Synaptics Incorporated (NASDAQ:SYNA)
Analyst & Investor Meeting Conference Call
August 07, 2012, 12:00 pm ET
Rick Bergman - President & CEO
Mark Vena - SVP, PC Products
Kevin Barber - SVP & General Manager, Handheld Division
Fred Caldwell - Manager
Tim Bajarin - President, Creative Strategies
Stan Swearingen - SVP, Research and Development
Kathy Bayless - SVP & CFO
Pat Moorhead - Moor Insights and Strategy
Unidentified Company Representative
Good morning. I would like to welcome you on behalf of the executive staff to Synaptics’ first ever Analyst Day event. It’s really an exciting occasion for us. You know we sat there and thought about all the pretty things that we are doing within the company and when you attend just the standard earnings call, there's a lot of stuff that you don't get to pick up and this event is here to share with you some of those key insights. It’s all centered around the innovation engine that really makes Synaptics unique and different.
So what we have today on the agenda is a schedule that looks like this, representatives from all our key executives representing the divisions that you see and the Mobile Group and also the R&D Group.
The other piece of this act of the thought is really important, it’s something that you can't get over a phone conversation and that's getting your hands on the products. And so the other piece here at the end of the morning is a session where we’ve brought in all our key products expertise and really set-up all the activities that you can actually touch and feel these products and ask some detailed questions once you see it.
So that's the rough agenda that we have this morning. I do want to share with you a little bit about some disclosure here and bring your intention to the fact that we may make forward-looking statements during the course of this presentation. Please refer to our filings on the Form 10-Q and Form 10-K with the SEC for specific risk factors that could materially impact our business.
So after the legal introduction, it’s my pleasure to actually introduce Rick Bergman, President and CEO of Synaptics.
Alright, good morning and certainly welcome. As [Ted] said, this is our first analyst day. So 10 years from now you can tell your children or grandchildren I was at the first Synaptics Analyst Day and believe it or not, they actually use physical objects to interact with their computer or computing device and their screens and all these other things. And also welcome to the people on the webcast as well. We appreciate you joining us from that form.
So first I saw a number of you at CES and if you remember at CES that was my 100th day on job and now it today marks a little over 300 days as CEO of Synaptics. And looking back to January, our target markets actually haven't really changed, nor have our core strategies. But what has changed is we’ve made some critical milestones in our vision as a human interface and a company.
And so I am going to talk through what we are going to do in terms of growth, some of the strategies there and then where we are going in the future and my team will come up and talk to specific market segments, the products and technologies. And through the course of the day, of course, we should be able to answer any questions and please during the breaks review the demos; we have some really exciting material.
Okay, so to jump in, just to be clear, we are the human user interface company and as you meet the team and see the demos and so on, you will see, based on the 25 plus years of history we have, it’s deep in our DNA that certainly no other company in the industry is so focused in one area of computing like Synaptics. We are focused on three core markets and you will hear me repeat this multiple times, certainly the notebook, smartphone and tablets and that’s the target markets that we are going after.
Before I jump ahead, I wanted to take a little bit of a look back as well in terms of financial picture. If you look at from a 2008 basis, you will certainly see some interesting growth on just a smaller basis, but also when you move a little bit upward and look over the last two to three years, actually growth is stagnated.
From a company perspective, our operating model is very solid and operating profit traditionally in the upper teens. But again, as you look over the last several years, you will see that’s flattened and stagnated; that ties back to topline growth, so again you are going to hear a big focus today is around growth. How do we get that topline moving again?
And to a certain degree, we have to answer some critical questions. First, are we in the right markets, are these markets growing fast enough, are they big enough for Synaptics to continue to grow; do we have the right technologies, do leverage the core inherent capabilities where we actually understand better than any one human behavior, do we have the right scale as a company.
So as I look through that over the last 300 days, I have come back with a resounding yes and certainly that’s my expectation. We are positioned to win. We are going to be number one in our target markets and as we go through the course of this morning I hope you come to that same conclusion as well.
So now let's drill into each of these markets. Fiscal ’13 is a very interesting year for us; in notebooks, of course there is Windows 8 and we've talked to you a ton about Windows 8; how important that is a touch first operating system. What does that mean to Synaptics? What does that mean to the PC or computing industry in general? A very big inflection point; but that's not it. And there is ultrabooks. Obviously the ultrabook momentum started earlier this calendar year, you've already seen price points now below $700. You will see volumes accelerate as we go through the course of this year, again helped by Windows 8, but also just in general to get that thinner and lighter experience.
And then there's another thing that I want to talk about just a week ago. The higher resolution screens which obviously are becoming a key factor as new notebooks are released over the course of this year. High resolution screens, higher bandwidth, the need for a new interface technology such as display port, thinner and nice, better power management as well.
Now let's shift to smartphones. This year already you've seen the innovators come out with In-Cell, in production smartphones. Kevin is going to talk a great deal about what In-Cell means to the industry but in ’13 you are going to see many, many phones that levers this In-Cell technology. Likewise and what we call TDDI, touch and display driver integrated, you will see the innovators in ’13 come out with phones and that momentum will continue through the course of the year.
And now let's shift over to the tablet market. There is new players in the tablet market adding new form factors, interesting innovation. Windows 8 will play a role there as well. And then more recently we’ve seen the importance of an integrated keyboard solution, so a lot of things happening in our target market. So of course we look in a much longer horizon than just fiscal ’13; what does it mean three four years down of here.
So let’s talk about each of those target markets. Of course, the notebook market about 12% annual growth over the next three or four years, so big market with reasonable growth rates. But within that, and what about ultrabook; depending on the starting point, very, very aggressive growth rates, but we actually think in 2014, 35% of the marketplace will be ultrabooks.
The smartphone marketplace; this year 645 million units, very big base. Now the torrid growth rates that we’ve seen over the last several years obviously are going away to a more modest mid 20 growth rate over the next few years, but still even with that growth rate by 2015, 1.1 billion smartphones in the marketplace, almost doubling the size of our target market.
And then finally tablets or in this case, I have actually put tablets, and put it to a single category called Large Touchscreens, LTS, I’ll use that phrase going forward. That includes of course the screens that you have with the tablet as well as those notebooks that have displays with touch enable. And there you see the tablet growth rate, but also then you start to see a big chunk coming in which is notebooks with touch. So it’s our belief in 2014 about 30% of all notebooks will be touch enabled; which of course then drives a very nice growth rate in and of itself.
You know I talked about our three core markets and let me clear those are our three target markets, but there are other markets out there that we get lots of questions about and certainly with the right opportunity in the future, if we’ll get automotive for example, in a few years it could be 40 unit million opportunity. We are going to be oriented towards those three core markets, but those other markets are going to be very interested in display integration and when they move into display integration those markets in effect will come to Synaptics; we don’t have to go out to those markets; they are going to want this integrated display for same reason smartphone manufacturer, tablet manufacturers want integrated displays as well.
So at this point, I hope we understand we are in some really interesting markets both from the fiscal ‘13 inflection point as well as the growth and size of these markets. But, what about technology, what about the products; can we compete in these markets. Let’s look back in our past year and look at some of the technologies we have introduced.
So first, we have first LTS integrated solution; one chip solution for the LTS market. We introduced Design Studio which really helps our OEMS with designing our products; you are going to hear great deal about that from one our technologist shortly. Our competitors are really scrambling to try to come close to matching this capability.
We already have talked about In-Cell technology, so two phones in production before any other solutions have been introduced. TDDI, first one to sample and the first supplier to even talk about having samples and then of course in the PC space, next-generation of Quickpad and then ForcePad, so wait till you see the demos with ForcePad and some of the innovation and technology that brings forward.
Now how do we fuel that type of technology and innovation? We've made a commitment to R&D. As we look back to the last five years, you see each year our R&D both absolute and percentages gone up year after year and that's going to continue in fiscal ’13 as well as we discussed in the conference call last week, we are going to continue to invest. Those investments have been oriented towards our handheld business; the vast majority of our R&D goes in that direction. So it’s no accident that we are first with In-Cell, no accident that we are first with TDDI, but we recognize we can't do it all ourselves. There's a ton of innovation going out there in the industry. So we've made a couple of acquisitions over the past few months and let me step through each of those.
So there is Pacinian which brings the in touch technology into the market, some ways are very obvious horizontal play for Synaptics, expanding from our touch pad into the entire keyboard deck, very innovative technology for that thin and light that I was talking about, important to that in two of our core markets both notebooks and tablets.
So let me just give you a quick visual on this. And if you look at the play with this at lunch time or during the break, so as you can see not even two credit cards’ with the keyboard and yet it still has the performance that consumers expect and want with a keyboard, so just amazing technology. It’s sampling today and will be in production in a year from now.
Now shifting gears, we acquired the video display operations from IDT just last week and with that that brings a lot of strengths. First it will always start with people. So we picked up a team of 50 engineers, mixed signal and analog capabilities. So we’re excited about the capability they are bringing to Synaptics. Also some key display technologies; some embedded display, some timing controller technologies as well. And third, certainly from a scale perspective, now we have a much stronger chip organization within Synaptics.
So I got a lot of questions last week after the call, what exact products they have. So I thought I do a little bit of a system diagram here and then we have here Jeff who is part of our executive team now, who can certainly step you through the technologies during the breaks. Just to you point it out, so there is actually a chip within a display, so its timing called a timing controller device. In the industry as I mentioned earlier, shifting from old technology called LVDS to display port.
So LVDS has served us well for 10 years, 15 years now, but as you move to high resolution panels you need a higher transfer rate between the system and the panel, as well as other flexibility around by direction of communication and so on. And so the industry decided to move to display port and so the GPU manufacturers, AMD, Intel and NVIDIA are now supporting display port and they are actually dropping support for LVDS. So with the new processor platforms in 2013, you will see a big shift over to display port.
And then there is another feature that’s called Panel Self Refresh and a kind of since the name actually applies, you can actually without talking to the processor or the system, you can continue to refresh the screen. So that’s saves a lot of power in the interface and as well as you can power down the actual processor. So that’s a great power savings which of course with ultrabooks and tablets and so on as a key feature.
So those technologies came to what we now call VPD, it’s Video Products Division of Synaptics and then they can be applied more broadly as well, so there is also interface products that can be used in the system to actually pan out the number of interfaces they can support VGA and HDMI and so on and then that capability can also be used in a docking port, so as you can tell with my description, very aligned with our core market notebooks.
