The demand for microcontroller chips have been reaching new heights. The market will likely be over 17 billion units in 2013 and is anticipated to cross 39 billion units by the end of this decade. The microcontroller chip market is anticipated to grow at a CAGR of 12.3% from 2014 to 2020. Market researchers estimate this market to reach $26.98 billion by 2020, compared to $16.69 billion in 2014. Revenue is anticipated to attain a CAGR of 7.3% from 2014 to 2020. Companies like Synaptics Inc (SYNA, Financial) are certain to gain from this growth market. Synaptics is one of the global leaders in the arena of microcontroller chips manufacturer and is enriched with a strong product portfolio that enables it to record growth.
Synaptics recently released its results for the first quarter of 2015, and its numbers indicate that it’s on a growth path. The company posted revenue of $283.8 million. This is a strong growth of 27% over the same quarter last year. Operating expenses increased to about $84 million, compared to $62 million in the same quarter last year. The company is focused on its Research & Development and has increased the R&D expense with an objective to churn out innovative chips with higher competitive advantages. This can always assist company’s future growth, although in the first quarter it did hurt the bottom line as the net income decreased to $26.59 million, compared to $34.94 million in same quarter last year.
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In order to fuel its constant growth, the company is establishing itself as a forefront player in the smartphone and touchscreen markets. It has a strong foothold in various countries like China, where we see phenomenal market growth due to an emerging economy. The company is confident of revenue growth from tablets and large touch screen products, and is equally sure of seeing yet another year of strong annual top-line growth going forward.
Acquisition to tailwinds
In Q1-2015, Synaptics completed the acquisition of the Renesas SP drivers. This acquisition further provides stronger products portfolios to the company. The acquisition was completed at a price of $475 million. Renesas had generated $650 million in 12 months with a cash flow of $100 million. This acquisition will certainly provide tailwind to revenue of Synaptics in future. Renesas SP driver has strong margins and operating profits and this can leverage the gross margin and operating margin of Synaptics, which had declined. The board now anticipates much better operating efficiencies that can influence the operating margin of the company.
Journey ahead
Based on the recent acquisition of Renesas, the company is very optimistic about its second quarter performance. In the second quarter of the fiscal 2015, the company anticipates revenue to be in the range of $415-450 million.
Analysts anticipate revenue to be $433.12 million in the second quarter. The company is expected to attain growth of 33.5% next year compared to the industry growth of 26.3% and sector growth of 24%. Furthermore, analysts expect this company to grow 20% every year for next five years.
The company also expects to have a competitive advantage as it plans to bundle touch screen technology and display drivers in one package. The touch-display drivers are expected to be launched early next year; this can further provide growth momentum to the company. Market analysts anticipate that the integrated touch-display driver shipments may reach 500 million units by 2018.
Conclusion
The company has been recording growth and is very optimistic about its future growth. The forward P/E ratio of Synaptics is around 9.49; this illustrates good earnings in the future. It won’t be a bad deal for an investor to press a buy button for Synaptics.
