, everyone. Leading today's discussion are Aart de Geus, Chairman and Co-CEO of Synopsys, and Trac Pham, Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts and targets and will make other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during the call, important factors that may affect our future results are described in our most recent quarterly report on Form 10-Q and today's earnings press release.
The reconciliation of the non-GAAP financial measures discussed on this call to their most directly comparable GAAP financial measures and supplemental financial information can be found in the 8-K, the earnings press release, and financial supplement that we released earlier today. All of these items, plus the most recent investor presentation, are available on our website at www.synopsys.com. In addition, the prepared remarks will be posted on the site at the conclusion of the call. With that, I'll turn the call over to Aart de Geus.
Good afternoon. I'm happy to report that our second quarter results were very strong and solidify our outlook for the full year. We delivered revenue of $557 million, non-GAAP earnings per share of $0.68, and $155 million in operation cash flow. We're raising the midpoint of our revenue guidance with a range of $2.210 billion-$2.235 billion and our non-GAAP EPS objective to a range of $2.76-$2.81, double-digit growth at the midpoint. Trac will discuss these results in more detail shortly. In the semiconductor and systems markets we serve, we continue to see unevenness in terms of business success, with some companies doing very well while others are challenged, whether in particular verticals or geographies. Nonetheless, firms continue to invest aggressively in advanced design to build the next great chip for the next great product. In that, they rely on Synopsys as a critical partner.
These products feature the most complex electronic systems in the world, spanning the entire continuum of silicon to software, ranging from ever smaller transistors and abundant sensors to the critical communication and supporting cloud infrastructures to embedded software and more and more sophisticated applications. The resulting interactions between big data, communication, and computation are leading rapidly to the age of smart everything. In the decades to come, advances in this space will again bring about unparalleled new capabilities that just a few years ago felt like faraway science fiction. Synopsys is well-positioned. Our EDA solutions enable the most advanced chips, our IP business greatly boosts designer productivity, and recently, our software quality and security tools address the complexity of both embedded and application software and thus expand our traditional TAM. In addition, our global teams are focused on exceptional customer relationships and differentiated technology support.
Building on this vision, last year we launched a multi-year market strategy based on three pillars. First, build on our leadership in EDA by providing the state-of-the-art tool set required to design the next generation of chips. Second, grow our IP offering as one of the highest impact productivity mechanisms available to design highly complex chips under unrelenting time-to-market constraints. Third, invest in and grow our software quality and security solutions as embedded software expands massively into next-generation electronic systems and the security vulnerabilities of application software create more and more challenges in our day-to-day lives. Let me provide some highlights on each of these, starting with EDA. The technical challenges facing semiconductor and systems companies are driving substantial investment in the most advanced as well as more established process geometries.
The number of designs using power-efficient FinFET transistors at sizes as small as 16, 14, and 10 nanometer is growing rapidly as leading-edge companies race forward. The number of active FinFET designs and tape-outs to date again grew almost 15% in just the last quarter to well over 200. Synopsys is relied on for approximately 95% of these, and our momentum continues as more and more enterprises commit to FinFET and count on us for success. For example, last month, we announced TSMC certification for Synopsys design tools for 60 nanometer FinFET+ production and for 10 nanometer early design starts. During the quarter, we displaced a competitor at one of its traditional Asian strongholds accounts for advanced 14 and 16 nanometer nodes.
While leading-edge designs are moving as fast as possible to FinFET, many advanced designs continue to be on 28 nanometer, which is expected to have a long life cycle. Our innovations pioneered for advanced FinFET designs are also bringing remarkable benefits to 28 nanometer circuits, as well as to the more established nodes such as 40, 65, and 90 nanometer. Our custom design solution is also gaining strength, and in fact, we successfully displaced the incumbent at a global medical device company who is now using a complete Synopsys digital and custom flow. Relevant here, a year after its announcement, it's worth reporting on our new flagship place and route product, IC Compiler2. In a word, it's doing great. IC Compiler2 has proven to be a true game changer for a fast-growing group of customers, and we can report tremendous demand and excellent business momentum.