Now let’s pull it all together for a minute and start to think about the notebook in general. Suddenly we have gone from just supplying the touchpad player in the touchscreen obviously in the keyboard, multiple chips within that display. So if you think about it there is actually two display surfaces in a notebook touchscreen and the keyboard there. In Synaptics, is that we keep company that has the technologies for the human user interface in those two surfaces, so we are very well positioned in the notebook market, but I know the audience we have, let’s add it up all from a financial perspective.
And there you see a very compelling picture; the touchpad market which we are playing in today in 2012 it’s about a $0.5 billion market, interesting, but not huge. And now you add in the keyboards, you add in the panel technologies that we have, suddenly it explodes to over $4 billion that now Synaptics can be a key player, so a very compelling opportunity for us from a market perspective really opening the doors. And how are we from a market share, well for years we have been in the mid 60s in terms of touchpad market share and in Q2 we believe that’s roughly where we are again 65% of the marketplace. So think about, I identified three core markets, so we are number one in the first, number one in notebook and touchpad, puts us in a powerful position with our customers.
Now let’s shift to our second starter market and that’s smartphone market and today such as my HTC phone, we supply touch controller with discrete sensors. Going forward of course the trend will be more to In-Cell display and then eventually into the TDDI capability we’re actually able to integrate more functionality and value.
So now let’s add that up from a market opportunity perspective. And there you see going from about a $900 million market in 2012, expanding to almost $2 billion fuelled by few things, well of course you heard me talk about the growth rate in the smartphone, but in addition being able to integrate that other functionality around display drivers whilst our market in just two years have opportunity to more than double.
And then I have a bit of a surprise for you, the question is well what about market share, where is market share in smartphones? If you’ll get touch controllers in calendar Q2, you’ll actually see Synaptics is the number one supplier in touch controllers to smartphones. So I talked about two markets, notebooks, smartphones Synaptics has been number one supplier in both of those markets.
So now let’s shift over to the third market, tablets. A few weeks ago it’s a really easy story, but then there is a big event on June 20th that was when Microsoft launched the Surface tablets and for those that were either viewed it or were at that event, have seen Microsoft shined a very bright spotlight on the importance of having an integrated keyboard and touchpad for tablets, of course people just don't want to consume any more on their tablets, we have 30 or 40 examples maybe here in the room, you also want to create and be able to type with high speed, be able to use in a very efficient manner. But of course because of the tablet or mobile device we want an extremely thin keyboard.
So you can imagine with that and some of the other panel technologies what that has done for our available market. We have gone from a very modest $150 million market this year, where we were just able to supply touch controllers to then exploding to well over $1 billion again in just two years, as we are able to participate in that keyboard and other technologies in the marketplace.
Now how about a market share in tablets; well, there our market share is quite a bit more modest, of course we have the fantastic Samsung Galaxy tablet which really from the performance and selling perspective is one of the leaders in the industry, but to me this is all Greenfield, this is the exciting part for Synaptics, because we have these technologies. Think about us, hey we have the world class smartphone technologies that we are going to be able to bring into the depth market and then from notebook technologies we are also number one bring that into the tablet market, use leverage those capabilities and our goal should be, we are going to be number one in the tablet market as well.
So now that summarize growth, growth, growth; so as you can tell, you heard me last week we are really oriented towards growth. In fiscal ’13 we guided to you a where we’ve had modest growth, single digit growth versus ’12, but accelerating from Q4 through the course of the year.
Number two is the technologies and the products. Hopefully as we go through this today, we’re all impressed with the capability that we’re able to going to bring to the marketplace, be able to fuel growth in all three of the markets given the opportunity that’s in front of us.
And then the last point I really wanted to make is, we’re not a chip company and again as you work with us through the course of the day, hope that becomes very clear, we’re much more than a chip company. We’re the number one human interface company, 750 employees, all oriented towards creating the best end user experience with the products that we are deliver.
So with that I would like to introduce Mark Vena who is our Senior Vice President in charge of our PC products.
Thank you, Rick. Good morning everybody. Well I do like to spend sometime walking you through our PC strategy here and let me just open the next slide. You know, when you look back at Synaptics, the last literally 20 years, we have literally been the go to technology provider for TouchPads and notebook space. We’ve a very, very strong share. We play with virtually every PC OEM from a notebook design standpoint.
We’re known for coolness in innovation and we have a great, great platform for being a very powerful leader in the human interface category with notebooks. So Rick showed this slide a few moments ago but the key message here is that notebook growth continues to be a very, very nice very large market is growing overall its growing by 12% from a CAGR standpoint between now and 2016.
The magnificent trend that Synaptics is positioning itself for is the explosive growth that we expect to see in the ultrabook category. You have to have technology that plays in very thin designs to be successful going forward and we’re very well positioned from a market strength standpoint over the next five years. But I think it’s instructive right now to talk about where is human interface going, what’s the evolution of touch, how are we positioning Synaptics to take advantage of the exploding use of touch in the notebook interface.
Well, if you look from a interface standpoint it’s a little bit towards down memory lane back in the early 80s you had the original IBM PC that was very much, the keyboard was the interface, it was a character based operating system, very revolutionary for its time but nevertheless it was a very, very much a keyboard type of play with personal computing.
Then the long came in the mid 80s you had the Macintosh which introduced the concept of the graphical user interface, the concept of using a mouse and that was kind of breakthrough for its time. Then low behold in the mid 90s and this is really where Synaptics really established itself, we partnered with Apple on bringing the first TouchPads to the market and the original powerbook. I think it was certain 1995.
Then going down the path, we have been playing a very strong role in introducing advanced functionality from a TouchPad. The TouchPad was no longer just a useful for its simple navigation; you really wanted to use it from advanced gesture standpoint to be able to do very creative things.
And then finally what we have seen over the last couple of years is that now touchscreen functionality is sort of the creep into personal computing. We expect to obviously to grow into the Ultrabook category and I will talk about that in a few moments, but touchscreens have been able all-in-one products for some time. Now the functionality has been limited because the operating system wasn’t optimized for that but nevertheless it’s starting to creep in and we think [Windows] represents a great opportunity to really optimize touchscreen functionality going forward.
The other message here is that human interface in PCs was getting more complex to deliver a great human interface experience, a great intuitive experience. It’s not as simple project to take on and that’s one of the reasons why our customers find Synaptics so attractive, because even though there are some complex problems to be solved we positioned well to really to take [claims] themselves from really thorny problems in human interface technology. So lets talk about for example what are the tough problems that really need to be solved so what are the tough issues that our customers are asking to solve on a daily basis?
Well first and foremost, I talk about ultrabooks. Ultrabooks are --- or is a huge trend in the notebook markets and anything from technology standpoint, anything with the subsystem within the notebook has to be highly thin, if you are not thin you are out frankly from technology implementation standpoint. Having implemented this technology in very non-compromise type of way, implementing touch is not a simple orientation there is stack up considerations, there are system design considerations and you have to have really complete formal knowledge how to implement this in a very elegant way.
The other thing that is happening is with the feed back we are getting from the OEM is that from the Windows 8 standpoint touch now is taking over the entire solution I will talk about the TouchPad certainly that’s having touchscreen area as well. But even the keyboard which has being neglected for 20 years frankly from innovations standpoint that has the makings being a very, very right areas for us to innovate from the technology and touch standpoint.
Driving a consistent user experience is one of the big challenges with Notebook designs is that we are dealing with multiple OEMs and challenge is they may not implement a TouchPad implementation and or a keyboard implementation or a touch screen implementation in a consistent way. OEMs want to be able to deliver a very consistent experience with whoever ODM they partner with, and this is a key issue and key challenge that customers are looking for us to solve.
And then finally usability, usability is an incredible part of the value that we provide our customers great usability, great design expertise. Again, Rick said a few moments ago that we are not a chip company; we can't be a chip company if you are going to be able to solve some of this type of problems. So with that let me talk about our first thing that we announced last week, we are extending our reach into the notebook touchscreen form factor by expanding our ClearPad Series 7 family. So we have an offering now, it’s a multi-chip offering and now expands our profile or ability to provide Windows 8 class performance up to a 14 inch form factor with our 7440 implementation and then with our 7470 implementation will be up to scale up the 17 inch.
Again, Microsoft has very exact specifications for Windows 8 and this capability of technology we will be able to provide that without any type of issue. The real thing that's very, very exciting that's coming up and we announced this last week is we are fully redefining the way TouchPad will be implemented with notebook with something called ForcePad.
ForcePad is literally almost a solid state kind of offering that's quite (inaudible) it usually uses no moving parts and it introduces the concept of force into a notebook form factor and what force allows you to do is incredibly intuitive things.
First and foremost, it would allow to provide best in class Windows 8 experience. I mean ClickPads are great and we certainly led the market in ClickPad technology. ForcePad first of all allows you to get to a very highly thin form factors. It's great from an application standpoint whether it's gaming. I think when you get a chance to play with in the backroom; you will see the gaming possibilities but also has great capability from just using navigating through Windows 8 in a fantastically intuitive way.
It's highly thin which actually allows it to complement the growing trend in the notebook form factor, Ultrabook form factors. We've got quite a bit of work going forward right now with ISVs to make sure applications contain advantage of the notional force.
We are working with In-Cell, from an ultrabook standpoint so you will see reference designs early next year and it has a time period that have ForcePad already comprehended and then finally from a technology standpoint, this is what someone pointed to us right now, we are actually sampling ForcePad as we speak with all the top OEMs.
So one of the things don’t-know is about ForcePad is that it’s really hard to convey the incitement and innovation that ForcePad delivers on a PowerPoint slide. So we have a short little video for you to kind of see some of the possibilities that we think ForcePad offers to the market.
So if you’re excited by ForcePad, and we certainly are, you will be excited about the next thing we’re bringing to the market. I talked about expanding our reach into the notebook form factor. Obviously, we have a great presence with touchpads, we rule the market very briskly, over the ClickPad and now ForcePad is coming down the path, which will be a game changer but now and I talked about LPS, with our large touchscreen capability with seven Series.
Now lets talk something that’s absolutely breakthrough that were suddenly surprised about and that’s the ThinTouch capability that we referenced a few moments ago in Rick's presentation.
