Rick Bergman – President and Chief Executive Officer
David Wang – Senior Vice President of Silicon Engineering
Kathleen Bayless – Senior Vice President, CFO, Secretary and Treasurer Stan Swearingen
Scott Deutsch – Senior Vice President of Worldwide Sales
Kevin Barber – Senior Vice President and General Manager, Smart Display Division
Karen Gaydon – Senior Vice President of Global Human Resources
Stanley Swearingen - Senior Vice President of Advanced Development and CTO
Alex Wellins – Investor Relations
Synaptics Incorporated (SYNA) Analyst and Investor Meeting Conference August 8, 2013 11:30 AM ET
Good morning everyone. I am Alex Wellins with the Blueshirt Group. We have been very happy to help out Synaptics since with investor relations since their IPO more than 10 years ago and really amazing to be here in the new building and see the new headquarters of the company has had a phenomenal years you all know and we are looking forward to today. So, just couple of welcome notes and a few housekeeping items here. The slides for today will be, we are doing a webcast, so they will be rolling live from the Synaptics IR site. Also, if you want to get a copy of them, for those in the room, you can email my colleague Jennifer Jarman. I think most of you have her email, it's Jennifer at Blueshirt Group, blueshirtgroup.com, a one word. And she will send them to you. There are restrooms around the corner to left. So, if you easy to find right around there and I think everybody is found the Wi-Fi which is in the back of the agenda there.
I think that's it for housekeeping. Go to the next slide. Okay, great. I am obligated to point you to the safe harbor disclosure where we will be making some forward-looking comments today, refer you as always we will be talking about GAAP and non-GAAP for you to rely on our primarily on our GAAP results and we also refer you to our SEC filings that we make regularly and post with the SEC and from an agenda standpoint today.
So, today's agenda, we have a great program for you today, you will see the agenda here and it's on the table in front of you. In order to try to stay on time, we would like you to generally hold questions until the break and then as you will see we have a Q&A session and plenty of time at the end for lunch and during the demos, ask questions. So, we would really like you to hold questions if possible. We will be breaking, we will have lunch outside, there is food in the back, they will bring lunch back in here and then again you have plenty of time to see the demos and interact with the Synaptics team. So, with that all said it's my pleasure to introduce Rick Bergman, Synaptics CEO.
Thank you Alex. Good morning. We must have a very anxious crowd. I think this is the first time we have started a meeting on time here in this building. So, that's great. It's good to see everybody here. I see you all joined us in our new facility, our new worldwide headquarters. First and then thanks everybody in the webcast as well joining us electronically. So, first before I jump into the agenda, I thought I will introduce my staff. A couple of them are on location at places overseas and whatnot but let me introduce the staff, I will start with David Wang. He is actually joined us little less than a year ago. He is responsible for Silicon Systems Engineering. Kathy Bayless who I think pretty much everybody knows, our CFO. Stan Swearingen, he is our CTO and responsible for advanced engineering. Scott Deutsch who joined us as worldwide sales and then Kevin Barber, who is our GM in SVP of the Smart Display Division.
So, what am I going to talk about today? I just thought Karen hiding in the back. Another new member of our executive staff Karen Gaydon who is responsible for HR. So, they are all available during the break and after the presentation or during the Q&A for any questions that you may have as well, so to the several other members, the team here to give many details technical information. So, before I really jump in, just wanted to what am I going to cover, may reflect a little back on fiscal ‘13.
As Alex mentioned it's been a very exciting and interesting year for all of us. So, really happy to talk about what went on in ‘13, I will talk a little about ‘14. And then I also talk about the PC Market as well. So first I am going to warn you, my first two slides are actually identical to the slides I used last year.
My first slide of last year, my last slide of the last year. I thought it was important to kind of go back and whatever we told you a year ago and kind of what we following up on that mission and strategy. So, let's jump into the first one. And that's – what about our core markets? And in some way it is good, that I can use the same slide again. It will remain highly focused and those are the three core markets. A notebook market, a tablet market and of course the smartphones marketplace.
Our goal remains the same to be number one in human interface and I think you will see, as we go to the course of the day that we made a heck of a lot of progress this year and continue to fulfill that mission. Now let me talk about, this was my last slide from a year ago. So, the first one is growth, and I – as you know I really emphasize that a year ago and for those of you that kind of stock me in, I have gone to my CEO presentations at CES in 2013 and the same presentation in 2012, you all know, I said, growth, growth, growth, were the top priorities for the company.