We're currently already serving 32 customers with more than 70 in-progress design efforts. This is up 40% from last quarter. With more than 90 production designs in tape out, IC Compiler II is used on numerous process nodes from 40, 28, to the most advanced 16, 14, and 10 nanometers. These are production designs, not test chips. Customers report that IC Compiler II is dramatically faster than any tool on the market today, including next-generation offerings touted by competitors. In a number of cases, we take half to just a quarter of the time of competitor tools, with runtimes of hours versus days. These runtimes are achieved while the quality of results reported by users is superior as well. In March, for example, Toshiba cited, quote, "unprecedented runtime speed up and superior quality of results" end quote, by IC Compiler II as experienced on its 40 nanometer SoC tape out.
At our recent users group meeting here in Silicon Valley, customers including Toshiba, Renesas, MediaTek, and Arm spoke about their successes with the tool. From a business perspective, demand is very high, even in these early stages. Over the last three quarters, we've seen the fastest ever ramp up in orders for a new product. With our June release, which includes further enhanced functionality, IC Compiler II will be available to all customers. Now moving to verification, where approximately 80% of advanced designs rely on the Synopsys solution as their primary simulator. Q2 was a record quarter for our verification tools, reflecting early momentum for our Verification Continuum platform, with particularly strong results for our emulation system. Verification is the biggest bottleneck in chip design today.
To address this, our Verification Continuum platform contains all of the key capabilities from our franchise VCS functional simulator to static and formal analysis, to Verification IP, to emulation and prototyping, all aligned on a common infrastructure with best-in-class debugging. The platform was developed and continues to evolve in close collaboration with key customers. It has already been integral to large renewals and competitive wins. We introduced the first components last year, including Verification Compiler, which integrates many of the software elements. Customer interest is high, as evidenced by adoption not only by chip companies, but also by several very large systems companies in the quarter. Here, too, high-value additional features and further integration will roll out through the rest of the year. Let me now move to our second strategic priority of growing our IP and prototyping product lines. The Synopsys IP value proposition is compelling.
We are the number one supplier of interface, analog, memory, and physical semiconductor IP with a reputation for highest quality, reliability, and technical excellence. The business continues to grow with our IP being used in the most complex chips in the world, from advanced FinFET processes to those targeting automotive, industrial, and Internet of Things applications. Based on our very broad availability of proven FinFET IP, we have established clear leadership in FinFET IP development. This quarter, for example, we announced immediate availability of our silicon-proven IP and TSMC's 60 nanometer FinFET+ processes. We also closed a significant agreement with another major foundry to enable broad Synopsys IP on multiple FinFET and 28 nanometer processes. Development of our 10 nanometer IP portfolio is in full swing with multiple customers and partners.
We've had a number of important customer wins, including Broadcom, which extended its license agreement, providing access to Synopsys ARC processors for an expanded range of advanced multimedia and networking designs. Meanwhile, electronics are getting smarter, enabling us to run our lives from wherever we are at any time. Synopsys is at the forefront of delivering IP optimized for smart everything applications. For example, we announced a new embedded vision processor that enables designers to efficiently include capabilities such as object detection, gesture recognition, and video surveillance in their products. Our sensor subsystem is showing momentum with multiple wins in the quarter with high-profile customers. To address this growing complexity, our prototyping tools enable accelerated software development, hardware-software integration, and validation of the entire system.
We're seeing good repeat orders for our HAPS FPGA prototyping system by companies developing leading-edge mobile SOCs, as well as adoption of our software-based solution in the automotive space. Turning now to strategic priority number three, grow our TAM by building a new adjacent business in software quality and security. A year after acquiring and integrating Coverity, we've learned the following. Coverity was a great acquisition, a compelling combination of the familiar and the new, and a platform we can build on. Specifically, we acquired excellent technology, an expanded customer base, and a brand-new TAM. In order to scale the operations to a grander level, it will take ongoing investment in sales and marketing, as well as in R&D. We're confident in the opportunity in front of us and understand how to leverage Synopsys' experience in scaling the business and thus evolve a new growth engine.
