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Soid Ahmad
Soid Ahmad
Articles (195)  | Author's Website |

Synaptics Beats Bottom Line Consensus While Price Remains Suppressed

The slowdown in mobile growth is keeping Synaptics’ stock under pressure; IoT growth might re-catalyze stock price going forward

August 10, 2018 | About:

Synaptics (NASDAQ:SYNA), the human interface provider for PCs and smartphones, reported mixed fourth fiscal quarter results yesterday, beating on earnings while missing revenue estimates.

The company, which is involved in providing touchscreen and fingerprint sensors for smartphones, reported $388.5 million in revenue during the fourth fiscal quarter, down around 9% year-over-year. Revenue fell short of the $395.2 million expectation set by Wall Street. Full-year revenue reached $1.63 billion during fiscal 2018, down 4.9%.

While earnings declined 15% year-over-year during the fourth fiscal quarter, Synaptics managed to post a positive earnings surprise of 10% compared to the consensus of 91 cents a share. Full year earnings per share also declined 17% to reach $4.88 during fiscal 2018.

For the first fiscal quarter ending September 2019, Synaptics is guiding for mid-point revenue of $410 million, below the analysts’ consensus of $427 million. Earnings per share is expected to reach $1.15, mostly in line with the analysts’ consensus. Regarding the full fiscal year of 2019, the human interface company is eyeing low single-digit top-line growth.

The market was already anticipating the decline in growth with the stock price rising 1.5% during afterhours trading as Synaptics reported earnings on Thursday.

Why is the top line sluggish?

The decline in Synaptics’ mobile business is primarily offsetting revenue growth from other segments. Thanks to commoditization of touchscreen sensors and rise of face recognition technologies, Synaptics experienced a 36% year-over-year decline (7% sequentially) in mobile revenue during the fourth quarter.


The company is facing multiple headwinds in the mobile segment including slow uptake of its in-screen sensor (due to high premium of the feature), loss of a key design with Samsung during the first half of 2018 and a slowdown in fingerprint sensors market due to rising popularity of face recognition unlock features in handheld devices.

The steep decline in mobile revenue was offset by internet of things and revenue from PC fingerprint sensors to a certain extent during the quarter. Revenue from the PC segment increased an impressive 23% despite a low-growth PC market while IoT revenue increased 8% sequentially.

What’s the outlook?

Synaptics is shifting its focus away from the optical/in-screen fingerprint business as the market isn’t ready for an in-screen solution amid the rise of alternative technologies like face recognition and the high cost of deploying an in-screen sensor solution.

The interface solution company is planning to bank on OLED touch, chip-on-film and far-field voice digital signal procession (DSP) for its growth going forward due to a declining fingerprint sensor market and almost no uptake in the in-screen finger print sensors market for now.

Although Synaptics is facing headwinds in fingerprint sensors for mobile, diversification into far-field voice solutions and automotive touch-display-driver-integration (TDDI) will help the company post growth going forward.

Far-field voice, i.e., use of voice commands from a distance, is one of the key needs for proper functionality of consumer IoT. According to ComScore, 50% of all searches will be done using voice by 2020. Moreover, the global speech recognition market is set to grow at CAGR of 16% from 2011 to 2022, according to one report. Another rather optimistic forecast cites 19% CAGR in speech and voice recognition market from 2017 to 2021.

As a vendor of far-field voice digital signal processors (DSP), Synaptics is well-positioned to capitalize on the growth prospects of this vertical. Baidu (BIDU) is using Synaptics’ far-field voice solution while Samsung (SSNLF) has also agreed to use Synaptics’ DSP to enable far-field voice in its Bixby assistant.

OLED display, another growth vertical for Synaptics, is set to grow at a CAGR of 24.6% during 2018 to 2022. Another report forecasts the mobile OLED market to grow around 16% per year during the next couple of years.

“Turning to OLED, Synaptics has firmly established ourselves as a leader in OLED touch controllers and our expanding position in serving the broader OLED market is driving fresh appreciation for our touch business, said Richard Bergman, Synaptics CEO, on the earnings conference call Thursday.

Overall, it seems Synaptics is shifting successfully towards growth verticals including far-field voice and OLED displays that will help the company offset its growth woes in fingerprint sensors. Consequently, the low single-digit revenue growth in 2019 seems plausible.

What about valuation?

The mobile interface solution provider is trading at low multiples driven by a slowdown in mobile.



Low-multiples aren’t justified due to the fact that Synaptics is successfully diversifying into growth verticals to sustain revenue growth, however.

Final thoughts

While Synaptics is faced with mobile headwinds that are weighing down on revenue, the shift towards IoT will help the company keep afloat in 2019. Even low single-digit growth in 2019 is enough to warrant a high stock price for Synaptics as the stock is trading at very low relative multiples.

The bottom line is that Synaptics remains a buy due to its IoT growth prospects combined with low relative value.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

About the author:

Soid Ahmad
Soid Ahmad is affiliated with the Association of Chartered Certified Accountants. He graduated from Oxford Brookes University. He also holds a Master's degree in Economics and Finance from HSRW Germany. He has been working as a technology analyst for several years and has an eye for mispriced technology stocks. He is also affiliated with Focus Equity, an independent equity research firm.

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