Synaptics' CEO Discusses F3Q2014 Results - Earnings Call Transcript

| About: Synaptics Incorporated (SYNA)
This article is now exclusive for PRO subscribers.

Synaptics Incorporated (NASDAQ:SYNA) F3Q2014 Earnings Conference Call April 24, 2014 5:00 PM ET

Executives

Jennifer Jarman - Director, The Blueshirt Group

Richard Bergman - President and Chief Executive Officer

Kathleen Bayless - Senior Vice President, Chief Financial Officer, Secretary and Treasurer

Analysts

Rob Stone - Cowen & Co.

Andrew Huang - Sterne, Agee

John Vinh - Pacific Crest Securities

Osten Bernardez - Cross Research

Jeff Schreiner - Feltl and Company

Rajvindra Gill - Needham & Company

Charlie Anderson - Dougherty & Company

Dean Grumlose - Stifel Nicolaus

Brett Simpson - Arete Research

Liwen Zhang - Blaylock

Operator

Welcome to the Synaptics' third quarter 2014 earnings conference call. (Operator Instructions) And I would now like to turn the conference over to Jennifer Jarman of The Blueshirt Group. Please go ahead.

Jennifer Jarman

Thank you, Kathia. Good afternoon, and thank you for joining us today on Synaptics' third quarter fiscal 2014 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relation section of the company's website at www.synaptics.com. With me on today's call are Rick Bergman, President and CEO; and Kathy Bayless, CFO.

In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes share-based compensation charges and certain non-cash or non-recurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally, we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Although, Synaptics believe our estimates and assumptions to be reasonable, they are subject to a number of risk and uncertainties beyond our control and may prove to be inaccurate. Synaptics' cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements.

We refer you to the company's current and periodic reports filed with the SEC, including the Synaptics' Form 10-K for the fiscal year ended June 29, 2013, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims any obligation to update this forward-looking information.

With that said, I'll now turn the call over to Rick Bergman. Rick?

Richard Bergman

Thanks, Jennifer, and I'd like to welcome everyone to today's call. I am very pleased to report topline growth that exceeded our expectations for the quarter, with revenue of approximately $204 million, up 25% year-over-year. In addition, we delivered strong non-GAAP net income towards the high-end of our guidance range of $23.7 million of $0.63 per diluted share.

We are very excited to report in the first full quarter, since the acquisition of Validity, that the fingerprint ID business was accretive, a quarter ahead of schedule. In fact, our outlook for the fingerprint business has substantially increased. As a result, you'll notice increase in the contingent consideration liability for the expected earnout payments that despite negatively impacting our GAAP results is quite positive for the company's growth outlook.

With the strength of this business combined with solid growth in our core touch platforms, we expect to post another stellar quarter in fiscal Q4 with sequential revenue growth on the order of 40%.

I will now provide an update on our core markets, then Kathy will review our third quarter results in more detail and provide a current outlook, before opening up the call to your questions.

Synaptics' presence at Mobile World Congress in Barcelona drove a significant number of booth tours and productive partner meetings. Recent wins across our focused markets were on display, alongside several exciting next-generation solutions, reinforcing our leadership as the innovator for both touch and fingerprint solutions, and affirming our position as a leading human interface solution provider.

Our activities included attendance at the Samsung Unpacked Event, where the Galaxy S5 was announced. As most of you know, we are proud to verify that Synaptics ClearTouch technology is being used to drive the touch interface for the industries highest profile flagship smartphone.

With this solution, we are also enabling a host of added features in the S5. Notably, the device leverages Synaptics' stylus technology to be the first smartphone in the industry with sensitivity down to 1 millimeter, using virtually any stylus, including the average pen or pencil.

And as we pioneered in the prior S4 model, our unique 3D touch capability allowed Galaxy S5 users to hover their finger over the touchscreen to make selections and scroll through information. Notably, Synaptics is the first company to power the touch interface in back-to-back versions of the most popular android smartphone, a testament to our reputation for unmatched innovation and unparalleled in-depth system level engineering support.

