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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

or

For the transition period from                      to                     

Commission file number: 000-31545

SYNPLICITY, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:   (408) 215-6000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended).  Yes  x  No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sales price of the Common Stock on June 30, 2004 as reported on the Nasdaq National Market, was $80,328,156. Shares of Common Stock held by each executive officer and director and by each shareholder who owns 5% or more of the outstanding Common Stock have been excluded in that such shareholders may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 10, 2005, the registrant had outstanding 26,290,431 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference into Parts II and III of this Annual Report on Form 10-K portions of its Proxy Statement for its 2005 Annual Meeting of Shareholders.

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SYNPLICITY, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

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PART I

This Annual Report on Form 10-K, the exhibits hereto and the information incorporated by reference herein contain “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such forward-looking statements involve risks and uncertainties. When used in this Report, the words “may,” “will,” “should,” “believe,” “expects,” “anticipates,” “estimates” and similar expressions are intended to identify forward looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include those discussed below and those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or incorporated by reference herein. Synplicity, Inc. (“we”, “us” or “Synplicity”) undertakes no obligation to publicly release any revisions to these forward looking statements to reflect events or circumstances after the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission (“SEC”) or to reflect the occurrence of unanticipated events. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995.

We incorporated under the laws of the State of California in 1994. Our principal executive offices are located at 600 West California Avenue, Sunnyvale, California 94086 and our telephone number at that location is (408) 215-6000. This Annual Report on Form 10-K, as well as all of our subsequent filings under the Exchange Act, is accessible, free of charge, via our website at www.synplicity.com as soon as reasonably practicable after such reports have been filed with the SEC. Investors may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Synplicity, Synplify, Synplify Pro, HDL Analyst, Certify, Amplify, Synplify ASIC, Fortify, RealPower, Behavior Extracting Synthesis Technology, Amplify ASIC, Amplify FPGA, and Identify are our registered trademarks. Physical Optimizer, PowerPlanner, Total Optimization Physical Synthesis, PowerRoute, and TOPS are our trademarks. All other names mentioned herein are trademarks or registered trademarks of their respective companies.

Overview

We are a leading provider of software products that enable the rapid and effective design and verification of large, complex semiconductors used in networking and communications, computer and peripheral, consumer, automotive, military/aerospace and other electronics systems. Our software products perform essential steps in the process of designing and verifying semiconductors that are tailored to perform a specific function including field programmable gate arrays (“FPGAs”) and application specific integrated circuits (“ASICs”), which include a class of ASICs called structured or platform ASICs (“structured ASICs”). We employ proprietary logic synthesis, physical synthesis and debug technology to simplify, improve and accelerate the design and verification of large complex FPGAs and ASICs. We believe our semiconductor design software products, coupled with our responsive customer support, assist our customers to meet performance goals and decrease the time to market of their electronic systems.

Industry Background

Manufacturers of networking and communications, computer and peripheral, consumer, automotive, military/aerospace, digital video, industrial, scientific, medical and test and measurement systems employ a wide variety of advanced semiconductors, including FPGAs and ASICs, in their products. Unlike off the shelf standard function semiconductors, FPGAs and ASICs are tailored to perform specific functions defined by electronic product designers. FPGAs are semiconductors that are customized or programmed to perform a specific function after the semiconductors are manufactured, whereas ASICs are customized during the manufacturing process.

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FPGAs and ASICs are used to implement proprietary intellectual property and to provide the equipment manufacturer’s products with enhanced performance, flexibility and differentiation. FPGAs provide equipment manufacturers with the ability to create and modify semiconductor designs quickly and easily. With FPGAs, electronics manufacturers can make changes to the design even after the customer uses the product. This ease of creation and modification helps electronics manufacturers meet time to market requirements by shortening development times. In this respect, FPGAs provide electronic equipment manufacturers the ability to get to market quickly and the flexibility to update their products to address rapidly changing industry and interoperability standards. ASICs, on the other hand, can achieve higher performance, lower power consumption and lower unit cost than FPGAs when produced in volume. However, ASICs generally have longer development cycles as well as lengthy and expensive custom fabrication processes prior to shipment. We believe that the relative ease of use, design flexibility and shortened time to market of FPGAs and the expanded capacity, performance and lower power consumption and unit cost of ASICs will continue to fuel growth in the use of these semiconductors in electronic equipment.

The capacity of FPGAs and ASICs on average has increased due to advanced manufacturing processes. These advanced manufacturing processes help improve performance, lower overall part costs and further expand the breadth of applications for which FPGA and ASIC semiconductors can be used.

Challenges of designing FPGAs and ASICs

As more complex FPGAs and ASICs with higher capacity are used in the design of electronic equipment, these FPGAs and ASICs often require significant resources to design and test their functionality. Large semiconductor designs require more time to develop and test, which may limit the equipment manufacturer’s ability to get to market quickly.

Electronic products are increasingly incorporating digital signal processing (“DSP”) functionality using FPGAs which can offer an order of magnitude performance increase over standard DSP processors. However, an obstacle in implementing DSP functionality in FPGAs is that it is a very time-consuming process to explore different design architectures in order to achieve optimal performance. Traditional techniques for converging on a solution use very iterative and manual methods that frequently do not produce optimal results.

