Synaptics (SYNA, Financial) has recently posted not-so-impressive results for the first-quarter 2015. Both its revenue and earnings fell short of the analysts’ estimates for the quarter. SYNA had revenue of $287.7 million and earnings of $1.04 per share against the analysts’ estimates of revenue of $287.9 million and earnings of $1.31 per share respectively.
Synaptics continues to make progress but not as expected. Its mobile business grew 23%, while its PC business grew 38% year-on-year basis. It generates approximately 71% of revenue from its mobile business and remaining from its PC business. Let us look at its growth potential that could possibly drive its growth this fiscal year and return handsome value to shareholders.
Renesas SP deal to strengthen its mobile business
Synaptics has recently closed the acquisition of Renesas SP Drivers. This strategic acquisition will add value to its existing strong mobile product portfolio. Renesas offers high performances touch and display integrated solutions that should enable Synaptics to address full spectrum of growing needs of mobile display market. This acquisition is also expected to significantly enlarge its market and growth opportunities and drive value for shareholders in the long run.
In addition, Synaptics remains quite upbeat integrating Renesas SP Drivers product portfolio with its products and services. The company expects this integration to remarkably improve its position in platform level display solutions. This should undeniably reinforce its position in human interface solutions. This integration is additionally expected to enhance its total addressable market or TAM to approximately $3.0 billion. Which is about over one and half times greater than Synaptics had earlier estimated.
Moreover, this acquisition should assist the company enhancing its costs. The company can now produce and accelerate the adoption of high-performance cost-effective touch and display driver through this merger. This should help the company to gain strong hold in its touch and DDIC products.
Strong design pipeline
Additionally, Synaptics has broader roadmap for both of its DDI and TDDI display designs. Synaptics is aggressively integrating these designs that should offer an optimized system level solutions to create smart display. This advancement should lead to greater adoption of its products with OEMs as OEMs will gain from the integration of a touch sensor into the display, while improving touch performance on their devices and simplifying the supply chain.
Also, the company should benefit from the growing smartphone market that is evolving faster than expected. Synaptics has relatively stronger pipeline with its display integration solutions. This contributes about 40% of its smartphone product shipments. Synaptics is additionally expected to gain from its shipment of phones integrated with its ClearPad Series 4 TDDI solutions to mid-tier market this quarter.
This single chip solution offers the most innovative display noise management. It also holds best in class capacitive sensing performance. Synaptics additionally remains upbeat to launch its next TDDI solutions in the near future. It expects its TDDI integrated solutions to drive remarkable sales for the company in smartphone display integration. Also, its product portfolio offers a wide range of solution such as discrete solutions, two-chip in-cell, single-layer on-cell, and on-cell. These solutions are expected to gain market traction in the future.
Apart from these, its discrete solutions are gaining tractions with many latest phones. Microsoft (MSFT, Financial) is using its discrete solutions in the 4.1-inch Nokia (NOK, Financial) Lumia 730 and the 5-inch Lumia 830. Also, its ClearPad solutions are being used in the 5.2-inch full HD Sony (SNE, Financial) Xperia Z3 and the companion Sony SmartWatch 3 SWR50.
However, Synaptics projects a not-so-bullish outlook for the second quarter. Synaptics continues to see weaker consumer demand in the mobile market. However, the improving PC demand should assist the company to offset the lower margins in the mobile market. Synaptics expects its top line to grow in the range of $415 to $450 million for the second-quarter 2015. The analysts as a whole expect the company to post revenue of $444.8 million for the second quarter.
Ending remarks and valuations
Synaptics looks great with the acquisitions of Renesas SP Drivers that should boost its growth in the future. Also, it is effectively integrating its products and services with its system and solutions. The analysts expect its earnings to grow at CAGR of 20.00%, greater than average industry CAGR of 15.34% for the next five years. This demonstrates remarkable growth prospects for the stock in the future.
The stock still holds cheap valuations. It’s trailing P/E of 65.79 and forward P/E of 10.18 reflects a lot of rooms to grow for the stock over the years. Moreover, it has PEG ratio of 0.67 that continues to hold its growth over the next five years. Its balance sheet carries total cash of $450.42 million with no debt outstanding. It has operating cash flow of $163.10 million and free cash flow of $137.56 million.
