But the work is not straightforward, but the road map is fairly straightforward what you need to do. On the EDA side, we have a number of those customers using 3DIC Compiler, which gives them the ability to architect that chip for that system in that case. SLM, the silicon life cycle management to give them the ability to trace the health and the connectivity of these dives into the system and all the way in the field or in the hyperscale case as it sits into their data center and it’s up and running. So we have a number of expansions in our portfolio in order to support these opportunities. And that’s why we are bullish and excited about the opportunity to continue the growth for design, automation and design IP.
Jay Vleeschhouwer: For Shelagh, one of the largest components of your backlog has been FSAs which are, I would assume, largely related to IP. Is there any reason to believe that in future, the pull down of FSAs for IP consumption would be faster or larger than has been the case to date? And for that matter, were FSAs a large component of the $1.5 billion sequential increase in backlog that you noted?
Shelagh Glaser: There’s not a — I wouldn’t note a different percent of FSAs. It’s certainly something that many of our customers who are purchasing IP prefer that model, but there’s not a different mix.
Sassine Ghazi: Thanks, Jay.
Shelagh Glaser: Thank you, Jay.
Operator: We’ll take our next question from Charles Shi with Needham.
Charles Shi: Hi, good afternoon and congrats on the very strong results, guidance and the backlog number. I want to ask a little bit — I think a little bit more into the backlog number because you have relatively consistent, I mean, ratios in terms of how much backlog goes into RPO, how much RPO goes into current RPO and how much the current RPO covers next year’s revenue. With that, at the same ratio as in the past few years, I thought you would have guided a little bit higher given that $8.6 billion backlog. So how should I reconcile this? Is it something like at this time, the average contract duration is a little bit longer within that $8.6 billion backlog? Or there’s some conservatism around what will you want to guide for ’24? Thanks.
Shelagh Glaser: Yeah. Thanks for the question. So the backlog was broad-based. It was across multiple customers. And as Sassine said, some of them was larger renewals and new deals that we booked. There was — there’s no change in the duration in our contracts. So there’s no change from our typical duration. As we were putting the forecast together for the year, we are really balancing the headwinds and tailwinds that we’re seeing in the business, and we’re seeing because of the backlog, we’re seeing very strong momentum in the core business in design automation and Design IP where we’re seeing the headwinds is on China, in particular, which obviously has been a large growth driver for us for the last several years. We’re seeing that growth rate slower and then the other one is SIG, which the Software Integrity business is still — we anticipate going to be impacted by a difficult software enterprise purchasing environment.
And so that’s why we’ve got that business forecast at single-digit growth. So it’s really the balancing of those things. But we are seeing design automation and design IP aligned with our long-term goals for those businesses.
Charles Shi: Got it.
Shelagh Glaser: Thanks for the question.
Charles Shi: Yeah. Maybe a quick follow-up on the half-over-half profile for next year because I mean, I would think that EDA revenue, I mean, because of its time-based nature and you guys keep signing bigger contracts, you tend to be like up to the right kind of profile through the year, but your relatively flattish half-over-half profile seems to suggest that the IP, maybe some of the hardware is going to be a little bit front half loaded. Is that the case? And why is that a thing?
Shelagh Glaser: Yeah. It’s really just the balance of how we see the customers wanting to ingest our hardware and our IP business. So it’s fairly aligned also with what we saw in ’23 and fairly aligned with what we saw in ’21.
Sassine Ghazi: Maybe, Charles, if I — I’ll add a couple of comments to what Shelagh just said. Rough numbers, our design automation is about 65% of our business and then Design IP, 25% and software integrity 10%. And the $8.6 billion is mostly those agreements in EDA and IP. And given the large percentage of the overall revenue we have, which is 25% is IP, there’s a different pull down and development of the IP, especially on the advanced nodes, when we’re talking about we’re developing our IP portfolio on the most advanced foundries, from the day you find an agreement to the day you deliver, there’s a time lapse by when that you deliver the IP and you get the pull down. So while the backlog number, the $8.6 billion is large, we need to get, I would say, used to that the consumption for EDA and IP would be very different across that backlog number. And the timing of the renewal et cetera, et cetera.
Trey Campbell: Thanks, Charles. Let’s do one more question and then if you could turn it back over to me, Lisa.
Operator: Thank you. We’ll take our next question from Gianmarco Conti with Deutsche Bank.
Gianmarco Conti: Hi, there. Thank you for taking the questions. So I guess the first one would be, how should we think about the recurring revenue rate into 2024? Is it fair to assume that given that we’re expecting another record [hard year] (ph) into ’24, it will inch closer to 80%. And secondly, could you provide some more color on the SIG strategic initiatives that you’re considering?