Complex ASIC design, using the traditional cell-based library approach for implementation, has become increasingly costly as a typical 130 nanometer cell-based ASIC design project in 2004 required an investment in excess of $5 million for EDA tools, design resources and initial semiconductor manufacturing costs. In additional to rising costs, the time it takes to complete a typical cell-based ASIC has lengthened as verification of cell-based ASICs has become increasingly difficult. These and other economic forces have resulted in a declining number of cell-based ASIC design starts over the past three years.

Electronic product designers seek design solutions that produce high-performance designs, increase productivity, reduce costs and are easy to learn and use. To achieve these objectives, electronic product designers, including equipment manufacturers using FPGAs and ASICs, have recognized the advantage of certain software solutions which address critical steps in the development cycle.

To date, these software solutions have focused on several functions in the development cycle including:

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Our Solution

Our software solutions improve performance and shorten development times for complex FPGAs and ASICs by simplifying, improving and automating key design planning, custom logic synthesis, physical synthesis and verification functions. Our products utilize a number of sophisticated mathematical algorithms, electrical engineering techniques and advanced software operations.

A key feature of our products is their ability to generate and display concurrently four views of a semiconductor design—the textual design description, a highly abstract graphical representation of the design description, an optimized, detailed diagram showing the various elements of the semiconductor design and a physical representation of the design elements. As the designer changes the textual description, the other three views automatically highlight the selected areas of the design. These alternate representations aid the designer to manipulate and optimize the design and diagnose problems. Our software products also provide the following features and benefits to our customers and their electronic product designers:

Design goal achievement.    Our products enable designers to design products quickly that meet or exceed their semiconductor performance and capacity utilization goals. Efficient and cost-effective manufacturing of a semiconductor depends on full utilization of the semiconductor’s capacity. Users specify design constraints through our graphical user interface and then use our products to automatically process the design to achieve function, performance and capacity goals. The complex optimization operations that our products perform employ the most advanced features of the target semiconductor and result in a highly optimized design that improves performance of the electronic equipment. Our solutions may also enable designers to use less costly semiconductors to achieve the same performance goals, thus reducing end system costs.

Custom ASIC synthesis.    Today’s cell-based ASIC design and manufacturing processes can be too costly for many low to mid-volume ASIC applications. The semiconductor industry has begun to address this by introducing structured ASICs. These new ASIC devices employ innovative architectures to remove many of the cell-based ASIC verification problems, including clock management, test and power and signal integrity. They come mostly prefabricated, requiring only a few metal/via masks for customization, thus significantly reducing ASIC manufacturing costs and improving time to market. While these new devices deliver a more deterministic and lower cost design alternative than cell-based ASICs, their structure also introduces a reduction in achievable performance and utilization from typical cell-based synthesis tools. To help address this issue, we have worked closely with leading ASIC manufacturers such as Fujitsu Microelectronics, NEC Electronics Corporation and LSI Logic Corporation to provide custom architecture-specific synthesis support for their structured (or platform) ASIC devices. This in turn returns much of this lost performance and utilization moving from a cell-based design methodology as well as providing a more streamlined design flow that accelerates the design process.

Accelerated time to market.    Electronic product designers require time efficient solutions. Our products optimize small designs in seconds and large designs in minutes or hours, which we believe is significantly faster than alternative software. Reduced execution time significantly shortens time to market because logic synthesis, physical synthesis and verification are typically performed repeatedly during the design process. Our products allow designers to select an optimal design from various design possibilities in the same amount of time that

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alternative software would require to evaluate a single solution. In addition, our physical synthesis products produce design results that correlate well with the completed physical design, thus reducing the number of design iterations typically introduced with design tools that use less accurate statistical wire length models.

Ease of use.    Our products are designed to be easy to install, learn and use. The user enters only information that is specific to the design. Our products employ complex algorithms, but their sophistication makes the designers’ work simpler. We believe both experienced and novice users value our products because they provide highly optimized designs that require a minimum level of design tool specific effort as compared with conventional approaches. We believe our solutions’ ease of use and graphical representations make them accessible to a larger group of designers without sacrificing quality of results or achievement of design goals. Our creation of easy to use powerful design tools has the added benefit of reducing the amount of technical support required to assist customers in tool use. Our technical support resources can focus on more design related support, which is of more value to customers.

Optimal product solutions.    We believe our products provide significant advantages for designing FPGAs, structured ASICs and cell-based ASICs. Our FPGA solutions can implement optimized designs for the largest available FPGAs. Synplify Pro, our leading FPGA synthesis product, enhances electronic product designer productivity as well as the performance for complex designs. Amplify FPGA Physical Optimizer, our physical synthesis product for FPGAs, incorporates specialized features that can improve performance and provide results that reliably close customer timing requirements. Synplify DSP, our newest product introduced in the third quarter of 2004, is a DSP synthesis tool that performs high-level DSP optimizations from a Math Works Simulink specification. We believe Identify, our FPGA debug product, is the first and only software tool that allows FPGA designers and ASIC prototyping designers to functionally debug their hardware directly in their Register Transfer Level (“RTL”) source code and enables functional verification at speeds far faster than traditional RTL simulators.