ThinTouch is absolutely going to be a breakthrough keyboard play for Synaptics, when you see it the first thing obviously you will get charged up about is that it’s highly thin, it’s 40% to 50% thinner than today’s conventional mechanical solutions out there, this obviously has tremendous advantages for OEMs and ODMs because it allows you obviously to be able to insert larger batteries, be able to provide and complement cooling solutions are very critical in ultrabooks, but in a marketplace and in an environment frankly, where an OEM or an ODM will literally jump up and down to slice up tenth of a millimeter this has the opportunity of fitting down a conventional mechanical keyboard by upwards of 1.5 to two millimeters which is huge in the notebook space.
Secondly, it really plays very well from a manufacturability standpoint. We have learnt a lot about keyboards over the last year and if you look at the keyboard category it really is life frankly from an innovation and be able to move from manufacturing process that allows us to deliver this with tremendous value.
We think the implementation drives great reliability and most importantly from a back living standpoint one of the challenges in the notebook space and we will talk about this later today in our meetings is that back (inaudible) is a very expensive proposition with today’s mechanical keyboard. This offers an opportunity to be able to make that a much more valued place pay for PC manufactures.
And then last but not least and this is the one key message that I wanted to walk away from this is just not about thin keyboards, by taking the ThinTouch functionality and marrying that to a capacitive capability you can do all kinds of very exciting things and completely redefine how a keyboard is used. For example, in using force capability and I talked about ForcePad one set of functionality is comprehended into a keyboard to all kinds of incredibly intuitive things that you can do that customer will find very exciting.
The other thing that this plays into is that one of the things that customers who are interested in over and over again is how do I prevent the TouchPad from being accidentally activated. Well, with a capacitive ThinTouch based keyboard, you could always sense where the fingers are so it provides great ability to mitigate that type of accidental contact mitigation.
So again, this is one of these technologies that you get real charged up about once you see it in place. I've got a real short video to show you about that show you some of the usage models that we envisioned for this.
So again I encourage you please get a chance to play with it. We have a sample in front of the room that Rick was demonstrating very, very energetically and you have to play with it really get a sense of kind of value and technology that we’re bringing to the marketplace.
So again, when we look at what Synaptics is doing whether its from a TouchPad standpoint, where we have historically played, TouchPads historically have contributed about 0.5%, 1.5% to about of the percent of the [form]. Today with LTS as we expanded our presence in to the touchscreen, we think we have a reach to upwards of 1.5 or a little bit more than that as percentage of the overall notebook form.
But then when you look at what we’re doing from a keyboard standpoint, where we are trying to take over frankly the entire keyboard deck and offer tremendous value, we think that can increase to as much as 4% over a typical notebook form. So we have very, very aggressive plans in this area. Again, I want to make sure, I referenced very, very strongly that our know-how is what differentiates Synaptics.
If you read some of the product reviews that come out with notebooks, TouchPad capability performance is consistently mentioned all the time. So as keyboard capability and we think that will be a great play as well.
And whether its innovation, whether its performance and features, understanding design and driving great systems expertise with our customers, allowing our customers get fast to the market with the technology that differentiates themselves and provide innovation that customers truly care about and delivering this technology to the lowest possible system collects its all about providing value, Synaptics is the player to deal with the human interface area with notebooks.
And again, we are the only outlet, I will say frankly that does it all, whether its touchscreen functionality, keyboard functionality, our spin portfolio in the TouchPad area. We are better together a company that deliver human face capability into notebooks and we’re not standing still. There is multiple growth opportunities for Synaptics in notebook space. I talked about a few moments ago. We have a great and expanding technology portfolio. We’re innovating faster than we’ve ever done before and we'll continue to do that and again, once again our know-how and assistance expertise level is the thing that differentiates us and that's why we feel very, very strongly that our technology will take us to great new worlds.
I have to show this because of the curiosity lending. Well thank you very much for the presentation I would like to turn it over to Tim Bajarin, the President for strategies for Creative Strategies. Thank you.
Thank you, Mark. I am one of the high tech analysts in covering the PC industry for over about 30 years. And I have never seen so much change going on covering in my entire 30 years of covering the industry. It is actually staggering, I had the privilege of working on the original IBM PC with Don Estridge; I worked on the original MAC for marketing with Jobs and for really the first 20 years to 25 years of computing we were focusing really on personal computing. But in hindsight, while it was personal I don’t see any of us in those early days realizing that we were going to actually get to the next level which was personalized computing.
And this changing landscape that we have at this moment is staggering. We have new technologies enabling next generation mobile processors, low voltage traditional computing power, input technologies, touch gestures and new keyboard designs all of those who are having a major impact on these next generation devices. The other thing that we are fascinated with is mobility is becoming literally essential to individuals lifestyles. We are selling over a billion cell phones a year and when I was doing research on these two years ago, I anticipated that maybe by 2014 we would see 65% in the US of cell phones being smartphones. We've already reached that in 2012 and worldwide now we are accelerating even more so to the point where except for an emerging where you are still using the smaller plus functional phones. Everybody wants to have a smartphone and everyone that has these are learning about the importance of being connected anytime, anywhere and with any device and that includes phones, e-reader, tablets and notebooks.
But probably the most important thing when we as researchers look at the numbers for the industry, and I know most of your financial analysts and I talk to a lot of you who call me up and we talk about trends etcetera but I point out over and over that it’s the mobile devices that are driving the industry growth.
And that doesn't mean that laptops are not going to continue being solids parts of the market but we will continue to sell $300 million to $350 million PCs and laptops pretty much every year for the next five years but having said that, the role of the laptop and the notebook is changing.
One thing that is really significant in our research is the fact that 80% of what you can do with the personal computer can be done with a tablet and so the demand for tablets are growing at 100%, 150% rate every year. But basically that's what's driving the industry growth. The other thing that's really important is touch is becoming pervasive for mobile devices. You need touch basically to drive anything that you do in the course with smartphones and most recently, the touch based e-readers are getting even the lower end of the market, familiar with the concept of reading or touch.
Tablets of course, pretty much all use touch in one form or another. And then notebooks, at the moment, are the one segment where touch on the screen has been slowly developed. Now, one of the reasons Mark asked me to speak today is because right after I got Windows 8 and started playing with it, the first thing and I was using it on a standard laptop neither my Dell, Lenovo whichever or whatever one I was using, and right away I realized we had a problem, because Windows 8 is optimized for touch and by the way as analyst, we run the phone with Microsoft who basically kept telling some of the virtue of the touch except for one major problem is that, there is no touch screens and we don’t know where Microsoft’s thinking was in one sense other than I think they assumed that all the vendors would now start putting touchscreens in their laptops.
The reality is that as soon as you do that you add cost to the bomb and one of the things that all of the OEM vendors I work with will tell you that cost is a huge issue at the bomb and as a direct result, they’re not moving into put touch into the screens.
Not let me change a little bit overtime but what that does is it reemphasizes probably the most important point is that if you want to have touch to map what use to be called Metro, the formally -- which I am assuming you guys that that's going to change, but whatever that OS user interface is going to be named, you need a touch component that is not in the screen in order to make that work properly. I spend a lot of time and I work with Apple a lot and Apple is personally from what I can tell not really interested in putting touch in the screen.
And one of the things they told me at one particular point which I found quite interesting is that they are still concerned about what they call the kinesiology of touching -- typing and then moving the hands up to the screen.
But it's not necessarily natural in the context of the user interface. Now that may change, but for the current crop of especially next-generation laptops that will be optimized for Windows 8 we believe that this concept of the trackpad is going to be very, very critical and it's going to need touch in a very different way.
And one of the things that kind of intrigues me is when Mark showed me the ForcePad. Right off the bed I began to realize that that was getting closer to what we need. Now in Apple's case they have gone to great measures to create the touchpad on the new MacBook and MacBook Airs in order to replicate the touch that they need for zooming and you know everything else. But in reality for the next generation of laptops, so they are going to work on Windows 8, unless the vendors are willing to start putting the touch in and that will be slow and be happening we believe that things like ForcePAD, a lot should be the major driver to make Windows 8 a significant product where touch is important.
In the interaction models what the user does with the device and how the user reacts with technology is becoming very important. And in my speeches over the last two years I really emphasize the fact that we have two real methods of interacting with PCs. We have the Lean Forward which right now is mouse, keyboard and trackpads. But we have Lean Back or the consumption where finger touch is really important.
And in the 7 and 10 inch tablets which have been proven for consumption, your entire navigation is done through touch. And the other thing that's really been interesting to us is and it goes back to something that Steve Jobs said when he introduced the original iPad is that he initially said and I don’t know how many you have seen the video of Jobs introducing the original iPad. Have you guys looked at that.
It is intriguing because he did a very unique thing when he sat down and actually started demoing the iPad. He didn’t stand up or he didn’t go to a desk. What he did is he down in a chair and he leaned back. And he initially said that the iPad is ideal for consumption and ironically he didn't say much about productivity, but secretly they were very convincing that this was going to crossover.
So that when Jobs got up in the second year and he introduced the iPad, he went and made great pains to show not only the 10 inch iPad being used for consumption, but also for productivity. And as a result when you use it in productivity, you have a lot of other angles to play and you can obviously touch the screen. But of the one things that the people don’t really realize that outside of covers for iPads, the number two accessory is for external keyboards.
And what's going to continue happening there is there is going to be more and more demand for these of devices to crossover and so this thin – for example mark here thing keyboard is ideal for some of these external things, not only by the way what surface is doing but even for some of the existing ones where is a really key issue. Human interface technologies we believe will start driving new form factors for a connected lifestyle and will end up with a lot of mixed devices and screens, phones tablet, tablet hybrids and clamshell.
And the thing that I think is going to be the biggest driver besides performance because that really matters is the fact that consumers really want the same user interface across all three devices. They don’t want to have to go to every one of the new devices and learn a new touch interface. What they really want is it to work the same way across the tablet, the smartphone and the notebook.
And consequently what will happen is it will drive to thin and light with efficient power consumption of all components and this new human interface solutions addresses the synergies of multiple technologies to work together. And I cannot emphasize enough in our research with consumers they absolutely really were willing to buy into not only ecosystems, but user interfaces that are the same across all devices.