Our strategy is to build a compelling and differentiated platform through mainly organic investments in the quality space and a combination of organic and M&A investments in the security space. To that end, we're expanding our position in software security with the acquisition of Codenomicon, a leader in the area of dynamic security analysis and well-known for independently discovering the infamous Heartbleed bug. With this acquisition, which is expected to close during Q3, Synopsys can deliver a more comprehensive security offering for the software development life cycle. To reflect our expanded presence, we've given the business group a new name, Software Integrity Group, which conveys our focus on software quality and security to help our customers develop complex software with rock-solid integrity. We expect the Software Integrity Group to be slightly dilutive in the second half of the year.
We are raising our overall guidance, reflecting strength in our overall business. In summary, Q2 was a strong quarter, which solidifies our outlook for the year. Financially, we delivered excellent results and are raising our annual revenue midpoint and non-GAAP EPS guidance range. We see clear momentum with our new implementation and verification products, where we're still in the early stages of a multi-year upgrade cycle. Our acquisition in the software security space will expand our presence in this highly important area. Let me now turn the call over to Trac Pham.
Thanks, Aart. Good afternoon, everyone. As reflected in our excellent Q2 financial results, we are seeing good momentum and strong execution in our business. We met or exceeded all quarterly financial targets provided last quarter. We delivered growth in revenue and non-GAAP earnings and generated considerable cash flow. Based on the strength of the first half and our confidence in the rest of the year, we are raising our 2015 outlook for revenue and non-GAAP earnings and reaffirming operating cash flow. Now to the numbers. As I talk through Q2 results and targets for the rest of the year, all comparisons will be year-over-year unless I specify otherwise. Total revenue increased 8% to $557 million, reflecting solid organic and acquired company growth. Greater than 90% of Q2 revenue came from beginning of quarter backlog, and one customer accounted for more than 10%.
The weighted average duration of our renewable customer license commitments was about 2.5 years. Duration will vary depending on customer requirements. We expect full year duration to be close to three years. Total GAAP costs and expenses were $481 million. Total non-GAAP costs and expenses were $420 million, at the lower end of our range, due largely to some delayed hiring. Non-GAAP operating margin was 24.7%. Aligning with the multi-year strategy Aart outlined, we will continue to drive company-wide operational discipline in order to fund our higher growth initiatives. GAAP earnings per share were $0.35, and non-GAAP earnings per share were $0.68. Turning to cash flow. We generated $155 million of operating cash flow and continue to target approximately $450 million for the year. We ended the quarter with total debt of $220 million.
This includes $160 million from our revolver, which we used to fund the $180 million accelerated share repurchase in Q1 and $60 million from our term loan. As a reminder, the ASR is expected to be completed this quarter when the final shares are delivered. We ended the quarter with cash equivalents, and short-term investments of $1 billion, with 15% onshore. Yesterday, we renewed and expanded our credit facility to $500 million. The revolver, which may be increased by an additional $150 million, provides excellent flexibility to support our strategy and business operations. We will continue to optimize the use of cash to generate maximum long-term shareholder value. Each quarter, we will evaluate our M&A, buyback, and debt reduction options to determine the best balance. DSO was 55 days, and we ended Q2 with approximately 9,450 employees, with more than one-third in lower cost geographies.
Now to our third quarter and fiscal 2015 guidance, which excludes the impact of any future acquisitions. For the third quarter, our targets are revenue between $550 million-$560 million. Total GAAP costs and expenses between $481 million-$501 million. Total non-GAAP costs and expenses between $430 million-$440 million. Other income between $0-$2 million. A non-GAAP tax rate of 21%-22%. Outstanding shares between 155 million-159 million. GAAP earnings of $0.23-$0.30 per share, and non-GAAP earnings of $0.58-$0.60 per share. For fiscal 2015, revenue between $2.21 billion-$2.235 billion, a growth rate of approximately 7%-9%. Other income between $6 million-$10 million. A non-GAAP tax rate of 19%-20%. Outstanding shares between 155 million-159 million.
GAAP earnings of $1.39 to $1.49 per share, which includes the impact of approximately $85 million of stock-based compensation expense. Non-GAAP earnings of $2.76 to $2.81 per share. We've raised our guidance range while taking into account the slight dilution we expect from our Software Integrity Group in the second half of the year. Capital expenditures of approximately $100 million, cash flow from operations of approximately $450 million. In summary, Q2 was another strong quarter. We delivered excellent financial results, highlighted by top and bottom-line growth, solid execution across our business lines, and strong cash flow generation. We are also increasing 2015 revenue and non-GAAP EPS guidance, reflecting strong momentum in the first half and our confidence in the rest of the year. With that, I'll turn it over to the operator for questions.