Certify, our ASIC verification product, includes features that enable designers to functionally validate large designs using high-speed prototypes. Without these prototypes, ASIC designers may not be able to test their designs at or near the ASIC’s performance target prior to chip signoff, thus increasing the likelihood of a design error. Our Fortify family of power planning and analysis products helps create and validate that the ASIC’s power network maintains its voltage integrity during design operation. Synplify ASIC, our cell-based ASIC RTL synthesis product, is capable of implementing ASIC designs and design blocks as large as several million gates in a single operation, saving time and improving results in these more complex semiconductors. In addition, Synplify ASIC often produces designs that are smaller than competing solutions, providing enormous value to customers with high volume applications. Amplify RapidChip and Amplify ISSP, our physical synthesis products for structured ASIC design, are intended specifically to improve utilization and performance and to more efficiently close customer timing requirements. We believe Amplify RapidChip and Amplify ISSP are the first ASIC physical synthesis products that bring custom architecture-specific support while also offering optimal timing correlation to the final routed structured ASIC design. This tight correlation allows LSI, NEC and Fujitsu to more quickly close timing on customer designs in their design centers, ultimately producing completed designs sooner for their customers.

Comprehensive customer support.    Because of the complex nature of our customers’ design activities, we believe our support services are valuable to our customers. We emphasize rapid resolution of customer questions by staffing our customer support operation with knowledgeable personnel. We have provided our customer service organization with sufficient resources to assist our staff in responding to customer problems often within 24 hours. We also make available through our web site information regarding support solutions, problem submission and problem status.

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Products

FPGA Solutions

Revenue from our software products for use with FPGAs represented 83%, 86% and 93% of our total revenue in 2004, 2003 and 2002, respectively.

Synplify and Synplify Pro Products

In 1995, we introduced Synplify, our logic synthesis product that enables customers to implement their designs in FPGAs quickly and easily. In May 2000, we launched Synplify Pro, our advanced FPGA logic synthesis product incorporating improved productivity features and offering enhanced results. To perform logic synthesis, our Synplify and Synplify Pro products employ proprietary optimization algorithms, which we call Behavior Extracting Synthesis Technology. Our Synplify and Synplify Pro products take advantage of specialized features provided by the FPGA manufacturers that improve performance for a particular design. Logic synthesis software products transform a high level design specification into a format comprised of logic elements and wires interconnecting those elements that is ready for implementation in a semiconductor. Logic synthesis is a primary determinant of design performance. As a result, logic synthesis has a significant impact on the overall performance of the electronic system in which the FPGA resides. We believe that our Synplify and Synplify Pro products have the industry’s highest performance results on the basis of speed and capacity utilization of the resulting FPGA. In addition, our Synplify Pro product automatically identifies and restructures certain types of control circuits to achieve better performance.

Because logic synthesis is performed multiple times during the design process, the less time synthesis requires, the quicker the engineer can complete the design process. We believe our Synplify and Synplify Pro products have the industry’s fastest run times. We employ algorithms that scale linearly in run time with the size of the design. Small designs can be synthesized in seconds and designs for the newest, largest FPGAs can be synthesized in hours or even minutes. Synplify and Synplify Pro require only the input of readily available design data. This information is entered via a simple to use graphical user interface, which allows designers to specify all design constraints in a single location quickly.

HDL Analyst Product

In 1997, we introduced HDL Analyst, a software product that is available as an option to our Synplify product and is incorporated into most of our other products. A key feature of our HDL Analyst product is its ability to generate and display concurrently three views of a semiconductor design—the textual design description, a highly abstract graphical representation of the design description and an optimized, detailed diagram showing the various elements of the semiconductor design. As the designer changes the textual description, the changes are automatically reflected in the other two views. Our HDL Analyst product enables designers to quickly identify performance bottlenecks and identify other opportunities for improvement.

Amplify FPGA Physical Optimizer Product

In March 2000, we introduced Amplify FPGA Physical Optimizer, a software product specifically created for achieving optimum results for FPGA devices. The key innovative and differentiating feature of our Amplify FPGA product is the method by which it uses and improves physical implementation information provided by the designer during the synthesis process to produce an improved design. We believe that Amplify FPGA was the industry’s first commercially available physical synthesis product for FPGA design. In October 2001, we introduced our second generation of Amplify FPGA that utilizes Total Optimization Physical Synthesis, or TOPS, which is based on significant new algorithmic developments that produce precise physical placement while performing optimization of logic on critical paths. By performing detailed placement of logic, the TOPS technology is able to achieve even more predictable timing estimations, thus reducing the number of iterations required to close on timing. The user provides this physical implementation information through a graphical user interface, and our Amplify FPGA product utilizes this information to improve design performance.

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We believe Amplify FPGA improves time to market. Without physical optimizations, users must undertake numerous time-consuming iterations of design, constraint and software option changes in hopes of creating a design that has the desired performance and functionality.

FPGA components are sold in performance grades. An FPGA offering marginally higher performance may cost substantially more than the next lower grade. We believe that our Amplify FPGA product assists designers to use less expensive components to meet the same design requirements.

As design sizes increase, there is a trend toward team design of a single FPGA in which portions of the design are allocated to different persons. Amplify FPGA has advanced design planning features that can be used to achieve higher performance and design stability.

Identify Product

In November 2002, we acquired a key RTL debug product from Bridges2Silicon, Inc. which we introduced under a new Synplicity product name, Identify. This product allows engineers to debug their FPGAs directly from their RTL source code during chip operation. Identify’s efficient method of functional hardware debug helps engineering teams avoid what would otherwise be a tedious and costly debug using hardware analyzers.