So, I will come back and show you some data on how we are doing that. I also emphasize on tablets present a great opportunity, our large touch screens present a great opportunity for the company or a year ago we had minimal penetration in that area. And you will see a progress there. Ultimately, Synaptics is about creating incredible touch products.
I will give you some updates on how we have been able to advance in that front and how we are investing and making sure we keep that pipeline full.
And then finally, well how do we keep that innovation in that DNA, and Stan will talk a little bit about it. We have a machine going, on pumping out great products. So first, let's look at the year. I know many of you are very close to these numbers and so on, but it's still great to look at how we did. This is the fiscal ‘13 quarterly revenue.
A year ago, if you find our growth in fiscal ‘13to be modest over fiscal ‘12. We did a little bit better than modest, I would say. We grew from a 127 million in Q1, up to 230 million in the fiscal quarter we just completed. Over 81% growth from that first quarter to the fourth quarter, we talked about the having in declined are still through the course of the year and that's exactly what we did, with double digit sequential growth in each and every quarter. And of course from a bottomline perspective, we got leverage out of the business, we went from just a little less than $13 million of net income in Q1 to almost $50 million and that income in Q4. So, I feel good that we accomplished what we wanted to do from a growth topline perspective that in effect allowed us to continue to invest in the business which I will show you shortly.
And then tablets, what about that Greenfield opportunity. This is our revenue for – again large touch screens, now most of this is tablet oriented and that will start to change if we go to the course of fiscal ‘14 as some of the notebooks come into the marketplace. But you will see a very modest start in fiscal ‘12, nice progress in fiscal ‘13. I will give you an exact number in fiscal 2014 but you can see there is 2 to 3X growth built into our plan for fiscal ‘14. So, we still see it is as a great opportunity for us to grow in a market that is obviously still a very towards fast growing market. So, we are really excited about what tablets and LTS mean for Synaptics going forward.
How are we investing to make sure we keep that pipeline going. This is a longer term deal, a seven year view of, of our commitment to R&D. And again, you will see continued annual growth rate at 21% and so that means the absolute number is growing. We have also committed to a higher percentage of revenue, just higher 20% of sales in terms of our R&D commitment and as we will go to ‘14, you are going to see another step up again, not so much in the percentage but with the growth that we talked about in the absolute numbers because we feel fundamentally that we still have fantastic opportunities in front of us and that we should continue to invest and get the returns from those in R&D investments by continuing to grow the business. So there we have great growth in fiscal ‘13, the priority is still the same for the company as we still want to grow and that's still our top priority is to grow in the topline. And as I mentioned during the call, we mentioned similar growth to fiscal ‘13 and that's certainly our expectation in fiscal ‘14, we will have similar to growth that we enjoyed.
Now what is that investment in R&D by us – some ways we are in this exciting market because all types of the press and speculation about which products were in and so on and US first and who invented this and who has disadvantage. Well, we believe we are going to build sustainable growth by having the best technology, having the greatest innovation and then kind of throwing out power points and so on. I thought I would just, let's give you an innovation who exactly the customer was and which exact system or in platform it was in.
Just to lend a little bit of credibility to our clients. So, first into, in the entire industry of course, the Sony Xperia P phone a year ago spring. Nokia Lumia 920 with glove mode got a famously, the Nokia executive holding up a phone and with [Inaudible] glove with the phone in his hand and feel the touch operating. And then iPhone, the Galaxy S4 with the hover in proximity functions. Again, industry first that remains unmatched today four or five months after introduction. Just a couple weeks ago, Yulong, Coolpad brand 8908 introduced the first Single Layer On-Cell solutions, that's an example of display integration and Kevin talks about that up next.
More recently Fujitsu and that's actually in the back of the red notebook with the first clickPad 2.1 and you can see a glassy very consistent feel introduced that product just two weeks ago and just this morning to check my emails to see what else is happening, not too much in the innovation category but another first for Synaptics of course when Microsoft as introducing Windows 8.1 in a month or two and we all have to get certified and so on. The Synaptics was the first to get certification on Windows 8.1 and you can go out to the Microsoft website and verify that for yourself so, on a variety of touchpad and ClickPad solutions from a few different OEM's.
So, pretty good track record and let me tell you we are far from done. So, the innovations, the pace is continuing on and I will be able to stand up in six months at CES and give you a couple of more in a year from now you will see another nice bliss like this. Because we are going to continue to lead the industry and we feel like our product pipeline is strong as ever.
