Electronic design automation (EDA) software company Synopsys Inc. (NasdaqGS: SNPS - News) recently completed the acquisition of Virage Logic Corp. for $12 per share. The total consideration of the deal came in at approximately $315.0 million.

Virage Logic’s business is expected to integrate easily with Synopsys, as the former provides semiconductor intellectual property (IP) for the design of complex integrated circuits. In a way, this acquisition is expected to supplement Synopsys' Designware platform, as well as its Intellectual Property product category.

The company has adopted acquisitions as a growth strategy. Earlier, it added technology, engineering resources and other such assets of Synfora, Inc. to its portfolio. Synfora provides C/C++ design technology, for complex system-on-chips (SoCs) and Field-Programmable Gate Arrays (FPGAs).

This acquisition was intended to strengthen Synopsys’ position in the FPGA-based prototyping solutions business. By using Synfora's technology, designers will be able to manufacture better integrated circuits. In short, the acquisition will enhance the company’s technical efficiency, as well as its product and service portfolio.

Apart from acquisitions, Synopsys’ time-based license revenue model also offers good momentum. This contributes almost 85% to total revenue. Under this system, customers rent the software, rather than paying a one-time upfront license fee. Hence, this is a much more predictable model, providing better visibility through a steady and recurring revenue stream.

Of course, the model does not provide a competitive advantage, as the revenue recognition model is more or less similar to its peers. Therefore, moving forward, we believe Synopsys will have to find new avenues to outperform in the space.

We believe that currently the company is in a consolidation phase as it reported year-over-year revenue declines, while earnings per share were a bit above our expectations in the third quarter. This apart, the company is also witnessing bookings growth, and exploring untapped markets. These efforts are expected to reap results in fiscal 2011.

Although 2011 is expected to be a growth year, the 2010 guidance does not reflect any meaningful growth. Synopsys is gaining traction from new products and new EDA partnerships, but we believe these factors will take some time to produce favorable results.

Additionally, the semiconductor industry is currently witnessing an inventory glut, so 2010 demand will be lower than originally estimated.

Currently, we have a long-term Neutral recommendation and a short-term Zacks Rank #3 (Hold) on the stock.