We believe that Identify is the only software product that allows FPGA designers and ASIC prototyping designers to functionally debug their hardware directly in their RTL source code. This allows functional verification with RTL designs 10,000 times faster than today’s RTL simulators and enables the use of in-system stimulus for applications-like networking, audio and video and hardware/software co-development. Identify allows designers to directly select signals and conditions in their RTL source code for debugging and the results are viewed directly in the RTL source code. The Identify product can also save results in standard VCD format that can be used with most waveform viewers.

Synplify DSP Product

In July 2004, we introduced Synplify DSP, our first system level synthesis product created to bridge between system level DSP design and analysis and semiconductor hardware design. Synplify DSP performs high-level DSP optimizations from a Simulink specification. These special DSP optimizations allow designers to capture the behavior needed for their DSP algorithm without worrying about the specific implementation in hardware. Synplify DSP automatically produces a highly optimized, technology independent implementation of the design ready for RTL synthesis.

DSP designers are increasingly targeting FPGA hardware for implementation of their high-performance DSP designs. FPGAs can achieve a performance of hundreds of millions of operations per second, which far exceeds the performance available in more traditional DSP processors. Today’s FPGAs also contain large quantities of DSP blocks and multipliers, facilitating efficient and parallel implementation of DSP functions in programmable logic. Through this hardware parallelism, FPGAs can achieve performance levels that exceed the performance available in more traditional DSP processors. Until the introduction of Synplify DSP, however, there has been no automated way to get a design specified at the algorithm level from tools such as MATLAB^®/Simulink^® by The MathWorks, into high-quality RTL, architecture independent code suitable for semiconductor implementation. A common implementation path has been to hand-code the RTL with numerous iterations between the DSP algorithm architect and the RTL hardware designer, which is error prone and time consuming. We believe Synplify DSP offers the only automated way to fully optimize DSP design expressed in the SimuLink environment into our RTL synthesis tools for FPGA or ASIC design.

ASIC Solutions

Revenue from our software products for use with ASICs represented 17%, 14% and 7% of our total revenue in 2004, 2003 and 2002, respectively.

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Certify Product

In 1999, we introduced Certify, a software product for the verification of ASICs using prototypes consisting of multiple FPGAs. Our Certify product enables design teams to create hardware prototypes early in the design process when design changes are easier and less costly. Certify also assists customers in verifying that the final system will work as specified, will work with system level software and will meet customer requirements. Customers who use our Certify product to define their prototypes can begin system integration, software verification, chip verification, system verification and end customer validation earlier than other approaches to functional verification. Certify can process multimillion gate designs in a single pass without the complex scripts commonly required by ASIC synthesis products. We believe Certify is the only product that processes ASIC design and produces multi-FPGA prototypes at the RTL level, enabling rapid iterations of the prototype during the verification stage.

Our Certify product is a verification product incorporating synthesis and enabling the user to create prototypes automatically direct from the user’s textual design specification. The ability to operate the prototype at or near the speed of the final product can be very important for ASIC verification. Other available approaches, such as logic simulation software, emulation systems or reconfigurable prototyping systems, cannot run at a sufficient performance level for many applications, such as mobile telephony, optical switching or streaming video in real time. Our Certify product enables designers to create FPGA-based prototypes that operate at or near the speed of the final product and at substantially higher frequencies than other available approaches by using our proprietary embedded synthesis technology that optimizes the final prototype performance. Certify achieves high performance for a multi-FPGA semiconductor prototype by optimizing all FPGAs in the prototype simultaneously.

The Certify product also includes schematic representations of several commercially available hardware prototyping systems to enable rapid prototype implementation without the need to create and build a custom prototyping platform. By partnering with leading hardware vendors via our “Partners in Prototyping” program, we accelerate prototype implementation and make FPGA-based prototyping accessible to customers who may otherwise be unwilling or unable to develop a custom hardware platform of their own.

Synplify ASIC Product

In June 2001, we introduced Synplify ASIC, our logic synthesis product for ASIC design. Our Synplify ASIC product offers higher design capacity as demonstrated by its ability to process designs or design blocks up to several million gates in a single compilation and often produces better quality of results. The leading competitive offering requires customers to disassemble the design into a large number of smaller blocks, process each of these independently and then reassemble the result. The high level of expertise required for this process is eliminated in the Synplify ASIC synthesis approach. In addition, processing the design as a single entity or as larger block entities reveals further opportunities for optimization, which can improve chip performance and reduce chip costs. We believe our Synplify ASIC product processes designs several times faster and up to 15% smaller than the leading competitive product, reducing the overall cost of an ASIC and yielding substantial cost savings for higher volume applications. In addition to the ease-of-use advantage afforded by its high capacity, we believe our Synplify ASIC product is easy to learn. Synplify ASIC employs an intuitive, graphical user interface and incorporates a high degree of automation.

In April 2003, we introduced the first custom architecture-specific synthesis version of Synplify ASIC for NEC Electronics’ new structured ASIC device, Instant Silicon Solution Platform (“ISSP”). ISSP utilizes a course grained base logic cell which is similar to the logic cell structure used in FPGAs, as opposed to the sea of transistors approach offered in a cell-based ASIC. This type of silicon architecture is not optimized by today’s conventional ASIC synthesis methods that use a simple library approach. We have utilized our FPGA experience in synthesizing logic to FPGA fabrics to optimize and pack logic much more efficiently for the ISSP device. We believe this custom synthesis approach yields substantial quality of results improvements that result in smaller and faster designs.