Ladies and gentlemen, if you have a question, press star, then one on your touch tone phone. You'll hear a tone indicating you've been placed in a queue, you can remove yourself from the queue by pressing the pound key. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, for questions, press star and then one. We'll go to Richard Valera with Needham & Company. Please go ahead.
Thank you. Question on ICC2. Thank you for the update there. Sounds like there is a lot of momentum in the market. Just wondered if you would address some chatter out in the market about some maybe initial versions of ICC2 having some QOR issues that needed to be cleaned up by ICC1 runs. Sounds like if you had those, you're beyond them, wondering if you would address those or not.
Well, this is mostly noise that is related to any transition that you have. ICC2 at this point in time is doing very complex chips extremely well, does not need any support by its older brother, so to speak. At any point in time, people like to compare results from one tool to another. They like to see if it behaves in the same predictable fashion as they are accustomed to. IC Compiler 2 is just doing fabulously well in those comparisons. More often than not, we get actually a response from customers that involve quite a bit of surprise on their part. Having said that, it's a very complex product, we are in an intense move to get customers to move into production design with it. That takes some effort, we're well on top of that.
That's great. With respect to the acquisition, I wanted to just clarify, is that baked into the guidance? It wasn't exactly clear to me if that's in the guidance or not in the guidance, the Codenomicon.
Hey, Rich, this is Trac. The Codenomicon is not baked into the guidance we've provided. The impact should be immaterial, and we won't be changing guidance as a result.
Okay. When you'd announced that, you'd said you thought it would close in 30 days, which is about where we are now. Anything we should know about why that hasn't closed in that timeframe?
No, not really. There's a certain amount of work that has to be done with the authorities locally, and we're on track to execute on that.
I guess since that hasn't closed, that implies that Coverity will be slightly dilutive in the second half of the year. Is that as expected?
No, actually, you probably remember that when we originally acquired it, in our initial plan, we expected to be break even in the second half of the year. Now that we know much more, and now that we've also decided to make some additional investments, specifically in broadening the language coverage, that is why we specifically communicated that in the second half, it would be slightly dilutive. It's very small, and we essentially embedded this in the rest of the business for the company. From that perspective, we still raised guidance.
Got it. That makes sense. Then, Aart, I just want to make sure I heard you right. I thought you said you had a very strong emulation quarter. Was that correct in your prepared remarks?
Yes, that was exactly what I said.
I was actually going to ask you if the sales of emulation had been affected at all by the lawsuit that I guess you lost, at least initially at this point, with Mentor. I'm guessing the answer to that would be that they have not been adversely affected, but I'll let you answer that question.
Sure, I will minimize my comments on this. After the verdict, of course, there was a set of issues we had to deal with. The version that's on the market today does not violate any of that, we see that our business is doing well.
Thanks very much. I appreciate it.
You're welcome, Richard.
We have a question from the line of Sterling Auty with JPMorgan. Please go ahead.
Yeah, thanks. Hi, guys. I apologize. I got cut off for part of the call. If you said this in your prepared remarks, I do apologize. Around ICC2, I imagine most of the traction is with existing customers. I'm just wondering, any commentary in terms of non-Synopsys teams that are starting to adopt this for some of their advanced chips?
Well, as you would imagine, Synopsys has been serving the most advanced designers in the world pretty much 100%. While there's always one or two holdouts, our first objective, obviously, is to make sure that the hardest driving design groups that need it most, that do the largest chips, and by the way, that are also the most demanding, are successful first. I think we are doing remarkably well with that group of people. There are a number of maybe less advanced designs, or let me put it more, in the 28, 40 nanometer category designs that are sometimes advanced, but on less evolved silicon technologies, that are also using the tool extremely effectively. We have an opportunity here to broaden to companies that maybe before did not look at us as their primary provider for place and route.
Okay. On the guidance for next quarter, specifically to the EPS, is the only increase in operating expenses the slight dilution that you're talking to, or is there some sales hiring or other operating expense investments that you're making, given where the range of EPS is coming in relative to consensus?