Then it comes down to people. So, we added over 150 employees to the company as you can see from our campus this is pretty substantial now and when we acquired these buildings a little over year ago we thought there is a plenty of room for growth but it's actually getting kind of filled up already. So, it actually the three buildings that are put together here. So, we are excited to have this incredible talent that we were able to add to the company. And it's really two categories, we now able to add some critical engineering skills and David and Stan's organization that was kind of one and then the second is, we build out our Asia infrastructure and actually Scott will talk to you about what we are doing in China and elsewhere in the world. That really beep up as we added all these customers. Very technical designing cycle, we needed the right people in the right places. And the majority of that activity now happens in Asia.
And then the other metric is from an IP perspective. And of course as we do these innovations, develop these cool technologies, we are going to continue to stay ahead of the industry but we also wanted to be able to protect our innovation if it's necessary for our customers. And this just shows the list of file or granted patents that are still are on in force and you can see there is a big upswing over the last couple of years. And just to give you a few examples in some areas where we have patents, we have been granted a patent for 3D touch or similar to that hover proximity technology that I talked about this utilized in the Galaxy S4 and then another class of patents that we have been very active on the filing part is display integration. Because we do feel we are ahead of the industry, we do feel we are innovative in that space. So, a great deal of patents getting filed in that particular area. And invariably as the rest of the industry, tries to follow us again giving us a certain level of protection.
So, ultimately our goal is as I said it to be number one in that human interface space. But really if you look at kind of our vision as a company we are going to pioneer the relationship of course between people and smart devices or intelligent devices and that requires a fundamental investment. Now you are going to get to see one example of a partner Toby (ph) that will show you an example of kind of pioneering that space that we are working very closely with. Stan will talk to you about a few other areas and then our lab next door we got all types of cool stuff happening downstairs in our brand new lab. Just so we can continue but it is a very long process, the time we start to see this ideas, so like coming in to the market place.
And so the markets change and do certainly Synaptics has had to go through change as well. As a market is really surged in certain areas over the past few years. Going back five years ago and said, what is the market look like, five years ago? And with kind of been using this smart connected devices is the market that we play to go back to my very first slide notebooks, smartphones and tablets and this shows well, as PC the relation – notebook PCs up there and smartphones. And you can see the PC aspect of it is about 55% of the market in 2008 and then a smaller smartphone market and tablet effectively didn't exist at that timeframe.
And that's our revenue lined up to a certain degree. We are – for the Fiscal year, we are 75% in PCs and today lot of people still see Synaptic little bit as a PC company. Now fast forward, four or five years and you get to – how is fiscal ‘12, how did that look? So, 880 million devices, that is probably obviously an effect, grew a great deal from a unit perspective but you will see that is 75% towards the new stuff, the smartphones and tablets. And now PCs from a unit perspective only represents 25% of that marketplace.
Now look at our revenue from last quarter, we are very much now aligned to that market. Synaptics’ 75% smartphones and tablet and just 25% of our revenue is in PCs. Now, it doesn't mean PCs aren't important to us, it continues to be important and I will talk about that in a few minutes on why they are continue to be important and still couple of 100 million units, right? That's still a huge market by almost any measure, is just we get to play in this other part of the marketplace. And so one of the fundamental questions is, well what is that market do over the next two years? If they are same 881 million units in fiscal ‘12 and then go forward for fiscal ‘16. It's 2.1 billion units. So, we still got a heck of a lot of growth and there is a lot of discussion well the Smartphone market is slowing down or certain portions of it. But still these are mostly IDC, with some judgment from Synaptics projections. Showing that we still have 24% per year growth rate in front of us. Growing from 882 over 2 billion. So, 2 billion units a year is, is just a great market to play in. And you see a lot of that of course the smartphones, the tablets are certainly got an incredible growth rates as well. And we up in all three, we have fundamental positions in all three of those market places.
And then this kind of in some ways, were little more excitement is generated, what is our share, in this various market. And during the course of the year despite many questions from the people in the audience we will talk about that, what's going on up a little, what's going on down a little type of thing but it's actually pretty hard for us to capture our share, we have to use a variety of sources, some of the industry analyst, research analyst out there, as one of the sources. We go cross check with our OEM, our other Eeosystem partners. And then certainly we look at other documentation into the marketplace and try to come up with what is our market share.
So, the first one I am showing is in the notebook space and of course that's our touchpad solutions. A year ago, we were at 65%, for calendar Q2, as we move forward just a quarter we just completed, we believe we are at 62%. So, we believe we are holding a share that we have enjoyed for many, many years at Synaptics, sure it's a couple percent but that can be simply the question of channel dynamic and so on.
