For seven lucky quarters, Synopsys (NASDAQ:SNPS) has succeeded in beating earnings expectations. On Thursday afternoon, the company may confirm that its streak has lasted two entire fiscal years. Will it?

What analysts say:

  • Buy, sell, or waffle? Eleven analysts give Synopsys five buy ratings and six holds.
  • Revenues. On average, they're looking for Q4 sales growth of 9% to $308.2 million.
  • Earnings. Pro forma earnings are predicted to surge 71% to $0.36 per share.

What management says:
Six months ago, Synopsys underpromised. Three months ago, it overdelivered, leaving Wall Street flummoxed. Analysts don't want to be duped again, though, and they've set their Q4 expectations within a silicon chip's height of the ceiling on Synopsys' guidance.

Speaking of which, let's go over this one more time: Bending over backward to give shareholders all the information they can eat, Synopsys gives GAAP guidance, pro forma guidance, and even a glimpse at its free cash flow. Management predicts quarterly profits of $0.18 to $0.26 per share GAAP and $0.34 to $0.37 per share pro forma, and -- newsflash -- $325 million in cash from operations for the year. That's $50 million more than we were hearing earlier this year.

What management does:
Can Synopsys hit the new, more optimistic numbers? Well, gross margins continue to inch up, and operating and net margins are both growing by leaps and bounds. Synopsys isn't yet pulling down the margins of rival Cadence Design (NASDAQ:CDNS), but at least it isn't losing money like Magma Design (NASDAQ:LAVA) and Virage Logic (NASDAQ:VIRL).

Margins

4/06

7/06

10/06

1/07

4/07

7/07

Gross

82.2%

82.1%

82.2%

82.4%

82.6%

82.7%

Operating

(0.8%)

0.8%

2.8%

4.4%

7.1%

7.9%

Net

0.9%

(0.0%)

2.3%

4.1%

7.1%

8.4%

Data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As good as things are for Synopsys, I do see a risk factor looming. Its customers, which include such heavyweights at AMD (NYSE:AMD), Intel (NASDAQ:INTC), and Infineon (NYSE:IFX), appear to be getting a free ride at Synopsys' expense. Over the last two quarters, sales are up 8% in comparison to the year-ago quarters. In contrast, accounts receivable have leapt an astonishing 85% compared to the same time last year.

On the one hand, this could turn out to be counterintuitively good news. If Synopsys begins collecting its unpaid bills in a more timely fashion, the firm's astonishing good fortune in the cash flow department could continue.

On the other hand, if the rise in A/R continues, we could see this year's improvements in free cash flow production stall. Personally, I'm impressed enough with management here to trust in its promise of superb cash flow this year -- but as the Gipper advised, on Thursday I'll still want to verify the fact.

Find our synopses on Synopsys' last quarter at:

Fool contributor Rich Smith does not own shares of any company named above. Intel is a Motley Fool Inside Value selection. The Motley Fool has a disclosure policy.