Synaptics: Attractive Seasonal Trade

Synaptics (SYNA) is the leading provider of touch-based interfaces used on laptops and handheld devices such as music players and smartphones. It has an estimated 50%+ share of the notebook market, with a customer list that includes 9 of the top 10 notebook vendors (HP (HPQ), Dell (DELL), etc.). Its non-PC business includes high-profile design wins for Apple (AAPL) iPods (Nano & Classic) and several new smartphones.

We believe the shares are very attractive here and represent more than just a trade on strong seasonal results for the December quarter. Looking into 2008, demand for SYNA touch interfaces in smartphones could snowball as tech heavyweights such as AAPL and Google (GOOG) push a more open application environment onto consumer handsets.

To summarize the bull case:

• Look For Strong Seasonal Results Expected in SYNA's Notebook and Non-PC Segments. Thursday night's DELL results were driven by Notebook sales (+19% Y/Y). DELL plans to make notebooks one of its priorities in the coming years as it expects notebooks to grow at 6X the rate of desktops. Last week HPQ reported bullish results with notebook revenue +49% Y/Y. Moreover, strong sales results seem likely for iPods in both domestic and international markets this holiday season.
• Early Participation In GOOG's Android Effort Could Bear Fruit In 2008. SYNA is a founding member of the GOOG Open Handset Alliance. SYNA is providing the software driver for touch interfaces and is the only touch interface company in the alliance. Given its leadership position in the group, we would expect design wins to become visible as new handsets are announced in 2008.
• Attractive Valuation With Room For EPS Upside. Trading at 19X F2009 Street consensus EPS, the shares look attractive relative to forecasted 50%+ EPS growth (PEG of 0.4). And, given strong trends in its core notebook business and strong seasonal growth likely in handhelds (iPods, Smartphones, etc.) SYNA could prove the Q2:F2008 (Dec) Street EPS consensus of $0.57 too conservative. Moreover, March quarter guidance (Q3:F08) for revenue growth of +29-38% Y/Y implies a fairly typical Q/Q decline (10-15% vs. 15% in Q3:F07), leaving room for upside from new handset design wins.

Disclosure: Author has a long position in some of the above-mentioned securities

Comments

[Dan Jacome:]

great, succinct article, the chart agrees with you as well.

2007 Dec 02 03:14 PM