Now that was interesting. There is a couple of things that of course is they are key inflection point. Intel's Ultrabook initiative is driving change to thin and light form factors and basically redesigning the opportunity. Ultrabooks have had a little bit of a slow takeoff, but a part of it is little bit on pricing. Consumers are telling us that their real price points are 599 and under. The consumers are lusting after the Ultrabooks, but is still a little bit out of their price range. But the good news is that the technology is here and it's inevitable that pretty much all of our notebooks over the next five years are going to be Ultrabooks in one form or another and that will drive tremendous amount of growth.
In Microsoft Windows 8, which is the first PC touch operating system is changing the way users interact with a computer. Now I will tell you the Windows 8 is an interesting product. How many of you played with Windows 8? Only a few of you. Well you're going to get bombarded with a $1 billion of advertising for Windows 8 in the next six months.
And you are going to be aware of it and I can tell you – you are not going to be able to miss it. And Microsoft is going to push pretty hard on the whole issue of touch. And one of the key reasons is Microsoft realizes how far behind they are and especially behind Apple and Samsung. And so they are pulling out all the stops to try to make touch a critical part of the human interface for next-generation devices and they're putting it in they want it to be in clamshell form factors, hybrids, transformers and convertibles and they want us to change the usage models.
One question of course is whether it really does mean the death of the mouse or what actually happens. And then of course in the context of the hybrids, you end up with best of both worlds. But what we find quite fascinating with these inflection points is that it's going to change the way people work with these devices.
And while keyboards have been driving the PC industry for 25 to 30 years, what's really going to change is touch is going to be the biggest driver for navigation and human interface for the next probably 10 to 15 years. There are other technologies such as voice and other things in the works that they probably will have some impact at some point.
But there's no question in my mind that touch will be the key driver for the next generation of human interface as we move forward. And as I pointed out, one thing that's really significant is the fact that mobile is driving pretty much all of the industry growth and the other thing that is fascinating to me, just from 30 years in the industry is I've never seen a period in our history where I'm seeing more innovation in a short period of time.
Whether it be in smartphones, tablet, laptops et cetera. The innovation is going to be a key driver and again along with that we think touch is going to be a real key here. Thank you. Mark?
I would like to introduce Kevin Barber, SVP of our Mobile division.
Great, thank you Ted and it is really exciting to be here this morning and talk about our handheld business. We've got incredible innovation as I hope you'll see in the coming slides, a broad portfolio -- the broadest portfolio of products and delivering great success in the marketplace in many segments as we see the market unfolding.
And so let's get started. And so as Rick showed we see a continued significant growth in what is today a booming market in the smartphone segment. And as we see to this year – we see roughly about 650 million phones that is going to roughly double in the next four years and so that remains an incredible opportunity for us as we see the market continue to grow globally.
But as we look at the market underneath of that in terms of the segmentation and we look at two segments, the premium segment and the value segment is defined as less than $300 unsubsidized phone. We see that this year is the first year where they are roughly equal in size in terms of the total shipments into the marketplace.
But over the coming several years by the time 2016 comes, we expect 60% of the marketplace in unit volume to be shipping in the value segment. And so we will talk about the importance of not only delivering really high performance systems, but the importance of total system cost and will talk about our innovation surrounds total system solutions.
And the best representation of this growth is in the China market and today the China market represents the world's largest smartphone market. This is an incredible conversion that's beginning to occur this year of what's already a very large feature phone market today in the China market and as the bomb cost for producing a smartphone is reaching close enough parity to feature phones, consumers are choosing a touch enabled smartphone.
And so that has now shown itself in the doubling of year-over-year growth in the China market to now representing over 25% of the global smartphone shipments this last calendar quarter and important to point out is of that shipments 60% of it was coming from domestic vendors.
So while Samsung and Apple continued to play a significant role in China and will continue to the domestic vendors are placing an increasingly important role. Today always ETE Lenovo represent the top three brands as domestic vendors in the China market but we also see others emerging such as Coolpad, Opo and (inaudible) who are emerging as important players in the China market as the opportunity for business in China grows. So as we think about the strategy in our handheld business you know what type of problem is our customer asking us to solve and the first is really to address this segment of the market, the scale, the sheer numbers, this number of models of units, the number of customers around the world that we need to support and implement what is really a system of touch. We are not just selling an ASIC as we've been talking about this morning. We are selling a complete system solution and our customers are looking for us to help them and providing them support for implementing high-performance touch and a rapid quick time-to-market fashion as the market will not wait for anyone.
The niche challenges, well how do you deliver the lowest total system costs and this is really not just really about the ASIC, it's really actually about total system costs today and the low value segment, the touch enabled display represents over 20% of the bomb cost. It is one of the largest segments of costs that is representative of the bomb today.
And so customers are looking for us to deliver high performance, but improving the total system costs, a representative in the bill of materials of a smart phone. In the premium segment, they are looking for absolute highest performance. They are looking for the absolute smoothest and highest accuracy touch responsiveness. They are looking for features such as glove or high performance passive pen.
And they're looking for the absolute differentiation and how they can compete against their competitors in a very competitive market. But at the end of the day, our customers are really looking for both. They are looking for the absolute highest performance solution at the lowest total system cost and what we will talk about today is why we believe that display integration of touch into that system is a vehicle for delivering both performance and lowest total system cost.
We come to all of those four challenges as really the clear system expert in touch, not just the ASIC, not just a firmware, but the center design, the entire system around which a customer is implementing our touch systems. And so how do we tackle the first challenge that I talked about, how do we deliver scalability and support to our customers that are growing rapidly in the marketplace. And we are doing that with what is today the industry-leading, most comprehensive tool suite in the market.
And it goes all the way through the process of developing a phone, from the modeling of the sensor, to tuning of the firmware, to establishing production tests for production test phase of the solution and so the rapid time from beginning of a project to delivering to the marketplace.
And in order to talk a little bit more in detail I am going to introduce Fred Caldwell who is going to be talking about what it is that's involved with our industry-leading toolset, what we call Design Studio 4. Fred?
Good morning. So I am really excited today to talk you a bit about our tool suite. A little extra excited because I didn’t know this morning I will be talking to you about our tool suite. So how do I go ahead and dive in. So our tool suite basically is the comprehensive set of tools. I came from the field. I used be to an FAE out there working with customers to designing their products. And I have been with the company for about 15 years now.
So when we first started doing touchpads, I was actually relatively difficult but we started working to the issues and becoming a real system level guy. As we started to do ClearPad, we started to encounter new sets of problems that we hadn’t encountered before. And one of the big things was the system-level problems that everyone has been talking about.
How do you solve the issues with stack up, with keeping the cost down and keeping the performance up. How do you make sure it all fits together and work with every display and every possible noise source. So this is something that we used to do very, very tactically in the past.
Back when I was managing field teams we really had to spend a lot of time going in and working customers to try to make sure that we were able to smooth all the issues and it wasn't a very scalable approach. So about a year and a half ago, we moved over to try to come up with a new approach that we could really give customers to help them to quickly and effectively come up with something that would work well, perform well, but was still something scalable that we can support them easily, but then also something that they could also do it themselves.
And so we started our tool suite. The tool suite was designed to give customers the best possible chance of going through the entire design process quickly and effectively while also making sure that it'll work well with a minimal risk of getting it wrong. We tried to make it as flexible as possible and we also wanted to make sure that customers can get faster results. So they can't have that outside in the market.
And for the customers that were not experts in system design, you wanted to make sure that we could shift some of the expertise out from the Synaptics factory where the technologist and the system architects were into the customers so there are field engineers can become local experts and we can add these centers of excellence to go in there and really support customers through design process to make sure that they have the best possible chance of getting something else there.
So this tool suite actually initially started off as primarily one tool which was a development tool called Design Studio. But we have continued to add to that. One of the things that we did is that at the front end we've tried to bring value by letting customers use some of our system level expertise in terms of modeling. We started off building entire sensor molecules and these molecules included the sensor, the actual piece of flex cable that connected it to our safe and everything.
And that was a really cumbersome process and there are only so many people in the company that were really expert in how to do it. So instead of making it something that we had to send local experts out to solve the problem every single time and reinvent the wheel, we came up with a tool and we made it something for modeling. So before customers ever go off and build their first sensor, they will have an idea for how that is going to look. Once they have got an idea for what they are building before feel that to go off, they cut tool, they come back, the parts come in. They plug them into our chip, they plug that into our tools for development of the design studio.
And now they can actually start to very, very quickly I man on the sense of like 15 to 20 minutes quickly, they can get the part up and running and pointing and they can start to see how this part will work in their actual systems. If they use this for development, tuning, testing debugging and once they have gotten to the point where they are really happy with this, then again this all happens very quickly because it's very open.
They are able to then start to go ahead and start thinking about and for production we also have a set of tools both in the firmware as well as externally but they can use to bring up their production levels quickly so that they know they are building good parts. So that they aren’t shipping anything to their end-users or even their OEM customers that is not fully tested first.
So just to spend a little bit of time on each one of these attributes. First is modeling, the tool that we provide to our customers for modeling is called the SafeSense. SafeSense is actually a tool that we started off using internally. It was meant to be something that we used to try to see if a customer asks us to build sensor A and then they ask us to build sensor B we wanted to give them quantitative feedback on why they were trade-offs for how it would perform and how it would impact performance overall.
So we use this tool internally and customers started to realize that we were the only ones out there that were actually giving them predictive responses when they asked us to do something that were really quite accurate. And so we continued to develop this tool, but at some point we realized that this tool would make everybody happy here if we actually released that out into the ecosystem.
So we took this, we productized it instead of having this very complex (inaudible) set of outlets. We just made it simple, it comes out with about five or six different attributes that they really need to care about and based on that they can make some performance decisions, then make really good trade-off decisions of performance before they've ever built the part.
So they can know if it is going to be more sensitive or more susceptible to noise or have other issues in terms of the overall design in the system. Based on that once they've gone through and come up with the design they want, then they feel very comfortable with, then they go to the next step which is actually building the part.
And before they build this tool will actually even let them spit out the actual mechanical draw that they can go ahead and provide to their sensor partners. Or if you have a sensor partner, you just go ahead and spit that out and build that yourself. So it really simplifies the frontend design process. Again this means that for OEM customers that want to bring up a new sensor partner, that is going to build that touch sensor that they are going to be plugging in or a chip, this really makes that a more deterministic process because it means that it's just simpler, it's faster and they don't have to be experts on touch or on sensor design.