We are also happy to confirm that our natural ID fingerprint identification solution is included in the Galaxy S5. The natural ID product family combines a seamless touch authentication experience with advanced security features to provide maximum device and data protection.

Featured in the home button of the S5, device manufactures can use their unique fingerprint, instead of a traditional password to unlock their device. In addition, the S5 is the first smartphone to use fingerprint ID to enable access to a range of exciting new applications in mobile services, such as the PayPal payment app for a user-friendly and secure mobile experience.

We are happy that Samsung has recently joined us, as part of the FIDO Alliance Board of Directors. A commitment across the FIDO membership to share technology, to deliver open specifications for universal strong authentication enables FIDO-compliant authentication methods to be interoperable, more secure and private and easier to use.

FIDO's continued momentum through the efforts of key industry players such as Bank of America, Google, Lenovo, PayPal and MarterCard expand the value and market opportunities that our fingerprint identity solutions can deliver.

As we look back at market traction for biometric solutions in mobile devices is accelerating, as these models continue to expand. We are highly engaged with our OEM partners in a multiple programs and developments in the newest line of sensor products.

On the R&D side, our combined technology teams are driving performance of our identity solutions to new levels of usability and security, in line with Synaptics' historical focus on innovation and improving user experience. As we continue to broaden our product portfolio, simplified device integration and cost-effective biometric platforms are in our sites.

Turning again to our recent progress in the mobile touchscreen front, our global teams remain focused on a wide range of solutions and designs with other leading OEMs, as our partners continue to deliver highly-touted flagships smartphones. The HTC One, officially the M8, received an impressive 8.5 rating from The Verge, who noted its performance and design. The One was also named the best smartphone at Mobile World Congress by the GSMA.

Additionally, our ClearPad solutions are currently enhancing the human interface with Nokia Windows 8.1 phones that will begin shipping this quarter, including the flagship Lumia 930, with the 5-inch clear black screen for unmatched viewing of images and video even in bright daylight.

ClearPad solutions can also be found in the Lumia 630 and 635 phones, which deliver enhanced experience at an affordable price. We are also powering the human interface with Asha 230 entry-level full touch mobile phone, which is designed for users experiencing touch on their phone for the first time. We expect to see more key mobile design ramps from additional OEMs in Q4.

Moving now to display integration. We continue to see increasingly strong demand for display integrated solutions as our OEM and display partners continue to seek out cost-effective solutions that enable them to deliver thinner, lighter, more responsive phones with larger brighter displays.

This trend is becoming more and more evident, as we begin to see a meaningful progression and the adoption of Single Layer On-Cell solutions in the entry-level smartphone market as well as the continued uptick of In-Cell solutions for the mid-to-high end.

During the quarter we reach a significant milestone, as display integration solutions surpass more than 40% of our mobile shipments. We believe this percentage will continue to increase over time as the cost and performance benefits filter into the majority of the design.

The collaboration of display integration solution ties into our growing market presence in China, where we continue to work on expanding our penetration through the adoption of solutions, such as Single Layer On-Cell for entry-level smartphones. The success we have seen at leading Chinese OEMs is a result of the investments we have made to develop a broad range of leading product solutions and local China-based engineering and customer support teams.

In the coming quarters, we expect to see our OEM partners deliver high volume wins across the performance spectrum, as we recently ramped another leading LCM in China for mass production of our Single Layer On-Cell solution.

Moving to the larger screens, we've continued to expand our tablet and touchscreen customer base at major OEMs over the last year with our market-leading ClearPad 7500 family of Windows 8.1 certified solutions with active stylus support, technology previously reserved for smaller form factors such as smartphones.