Sorry, Sterling, you're asking about the expense increase from Q2 to Q3? Is that right?
That's correct.
Yeah. What you're going to see in the quarter-to-quarter comparison is the delayed hiring that we saw in Q2, as well as the merit increase for the second half of the year.
Okay, great. Thank you.
You're welcome.
We have a question from Tom Diffely with D.A. Davidson. Please go ahead.
Yeah. Hi, this is Andrew Masuda calling in for Tom. You guys mentioned that you guys have 15% of your cash on shore. I was just wondering if there's a minimum threshold that you guys would like to maintain for acquisitions and/or share purchases.
Well, I'm sorry. In general, we try to keep our U.S. cash flow at around $100 million, but I should note that we did close our revolver yesterday, and we increased that from $350 million-$500 million. The combination of the onshore cash right now of $150 million plus the increased revolver gives us a lot of flexibility.
Okay. Thank you. Aart, just a question on the software quality and security. Can you remind us how much that increases Synopsys' overall TAM?
It's difficult to remind you because I always struggle with that question. The reason I struggle is that the space of software productivity tools, software quality tools, security is highly fragmented and sort of continually evolving. Our own sense initially is that the TAM probably grows by another $500 million or so. I'll be the first one to say that, depending on how one look at it, can be much larger. I don't think it would be much smaller, the security space is a little bit the Wild West right now.
Okay. Just last question on IP and systems. I noticed that it just ticked down modestly in the April quarter. Can you just talk about your expectations on that segment for the full year?
From quarter to quarter, it's hard to have very precise expectations in general on a trailing 12 months basis, which is sort of what we mostly look at. It's up quite a bit. The IP business, by definition, is somewhat lumpy because there are a number of deals that are large and ship immediately. There's some that require work to be done on a contract, it can vary quite a bit. Last year, for example, was a lower business growth than this year. Having said that, I think the business in good shape.
Thank you.
You're welcome.
We have a question from the line of Jay Vleeschhouwer with Griffin Securities. Please go ahead.
Thank you. Good evening. Aart, I'd like to ask about IC Compiler II, as well. Just to clarify the business impact that you're seeing from its adoption, I believe you said there are 32 customers now using it. Is it the case that most, if not all of them, are paying you more now for its use versus what they would have paid you for the, let's say, equivalent number of licenses of its older brother, IC Compiler I? If you could just help us understand the incremental bookings and/or pricing or revenue implications of its adoption.
Well, for starters, the product itself is priced at a higher level than IC Compiler One. It has dramatically better capabilities and of course, is super efficient. Secondly, a number of customers, as part of their multi-year contracts with us, have an opportunity to remix into the next version, at which point in time they use up more of that contract. Lastly, as contracts come up for renewal, that is an excellent time to establish what their level of commitment to Synopsys place and route is. IC Compiler II is doing extremely well with that. Having a history of fairly substantially new products in the past, not that we have something like IC Compiler II every few years or so. We nonetheless can absolutely see that the rate of business growth is excellent for it.
Okay. A couple of questions for Trac. You mentioned hiring in answer to, I think, Sterling's question earlier. In doing a spot check on your website on the number of open positions that you now have, I know that's sometimes not the best reading of a company's plans, but you do now have the largest number of open recs in about a year and a half, since the end of 2013. Could you help us understand how much of that intended hiring or the people you're looking for are in the more traditional core EDA business versus the new Software Integrity business?
Yeah. We definitely hire, are looking to grow our investments in the Software Integrity Group as well as the IP and system side. As we said, we will commit to growing in those spaces. Keep in mind that the headcount at the end of Q2 is roughly flat with where we exited last year. For two quarters now, we've been behind in our hiring, we should expect that to ramp up a little bit. With that hiring in mind, I would just refer you back to the full-year guidance. We still are at the midpoint of EPS. We're still looking to grow EPS by 10%, we're still looking to increase operating margins by about 100 basis points year-over-year. While we're hiring to support our business, we are mindful of the financial impact.
Okay. A couple more for you, Trac. Your core EDA business was up pretty nicely sequentially, for first quarter to second quarter, a larger than usual increase. If we think about that in geo terms, would it be fair to say that most of that sequential increase would've been in Asia PAC and perhaps secondly in North America?
