Synopsys logo is seen in this illustration taken September 9, 2025. REUTERS/Dado Ruvic/Illustration

(Reuters) -Chip design software provider Synopsys missed Wall Street estimates for third-quarter revenue on Tuesday, hurt by weakness in its Design IP business, sending shares down nearly 18.5% after the bell.

The segment includes Synopsys' interface, security and embedded processor intellectual property, along with IP implementation services.

The underperformance in the segment was caused by deals that did not materialize, largely due to new export restrictions disrupting design starts in China and challenges at a major foundry customer, CEO Sassine Ghazi said on a post-earnings call.

In early July, the United States lifted restrictions on exports to China for chip design software developers, which had been imposed in late May.

Synopsys had made significant investments in building out IP for the foundry customer, with expectations for returns in the second half of 2025, Ghazi said on the call. However, the customer pulled out due to market and client-related reasons.

Synopsys, which counts companies such as Nvidia, Intel and Qualcomm among its partners, provides software and hardware used to design advanced processors.

Sunnyvale, California-based Synopsys completed its $35 billion cash-and-stock acquisition of engineering design firm Ansys in July, after receiving conditional approval from China's market regulator. The deal, announced early last year, faced intense antitrust scrutiny in markets including Britain.

The company reported revenue of $1.74 billion for the third quarter ended July 31, missing analysts' estimates of $1.77 billion, according to data compiled by LSEG.

On an adjusted basis, Synopsys reported a profit of $3.39 per share, also below estimates of $3.74 per share.

Synopsys projected current-quarter revenue between $2.23 billion and $2.26 billion, while analysts expect $2.09 billion.

Rival Cadence Design Systems raised its annual sales and profit forecast in July.

(Reporting by Juby Babu in Mexico City; Editing by Mohammed Safi Shamsi)