Recent key tablet wins include the Samsung Galaxy TabPro 8.4 and the Lenovo Yoga Tablet 8.10. Also being driven by our ClearPad touch solution is the world's slimmest and lightest waterproof tablet, the Xperia Z2 from Sony, which was named one of the best tablets at Mobile World Congress by numerous media outlets.

Looking forward, the next touchscreen-enabled notebook PC design cycle is geared for the back-to-school season, and we expect to participate through mass production shipments with multiple tier-1 notebook OEMs.

As a human interface solution leader, we continue to look at ways to enhance interactions with our personal electronics. This includes the work we are currently doing with customers on ThinTouch keyboard implementations.

The usage models for touch-enabled keyboards continue to evolve, and we continue to work with our OEM customers and supply chain partners on various solutions and go-to-market models to generate the greatest return on our investment. This includes potential licensing models. As we determine the ideal delivery method to bring these innovations to market, we are extending our timeline for this revenue opportunity.

Turning to the PC side of our business, the recently announced Precision TouchPad implementation with Acer for its E Series of notebook PCs is a significant milestone in the improvement of TouchPad performance across OEM implementations.

As a Co-engineered solution with Microsoft, Synaptics is delivering the high-performance Precision TouchPad that provides a consistent uniform experience across implementations. This is further enhanced by our TypeGuard software, which rejects false cursor movements, false clicks and false scrolls.

Our first ForcePad enabled notebook, the HP EliteBook Folio 1040 has been well-received by users, and industry media such as laptop, we found the ForcePad to be extremely responsive. The next-generation of ForcePad solutions are in the hands of our OEM partners and we are excited about expanding the adoption in this pressure sensing family of TouchPad with new model scheduled to ship later this year.

To conclude my formal remarks, our strong performance in the third quarter reflects Synaptics' continued leadership and innovation across our entire product portfolio, from TouchPad's to touchscreen's to our new fingerprint ID products. And I think it's safe to say that, after just one quarter, Synaptics is now the number one supplier for fingerprint authentication solutions to both mobile and PC OEM customers, further differentiating ourselves as the leading human interface provider.

As we finish out Q4, our primary focus remains on growth with biometrics, large touchscreens, display integration and expansion in China, leading the charge. At the start of the fiscal year, we projected our annual revenue growth to be similar to the 21% achieved last year.

It's now clear that we will not only achieve that goal, but close to double that rate of growth, as the strength of our fingerprint ID business augments the growth of our core touch solutions. We look forward to another exceptional quarter and to updating you on our ongoing efforts to drive strong sustainable growth.

With that, I'll turn it over to Kathy for review of our financial results.

Kathleen Bayless

Thanks, Rick. We are very pleased with our March quarter result, as revenue of $204 million represents record revenue for our third quarter period and exceeded our guidance range. March quarter revenue increased 25% year-over-year and was down less than 1% from our December quarter.

The revenue mix from mobile and PC products was approximately 74% and 26%, respectively. Revenue from mobile products was up 44% year-over-year and up 13% from the December quarter, and consistent predominantly of revenue from mobile phone applications.

We achieved strong mobile phone revenue growth year-over-year, including a substantial ramp of our fingerprint ID product. Fingerprint product revenue, which contributed to both mobile and PC revenue, represented approximately 15% of total revenue in the quarter.

Revenue from PC applications was down 9% from the prior year and down 26% sequentially. As we have experienced in past quarters, a portion of the sequential decrease was due to the timing of our sell-in versus sell-through between the December and the seasonally slow March quarter. Despite the continuing weak PC application market, Synaptics continues to lead the market for notebook TouchPads and ClickPads.

Non-GAAP gross margin was down 320 basis points year-over-year and down 50 basis points sequentially at 46.6% and was impacted by overall product mix, including a substantial ramp of our biometric solutions. The biometrics product are solution sale, where we supply more components and materials than just the chip.