It lines up because you do see that the growth in the trailing 12 months growth for North America and Asia PAC was pretty strong.
Yes. Okay. Your cost to revenues for a product was actually down sequentially in spite of the fact that you had a strong emulation quarter. Perhaps you had a really nice increase in the margin on emulation, but should we perhaps read into that the HAPS business, also hardware of course, might have been down sequentially, and from a cost perspective might have offset the increment from emulation?
Well, we are not concerned about that, and we actually don't worry about the COGS line on a quarter-to-quarter basis. If you look at it over this quarter as well as the last few quarter trend, it usually bounces around between 82% and 84%, and we're well within that range. I wouldn't read anything into it.
Okay. Lastly for Aart, a somewhat technical question. IC Compiler2, of course, has been on the market now for about a year. One of the things you talked about, since you released it or when you released it, was its substantial capacity additions. Could you remind us what you've done for the other products that are closely tied to IC Compiler and implementation, particularly DC and PrimeTime and others, in terms of materially expanding their capacity to keep up, so to say, with the design sizes for IC Compiler2?
Well, first taking a step back, the IC Compiler was somewhat of the bottleneck in the very, very large designs because far and away, the largest amount of data is attached to the physical representation of a design, which doesn't mean that it's not desirable to have higher level of capacity on any of the other tools. At any point in time when one tool suddenly does a lot better, all the other tools, while being happy for the company, immediately realize that the pressure is on them now to continue to improve. Of course, that is exactly what we're doing. From time to time, you will see new capabilities come out on any of the surrounding tools. The practical situation is always you can't do it fast enough. They're working hard on it.
Thanks, Aart. Thanks, Trac.
You're welcome.
We have a question from the line of Monika Garg with Pacific Crest Securities. Please go ahead.
Hi. Thanks for taking my question. The first on the emulation, Aart, you talked about a strong growth in the emulation segment. What is your expectation for the growth of that business year-over-year, and your views on the market as well?
Well, I don't think I commented on the market. I said that emulation was strong in the quarter for us. I put it really in the perspective of our broader mission, which is a Verification Continuum that really contains the cornerstones of simulation and, of course, emulation, but also a number of other technologies. The reason that's important is because in reality, most designers use a broad set of tools, and one of the things that really helps them is if the tools understand the electronic representation the same way. In other words, if it can sit on the same infrastructure and if you can use the same debuggers, even if some of the tools are more appropriate for one thing than another.
It's in that context that we have made outstanding progress specifically in making sure that the compilation techniques that we use for simulation and emulation line up very well. About a year and a half or so ago, we had flagged that as one of the weaknesses in our offering, and I think right now it's becoming rapidly a strength.
Is it fair to assume your emulation standalone revenue is growing at least double-digit year-over-year?
Monika, we said that it's doing very well. We don't disclose the growth rates of individual products. They tend to go up and down. I would reiterate that we think that we have a very strong emulation solution.
Okay. On the Coverity, when it was bought, you talked about growing at 20% growth rate. Could you maybe share how is that business doing on the growth rate basis?
Well, it's roughly on track. It is slightly differently dimensioned than when you originally acquired it, because we didn't quite know exactly how to read the numbers. We have concluded, meanwhile, that it is a business that has great opportunity, and for that reason, we realized after a while that our core strength is really the depth of the algorithm, specifically around the analysis of the languages. That, of course, begged the question, well, which languages do you do? We decided to invest in broadening that language set. I think there's still a lot of space to be explored here. Then the other broadening that we took on, of course, is to strengthen the security angle. Coverity already had some security capabilities, but they were not really well-known for it.
Codenomicon is certainly a brand name, it allows us to position a little bit better in this emerging space, while at the same time learning quite rapidly what are actually the things that are most valuable to customers.
Got it. Just a housekeeping question here. If I look at maintenance and service line item, first half of this year, the revenue is about $130 million, but last year was about $102 million. Is something going on there, or is it some reclassification of revenue in this line item?
You're talking about service?
Yeah. Maintenance and service line item, yes.