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Amplify RapidChip and Amplify ISSP Product

In December 2003, we released our first physical synthesis product for LSI Logic’s new platform ASIC device called RapidChip. The Amplify RapidChip product is a customized physical synthesis product that uniquely targets LSI Logic’s RapidChip architecture and sets a new standard for ASIC logic designer productivity. In addition to achieving better quality of results compared to other synthesis approaches, the customizations in this physical synthesis technology also provide extremely tight correlation between predicted timing from Amplify RapidChip and the actual completed physical design performed by LSI Logic. This tight correlation eliminates or reduces design iterations between the customer and LSI Logic due to timing closure issues, and allows for rapid ASIC design development.

In May 2004, we released our second physical synthesis product optimized specifically for NEC Electronics’ ISSP. The Amplify ISSP product is a customized physical synthesis product that optimally targets NEC Electronics’ ISSP architecture and offers a new standard for ASIC logic designer productivity. In addition to achieving better quality of results compared to other synthesis approaches, the customizations in this physical synthesis technology also provide extremely tight correlation between predicted timing from Amplify ISSP and the actual completed physical design performed by NEC Electronics’ design centers. This tight correlation eliminates or reduces design iterations between the customer and NEC Electronics due to timing closure issues, and allows for rapid ASIC design development.

We have also been contracted by Fujitsu Microelectronics to customize our Amplify physical synthesis product for their AccelArray structured ASIC solution, which we expect to release in the first half of 2005.

Fortify Products

In July 2002, we acquired key power planning and analysis products from IOTA Technology, Inc. (“IOTA”) which we introduced under a new Synplicity product family name, Fortify. Within this product family are two key products that create and verify an ASIC’s power network for voltage integrity.

PowerPlanner Product.    Fortify PowerPlanner allows the physical designer to experiment with various power grid topologies and gain an early insight into the voltage integrity and potential electromigration issues in the design before complete logic implementation. Upon achievement of a successful power grid, PowerPlanner’s integrated PowerRoute technology can create the final power grid for use by chip implementation place-and-route tools.

RealPower Product.    Fortify RealPower is a post synthesis and physical implementation power grid verification product. It analyzes the voltage integrity by computing the voltage drop and performs electromigration analysis, each on the individual library cells using its embedded Dynamic Power Calculator. The result is a fast engine that can handle detailed physical information and correct reliability and signal integrity issues before they lead to design revisions or field failures.

Customer support

Our products are designed to be utilized quickly and effectively by our customers and to minimize the level of support from us for the designer to be productive. Our customers use our products along with design software from semiconductor manufacturers and from other third party design software developers. The overall semiconductor design process is complex, and our customers may seek assistance from us with various aspects of our products’ functionality in their semiconductor design process. We believe that high quality customer support of our customers’ activities is important to the success of our business. We have developed and expect to continue to improve our comprehensive support organization to manage customer accounts. We provide support for our products primarily from our Sunnyvale, California and Bangalore, India locations. In the long term, we plan to expand existing, and may establish additional, support sites outside of the United States to support customers in those markets.

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We provide technical support to our customers through maintenance services. Time-based licenses include maintenance services for the duration of their respective terms. For each sale of a perpetual or two or three-year term license, the first year of maintenance is generally sold with the license. Thereafter, customers may annually elect to renew maintenance. We price our maintenance service at 15% or 20% of the perpetual list license fee, depending on the product, on a per license basis. Our maintenance service offering provides us with a valuable, ongoing revenue stream.

We believe that the majority of our customers will continue to renew maintenance because the rate of innovation in the semiconductor industry, especially with FPGAs, is high, and equipment manufacturers expect us to support the latest components as soon as they are available. Customers paying maintenance receive software updates for new components when and if we make these updates available. These frequent releases typically include support for new components and enable our customers to optimize their designs or create prototypes using those components. We work closely with leading FPGA and ASIC manufacturers to incorporate support for new components as quickly as possible.

We generally provide our support via electronic mail, our web site and telephone. Our support organization may assist customers with technical support during the customers’ initial product installation and configuration. However, our support organization devotes the majority of its efforts to assisting customers to resolve questions about our products’ functionality that can arise from the customers’ design tasks. Effective execution of these customers’ design tasks requires highly skilled engineers familiar with our customers’ design tasks as well as familiarity with third party products that may be used by the customer in conjunction with our products. Our support staff consists of engineers with substantial design experience.

Customers

As of December 31, 2004, we had over 1,800 active customers. Of that total, more than 280 were first-time customers in 2004. Although in the past our customers were concentrated in the networking and communications industries, in 2004 our customers were more evenly distributed over networking and communications, military and aerospace, computer and peripheral, consumer, semiconductor and other general, medical and industrial industries. Our customers often buy licenses for a single location, department or division, and then, based upon the initial success of the products, later expand their use of our products into other parts of their organizations. We believe we can sell our existing products more extensively within our existing customer base and sell them new products as we expand our product line. We will continue to pursue enterprise-wide sales as appropriate. We have customers throughout North America, principally the United States, as well as in Europe, Japan and other parts of Asia. See Note 11 of the Consolidated Financial Statements for a full description of financial information about geographic areas. See also “Factors Affecting Future Operating Results” regarding the risks associated with our international operations under Management’s Discussion and Analysis of Financial Condition and Results of Operations. In 2004, 2003 and 2002, no end-user customer comprised more than 10% of our revenue.