Non-GAAP operating expenses were $66.8 million, up $6.4 million from the prior quarter. The 11% increase in non-GAAP operating expenses was primarily due to a full quarter of personnel-related expense related to our acquisition of Validity Sensors, which closed in November, and our closed acquisition investment in both R&D and customer support, to accelerate market adoptions of our new fingerprint solutions as well as continued investments in our touch product portfolio.

GAAP operating expenses in the March quarter were $128.6 million, which includes an increase of $53 million for change to contingent consideration and $8.5 million for share based compensation.

The change to contingent consideration primarily takes into the account, our current anticipated post-acquisition success with biometrics fingerprint solution, including significant upward revisions to our forecast for fingerprint solutions, increased certainty of those forecast and acceleration of the timing of broad adoption. In other words, the increase to the change in contingent consideration represents a favorable development in our outlook for the fingerprint business over the remaining earnout period.

As Rick mentioned, the fingerprint ID non-GAAP results were accretive in the March quarter, the first full quarter of operation and earlier than anticipated. We anticipate changes due to fair value of contingent consideration could continue to result in volatility in our GAAP operating results, as we go forward through the earnout period.

Our non-GAAP tax rates were 17% in the March quarter compared with 15.5% in the December quarter. Our GAAP tax rate was a negative 12.4%. Third quarter non-GAAP net income was $23.7 million or $0.63 per diluted share towards the high-end of our guidance range and diluted share count for the March quarter was 37.911 million shares.

Turning to our balance sheet. We ended the quarter with $391 million of cash. During the quarter, cash flow from operations was $5.3 million, muted by increased working capital needs due to the backend loaded revenue during the March quarter, which resulted in increased receivables and inventory build to prepare for next quarter.

Employee participation in our equity incentive programs, including the associated tax benefits, provided net cash of $34.2 million for the quarter. Capital expenditures were $15.2 million and included $10 million use for the purchase of two buildings located adjacent to our San Jose headquarters facility.

Depreciation was $3.6 million for the quarter. Receivables at the end of the March were $149.7 million and DSOs were 66 days, while inventories were $70.2 million, and inventory turns were six.

Now, I will make comments regarding our quarterly outlook. Based on our backlog of approximately $145 million entering the June quarter, customer forecasts and expected product mix, we anticipate revenue to be in the range of $275 million to $295 million, an increase of 20% to 28% over the prior year's record revenue.

Our expected revenue range reflects strong growth in mobile product revenue including significant incremental contributions from our fingerprint ID products. Taking into account our overall revenue mix, we expect non-GAAP gross margin for the June quarter to be approximately 45% to 46%, reflecting the overall product mix including a continuing ramp of the biometrics product.

We expect non-GAAP operating expenses in the June quarter to increase from March as we continue to invest in engineering and in-field customer support to expand our overall product portfolio and customer base. We anticipate that SFAS 123(NYSE:R) charge in the fourth quarter to be in the range of $8.6 million to $8.9 million.

GAAP expenses will also include a non-cash charge of approximately $5 million to $6 million related to intangible amortization and change in contingent consideration. However, the change to contingent consideration could vary depending upon the changes to assumptions that drive the accounting value.

We anticipate non-GAAP cash base tax rate for the June quarter and the year to remain in the range of 16% to 18%. Weighted shares are expected to be approximately 39 million for the June quarter. Non-GAAP net income per diluted share for the June quarter is anticipated to be in the range of $1.10 to $1.32 per share.

In closing, we are very pleased with our financial results through the first three quarters of the fiscal year and are well-positioned to achieve record revenue and record non-GAAP net income in both the fourth quarter and fiscal year.

With that, we'll now turn the call over to the operator to start the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Rob Stone with Cowen & Co.

Rob Stone - Cowen & Co.

I know you're probably not ready to break this out by sub-segments in terms of contribution by Validity, but Rick, could you provide us any color in terms of some sense of the number of customers or a number of different SKUs that are now active in fingerprint biometrics. And it sounds like maybe both the PC and mobile parts of the ID business are growing.