Oh, those tend to go up and down quite a bit. They're very lumpy because a lot of these are directly related to certain contracts having milestones, and the milestones can be very unevenly spread. The service business is not very large for us, I wouldn't read very much into it. The very fact that I was even unaware of what you just said shows that we are ourselves, maybe we can pay more attention to it, but we didn't.
Okay, thanks. That's all for me.
You're welcome.
Ladies and gentlemen, as a reminder, if you have additional questions, you can press star then one. We'll go to Mahesh Sanganeria with RBC Capital Markets. Please go ahead.
Yes, thank you very much. Another IC Compiler question. Aart, we estimate that the addressable market for place and route about $600 million, growing more at mid-single digit. If you can give your opinion on that, also if you can talk about competitive positioning because your competitor also claiming significant design wins in that area. If you can comment on that would be helpful.
Well, I cannot comment about what a competitor says. If they're growing, that's good. That means the whole market is growing even more. We are certainly doing very well, and have been the largest provider in that segment of the market for quite a while. What makes that market interesting and challenging is that it's the first place where all the new challenges of new technologies come to roost, both in terms of the physics, but also in terms of the sheer complexity of the chips that have to go through the tools. In that context, IC Compiler II, I think, is passing the test with flying colors, and that is why we've seen the business actually do very well around IC Compiler II.
As a matter of fact, the run rate for the whole company is up, IC Compiler was certainly a cornerstone in the things that we wanted to accomplish this year.
Another question. You made a comment on 28 nanometer being a bigger node in your opening statement. I guess you're probably referring that 28 nanometer is staying much longer and you're seeing new designs. Does that have any implication on how things progress for your business? Does that imply that the advanced technology is slower, but it doesn't matter to you? You're benefiting from number of designs, not necessarily has to be the leading edge.
That's a very good question, you may recall that I fairly strongly predicted this, I would say 4 to 6 quarters ago already. There's a logic to it, which is, no matter what, the difference between 28 and then the 16, 14, and so on, FinFET, is that 28 is what's called planar transistors, so flat. Whereas FinFET, as the name says, fins, they're vertical. That is a fairly big physical change when you think about it. There's a reason one would go after such a change because the benefits are very large for very sophisticated advanced designs that also need very low power. No surprise, the people that go there first are the processors and are the people that do mobility because they have very complex chips and need low power.
Contrary to popular opinion, it's not just two or three customers that have gone there. It's a larger number already. It is also true that for many of the others. They sort of wait to see, as others have crossed the bridge, how that's going, when are the economics right, where the yields really are predictable. All the things that you do if you don't see a super high advantage in being in the most advanced nodes. Now you arrive at 28, which is a very solid node, very high yield, good cost point, and so on, and you say, "Well, I still want to differentiate." Now you do very advanced design on a 28 nanometer node, which by the way, is just as difficult, it's just the type of difficulty you already know about.
It's in that context that many of the benefits of IC Compiler II, that were pioneered with obviously the intent to be able to satisfy the FinFET crowd, have actually very positive impact on the 28 and actually, we see a number of people also doing very well at 40 nanometer. You look at that configuration and you say, "Hey, that makes sense." It's economics that determines when people go over the bridge. Right now the 65 and 40 nanometer group is arriving at 28 nanometer and will be looking when to cross into FinFET when it makes economic sense.
That's very helpful. Thank you.
You're welcome.
I'll turn it back to our presenters for closing remarks.
Well, at this point in time, I hope that you heard that we had a very solid and strong quarter with a number of key products that we had invested in for a number of years. These products are doing well. It's early in the comprehensive rollout, but it is very promising and it's certainly technology that applies to all the new designs being done. With that, for those of you that join us at the individual session, we'll see you later, and thank you very much for your time.
Thank you. Ladies and gentlemen, this conference call will be made available for replay. That begins today at 4:00 P.M. Pacific Time. The replay runs through the date of May 27th at midnight Pacific. You can access the AT&T playback service by dialing 1-800-475-6701 and enter the access code 359327. International parties may dial 1-320-365-3844. Replay access code 359327. The numbers again, domestic, 1-800-475-6701 and international, dial 1-320-365-3844. The replay access code 359327. That concludes the teleconference. Thank you for using AT&T Executive Teleconference Service. You may now disconnect.