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Synaptics (ticker: SYNA), maker of the Apple iPod's scrollwheel and touchpad products for PCs and other MP3 players, reported fiscal third quarter '05 results yesterday. Revenue was up 65%, and income up 233% vs. F3Q04, but note that (1) revenue was basically flat vs. last quarter, and (2) the company lowered its revenue outlook for next quarter.

In a conference call, Synaptics CEO Francis Lee had these comments on recent reports that Apple will begin producing its iPod scrollwheels entirely in-house:

I would like to address the ongoing speculation regarding Apple's intentions concerning whether or not it will continue to use our products...

As per our February 8-K filing we had indicated that our interface solutions are being used in the current generation of hard disk drive iPod products. Clearly, should Apple elect to stop using our products it would have an impact on our results, and while it would represent a bump in the road I am confident that we have the right strategy in place to ensure our future success.

In light of this issue, I think it's important to step back and review the way our business works. As you know, we supply our OEM customers through their contract manufacturers... we compete for design wins on a product-by-product basis and have no assurances from OEM customers that they will use our interface solutions in their future products.

One of the constants in business is that companies have to be prepared to face competition from all corners, reflecting the fact that market dynamics are inherently unpredictable.

CFO Russ Knittel said next quarter's revenue should be flat with this quarter's (a change from previous guidance on F4Q 05 revenue growth), and in the Q&A had this important comment on the MP3 player (read: iPod) market:

... it looks like maybe the hot market here is taking a little breath after many quarters of significant growth quarter to quarter.

(Quotes are from the CCBN StreetEvents transcript.)

Source: Synaptics Lowers Guidance, Sees Slowdown in MP3 Market (SYNA F3Q05 Conf Call Quotes, AAPL)