Marketing and Sales

Marketing

We focus our marketing efforts on creating awareness for our products and generating leads for our sales organization. Our strategy is to distinguish our products by their high level of design performance, ease of use and time to market advantages. We employ a wide variety of communication channels to inform customers and potential customers about our products. These channels include our, or our key partners’, website, print and web advertising, public relations, web-based seminars, live seminars, tradeshows and electronic mail notifications to customers about new product releases.

Sales

We license our software products primarily through our direct sales organization, as well as distributors and other strategic partners.

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Direct Sales

Our direct sales efforts target customers who design semiconductors for networking and communications, military/aerospace, computer and peripheral, consumer, automotive, and other electronics systems. As of December 31, 2004, our direct sales staff consisted of 84 employees based in 22 offices. Direct sales accounted for 88% of our total revenue in 2004 and 2003, and 87% of our total revenue in 2002. Each of our sales teams represents a geographic region and includes a sales manager and applications engineer, and may also include an inside sales representative. The direct sales team also relies on distribution and strategic partners for demand creation and leads. Our typical sales cycle varies by product from two weeks to several months, with our ASIC products generally having longer cycles than our FPGA products.

We currently have domestic direct sales offices in Sunnyvale, California; San Diego/Newport Beach, California; Beaverton, Oregon; Woodinville, Washington; Boulder, Colorado; Austin, Texas; Dallas, Texas; Lisle, Illinois; Durham, North Carolina; Bel Air, Maryland; and Andover, Massachusetts. We also have international direct sales/marketing offices in or near Maidenhead, United Kingdom; Aix-en-Provence, France; Venray, Netherlands; Dornach, Germany; Stockholm, Sweden; Netanya, Israel; Bangalore, India; Shanghai, P.R.C; Bejing, P.R.C; Hsinchu City, Taiwan; Seoul, South Korea; and Tokyo, Japan.

Indirect sales

In addition to our direct sales strategy, we have indirect sales channels through distributors. Our relationships with distributors help extend our reach to more customers. Distributors either assist our direct sales staff or are our sole sales and support representatives in territories that include portions of Europe and Asia. Our international distributors typically perform marketing, sales and technical support functions in their respective country or region. We actively train our international distributors in both our products and sales methods. In general, each one may distribute directly to the customer, via other resellers or through a mixture of both channels. Our distributor agreements do not provide for rights of return, stock rotation or price protection for the distributor. Revenue from distribution was 4% of our total revenue in 2004, 5% of our total revenue in 2003 and 6% of our total revenue in 2002. We also generate some revenue through certain FPGA manufacturers as discussed below.

Seasonality

In the past we have experienced fluctuations in the sale of licenses for our products due to seasonality. For example, sales may decline during the summer months, particularly in European markets, and we have experienced and anticipate we will continue to experience relatively lower product bookings in the first quarter of our fiscal year due to patterns in the capital budgeting and purchasing cycles of our current and prospective customers and the economic incentives for our sales force.

Strategic Relationships

Our key strategic partners include certain semiconductor manufacturers and their distributors, and electronic design automation software companies, which provide information and interfacing that assist us with the successful development and distribution of our software solutions.

FPGA manufacturers.    These partners work closely with us before each product release to ensure that our design software products perform optimally with their components. We rely on these manufacturers to provide us advance information and answer detailed questions about their components and design software. Partners currently include Actel Corporation, Altera Corporation, Lattice Semiconductor Corporation, QuickLogic Corporation and Xilinx, Inc. Actel, Lattice and QuickLogic also resell a version of our Synplify product. These reselling relationships provide a strong endorsement of our products, expand our sales channels and serve to introduce our products to a large number of potential customers. They generated 8% of our total revenue in 2004 and 7% of our total revenue in 2003 and 2002.

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ASIC manufacturers.    We also maintain close support relationships with other key semiconductor partners who have presence in the ASIC market. These include AMI Semiconductor, ARM Holdings PLC, ChipX, Faraday Technology Corporation, Fujitsu Microelectronics, IBM Microelectronics, LSI Logic, LightSpeed Semiconductor, NEC Electronics, OKI Electric Industry Co. Ltd., and Virtual Silicon Technology Inc. These ASIC and ASIC library vendors have worked with us to develop and qualify our software into their ASIC design flows. For example, in 2004, we announced a development and marketing agreement with Fujitsu Microelectronics to provide a customized physical synthesis product for their structured ASIC product family.

Electronic design automation (“EDA”) software companies.    We work with EDA software partners to integrate our complementary products with theirs to create a more complete, easier to use set of design solutions for the benefit of our mutual customers. Our EDA software partners include those whose products perform functions such as design entry, simulation, system analysis, hardware prototyping and simulation acceleration hardware. We resell versions of Cadence’s Affirma simulators bundled with our products. We also have reselling agreements in place with Aldec Corporation under which they resell our Synplify and HDL Analyst products in combination with their own and we resell their simulation and design entry products, respectively.

Technology

We believe our products are easier to use and produce superior results more rapidly than alternative solutions. In addition, our core technology platform enables us to produce innovative products quickly. Selected features of our technology include:

Behavior Extracting Synthesis Technology.    Our products are designed with our proprietary technology to recognize and locate common circuit building blocks within designs and maintain high-level representations of these blocks throughout the synthesis process. Other synthesis products use circuit representations that maintain detailed level representations of the design, but lose important information. By maintaining behavioral information that describes a semiconductor’s function throughout synthesis, we believe our synthesis products make better overall optimizations, which result in better circuit performance.