Because we think in our expertise to be build into a tool that is very easy to use and very easy to get right. Once they finish the modeling part, now they start development. They have gone off, they have built the sensor, they come back, they plug it into the tool and within about 15 minutes, literally 15 minutes, relatively a novice user can go ahead and take this chip that's been preprogrammed with a default firmware and get it to go ahead and start the point and provide real and pleasant fingers and give you finger counts and give you different types of report raised and sensitivities all of that.
Everything that we can do we've built into this tool and let customers have access to it, but if you take all those different combinations, it starts to get really cumbersome and pretty intimidating, so instead of just making customers have to look at this rally complex set of solution sets we have tried to also provide some wizards that really make it easy, so the whole point again is scalability, flexibility and letting customer have the best possible chances of having a low risk product that’s going tot hit the market at the time when they want to get it there.
And it’s really meant it was all the stages of the development from the very first moment when they start thinking about what they want to build through development through bugging all the way into production. We have done this through some pretty key breakthroughs in firmware as well as the actual tool itself. We have really made the actual tuning process very, very simple basically you put your finger down, small finger or large finger you kind of draw a diagonal line across the censor and then you tell it what you think you wanted to do and if you don’t know we have defaults in there already for you and again, at about 15 minutes you can actually get it to work.
And by working I mean it will give you finger data in the presence of noise, in the presence of different kinds of environmental circumstances and we can help you to access performance, we can help you to understand how it’s going to work with different kinds of finger, different size of the finger, may be your stylus, and maybe you want to have a work with a noisy display or anything; we’ve really tried to make this the tool not only Synaptics uses internally for development, but our customers can use to do all of it themselves or just watch what we’re doing as we are doing it as an observer.
And we have built in the test capability, so when they go to production and they want to know if this product is good, this is what really valuable points that people really we often don’t grasp as we talk about it. When they go to production they take this part with our chip in the default firmware and it that doesn’t matter if they are building parts in their production line or building subassemblies or there are actually having it in the phones, at any point our firmware is able to run a test all internally using our know how and our proprietary algorithms and give them the results so they can see, so they will know as they are building flexes, as they are building censors, the parts are broken, how its broken, how they can fix this and even in a phone, once they go into production and ship to end users, if they find a broken part without having to crack the phone open and try to look to see where its broken, we just run a test that takes a few hundred milliseconds and its done, it tells them what’s broken and it tells them where to look.
So this is really big, it means that customers have a really good chance of building the parts and knowing that they are giving it out the door and testing later on down the road. So again, flexibility, faster time to market, and just really more design processes and this means that we can support customers with FAEs, apps engineers, actual design engineers, technologists, even market guys.
We provide wizards to make it really easy for them. So this is just meant to give you a view what those wizards look like. Again, those four boxes over there are the wizards. You go through each set and we go through the stuff where we repair that sensor with that program and then you pair that firmware with the performance you want and if you want 10 grade, if you want nine grade, they are all fairly quick tuning processes and we've exposed it all that made it really easy to use while still giving customers the flexibility to go under it and tinker, they are really expert users.
Once they have got done, they can go into doing some debugging and evaluation. We've given them all kinds of tools. Again, what we use internally in the past to what we would have looked at internally in the past using more cumbersome tools to do development and to get the parts up and running, we've now made it really simple, we've given them very nice graphically based tools that let them look at the things that matter, we've even told them how to assess them with the performance test and some tests like that, that really helped them to grasp it.
Once they have gotten networking exactly the way they want it and they want to talk about going into mass, production then at this point, this tool will help them to come up with production test limits. If customers don't know what the limits should be, they can use our default limits. If they want to refine the limits based on control limits and process controls and what not, we have a tool that is low under the control limits there and then once they have got it, once again just the way they like it, they can go ahead and export that and either use it our Synaptics test studio which is again a software tool that takes the limits on the production line and tells them if it's pass or failed and if its fails it tells them where its going or they can take those files and our reference code and they can implement their own test here using their own capital equipments for maybe their own jigs or maybe their software settings. Whatever it is, we’re flexible enough to let them do what they need to do or what they want to do to ensure that they have good parts going out of door and do it fairly quickly and easily.
Just to sweeten the deal, we also have what we call Red which is the wireless debug tool. What it means is that when you have a phone and you’ve built it, and you want to see how its performing, lets say you want to know how sensitive it is or lets say that somebody is complaining about a noise issue or some of the other system level issues that you encounter with capacitor touch sensors, without ever taking it a apart or having to put special wires on there or having any special hardware, you run this app using our driver and this app and then it communicates with the tool that I just talked about at the science deal and everything you can do to Design Studio using cables and wires, you can also do wirelessly which means that you can really test a device in it's true environment. That means you can also do evaluation and again debugging if somebody reports that have (inaudible) its all possible using the tool and its non invasive, it gives you real instant debug and performances as well.
So to try to summarize this tool, we’re really excited about it; it does a lot. It’s meant to be comprehensive and expensive while also maintaining simplicity to make sure that it’s usable by [bimanous] users, but it also has the flexibility and the horsepower of the engine to let customers really get in there and do whatever they want to do with it. This is what we use in-house and we continue to make improvements based on what we want to see that have as well as the customers are asking us to give them.
With this industry leading, the competition, I have been on the road for a year and a half talking about this tool. At first when we talked about what you are planning, customers told us if you build this, you will hands down have the best tool out there, no one even be close. Let’s see if we do it. About a year ago we launched it and at that point was the very first release we were already better and we continue to refine it and I have continued to go out to customers and customers know what they are talking about that have built actual sensors and tried to take into production, continue to give us feedback that this is the best tool they have got, the best tool they have seen and it really does what they need it to do and we continue to improve on it every day asking for inputs and asking them what they want to see, how we can make it better, how we can make their design and experience even more powerful that’s what we do, that’s what we care about and those are our tools. Thank you.
Thank you, Fred. I hope you see how exciting our scalability tool is in Design Studio. And now (inaudible) the second channel that I talked about which is how do we deliver lower total system for the value segment and last week we announced the introduction of our true multi-touch single layer solution which we are very excited about and what this does for our customers, as you look at as I mentioned the total system cost for implementing touch is roughly 20% of the bond, and so really that’s coming from the sensor its really not from the IC, it’s not really from any port other than the touch sensor and so simplifying that stack up and what that sensor needs to look like is a key part of reducing system costs.
And so through this system modeling the architectural work that we have been able to do, design proprietary patterns in a single layer to implement what today is done in two layers with the receiver layer, the transmitter layer to detect the capacitive touch, we can do that now in one single layer with no jumpers on either PET or glass substrates or lenses and so the most flexible and most high performance single layer solution in the market.
And so today, we are engaged with multiple OEMs, leading OEMs in implementing this into their phones and excited about the potential over this in the coming months. And so based on our tools, based on our current products that we have in the market as we have announced our Series 2 and Series 3 we’re having tremendous success in this value segment; to Huawei, ETE are two of our key leading customers in the China market as we’ve talked about in the past; we’re broadly engage with the rest of the China market as we have enabled our tools and our products and new sensor technologies to them and its particularly to the emerging customers such as Coolpad and Lenevo and others. We are very excited about the opportunities that the low end of our value segment represents.
So switching gears as we talk about the premium segment; as we have talked about the HTC One X; I think it represents really the success we’ve had across multiple OEMs and really the highest performing Series 3 product in the market. Today, as we benchmark our performance for high performance really there is no equal in term of our 3200 series products that are in the market and that is what is shipping today in the HTC One X a very highly rated phone with really incredible touch experience. If you pick one up and compare that to our competitors I think you will find its performance to be superior.
I think you will see those also represented in the Sony high end phone, the LG Optimus Vue has got the highest performance passive pen performance in the marketplace so it really set the benchmark for passive pen and others that are shipping today with our Series 3 products. But we are really not standing still and so today we are in the midst of developing our next generation premium touch. We’ll talk in more details next year, but we are really excited about this is the most advanced architectural approach we have taken for premium touch controllers in a number of years and so today we are happy to talk about the ability to enable what we are calling 3D touch, so our technology that we are excited about or engaged with leading OEMs and we will be talking more in the coming months, but we are in close partnerships with them today and we are very excited about what the next generation touch controller will do.
We extend that as Rick talked about our smartphone technology that really has really been twice successful in both the value and premium segments now to tablets. We announced our 7300 single chip first to the market, earlier in the year and now most recently we've announced that we are in shipping in the Galaxy Tab too. We are very excited about this both on multiple levels on that it’s beginning to enable a broadening of our relationship with Samsung. Increasingly important is our 7300 tablet market is engaging with multiple OEMs in terms of the tablet market as it unfolds.
And the last challenge I talked about was how do we deliver high performance touch in the lowest system costs and as I mentioned the display integration for us represents the architectural approach, the system approach to deliver that.
So let me take you through an animation here to kind of breakdown how we deliver that in terms of converting what today as the traditional stack up, so today you have a liquid crystal display or a display with a discrete sensor on top which is where I talked about for the single layer going from two layers to single layer you have a separate discrete sensor and then you put cover lens on top of that and that's assembled.
So you have multiple manufacturers involved. You have liquid crystal display manufacturer. You have a central module manufacturer. You may even have a separate company who is assembling that module together or maybe the sensor provider that doing that and so you have a complicated supply chain. You have multiple pieces to the system as multiple layers and so what display integration does is it eliminates the discrete sensor, it enables a thinner stack up. It places the touch sensing now into the display itself and I will show that on the subsequent slide, but now you have simplified the display chain. You made the phone thinner and as I will show you on the subsequent slide, it's going to be optically brighter.
And so now if we will take a look at the liquid crystal display, how is that that Synaptics technology has implemented in In-Cell. So it starts with the TFT layer at the base, where the thin film transistor layer is built and on top of that, where today the vast majority of displays and manufacturers in layer that’s already available that we can then introduce our pattern transmitter layers, so that a no manufacturing cost, because that part of the process already exists in the standard manufacturing of IPS display technologies.
