Synaptics Points and Clicks Its Way Higher

Synaptics (SYNA) is a technology outfit that makes touchpads, click wheels and other control components used in laptops, mp3 players, cell phones and other mobile devices. The company also manufactures touch screens that allow users to tap and slide their fingers on screens across the spectrum of consumer products.

I am not sure if Apple's (AAPL) iPhone uses Synaptics' technology, but I expect other manufacturers to come out with similar phones that use gesture-recognition. This would definitely contribute to Synaptics' growth in the coming years. In fact, Synaptics' latest technology is already in a growing number of cell phones, including LG's Prada touch-screen phone launched earlier this year in South Korea and Europe. Moreover, the company has also signed up Samsung and Motorola (MOT) for future such versions of their phones.

However, over 80% of Synaptics' revenues come from laptop sales. Indeed Synaptics has 65% of the world's laptop market share, with laptop sales set to grow at 27.4% this year to 105.3 million units. That follows growth of 26.4% last year and 33.5% in 2005. Even though such growth will decelerate over the next few years, Synaptics plans to have more components in laptops than it does currently by using dual-mode pads and light-touch controls. More and more laptops now have buttons for DVD playback, volume control and other short-cuts for better look and feel.

A few years ago, SYNA was extremely popular. It was the exclusive provider for Apple's iPod click wheel. Then news of Apple diversifying its component providers which would result in lost business for SYNA sent the stock hurtling down after a successful run from $15 in Aug 2004 to $38 in Nov 2004. The correction was quite severe as the entire gain of 150% was wiped out. Since then, the stock has pushed and prodded its way to its old highs and since July 2006, the stock is up 110% to an all time high of $40.44. 14% of the float is currently being shorted, and with earnings growth recently clocking in at 87%, the stock has a few reasons to continue its recent bull run.

SYNA 1-yr chart:

Comments

[FaisalLaljee]

I recently learnt that Apple does not use Synaptics technology.

[GS MKTS]

I am confused by your last line - don't you mean that the stock has few reasons to NOT continue its bull run?

[FaisalLaljee]

Yes the stock has quite a few reasons to continue its bull run or very few reasons not to continue its run. Sorry for the confusion.