Physical synthesis innovations.    Achieving superior performance in large FPGAs and ASICs requires solving specialized problems not encountered in smaller semiconductors. We have two patents allowed and additional applications submitted related to algorithms that solve many of these problems. These algorithms involve combining synthesis with processes that are normally applied later in the semiconductor design process. This combination is termed physical synthesis. We believe our work with structured ASIC vendors has shown that we can achieve very tight correlation between our estimated results and the actual results.

Fast, memory efficient algorithms.    Long run times are a commonly encountered barrier to processing large designs. Because synthesis is performed repeatedly during the design process, fast run times are an important time-to-market determinant. All of the algorithms employed in our products were carefully selected and implemented for fast run times and efficient memory utilization. These algorithms’ run times increase linearly as design size increases, as opposed to nonlinearly with other software products.

Embedded electrical engineering knowledge.    Synthesis and optimization of complex circuits are accomplished through a large collection of algorithms and heuristics. For any given circuit, the application of these algorithms requires many decisions, including which algorithms to use and in what order to apply them. Implementing a synthesis product is considerably easier if the user is required to make these types of decisions. However, this places the burden of understanding the effects of synthesis algorithms on the user and results in a product that is difficult to use. Instead, we build products with a level of automation for making these decisions by embedding a high degree of electrical engineering knowledge in the products so that optimization decisions are performed automatically.

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Power distribution design and analysis.    An important aspect of successful design of complex integrated circuits is the design of the power distribution network. We have proprietary technology for the design and implementation of power distribution for integrated circuits as well as technology for the accurate analysis of voltage drop caused by power usage within local sections of the chip.

Prototyping and Debug.    Complex ASIC designs often cannot be adequately verified except with a prototype that operates close to the intended operating speed of the ASIC. We have developed patented technology and products that assist in the implementation of fast prototypes of ASICs, helping the designer implement the ASIC functionality on a set of FPGAs. Once the prototype is in place, understanding the operation of the circuit is often the critical path to success. We have technology and products that help the designer debug a circuit by relating the actual operation of the circuit back to the HDL input used to implement the circuit.

Research and development

We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional applications and increasing the competitiveness of our product offerings. We have invested significant time and resources in creating a structured process for undertaking all product development projects. This process involves key functional groups within our company and is designed to provide a framework for defining and addressing the steps required to bring product concepts and development projects to market successfully. Our product development strategy emphasizes rapid innovation and product releases.

We have actively recruited key computer engineers and software developers with expertise and degrees in computer science, electrical engineering and other engineering disciplines. As of December 31, 2004, we had 159 employees engaged in research and development activities and related customer support services. Our research and development expenses were $23.5 million in 2004, $21.1 million in 2003 and $19.0 million in 2002.

Intellectual Property

Our software products rely on our internally developed intellectual property and other proprietary rights. We rely primarily on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our intellectual property and other proprietary rights. However, we believe that these measures afford only limited protection. We have filed a number of patent applications and to date have been issued or allowed 23 patents that expire 20 years from their filing dates, the first of which expires in 2018. We license our software products primarily under shrink wrap licenses that are included as part of the product packaging. Shrink wrap licenses are not negotiated with or signed by individual customers, and purport to take effect upon the opening of the product package or use of the software license key. The legal enforceability of shrink wrap licenses is uncertain in many jurisdictions. We also generally enter into confidentiality agreements with our employees and technical consultants. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult and we are unable to determine the extent to which piracy of our software products exists. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States.

We are not aware that our products employ technologies that infringe any valid proprietary rights of third parties. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. From time to time third parties have claimed that our products violate their proprietary rights but none of these claims has resulted in litigation or material expense. Any infringement claims, with or without merit, could:

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These royalty or licensing agreements may not be available on terms acceptable to us, if at all.

Competition

We conduct business in the EDA software market that is intensely competitive and rapidly evolving. We face competition primarily from EDA software companies that provide software products and product suites to perform a variety of design and verification functions for all types of semiconductors. We have experienced and expect to continue to experience increased competition from current and potential competitors, many of which have significantly greater financial, technical, marketing and other resources and who aggressively offer enterprise-wide annualized subscription model access of product and product suite licenses. Companies offering competitive products vary in scope and breadth. Our competitors include:

We believe the principal factors that will draw end customers to a semiconductor design software product, including logic synthesis, physical synthesis and verification products, include:

We believe that we compete favorably on these factors. However, we expect competition in the EDA software market for FPGAs and ASICs to continue as new companies enter the market and current competitors focus on their product lines and services. Many of these potential competitors are likely to enjoy substantial competitive advantages, including greater resources that can be devoted to the development, promotion and sale of their products. In addition, these potential competitors may have more established sales channels, greater software development experience and/or greater name recognition.

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Employees

As of December 31, 2004, we had 286 employees, of whom 159 were engaged in research and development and related customer support services, 84 in sales, 14 in marketing and 29 in finance, administration and operations. With the exception of our employees in France, none of our employees is represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.