On top of that, is the standard flow of adding the color filter; it’s thin, create to finish and then on top of that is the one additional step that we had in implementing Synaptics In-Cell technology and that’s an ITL layer that enables the receive layers at the top of the color filter and then that is then altogether creates than the few layer touch sensing enabled completely within the display.
So it's got high yield, as we have already mentioned, we are already in mass production in terms of its simplification of implementation and manufacturing item display. It’s a very minor change to the display of manufacturing flow and so we’ve worked with multiple LCM manufacturers today who have already implemented this form of In-Cell and so we believe this to be a very superior In-Cell technology. And so then the display comes together. The cover lens comes on top and now you’ve got a completed phone. So the simplified supply chain then is greatly enhanced by this technology.
And so in the form of a cross section, this is what you are looking at, so on the left you see the current traditional stack up of LCD on the bottom with the discrete sensor on top with the cover lens on top of that versus on the right, the elimination of the discrete sensor. And the result of that first is the optical quality that number of reflections that as light goes through the display is significantly reduced in the sphere, interfaces the thickness is thinner and as a result the brightness of an In-Cell display is 10% at least brighter than a traditional stack up. It’s thinner, there is fewer layers, it can be up to as thin as one millimeter thinner than a traditional stack up display.
And last it’s ultimately the lowest cost system solution enabling a touch enable display. We have found that the yields that have been delivered in this are high and as a result the total system costs are very competitive in the marketplace. But we are not stopping there, next advance in display integration is integrating touch with a display driver we call it TDDI, Touch Display Driver Integrated Solution.
And what this enables is the ability now as you look at the architecture around the left in the traditional architecture a touch is detected by a touch controller that signal then and must be processed through the host and then re-communicated to the display and the detection that is then visually brought back to you as the consumer has that latency that’s introduced by the processing of the host. And the TDDI architecture, the touch detection is with the controller that’s now inside of the same ASIC as a display driver; you actually now have local processing with your display driver and the processing then of the touch detection visually displayed on the screen is significantly accelerated.
And so what’s represented on the right as I will show in a minute is a video that represents a human touch with the finger and in the circle is what the host based processing traditional latency will be where the finger is moving and where the circle is the lag of the time of host is processing the touch detection. But on the cross hairs that is actually representing where the TD barrier architecture is detecting the touch and so let me play this for and so you can see as the finger movers, the cross hairs is significantly closer to the finger than the circle and so we are accelerating now the responsiveness of the touch detection by up to 70% and this is becoming huge user experience benefit. We are hearing lot of feedback in terms of the user experience of the touch systems that you want to have a more responsive experience in terms of your phone detection of the touch detection into the display.
There is many more architectural things we can do at this architecture in terms of now you have a controller for the first time in its play drivers, so the local processing that’s possible in terms of wake up gestures, there is other processing and capabilities that we can now introduce locally within display without having to wake up the host; we can reduce the power and many other user experiences that we have just begun to define in terms of this fundamental architecture. So we are very excited, as we have talked about we have just announced our first one this (inaudible) with our partner CMI in Taiwan and we’ll have more to say about that in the coming months.
And I so think you would agree this is really demonstrated again and this segment innovation leadership and Sony Xperia P and HTC EVO are today shipping in mass production using this Intel Technology. But we are not just stopping there, not only in terms of TDDI, we also have our second generation and so underdevelopment for two chips and we will have even higher performing solutions next year with some of our partners as we work with them on delivering next generation and so.
So what is our view of display integration and today display integration represents a relatively small part of the overall markets in terms of shipments units, but its going to grow rapidly over the coming several years. We expect that over 60% of the market in 2016 will be based on display integrated solutions and over the next two years, it will double from today, roughly 25% of the market. It’s a tremendous growth validating our view that in the end the lowest costs, highest performance way to implement touch is in the display in a given system.
So in summary, let me just wrap up; I think what we are saying as we are the broadest portfolio; we are wining in the low end, we are winning in the premium segment, we have the most innovation in terms of technology, in terms of our tools, in terms of our products, in terms of display integration and advancements in the total system and that we are really well positioned to continue to win in the marketplace in the smartphone segment going forward.
And with that I think we are going to take a break, so Ted. Thank you very much.
Unidentified Company Representative
Thank you very much. So the logistics are that we’ll resume after the break at 10:50. For the webcast we can pause here. It’s my pleasure to introduce you to Stan Swearingen, SVP of Synaptics research and development.
Thank you, Ted. Everybody hear me okay in the back, alright great. Well my talk today is about innovation. So I think you've heard the word innovation a number of times this morning and you've also heard that we are a human interface company and if I do my job correctly, you will have a deeper appreciation for what we mean by being a human interface company.
So key questions I got at CES was this is touch based commoditizing and commoditization goes part and parcel with the amount of technical challenges that repeat and people can come in and do this fairly easily. So I can tell you the amount of technical challenges are actually increasing in multiple domains; in the analog front end domain, in the algorithmic domain as Kevin talked, when you look at a single layer sensor, the amount of challenge of the sensor design as well as even with things like vending and anti-vending algorithms, so when we look, we’re actually quite excited. The number of challenges are increasing which means we will continue to have an opportunity to differentiate.
When we say we are a human interface company, I think Mark and Rick said we’re not a chip company, some of my best friends work at chip companies. So we are not a chip company. And what we mean by that is as the human interface company and a systems company we start our process of innovation in the user experience domain. So we start by envisioning the user experience that we’re trying to create and that’s the front end of our road map. Once we’ve envisioned what we’re trying to create, we then go from there into exploratory research.
So in a user experience domain, we don’t care about cost, we don’t care about whether it’s even feasible. We actually have in our labs today technologies that use human brainwaves to control the user experience. Is it ready for primetime, no. but we need to look at all of that to understand where is it going, where does touch play into that and how do we evolve our company.
In exploratory research domain, we have PhDs in material science; we have even processing PhDs, we got mathematical PhDs, just proportion in these two squares the number of PhDs we have for a size of our company is disproportional. In the exploratory research domain not only are we trying to figure out what fundamental technology capabilities exist [married] to the user experience but we also partnering with universities, MIT, Stanford, Caltech. We are also partnered with startups, so in this domain we are trying to get a holistic view of where the technology vectors are headed.
Once we have decided we reiterate so the concept prototype team will create prototypes with work from exploratory research, we will then study the human interaction model so we reiterate in this space quite a bit, once we leave that phase we are going to an architectural development phase. And the architectural development phase we basically are creating this system and at this time we are partitioning the requirements to fundamental elements of the system.
So we are going to solve the problem in the sensor domain, analog front end domain, digital domain whatever domain. From there we go into the next which is the design phase. So an architect will carry the system forward to design and this is where we actually design the sensor, design the silicon and the code the former. And this continues to go, it's shown very logical, it’s actually quite asymmetric but it does progress in a linear fashion.
So we look at user experience identifying the challenges, we study user wants and needs, we actually in here you can see we create our own text fixtures this one in particular Kevin talked about 3D hover. This is actually a proprietary test fixture to study humans' ability to hover over an object. How precise, what's the variation and all those subtleties.
Once we understand these subtleties, we can create a usability document with passes the requirement on to the next phase which is exploratory research. Exploratory research, we are actually starting to create models. So when Craig got up here and talked about SafeSense, SafeSense was born in an exploratory research and it was a tool of finite element modeling tool that helped us model the capabilities of three dimensional structures.
We decided to bring that to the market but that was a market decision. So as we model and we check things like 3D Hover, what we are really doing here is should we buy the technology, should we create the technology ourselves, should we create the technology in the collaboration with the university? Once we made that decision going into the architectural phase, this is really where we are fundamentally defining the algorithms we need to create, what our analog front end performance needs to be, what we need to have a sensor material be, what driver so in March business a lot of our secrets [SaaS] is in the driver.
So what things are we going to be doing in the driver versus in the firmware versus in the hardware and we are really, when we leave this phase we have a stack and we have a stack and we have an owner that understands the system holistically that we then go into the design development phase, spend a lot of energy and to be perfectly honest two years ago we weren't here as good as we needed to be. So we were going head-to-head with our traditional competitors. So as you've seen we come out from a system approach our traditional competitors, our micro processor companies that see touch as a vertical application.
So when you are hampering the whole world looks like now. For us we’re looking at do we hammer or a wrench what's the right tool. Here we have to be excellent. So when we get into this space, our coding has to be modular and leveregable. Our designs have to be fully synthesizable and verifiable and we have to hit our schedules because we are going have the greatest vision, we are going to have the greatest ideas but if you can’t bring them into market in a predictable way, customers won't use you.
I think we just hit one of the major milestones that I have seen in my career that we work really hard here the last several products that have come along with we hit every day, we were just awarded a design from a tier-one before the silicon. So we think of what that is it as a statement. That’s a statement that they’ve taken for granted that we will do what we say we are going to do.
So we talk about this all coming together, I'll walk you through a little case study. And the case study is ForcePad. ForcePad actually we envisioned over three and half years ago. So we started the user experience design concept work three and half years ago. So when you see today when we talk about innovation, these are the things we’re thinking about two years ago. This is not what we are thinking about today.
So, when you look at this progression, I won't read it to you but it really started with interdisciplinary team, looking at the concept of how do we provide Z information to the OS? How would we go about doing that? Today you will it in a clear or (inaudible) fashion, we also think this should transcend across clear, different technical challenge, different material challenge but when you look, it's obvious that the user interface has to become richer overtime. So we started out proximity sensing which was one finger, then we went to image sensing which is image multi-finger, then we went to zForce force, now zForce per finger and so we continue to push the envelope and innovate on what is the next level of new information the system needs to really interact with the user in a really holistic way.
So we have the interdisciplinary team, the research went out and did their work here then we use ultra expensive I think the first ForcePad was a $100 and the point wasn't how much they cost, the point was how the users are going to use it, from there then we challenged the mechanical and electrical engineering team to come up with an integrated sensor at a cost effective price points so the Mark's business could launch that in the high volume skills, we then have the systems architects working their magic on calibration as Mark said we wanted to unified experience no matter what notebook you put in. So obviously, there is going to be variation. At the end the firmware and software engineers have to go implement this in the firmware as well as in the driver.
So view of the innovation engine seems pretty straight forward lot of new answers, but when we say we are human interface company I challenge you to find this function in our competitors or even this function in competitors. I think our competitors start right about here and are focused here.