Our revenue of course dropped quite a bit more, more than that's part of the market chunk a little bit as well. And we believe a year ago is just a very robust market in terms of filling up the channel, we have more cautious notebook OEMs. So, Q2 isn't quite a big build up anymore that it was in previous years for the notebook market because everybody got ready for the holiday season. So, the next one and of course that footage is number one, I guess that's something it but still nice to see that flash up there. So number one, in one of our core market. So, the second core market of course is the Smartphone market. A year ago we showed numbers that we are number 25% share in the smartphone market. Same type of dynamics that I was just talking about for calendar Q2.
So, now we believe we gone to share to 42%. So, really a fantastic growth year. The market obviously grew a great deal, we managed to grow along with that market. Not only that obviously capture a great deal of share. Certainly the share we gain on Samsung was quite interesting force as a company. We gain share across the board with many other smartphones manufacturers out there. They really take a commanding position in a marketplace. We believe our shares is at least two times bigger than any other competitors out there in the marketplace. We are the only full line smartphone product suppliers so Kevin will talk through in detail on this but in terms of a rest of the road map, the solutions, whether it's a display integration, the screen, smaller screens, larger screens, tool or operation capabilities or quality or feel deployment resources. All these different things add up to us being the largest and preferred supplier across the board. Sure, there is other guys out there and they will think of a solution in one geographic area or a high-end or a low-end, certain segment of the market. But in terms of the breadth and scale that we have, Synaptics is now unmatched. And the great news is just – is a nice virtuous circle. If we can continue to invest in R&D, in innovation, continue to hire the best engineers in the world and continue to put forward. I will tell you when OEM's looking to do innovative platform that involved a touch or human interface, they now call Synaptics first. They want to talk to us, and see how we can support their vision.
Okay. So again I am not sure any [Inaudible] but there we are number one as well. And then the third core market of course is tablets. And so there actually a year ago, we thought we were on 13% rapidly growing market. Now we are around 11% but a half dozen slide there so before you saw what our expectations are for this fiscal year. So, to me it's actually good news and all those capabilities I just added up apply exactly to tablet solutions. Because many of the manufacturers of course make phones and they make tablets and they make notebooks. And so, now we have the technology, we launched the 7500 a couple of months ago, which is – with our discreet tablet or large touch screen solutions and we certainly expect to gain share over the course of this year and just wait a year from now and I think you will see us in a substantial different market positions because we are on the cost – some very interesting things in this market.
So, now to step back, I showed you a lot of data around the markets and our share and our capabilities. So, how do get sustainable growth, I know that's a number one question from investors and Synaptics continue on. And we maintain the sustainable growth. Well, to me the first question you got to ask, are we in the right market? And that's why I spend a lot of time on that. I would like [indiscernible] companies, where we work in the right market. Very slow or even negative growth and it's not a fun place to be, it's tough – basically it's a zero sum game and you are fighting out with competitors but I showed to you the data. So, clearly a billion unit market growing to two billion over the next three
years, pretty good market. A good place to be. So, when you do innovate and when, it pays off.
And then if you get the great technology companies over the last few decades. To me, it's three fundamental ingredients you better have. It starts with innovation. That's why I always talk about it, if we get a chance to walk the hall for little bit, you can just steal it Huawei In-Cell (ph) here at Synaptics. Even though we just moved from the new building and you think all the two ways and so on in the lab would have made into the dumpster. You will see that the cubicles from our top engineers and scientists are filled already with all different types of scopes in various touch pads and touch screens and who knows what all hooked up. And they are thinking about the next great thing. And so to me, that's just exciting to be able to walk around the labs and just feel that buzz that's occurring in the hallway, so. I don’t think that there is any doubt that Synaptics is always going to be on the forefront of innovation. But second, the innovation doesn't mean anything unless you execute. So, between Stan and David’s team and some of our divisional engineering teams, really critical that we create this execution engine. Truth is annual cadence that happens in other markets around the world, this continue to found our both our silicon solutions with a firmware in other aspects of our technology and we are starting to really turn that up.
The investments we are making in R&D, you can see there the type of people that we brought on board, big difference and now our solutions are coming, coming, coming in these various segments. And part of that will tie to the other two things, is the focus. It's very easy to get defocused but again, we are going to emphasize, those are our three core markets. That's what we are going to focus on first, we are going to focus on the right customers, win at those right customers and then we can build from there but maintain that laser last on focus. Because we are in the right market, we do have the right technology.
Now I am going to shift gears a little bit and talk specifically about the PC market. The human interface systems division. That's kind of a new term I know some of you probably kind of cross the PC division but actually it’s human interface system mobile products. So, not really so much chips but touch pads and other associated solutions are keyboards are in that particular product division.
