As the gadget market becomes more and more savvy, various companies are adding more and more features to their gadgets to stay ahead of their nearest competitors, mainly displays. The gadget market – like smartphones, tablets, HD TV – has been constantly rising which directly benefits the chip manufacturers who are also OEM suppliers to major gadget manufacturers. Touch screen in these gadgets is one of the fastest growing in the display market; these screens are now appearing in a wide range of gadgets. The market is now growing 10 times faster than other display market. As per market researchers, the touch screen market is anticipated to be around $23.9 billion by 2017. Synaptics Inc (SYNA, Financial) is one such chip manufacturer that pioneers in human interface solutions and manufacturers of various sensors and chips that are key ingredient to the smart gadgets.
Strong last quarter for fiscal 2014
Synaptic recently posted its fourth quarter results for fiscal 2014, and it was firing all cylinders. Consolidated revenues increased by 37%, to a record $314 million as compared to $230 million in the same term last year. This was higher than the analyst estimate of $304.1 million. The company generates its revenues from the product mix that comprises of mobile and PC products. Mobile products sales recorded $242 million, up by 40% year over year, contributing 73% to the total revenue. PC products recorded total sales of $72 million, up 26% year over year, contributing 23% to the total revenue.
Kathy Bayless, CFO, added, "Our outperformance in the June quarter reflected a steep initial ramp of new designs. Considering our backlog of $132 million entering the typically back-end loaded September quarter, customer forecasts and product sell-in and sell-through timing patterns, and the resulting expected product mix, we anticipate a record September quarter with revenue in the range of $275 to $295 million, an increase of 24% to 33% over the prior year period. We expect the revenue mix from mobile and PC to be similar to the preceding quarter."
The fiscal 2014 ended on a growth for Synaptic. The company posted net revenue of $947.5 million in fiscal 2014, up by 43% compared to fiscal 2013. Net income was $47.7 million as compared to $ 98.9 million in fiscal 2013. But considering the acquisition cost of $69.9 million the net income for fiscal 2014 is quite good. The acquisition cost that was incurred by the company is already providing good results in revenue growth and in the future it will certainly leverage the top and bottom line for the company.
Growth steroid with acquisition
The company pioneers in human interface solution, and it acquired Validity Sensors, in the fiscal 2014. With this acquisition the company further increased its grip on the finger impression identification segment. The fingerprint ID business is raw market, and this market was triggered after the launch of Apple’s iPhone 5s with finger print sensors. Samsung followed the trend and launched Samsung 5s with fingerprint sensors, ever since then more and more devices are now incorporating this on various touch screen devices.
Moving ahead, the validating sensor market is estimated to grow at a CAGR of 16.8% from 2014 to 2020. Total market size anticipated for this business by 2020 is $14.35 billion. The technologies have always been changing in the gadget world. Rising demand for basic and secured access for clients to their gadgets, mobile e-commerce and high selection rates of cell phones are the real drivers for such a high growth of the unique finger impression sensors market. Fingerprint identification sensors are, at present, more dependable and economical compared to various existing biometric technologies.
Payouts to investors
If we analyze the last few years, we notice that the company is persistent and stable with its share repurchase policies. In the fourth quarter, Synaptic repurchased approximately 5% of outstanding shares and has similar programs in past few years. Furthermore, it raised the current repurchased budget by $110 million, totaling $200 million by fiscal 2016.
Journey ahead
The growth momentum seems to continue for the company as it is exemplified by the guidance provided for the first quarter of the fiscal 2015. The company anticipates revenue to be in the range of $275 to $295 million, higher by 24%-33% as compared to the same term last year. The percentage contribution in terms of product mix should be the same as in the last quarter, but we can expect some extra contribution from the validating sensor business of the company as a result of the acquisition.
Conclusion
The company safeguards its investors' interest by regular share repurchase programs providing a higher confidence to an investor in the company. For next five years analysts estimate the company will achieve a growth of 20.07% as against sector growth of 17.4%. With a forward P/E of 16.8, the stocks are expected to grow in future and can be a good deal for an investor. I would suggest a buy.