Richard Bergman

I would say, yes, it's certainly growth for our biometric businesses. We took a fairly substantial risk back in November with a sizeable acquisition for us and it's very encouraging to see the adoption of our solutions and the adoption of fingerprint across the industry. In terms of the ones I can talk about obviously are the announced ones, so Samsung and Huawei are the two phones that were in and then every notebook PC uses our fingerprint solution as well.

For the most part, we're engaged with, I would say, just about every OEM on solutions of varying types, fingerprint solutions that we expect to rollout more in the middle of the year till obviously then a year from now depending on the timeframe of the various OEMs, the type of solution they are implementing.

Rob Stone - Cowen & Co.

And then my follow-up question is on the area sensors as opposed to swipe sensors. I think in the past you said sometime in the second half of the calendar year, you expect the products to be shipping with area sensors, is that still the timeline?

Richard Bergman

Yes, we are executing right on schedule with those products and we expect to see solutions out there in the latter part of the year, yes.

Rob Stone - Cowen & Co.

So the ramp up in the June quarter continues to be swipe sensors?

Richard Bergman

For the most part, yes, there's more in production with the swipe sensors at this point.

Operator

Our next question comes from the line of Andrew Huang with Sterne, Agee.

Andrew Huang - Sterne, Agee

I was just curious, if you can give us any color on what your exposure was in the quarter to China handset makers?

Jennifer Jarman

China handset makers, we've had that question for a few quarters now, so we've been looking -- we've been talking about our growth in China and as far as the contribution of China domestic handset makers has been growing, and growth, it's up to about low-teens right now, so it continues to track as a percentage of our revenue. It keeps growing as our revenue grows overall.

Andrew Huang - Sterne, Agee

And I guess the follow-on question to that would be, when I look at your June quarter revenue guidance, should I assume that there are some fingerprint sensors in there were Chinese handset OEMs or not?

Richard Bergman

Well, at this point, we're not going to illuminate where we're getting specific success with our fingerprint sensors. Just to say that, I'll say again more to Rob's question, we are seeing broad-based interest in all regions of the world for our solutions.

Operator

Our next question comes from the line of John Vinh with Pacific Crest Securities.

John Vinh - Pacific Crest Securities

Just a follow-up question on the area sensor, Rick you said you expect that to start ramping at the end of the year. Can you maybe further elaborate have you secured any design wins for area fingerprint sensors at this point in time?

Richard Bergman

Well, in this business we've learned, there is no such thing as a design win until you see it fitting on shelf somewhere. So I don't really want to confirm anything other than it's been very strong interest in our touch sensor at this point for fingerprint solutions. And that's clearly a trend in the industry.

John Vinh - Pacific Crest Securities

And then, can you update us your view, we're another quarter into this, in terms of what you're seeing in terms of customer interest on fingerprint area versus swipe sensors? Is there still more interest in area sensors and do you expect the market to move more heavily towards area sensors in the back or do you expect it to be more evenly distributed?

Richard Bergman

Well, since we're 100% swipe now, we certainly expect to see the trend more towards touch. And part of that is, there is well continued interest in swipe. It still brings a number of advantages. It's going to be a lower cost solution. In addition, it can actually fit it in a smaller form factor as well. So you could imagine today's implementations are either on the back of the phone. Now in the case of Samsung, it's on the front of the phone. But you could also start to imagine OEMs might want to put it on aside of the phone.

And at that point, you only have a couple of millimeters to play with and that's really a part or impossible to have a touch sensor at that point. And that's where swipe would be more appropriate type of implementation. So clearly there is a trend there to move towards touch that we expect to see swipe sensors for many years ahead.

John Vinh - Pacific Crest Securities

And then my last question, and then I'll get back in the queue, it sounds like the mix of biometrics is having an impact on your gross margin mix going forward. Kathy, I was wondering, you mentioned, you ship more than just sensors to your customers. Are you doing the module packaging and that's what's impacting kind of the gross margins there? We've also been hearing about some initial yield issues on the fingerprint side. If you elaborate that would be great?