So, let's talk about great market. Fortunately, that notebook market is very tough market the last couple of years. And even the projections forward show it is, it's kind of flattish. Now we are little more optimistic, especially we talk about this fiscal year, we see some opportunities growing from last quarter to this quarter and as we mentioned them on a call is definitely a pulse out there again. So, we are seeing that OEM stocking, maybe we can talk growth for the first time in quite a while. So, we are fairly optimistic from our planning perspective or actually we counted on a negative growth year, modest negative growth in the PC marketplace. And they are obviously hotspots within the PC marketplace ultrabooks. Again, I remind you, it's still 200 million units and even in the flat market, 200 million units is again gives us a lot opportunity. But if it's not a growing market, you better be adding value, creating additional solutions. And that's the great news for us because the value of touch is going up in our markets. Let me give you some of the metrics that we track in that regard.
So, first ClickPad mix, of course we have ClickPad which is more a premium solution and then touchpads a more traditional solution. As you can see over the calendar years going from calendar ‘11, fairly modest 5% number all the way up to 35% as you can imagine with that kind of rate, the exit rate is even higher. As if we go see the years and calendar ‘14 will even be higher. That's translates into more value for us in higher ASP's.
The other metric is what about touchpad size. And again you will see in aggregate growing kind of year- over-year. Windows 8 and 8.1 are very orientated to a touch. So, it shouldn't be any surprise here but the touchpads are growing that in effect and help move our ASP's up and allow us to grow in a flat market. And then the third piece is well sell more stuff into those markets. So, we will talk about touch in a minute.
But the other thing is what about touch screens, as a variety of solutions out there. This is our tax rate. Kevin will give you a detail graph on this. But we do believe that the tax rate is in the cusp of growing, it's been a little bit disappointing as well documented out in the marketplace but we believe overall for this year, we can get to about 18% tax rate. And I put up a great example of how we can grow value in the PC market that HP notebook up there, HP and Sleekbook X2 just announced in the last week. We have one in the back of the room. It's kind of one of these convertible tablet, smaller sizes, 11 inch solutions with lot of exciting or usually the touchpad of course, like virtually every HP system but also uses the touch controller, touchscreen controller. And now we have two solutions selling into every single system. You will see more and more of that as the course of year rolls out. We have two pieces of every notebook were convertible, hybrid type of solutions that goes up the door.
The ForcePAD is something we talked about, again we say in calendar ‘13 you will see solutions coming out. You will still see solutions coming out in calendar ‘13. So watch for this innovation. We are still just as excited about ForcePAD. For those that aren't familiar with it, it add that third dimension to the touch-pad, you push down on it, you can feel how hard you are pushing and report that information back and there is a lot very interesting use cases there. It does provide totally uniform click or activation experience. Really that next level of touchpad or ClickPad going forward and we continue to innovate in that space. We knew we had to make it lower cost, we knew we had to make it thinner, we knew we had to make it lighter. Next session we can talk about how we have been able to do that and then add some real innovation into this space but clearly this is another thing, another opportunity for us to grow value in the PC space.
And what about ThinTouch? A year ago we acquired a keyboard company. Really it was we acquired a handful of people, very small handful, about a half dozen individuals came with the acquisition and it was really at the time it was an idea. Keyboards kind of were stagnate space not a lot of innovation or research used almost every keyboard used something called the scissor mechanism where you would push down on the keys and there is kind of the scissor thing that would compress and then push back on the keys. We believe there is a better way to do it. And so over the past year we have been working really hard going into the prototype stage, trying different things, seen what worked, what didn't work. Of course manufacturing is the big deal.
Keyboards are very high volume so we had to design for manufacturing. We signed up a couple of manufacturing partners. We have also signed up OEM partners as well. So again in calendar ‘14, watch this space because we are still quite excited about it.
And so there are few areas where it kind of – we kind of have a broad view generally the ThinTouch was interesting but where could we really winning and compete inhibitor of business model and so on. We have zeroed in, in just a couple of space; one is ultra thin notebooks. Basically if you want to keyboard that's less than 3 mm, you can't really do with that scissor mechanism as you can imagine what this type of structure there is just no push back at a certain point. And so that's one space that we have zeroed in on and then the other not surprisingly, is well what is touch play. And so you will be able to have in effect touch on a keyboard and we actually can demo some of these uses models to you in the back of the room now and I really urge you to go try that out because it's pretty cool.
So as an example, everybody is typing away here. And one of the things you love to type faster. I heard from multiple or human this wasn't the best day to do analyst day because, there is half of dozen other announcements after hours and I know ultimately you got to pick your ideas and type them into the keyboard. And again, there hasn’t been a huge amount of innovation as the same keyboard and in fact that's been used for 30-40 years.