Executive Officers

Our officers and their ages as of December 31, 2004 are as follows:

Gary Meyers was promoted to President and Chief Operating Officer in August 2004 and in October 2004 assumed the role of Chief Executive Officer. Mr. Meyers has served as our Vice President of Worldwide Sales from November 1999 to October 2004 and was Vice President of North American Sales from January 1999 to November 1999. Mr. Meyers joined Synplicity in January 1998 as Western Area Sales Manager until January 1999. From 1988 through 1997, Mr. Meyers served in various senior sales and marketing roles at LSI Logic, a semiconductor company, including from 1996 to 1997 as Director of Marketing of the Communications Products Division, and from 1994 to 1996 as Major Account Sales Manager. Mr. Meyers holds a Bachelor of Science degree in Electrical Engineering from the University of Maryland and a Masters of Business Administration degree from the University of California at Los Angeles.

Kenneth S. McElvain, one of our co-founders, has served as our Chief Technology Officer, Vice President and Director since inception. Mr. McElvain also served as our President from our inception to January 1996, and our Chief Executive Officer from January 1996 to July 1997. From March 1990 to January 1994, Mr. McElvain was a manager of the logic and timing optimization group and chief architect of the AutoLogic logic synthesis product at Mentor Graphics, a semiconductor design software company. To date, Mr. McElvain has been issued or allowed 14 patents. Mr. McElvain holds a Bachelor of Arts degree in Mathematics and a Bachelor of Science degree in Computer Science from Washington State University.

Alisa Yaffa, one of our co-founders, has served as our Chairman of the Board of Directors, Vice President of Intellectual Property and Secretary since March 1997, October 1998 and our inception, respectively. Ms. Yaffa also served as our Chief Executive Officer from our inception to January 1996 and our President from January 1996 to July 1997. From inception to October 1998, Ms. Yaffa served as our Chief Financial Officer. Prior to joining our company, Ms. Yaffa served in various technical and marketing roles at Cadence, Mentor Graphics, EDA Systems, Inc., a design framework software company, and VLSI Technology, Inc., a semiconductor manufacturer that was subsequently acquired by Philips Semiconductor. Ms. Yaffa holds a Bachelor of Arts degree in Applied Mathematics and Computer Science from University of California at Berkeley.

Douglas S. Miller was promoted to Senior Vice President of Finance in September 2004 and has served as our Vice President of Finance and Chief Financial Officer since October 1998. From June 1998 to September 1998, Mr. Miller was a self-employed financial consultant. From April 1997 to May 1998, Mr. Miller served as Vice President and Chief Financial Officer of 3Dlabs, Inc. a graphics semiconductor company. From October 1991 to April 1997, Mr. Miller served as a partner at Ernst & Young LLP, a professional services organization,

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and from July 1985 to September 1991, Mr. Miller served as a manager at Ernst & Young LLP. Mr. Miller is a certified public accountant. He holds a Bachelor of Science degree in Accounting from Santa Clara University.

Robert J. Erickson was promoted to Senior Vice President of Engineering in September 2004 and has served as our Vice President of Engineering since April 1998. From June 1997 to April 1998, Mr. Erickson was a principal of Vermilion DA, a semiconductor design software consulting firm. From May 1984 to June 1997, Mr. Erickson served in various positions including a director of engineering at Mentor Graphics. Mr. Erickson holds Bachelor of Arts degrees in Physics and Electrical Engineering from Rice University and a Master of Science degree in Electrical Engineering from Stanford University.

Andrew Haines re-joined Synplicity as Vice president of Marketing in September 2004. Mr. Haines served as Vice President of Operations of Catalytic Inc. from January 2004 to September 2004 and Senior Vice president of Marketing of ARC International from October 2002 to October 2003. Mr. Haines originally joined us in 1996 as our Vice President of Marketing and remained in that capacity until 2002, when he departed to pursue interests in the semiconductor intellectual property industry. Before joining Synplicity in 1996, Mr. Haines was president and founder of Page Mill Marketing. Mr. Haines holds a Bachelor of Science in Physics from the University of Wisconsin.

Our principal offices are located in a leased 66,000 square foot facility in Sunnyvale, California which houses all of our marketing, administration and finance employees, the majority of our research and development and related customer support service employees, and some sales employees. In addition, we lease a 7,900 square foot development and support center in Bangalore, India; a 3,500 square foot sales office in Andover, Massachusetts; a 3,400 square foot sales office in Tokyo, Japan; a 2,300 square foot sales office in Maidenhead, United Kingdom; a 1,900 square foot sales office in Beaverton, Oregon; a 1,700 square foot sales office in Austin, Texas; a 1,600 square foot development office in Montpellier, France; a 1,500 square foot sales office in Hsinchu City, Taiwan; and a 1,300 square foot sales office in Bangalore, India. We also lease sales or development offices of 1,000 square feet or less, in or near Newport Beach and San Diego, California; Woodinville, Washington; Lisle, Illinois; Durham, North Carolina; Bel Air, Maryland; Boulder, Colorado; Dornach, Germany; Aix-en-Provence France; Venray, Netherlands; Stockholm, Sweden; Netanya, Israel; Seoul, South Korea; and Shanghai, P.R.C. The leases for our Andover, Austin, Bangalore, Beaverton, Boulder, Dornach, Maidenhead, Montpellier, Netanya, Shanghai, Sunnyvale, Tokyo, Venray, and Woodinville offices are more than 12 months in duration. The rest of our office leases are not more than 12 months in duration. We expect that our current leased facilities will be sufficient for our needs during 2005. However, we may choose to expand certain existing sales and/or development offices or establish new ones during the year.

We are not currently involved in any material litigation.