Synaptics (SYNA, Financial) closed the fourth quarter on a high note as its earnings surpassed the consensus estimates of $1.42 per share, driven by solid growth in the mobile division. Synaptics posted earnings growth of 5% to $1.46 year over year. Moreover, its revenue for the fourth quarter 2014 came in at $315 million, an uptick of approximately 37% year over year, shattering the analysts’ estimates of $305.1 million on revenue. SYNA reported revenue growth of about 54% on the sequential basis.
For the full fiscal year 2014, Synaptics reported revenue of $947.5 million, which is up close to 43% from fiscal year 2013. Non-GAAP net income rose nearly 48% year over year to $157.6 million or earnings of $4.25 per share.
More improvement in the cards
Synaptics looks pretty solid this year due to its strong connection with Samsung. Synaptics is ramping up production of its fingerprint ID and ClearPad solutions for Galaxy Tab S which comes in 8.4 inch and 10.5 inch configurations. Samsung’s Galaxy Tab S tablets is being compared with Apple’s iPad Air and iPad Mini as the prices are the same at $400 for the 8.4 inch, and $500 for the 10.5 inch.
Synaptics will also benefit largely from the Samsung Galaxy S5 and smartphones as these devices are designed with SYNA’s fingerprint ID solutions. Samsung is said to be rolling out the Galaxy Tab S tablets and Galaxy S5 mini smartphone in the Chinese market that has huge potential as the China mobile market has improved a lot in the past year. Synaptics has the world-class local technical support team with the human interface solutions offerings available at its folds that should help the company to maximize its return from entering the Chinese market.
Moreover, Synaptics is delighted as Alipay, a leading third-party online payment solution, has chosen FIDO-Based Authentication for online mobile payment service in China. Synaptics’s fingerprint ID solutions have already qualified this authentication and Samsung Galaxy S5 is integrated with this fingerprint ID solution that should help Synaptics to gain market share in China going forward.
Making moves to improve
Synaptics also plans to acquire RSP that will further assist the company in leveraging its product portfolio more effectively. Synaptics has decided to invest strategically in RSP once fully integrated to its business in infrastructure and R&D investment and customer support. The company has a strong pipeline of products that are well on track to be introduced in the market such as ClickPad 2.0, Precision TouchPad, and TypeGuard — key technologies that should help the company to create a competitive edge over its peers going forward.
Besides Samsung, the maker of fingerprint ID technology for laptops, mobile and PCs devices has also build strong relationship with Motorola, Nokia, Gionee, LG , Huawei and Amazon as well as PCs giant such as Microsoft and Dell that are using its fingerprint ID solution, ClearPad solution, and TouchPad solutions that should drive its growth this fiscal year.
Motorola has recently selected Synaptics’s Single-Layer On-Cell solutions for Motorola’s various models such as 4.3 inch E and 4.5 inch G models. These Single-Layer On-Cell solutions are also being used in Nokia Lumia 630 and 635 integrated with Synaptics Face detect technologies that outstrip the old legacy infrared sensors. The face-detection technology also reduces the total BOM costs for various devices and leads to LCD during the operation of the devices. Also, Nokia Lumia 530 is now integrated with SYNA’s single-layer discrete solutions.
Smartphone traction
Furthermore, the company is excited to see leading OEMs around the world are adopting its high-end solutions for their product implementation. For example, LG recently opted for Synaptics’s ClearPad family as a touch solution for its flagship smartphone, the 5.5 inch G3. In addition, the company is also gaining traction in the variable market as LG looks strong to exploit SYNA’s touch interface toward its “G Watch” which is a new entry into variable market.
The company is also getting positive response from the local OEMs such as Gionee that uses Synaptics’s industry leading solutions. Gionee plans to diversify its business globally and will ramp up its small and large screen devices integrated with the SYNA’s solutions.
Synaptics has also built a strong connection with Huawei as its Ascend P7 and Honor 6 are based on its In-Cell solutions. Huawei has tremendous market opportunity as Ascend P7 is considered a less expensive competitor to Samsung's S5. Additionally, the 6-inch ZTE Grand Memo II and the Vsun Hexa are built in using Single-Layer On-Cell solutions that are also gaining traction in the Chinese market, and should help the company to increase its margins in the first half of the year.
Meanwhile, the company will also benefit from Microsoft's recently unveiled Microsoft Surface Pro 3, which is integrated with Synaptics’s TouchPad solutions. Similarly, its convergence solutions are being used by the OEMs such as Dell for its site 11 Pro 7139. SYNA looks to further penetrate in the touch-screen integrated Notebook Offerings that should complement its growth in the coming years.
Apart from these, Amazon is increasing the production for its Amazon Kindle Fire Tablet that is built on Synaptics' ClearPad. The Amazon Fire smartphone is also integrated with the In-Cell solutions offered by Synaptics. Synaptics will gain the market share regardless of the stiff competition in the market amongst smartphone producers. The growing market demand for smartphones, tablets, and PCs look positive, and the company looks quite strong to get the best out of this ever growing opportunity.
Conclusion
Synaptics is currently trading at the trailing P/E of 50.73 and forward P/E of 14.33 that offers cheap valuations for the stock, and investors can look for buying more of the stock as it has remarkable growth in the future. Also, its PEG ration compliments this robust growth as it stands at 0.82 for the next five years. Moreover, the stock performance has been reasonable as it provides profit and operating profit yields of 4.93% and 16.47% respectively for the trailing twelve months.
Synaptics has no debt outstanding, while it has total cash of $447.2 million. The analysts have estimated CAGR of 20.07% which is higher than average industry CAGR of 15.17% for the next five years, indicating growth in the future.
