Synaptics Diversifies Product Range and Rides the Smart Phone Wave

Until early 2007, Synaptics' (Nasdaq: SYNA) revenue growth was tied to the PC market, specifically the notebook market since the Synaptics TouchPad was its principal product. When companies are dependent on a specific product line for revenues, they sometimes tend to focus only on increasing share in the market as the overall market expands.

However, Synaptics has proven to be admirably different in quickly diversifying to a new market - touch screens for smart phones and entertainment devices, while continuing to grow its core market, PC applications.

To illustrate this better, I tried to look at the revenue growth of Synaptics and a major PC peripherals vendor, Logitech (Nasdaq: LOGI) and tried to trend the company's revenue growth with PC shipments growth (reported by Microsoft (MSFT)). As we can see from chart below (Source: Gridstone Research), while Logitech revenue growth continues to be tied to PC market fortunes, Synaptics has broken free and managed to grow at a scorching pace thanks to the its touch screens.

The chart below (Source: Gridstone Research) gives a better idea of how drastically the revenue mix for Synaptics has changed in the last eight quarters.

In the last two quarters, Synaptics derived ~50% revenue from non-PC applications against just 10% six to eight quarters ago. So while Synaptics rode the notebook growth wave in 2007, it has quickly re-focussed its efforts on the smart phone market and has come out a winner.

The scorching growth in the non-PC segment has enabled Synaptics to maintain its operating margins (See Chart below from Gridstone Research) while other PC peripheral vendors like Logitech have incurred losses in Mar09.

Disclosure: No positions in any of the stocks discussed above.

Comments

[Chad Gray_:]

Don't forget the netbook trend. If unit volumes in this new form factor take off as many trend-watchers are prognosticating, SYNA may see revitalized PC segment growth along with their handheld design wins.

May 01 10:14 PM

[Naveen Selv...:]

Very true. In fact their 'touch' screen design wins could help them for such similar interfaces in PC monitors/netbooks etc. What one needs to watchout in the PC segment is that total market size could remain flat while market share could change among the vendors. This in turn could lead to lesser margins.


On May 01 10:14 PM Chad Gray wrote:

> Don't forget the netbook trend. If unit volumes in this new form
> factor take off as many trend-watchers are prognosticating, SYNA
> may see revitalized PC segment growth along with their handheld design
> wins.

May 05 03:15 AM

[Stefan_S_Sw...:]

great article Naveen!! How about competition? Are there any other companies offering the same kind of solutions / technology (touchpads) ??? Do you know if Synaptics is inside the latest and upcoming models from the big handset makers? Samsung, SonyEricsson, LG, Iphone etc ??


Stefan
Sweden

Aug 12 10:27 AM

[Naveen Selv...:]

Atmel and Cypress Semiconductor supplies some SoC(semiconductor components) for touchscreens. But Im not aware any other large touchscreen vendor other than Synaptics and I feel that Synaptics is a major vendor for Apple and HTC


On Aug 12 10:27 AM Stefan_S_Sweden wrote:

> great article Naveen!! How about competition? Are there any other
> companies offering the same kind of solutions / technology (touchpads)
> ??? Do you know if Synaptics is inside the latest and upcoming models
> from the big handset makers? Samsung, SonyEricsson, LG, Iphone etc
> ??
>
>
> Stefan
> Sweden

Aug 19 11:45 PM