So one of the things that you can do is simple thing is like the spacebar, turn that into a touch and so many selections comes up, you can use that to go across rather than reaching for a touch pad or taking your fingers off the keys, that type of thing. The shortcuts on the keyboard, nobody ever knows what those are. You can get a preview of what those shortcuts are.
One of the things that we have always battled and our customers is well what happens if you accidentally touch the touch pad with your top portion of your palm. Well, once we have capacitive touch on the keyboard, we actually know where your ten fingers are and we know if you are typing, you are not intending to use that touch pad. So we can in fact shut the touch pad off while you are typing. And there is, half of dozen other really interesting usage cases that makes this a very interesting technology.
And after the first time, we are talking about what about other spaces? Everybody is used to touch. You want touch on pretty much any device that you have now you are seeing a pop-up all over the place. Obvious things are consumers goods, automotive, the wearable computing and of course Google glasses is the most famous and you have seen [indiscernible] venture at this point that show that is Synaptics controller is used in Google glass, and biometrics and so forth. All are examples of where touch is coming in into play.
Now, we are not going to take our focus off the core markets, we are going to continue to focus on those top three markets, but we are selectively picking opportunities outside of those core markets. Some of those examples are remote controls or we have historically been successful but we are also now selectively looking at automotive and other consumer opportunities. As we have to scale and capability in our company as well as the tools that we will – Stan will talk a little bit about to address a broader set of customers.
Okay. So now that to bring back up level and to kind of drill down on some of our key strategies, as I mentioned we are going to continue to project our historic core touch pad business. We continue to introduce innovation. We have the foremost leaders who have been at this for 20 years now that really understand what it takes to win in this marketplace, things like ForcePAD and precision touch pad and so on. We are going to be in the forefront. The Windows certification well, we are first, this gives an example how we are keeping the focus in that particular market.
We are going to win with thin touch. You hear me talk about the benefits we still see it as a great incremental growth opportunity for us. We are going to continue to look at new technologies. Other human interface technologies where we can continue to grow and along with that other markets to take our existing products into. So what it adds up for this division. This is a strong, it's still a good size stable market. But also has growth. So we will grow this business in fiscal ‘14 and continue to believe that there is lot of growth as we go beyond in future fiscal years as well.
So, with that we are now going to shift over to the smart display division and now introduce Kevin Barber.
Good morning. Thank you Rick. And I am excited to be here to talk about the products that are represented in the smart display division. As Rick said last year, I stood up and talked about it from a handheld point of view but today we will talk about it from a touchscreen point of view across all the three markets that we serve; our Smartphone market, tablet market, and the notebook market.
First I am going to give a quick market overview, a little more color and what's some of the trends within the touch screen market. Second, address really why do we win? We have done fairly well over the course of the last year, where are we going in terms of our growth strategy going forward. A little bit of a deep dive on what we are doing and where we are going on display integration. And then we will summarize.
So first, the smartphone market. It continues to grow very rapidly as we all know, it's a sizable market. But I think as we all have talked about in the marketplace, the premium market versus the volume market are beginning to grow at slightly different rates. The premium markets will continue in the high end to grow and be a very substantial part of our business. But Scott will talk about in his section the value segment as we call it will grow in a more rapid rate going forward as developed countries have begun to be more saturated with the usage of smartphones but the opportunity in developing countries continues to be quite significant.
In the tablet space, we continue to see that the Android operating system is growing also at a very rapid rate. And it's beginning to be of such a size that while we continue to see great traction in what we now would call the premium tablet market represented by some large OEMs in the space. It also is beginning to bifurcate in this growth patterns between the premium category and the value category in the China market. In addition to that with the introduction of Windows 8, Windows 8 now represents a new growth vehicle for us to serve in the tablet marketplace. You will see some of the initial designs wings that we have now begun to capture in the space as the Windows market grows going forward.
Rick touched on this in his HID (ph) presentation but the attach rates than in the notebook space while has been up to a slow start. We believe we will now begin to grow more rapidly. This year roughly representing 18% but over the course of next year, we begin to see more significant attach rates as the cost of adding touch tends to become more and more affordable.
So why do we win? This is a slide that we showed last year and talked about the strategy in addressing the touchscreen market. And when you look at what our customers are really looking for, they are looking for timed market and scalability and fast flexible scalable support. And I will talk about what that means. Second, the value segment requires the lowest cost system solution. A premium market is looking for high performance and in the end customers really don't want to make a tradeoff between cost and performance and we continue to be convinced that the ultimate architecture to implement high performance touch at low total system cost is through display integration. The Synaptics fundamentally addresses those customer needs through system expertise, system solutions. Now while we sell a piece of semiconductor with thermal on it. When we come and have a conversation with our customers, we talk about what problem they are trying to solve with system level solution they are looking to implement. That is how we begin the conversation.