So we look what this all mean? These are number of applications patent filings by year which you see in front of you today happened here and this is what happened last year. So when we were in the exploratory research space and we are in the user experience space, we filed patents even if it is technology that we don’t currently envision our participating in. So I challenge you to find another any company in our space that's delivered more innovation and Kevin said In-Cell is on its second generation, that's from his perspective, it's our third generation because we are already architecting the next generation In-Cell. So when our competitors talk about In-Cell today that's something we are working on two years ago. We've already worked through that, we've worked through high volume and now we are working through what does In-Cell mean in flexible display, what does In-Cell mean in full definition displays, ripe with technical challenges.
With that I conclude so turn it back over to Ted.
Unidentified Company Representative
So I would like to introduce Kathy Bayless, our CFO.
Thank you Ted. Hello everybody can you hear me. Alright, so just few shaking hands that's a good thing. So I'm going to talk a little bit about, I'm going to go back and do a little bit of a wrap on our fiscal ’12 financial results and then take a look at some of our key financial trends and also take a look at how some of this is exciting new technology and product development will kind of impact our fiscal ’13 and beyond from a financial outlook standpoint and then we will be ending this session and opening it up for Q&A.
So coming back to fiscal ’12, I would just like to this is what we pretty much said in our conference call but I just wanted to reiterate, we feel like we had very, very strong solid financial performance considering some very challenges in our markets and we also had a big business model transition which I will go through in just a minute. So if we look at the notebook side of the business we maintained our share in the notebook part of the business, our leading share when we also delivered our imagine sensing technology in our TouchPads into the market and also our new ClickPad solutions into the market.
So we established a favorable ASP environment from the new products that we introduced into the notebook part of the market. If we look at the mobile market last year, we grew rapidly from a unit volume standpoint and one of the key initiatives that we are very excited about with introducing our new products into the market and we talked about some of those key products already this morning, with the introduction of the first In-Cell phone into the market in the Sony Xperia P phone and also the second In-Cell phone into the market with the HTC Evo.
The other thing that we’re very focused on, really in the year was expanding our customer base within the mobile side of the market. So as we went through the year, we were very excited to be able to say in the second half of the year that we are at HTC and Samsung back into our customer base.
One other thing that I am going to cover is if you will know from a revenue standpoint on a year-over-year basis, in fiscal '12, we were down. So one of the big impacts from the revenue standpoint was that we moved from fully integrated module solutions in the mobile business to lower ASP chip solution. That transition resulted in some headwinds on our revenue for the fiscal year but it also resulted in excellent improvement in our overall gross margin of 550 basis points year-over-year improvement.
And that also drove a 4% increase in our gross margin dollars. That business model transition also added operating leverage to our business and we ended the year with a very strong 18.6% operating profit percentage. As we look back at some trends Synaptics has a very strong history of growth from a revenue standpoint and gross margin standpoint and we are very excited to be able to say for fiscal ‘13 we expect to return to top line growth with our expanded products and portfolio and (inaudible) opportunities. Synaptics not only has a track record of strong top line growth, so when you look at our history from a profitability standpoint we also generate very strong consistent profitability and we expect that to continue as we go forward.
Profitability of Synaptics actually turns itself into the real cash flow, so from a cash flow standpoint you can see over the trend period that we have generated over a $0.5 billion in cash from operations.
Over that time frame, that’s about 19% of our revenue base. So what do we do with our cash, the first thing we do is obviously reinvested back into our core business and you can see with our expanded product portfolio, the technology innovations that we have been talking about today that continues to fuel our growth. The other thing that we have taught has been very compelling from a use of cash is we believe that Synaptics stock is a good value. We believe that for the last several years and we believe it today. So we have used over $400 million of our cash to repurchase shares of our stock. In fact, today if you look at our shares outstanding we have less outstanding when the company went public over ten years ago.
Moving to investment, Rick led of investments and I think you can see based upon the presentations today that we are investing, we believe they were investing in the right market and in the right technologies to fuel our future growth.
So (inaudible) down to forward and talk a little bit about the priorities for fiscal '13. As each one of the presenters has come through, they have talked about our new product, new technologies and some of the real key advancements that we are making into our marketplaces. So from a revenue standpoint as we go into fiscal 2013, we do expect our core markets to grow that's the smartphone market and also the PC market when we look at our mobile part of our business, we have the broadest range of products solutions in the market addressing the high end and low end. So we are very focused on continuing to gain share, we are focused on targeting customers for high volume and regions as Kevin talked about for high volume growth across our broad product portfolio. In the notebook market, we see growth in the notebook market with our innovative product solutions. With ultrabooks just kicking into the market and with Windows 8, we see ClickPads continuing to be adopted through out fiscal 2013.
If I go back to the June quarter, one of the things we are very excited about was, we actually saw our ClickPad adoption start in the June quarter. So over 15% of our unit volumes in the June quarter were ClickPads compared to only less than 5% in the quarter before that. So fiscal ’13 continuing ClickPad adoption, by the end of fiscal ’13 we will also start to see the revolutionary new ForcePad. So, which will then pick up in fiscal ’14.
With the advent of when (inaudible) we see our pipeline of opportunities for large touchscreens expanding so with the additional contribution from large touchscreen as we go through the year. And then the other thing we talked about today is one of the acquisitions. We now have our new video products which we've talked about, which we expect to start ramping in the second half of the year and we actually expect that business to be accretive towards the end of this fiscal year.
As we look at our gross margin for fiscal ’13, we expect our leading innovative products to continue to help us deliver very strong gross margin results for the year. As we look at operating profit for fiscal ’13 we are very focused on managing full results but not only this for the near-term but for the future to fuel our future growth.
How does this play with our fiscal ’13 outlook? If you participated in our earnings call we provided our guidance for the first quarter of fiscal year and also made some commentary regarding the rest of fiscal ’13. In the first quarter of fiscal year with revenue of $120 million to $128 million, the smartphone market is a little bit softer than it has been and also the notebook market in advance of Windows 8 is also a little soft.
As we go through the year, we expect modest growth, picking up in the second half of the year with additional contributions from Windows 8, ClickPad adoption, new video products, additional LTS volumes, additional mobile market share penetration. From a gross margin standpoint, we've targeted 46% to 47% for the first quarter and we expect our gross margins to be you know, over the near-term to continue to be in the range of 45% to 47%, depending upon the mix of our key PC versus our mobile business. Operating expenses, we've talked a lot about new products and investments and the new acquisitions.
So from an operating expense standpoint, we’re actually adding $3 million to $4 million per quarter related to the acquisition. That will start at the lower end of the three million range and then ramp quarterly over the next several quarters. In addition to that, we’re continuing to invest in our core R&D and additional capabilities related to go-to-market penetration.
If I look at the first quarter, operating profit and net income, the operating profit percentage and net income percentage is not within our target range but as we look at the additional opportunities ahead of us, we do expect the operating profit percentage and net income percentage to begin to increase again towards our target range as revenue grows.
In summary, this is our near term financial model basically unchanged from where it was previously and as we progress through the year we expect to see additional improvement in our operating margin and our operating profit. And just to sum it all up again we talked a lot about growth so fiscal ‘13 top line growth is a priority and we are going to drive operating profit to the target range as the revenue improves while we are going to continue to invest to accelerate our growth in fiscal ‘14. And with that we are going to start the Q&A session.
Unidentified Company Representative
Thanks Cathie. So what we would like to do is bring up all the Synaptics senior executive up to the front of the room. We will have Alex and Jennifer running mike to people that have questions and after that we will have lunch and demos. So I will do a quick record summary at the end of the Q&A and then we are going to demo.
Did you say that the, you are closer to your target level of 13% to 16% as revenue growth?
Yeah as revenue grows the plan is to continue to improve our operating profit percentage you know as revenue growth again.
And then when you were probably were talking early about your development tools. How much of the conversation when you go to new customers is focused on those development tools and when you talk about the in sale and something of the new solution you are working on, why do you win in those discussions with new customers?
So let me just repeat the questions. So I think the question was what is the conversation around our developmental tools ? Our developmental tools and that it has become a huge differentiator for us having a conversation enabling the growth that we see in the market. So support honestly is a key differentiator in winning. Clearly performance is critical, clearly commercial terms are important, but to date, the support model is an increasingly important competitive advantage in the market place and our tools gives us ability to support in an advance way and a flexible and time to market way.
So number one it has been across all the OEM suites, all our OEM customers in advance suite of tools. Why do win an In-Cell . It is differentiation and system architecture knowledge and the ability to co-develop full system solutions with our LTM partners. And so it comes back to the conversation that we have been having architectural advantage, architectural advancements in terms of how that is implemented to deliver a high performance system.
Just tuning to my keyboard I think if I do my math right if you had the keyboard and the LTS and the TouchPad you would be looking at somewhere between $15 and $20 of the bomb, help us understand kind of what's the realistic market share early on as you go to market with the keyboard and some of the LTS solutions in the notebook market. I mean what kind of attach rates you think you can get.
I can't give you any share data, I can tell you that we have personally every OEM line out interested in ThinTouch. We have actually designed opportunities that we think we will be able to secure by the end of fiscal year 2013 as we go on and realize revenue early into 2014.
It will be a ramp, obviously we are focusing on the Ultrabook market because that capability scales to that, maps to that very nicely. So there's no reason frankly why the ThinTouch capability can spend very aggressively into the entire notebook category as things like that become more important. But you will see a ramp and we expect to be there very early on in 2014 with the security design wins.
You've all done a great job today with explaining the innovation in the new product development. I am curious on the manufacturing side, will you have any advantages which can endure as competitors come along and attempt to compete on cost and this maybe different across your various products.
I think you are correct. It will be a little bit different across the various products as we go forward. Obviously from a Synaptics viewpoint we've been doing TouchPad, high volume TouchPads for many, many years. So we understand that aspect of how you manage costs down at the module level and inherent to that is also managing your chip costs as well. So remember one of the key reasons that I mentioned around the acquisition that we did of VPD Group was it gave us more scale and then kind of doing a much higher volume semiconductor customers as well.
So we are able to command some of the cost reductions and so on from our suppliers. We have to continue to work that aspect of it, and then the keyboard, we are not really ready to talk about all the details of that, but with the technology, we actually think it's a very cost effective high manufacturable process as well. And when we officially bring the product and launch it, we will get into details on why we think it is a cost effective solution.