And so talking about our last year the tools we introduced Design Studio which enables the initial configuration of our solution, the development and firmer tuning number of solution and ultimately production tests at our customer sides has enabled the scalability, the time to market of supporting many, many customers with our platform technology very rapidly.
Our SafeSense tool enables our customers to look at different sensor and display stack ups and how to optimize their particular phone or their particular tablet or notebook to implement touch. And so it's optimized and very quick mathematical modeling in the hands of our customers to make tradeoff decisions, coming at the problems from a system solution point of view.
The value segment. Single layer is one way to address the total system cost. Traditionally, touch is implemented with a two layer receive and transmit structure. The single layer eliminates one of those layers and therefore reduces the total system cost of enabling touch. The touch performance is not quite as good as of two layer structure but it's good enough with that segment of the market and Synaptics has significant position and will continue to grow our position in that segment of the market.
High performance, as Rick talked about the hover technology we introduced this last year now represented in the Galaxy S4, one example of high performance. That technology is still capacitive touch. It's enabled through the very sophisticated architecture that Synaptics is clearly the master player in the lead on and I will talk a little bit about our gross strategy going forward and what we will continue to do but as far as innovation in the premium segment one form, glove we talked about high performance In-Cell. Synaptics has multiple technologies to address the high-end market segment.
And lastly, display integration. That's represented really what we believed to be the convergence of total system cost at the lowest level while not compromising the system performance level.
So, really the message that we want to give is in the touch screen market, we remained the leader and continue to drive our leadership position as the system expert in this space. It's a really – we are the broadest and deepest technology company in this space today. And so, I wanted to just represent what is all of that collectively mean in terms of our results in the marketplace and so we have a short video that we want to show in terms of the last year.
And so I hope you see the breadth of the engagements we had last year and we would not have been able to do that had not been the tool set, the Design Studio tool platform that we talked about last year.
The scalability, the responsiveness, the ability to engage so many customers across the marketplace. While I hope because some of the unique innovation features, LG high-performance panels (ph), Huawei, In-Cell, Nokia Glove, and then the most innovative platform we delivered last year the hover technology with the Samsung S4. So, between focus scalability and innovation we have been able to continue to make progress across the marketplace in our leading customers. So, that's a little bit of why we are winning, what our position has been. Now let's talk about moving forward and our strategies for growth in the coming year.
So clearly innovation to protect our smartphone core is a core part of our strategy remains a very big market for us. We continue to want to do well there. Second, as Rick showed, we are not satisfied. We have huge opportunities to grow in the large touch screen space with notebooks, and tablet. And third, we are just beginning to transform the touch industry into display integration whether that be our Single Layer On-Cell or In-Cell or TDDI architectural implementations. So first, innovation to protect the core. So, we announced at Mobile Congress, the highest performance touch screen controller in the world, 3400 what we now call the 3500. Today that ship in, in high volumes with proximity and very fine sensor pitch touch performance that is unmatched in the industry today.
We will see more and more OEMs in the marketplace as we will have more to talk about in the coming months about other customers implementing the hover proximity feature.
Second generation proximity so certainly the idea of doing hover with capacitive touch has been one that's been in the industry for some time but Synaptics is really the first company that is developed in such a way that it's repeatable and manufacturable in the high volume production devices. So, other competitors will I am sure began to follow us, but we are already well under way of delivering our second generation proximity. And so we will have more to say about that as well in the coming months but as far as the growth vehicle we continue to see this capability as a huge opportunity for us to grow on the premium segment going forward.
And third in terms of the smartphone category, I talked about the value. Scott will talk about our China strategy in more detail but from a product point of view Single Layer remains a critical part whether that be Single Layer sensors in a discrete sensing of touch architecture. And I will talk to them in more detail about Single Layer On-Cell through the display integration strategy in the coming slides.
Smart touch screens. During May, we announced over 7500 single chip smart touch screen product. We are very excited. We have multiple design wings in process today. You will hear that as well as products are announced in the marketplace. And while we believe it absolutely is the world’s best performing large touch screen chip in the world. In addition to that, we are very excited about Active Pen capability.