But that was a key part we recognized as a competitive market. Notebooks or PCs and as part our decision criteria to go forward. Could we manufacture in a cost effective manner was absolutely one of the criteria?
As I understand it, with the ForcePad solution, you are using, you are going to be supplying the complete unit including the sensor and the silicon whereas in your current solutions, I think you just have the silicon and you work with third party sensors. Is that correct?
In today’s TouchPads, we actually supply the material, the PCB, the driver, the firmware, it is a complete module solution. But I was referencing before with ClickPad, that the mechanical solution that is mounted in the ClickPad is generally delivered by the ODM and that’s been one of the sources of where you can use that inconsistent user experience from, you know, one, it could be the same platform but one ODM to the other.
With ForcePad, the mechanical solutions is going to be provided by Synaptics and it's really a non-moving part after implementation. So since we’re providing the overall module capability for ForcePad, you will see an incredibly consistent experience regardless of who the ODM is providing that.
What impact is providing that total module versus providing just the components in the early, in the ClickPad solution, in the higher ASPs in you margins?
I think you are going to see ASPs will be higher ForcePad than they would be for ClickPad.
And the margins.
The margins will be consistent with the margins that we typically track to in the PC business.
Hi, this question is for Kathy. Kathy you talked about seeing very rapid growth in the mobile side I assume that’s in terms of units. Can you clarify whether you still expect to see revenue growth in the mobile side? And then also can you also talk about some of the pricing assumptions on mobile, you talked a lot about their growth in the value segment of the mobile market and that seems to be more subject to pricing pressures and competition?
Sure, John I will try and provide a little more color on that, that was several questions there regarding ASPs and growth in the mobile market. So as we look in the mobile market it is growing rapidly and our unit volumes are continuing to grow rapidly as we show it in the slides. We are now number one share in the mobile market.
And with the technology and the product portfolio we expect to continue to gain share grow rapidly from a unit volume standpoint. From an ASP standpoint now with we have talked about the transition away from higher price integrated module solutions to more chip solution. As we have talked about before on several conference calls, the range of ASP for a Chip A solutions are typically in the $1 to $2 range with more the higher value premium product at the higher end of the range and some of the more cost optimized solutions towards the lower end.
First off thank you, I am happy to see all the sports technology being integrated into your product line because I saw first that couple of years ago with the Fuse and you are right, you don't want to appreciate that until you really play with it, it's really cool stuff.
But when we start looking at the integrated display solutions which is my question, you talked about the cost, you talked about the thickness and the brightness and everything else. I would think that there would also be an inherent benefit in terms of power consumption and battery life, can you highlight that a little bit, because that's a key feature for these mobile devices.
You are absolutely right, so power savings in terms of the brightness and display enabling lower powers a key enabler when we move to the one chip touch integrator with a display driver architecture, we are able then to do a lot more processing locally and not wake up the host that is going to save us power. And so there's power both in the inherent In-Cell architecture savings as well as in the (inaudible) architecture power will also be a huge benefit as we introduce the features that enable power savings applications.
Unidentified Company Representative
It really comes down to usage models, right, so it depends on what the used cases are for those, but it could be upwards of 20% in those used cases, it becomes then a probability of being in those conditions, right.
Pat Moorhead - Moor Insights and Strategy
Pat Moorhead from Moor Insights and Strategy, I guess you did a really good job today. A question Stan I have for you is you gave some really good insight into how you guys do the magic, kind of how you stay ahead of the curve, do real development, really end user testing, in the -- you showed about the number of patents, I'm not asking for specific information because I know you wouldn’t tell me about that, but what kind of guidance can you give kind for HCI enthusiasts on kind of directional, where it's going, you know we see things like (inaudible) and Google Voice. We see [Xpac Connect] with (inaudible) Air Gestures and things like that. Can you shed some line and kind of where this is going?
Sure without giving away too many secrets but I like the fact that you saw it magic that’s kind of our goal. You know, one of the things we're looking at today and we do look at everything. The voice has been around for a while with Dragon Speak. I think Tim talked about the usage model of I am typing now I have to pick my hand up and reach across the screen.
I think Rick touched on the point where we see screens going to super high definitions, so, do I really want finger prints on a super high definition screen and a notebook environment. And so one of the thoughts that we had and which led to ThinTouch was we really saw usage model which was much more subtle and I think in Mark's demo it showed a typing scenario where it auto-filled and then you used the space bar as a slider. While with 3D [Hover], we can detect motion over the keyboard.
So what we are looking at is much more subtle gestures to navigate. So, you are typing, you just pick up your hand and it’s a subtle gesture over the keyboard. So we really do see, we call it Fuse, not to be confused with our previous prototypes, but the fusion of multiple modalities.
So what we look at is we’re really not as here (inaudible) exposed to our research team. She is on our user experience design team and what we’re looking at is we believe the real end usage model is a combination of touch screen ForcePad, the keyboard as well as some other technologies.
So when you look at that patent filing, we’re filing quite a few patents in this multi-modal domain where we are really looking at how do we get the optimum user experience by fusing multiple different technologies.
Could you talk about a little bit more about your go-to-market strategy particularly with the display port, panel refresh in terms of, is that mostly a PC opportunity. I guess just a little more color on that, how do you plan to address your end markets with these acquisitions?
Sure I will address. So the question was what's our go to market strategy with the new acquisition that we just did over our video products division. One of the really great parts about that acquisition, we looked at it was the leverage that actually ahead with our customer channels. So we look at there, the list of the key customers they are targeting it is HP, it's Dell, Lenevo and then it is LG display, Sharp display. The same guys were exactly the same guys that we were talking to and want to do business with.
So it gives us the opportunity to become more important to those customers, leverage our channels and deliver compelling integrated solutions in the future. So it is not a huge change from as you can imagine it from a go to market perspective, it is big leverage buy.
In terms of the I guess the form factors, is it PC first there or tablets or Ultrabooks, I guess any color there in smartphones perhaps. Sure in terms of the form factors, a lot of it rolls around display port and you will see the display port first in notebook, high resolution notebook panels, but based on support from for example from Intel and AMD you are going to see actually the standard occur very quickly across the board, so expect to see many form factors going forward.
Unidentified Company Representative
Yeah, with regard to In-Cell technologies I was wondering if you could discuss the competitive dynamics today you know as you see in the markets today do you have competition from traditional testifiers, but are there any sort of LCMs or OEM proprietary solutions in the market today.
As of right now there are competitors beginning to develop In-Cell. As I mentioned we are now introducing our second generation. Stan mentioned the architectural development of a third generation, there are some both traditional competitors and emerging competitors that are introducing their forms of In-Cells, but honestly in every case that we've looked their solutions have been inferior architecturally and well as the overall touch performance and so in terms of actual delivery of a high performance solution we've yet to see anything in the market today.
Another question on go to market, Rick in previous lives every product that you sold ended up in a box, where there was a little badge that said Radeon or AMD. Intel has little badges on everything that people include when their products are included except for Apple. But Synaptics is more or less an invisible component supplier. You are well known in the industry but end users have no idea who you are, what you are adding. I have been using an HTC 1X for the last three or four months, I had no idea you were in that phone. Do you have any aspirations to increase your visibility as a brand or you kind of just stay as you know sort of component supplier known within the industry.
So all marketing people leave their room. So now you mentioned my previous line, also my previous life in the income statement. The results are something called SG&A, that was a couple of times the size and percentage and magnitude, 10 or 20 times the size of what Kathy showed. So when you say you are going to up and create end user awareness, you better step up in a serious way and be ready to spend the money because (inaudible) doesn’t do you any good.
So our strategy is to make our OEM customers successful. So we want HTC or rather it's HP or whomever to be successful. We will go out and evangelize technology with folks like (inaudible) and others in the industry that to build momentum around. As we've recognized with new product categories, we've got to be evangelists as well.
Because our OEMs tend to follow later with actual system design. So we are going to be in the forefront and you're seeing Synaptics step up. This is a major step for Synaptics during an analyst day. Mark and some of his troops are heading out there for a two or three week tour to visit a lot of the key editors and press out there to explain, hey this stuff is coming in nine or 12 months. You get excited and built some of that momentum. But it's ultimately within the industry where we want Synaptics now.
So one of your slides, it said that the market numbers you were looking at all said excludes the apple. So I have no problem with that. But you know, how does the continued growth of the Apple, and iPhones and notebooks in certainly the tablet market really is just an iPad market. You know, obviously from that word excludes probably means you don’t have much traction with them. How does that impact your opportunities going forward and what you are thinking about it in terms of the value add that you can bring to the OEMs?
Yeah a great question. That very question is what we spent the most time on when we prepared for this meeting is Apple in, Apple out, which markets and so on and then we ended kind of with a bit of a mix because certainly that part of the (inaudible) so in general we show them as part of the affordable available market. When we got to some of the Sam's slides that I showed or what we thought was serviceable, we started to exclude Apple.
Because the point is if they had internal capabilities and they have made it pretty clear that that’s where they are going to compete with us, there is internal teams that are a nice advantage over us. Now does that mean we are not going to continue to look at them as a key customer. Absolutely, and frankly some of the stuff that Stan has cooking in his shop, there is no reason why they couldn’t become a customer for us in the future.
But as I said from a market share and so on perspective we generally view them as a vertical that we immediately couldn’t penetrate as part of our serviceable available market.
Okay. Sure, first again thank you very much for attending our first Financial Analyst Day. I hope it was useful. We certainly like the opportunity to hear your feedback and your questions and we know with Windows 8 and what’s going on in the smartphone market with display integration and so on, there is just a lot of interest in the markets that we play in. So we really wanted to give a more extensive opportunity to talk with the key people and see the live demos and so on and our intention is the keep is going on annual basis just depending on your feedback, whether you find this useful.
Now just reflecting on the key messages just again that hit home we are focused on growth. So as you can see we are excited about the markets we are in, we are excited about the projects, products and technologies that we have. Really excited about the acquisitions. I hope it's really clear now. Have both of those two acquisition play in strategically in our vision of what we want to do is with the human interface technologies.
And then last we are not sitting still. So we are on the attack, we are moving forward as a company, we are moving forward as a team and we just can't wait to see how the opportunity we have in front of us in fiscal 2013. So thank you.
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