The whole idea of the user interface and having naturally hand recognition Pen performance is a feature that we have seen OEMs in the marketplace used to great benefit to augment their products in the tablet space and the notebook space. We have now introduced the Synaptics proprietary Active Pen, it has the benefit of not burdening the total system cost of implement in that Pen in the sensor itself. From alternative architecture competitor solutions add significant cost of implementing high performance Pen in a touch screen, our solution adds no burden to the device as complete flexibility to the OEM on whether the Pen is an added or not added feature in their particular product.
It doesn't come at the compromising performance. It competes favorably across all the parameters of high performance Pen with other solutions in the marketplace. We are very excited really. I think our customers are really excited about what we can deliver with our large touch screen solution and with the option of adding Active Pen.
I talked about where the market is growing between tablets and notebooks and Rick talked about the scale that we represents in the touch market today and we are now very focused on delivering specific solutions for the value tablet market, the high performance tablet market as well as the larger notebook touch screen market and they are optimized around the customer's needs and expectations for each of those. So we will be ready to announce those as we roll them out in the market but we have a very robust road map in this large touch screen space.
So display integration. So I will talk a little more detail about the three architectures on the coming slides but just to put in position, Single Layer on-Cell, hybrid In-Cell, and TDDI have been the three architectures we talked about. And as we see it Single Layer On-Cell really is architecturally approach that will address the low-end and I will explain why in the coming slides. Second, two chip In-Cell where the touch controller and the display driver are distinctly separate chips implemented with In-Cell will remain in the more premium segment. And our TDDI strategy is maintained that high performance, that hybrid In-Cell performance to drive down the cost in the second generation premium phone midyear phone segment.
So, let's take a look at the stack up of display and how hybrid in-Cell is implemented and so initially the transmit layers are in the TFT glass, what was called the Vcom layer and then on top of the color filter glass is where we have the receive layers. So this structure is very manufacturable that delivers very high performance touch versus may be some alternative ways of doing in-Cell.
So we have been working now with multiple display companies for quite some time in delivering this high performance solutions. We have announced OEMs that we have shift with Sony, Huawei, Pentech and others that are in the pipeline. So, we are now running our LCM and our OEM engagements with this form of display integration.
We are very excited about the latest Huawei phone you saw on the video, that Huawei Ascend phone that was the P2, you might have caught that it was 8 mm this is the new P6. It's only 6.2 mm thin really. It's the thinnest phone in the world substantially thinner than the iPhone 5 and they have got a lot of success in the China market with this new model which was released quite recently.
So, we will have it in the back. You can take a look at it but it's a very exciting phone and what's possible with In-Cell.
Now to compare that with Single Layer On-Cell you will see that now on the top of the color filter glass are both the receivers and the transmitter. So it's in the same structure of that top layer that we use in hybrid In-Cell but now rather than only having the receivers on the top of the color filter glass, we have both the receivers and the transmitters.
So, what benefits come to the customers as a result of this? The first and one of the most important is fast time the market. Architecturally, the touch controller and the display driver no longer need to be synchronized. There is some fixed development cycle is much shorter. We announced at Mobile World Congress this year in February, the introduction of this technology. We just mentioned our first OEM Yulong or the Coolpad 8908 product shipping in the marketplace last week in the earnings call. The time from announcement product OEM phones in the marketplace is quite rapid.
It provides lower system cost to the OEM for that performance level and it's not as good as touch performances hybrid In-Cell but it's good enough. It's solid touch performance but it's not premium. So, we have many LCMs now in development. We will have more OEMs to talk about as they ramp over the coming months. We are very excited about how this architecture of Single Layer addresses the low-end segment of the marketplace.
And third, our TDDI investment, so this really is ultimately the lowest total system cost because it's a single integrated touch and display driver silicon solution, implemented on top of the glass, no flex, chiffon glass where you have a lot of total system cost of no longer having flex and it still maintains, as shown in the diagram in the bottom, the hybrid In-Cell architecture, high performance touch.
Ultimately, what the customers want? They want low cost and they want the best. And this architecture really enables that. So we will lead with two chip In-Cell and high performance followed with lower-end system cost with TDDI in the performance segment.
Really the message I would like you to take away, we would like you to take away is when you look at the touch screen products between small touch screens represented by smartphones or large touch screens represented by tablets and notebooks, whether it's the Windows 8 operating system, Android operating system, whether it's the value segment or the premium segment, we would not be able to put all the products on this slide, we represented we would put the products that were shipping today, we are the broadest and deepest product portfolio in the space in the marketplace or none.
So, in summary, differentiation through systems expertise, our tools free solutions for the value segment, the premium segment, and moving forward the remaining growth that we have in both smartphones and large touch screens and really change in the industry with display integration. We are very excited about our future going forward.
Thank you very much.
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