Kathleen Bayless

The solution itself right is not just a chip. So it's the chip plus the flex sensor. So again, it's more than just a chip. There is additional materials that come into play. So I think of it, as we've talked about before, the biometrics product, I mean they're -- when you look at a mobile product or just a chip-based solutions are about 50. These particular solutions are right around the corporate move running from a corporate average standpoint and our PC modules are below that. So that's basically what we're doing. No major change really in what we're selling from the solution standpoint.

Operator

Our next question comes from the line of Osten Bernardez with Cross Research.

Osten Bernardez - Cross Research

I guess to begin, would you be able to give us an update as to what your current LTOs contribution is on large touchscreen and whether that's on track with what you've got it towards during your Analyst Day?

Kathleen Bayless

We haven't broken out large touchscreens yet, but it had has been moving up, as we talked about at Analyst Day last year. Large touchscreens was probably around 5% of total revenue and it's been ticking up as a percentage of revenue. But, yes, it's still not quite 10%. But it's on track for what we talked about at Analyst Day for this year, where we said we expected to double or triple.

Osten Bernardez - Cross Research

And then with respect to your mobile display interface ASPs, would you be able to give us some color in terms of how they're trending on the year-over-year basis and what you're expecting on that perhaps to do in the June quarter?

Richard Bergman

I'll talk about the broader trends, and if Kathy would like to illuminate the shorter-term trend. The broader trend is similar to the message we've given in past calls, which is with a given segment in the market the ASPs actually kind of hold in there. So our higher-end ASPs for the flagship phones continues to be interesting.

However, of course the market is, there is more growth in the lower-end. So from an overall perspective, of course, as we participate more and more in low-end and mid-range that makes our ASPs go down a bit. But haven't seen broad-based degradation of the ASPs across every segment.

Kathleen Bayless

So just to reiterate Rick's line, I mean our blended average ASP is trending down, because of the fact that we have a broader mix of mid-range and lower-end solutions since we go forward.

Operator

Our next question comes from the line of Jeff Schreiner with Feltl and Company.

Jeff Schreiner - Feltl and Company

Rick, I'd like to come back to the touch-based fingerprint sensors real quickly. Has Synaptics sampled touch-based fingerprint sensors at this time?

Richard Bergman

Yes, absolutely. We actually showed samples back at CES.

Jeff Schreiner - Feltl and Company

That's what I thought. I just wanted to make sure that I was correct. And just as a follow-on to that really, are these kind of touch sensor ASPs going to be dramatically different than what you're seeing for the smaller form factor type swipe. We've heard ASP ranges just shy of $6 to $8. I mean is that where we should be thinking about as these solutions start to rollout?

Richard Bergman

Well, it goes back to the Kathy's statement a little bit. It depends what level you are talking about. There is this, the chip ASP, and then there is the sensor, and that can either be a flex or it can be actually a BGA type of packaging solution, we offer both. And then there is actually the entire module. For example, in the Samsung phone, there's the whole button itself. People tend to mix those three together at times.

We tend to be in that middle category, where we're selling both the chip and some type of sensor. So the ASPs you gave are well above what we would expect to see in area sensors. A rough ballpark that we've given is, for the chip plus sensor, around the $2, $2-ish for swipe-type of solution, and roughly double that for an area sensor. Of course, that will go down over time in the coming months and years.

Jeff Schreiner - Feltl and Company

And just quickly from me. I wanted to clarify with Kathy and it's my last question here, is all of fingerprint including PCs now in mobile, no longer doing PC and mobile, as the types of businesses that you kind of had described before?

Richard Bergman

Just one second, one of my colleagues pointed out that I made a misstatement. I think it was Rob's question at the very beginning when I said fingerprint solutions that we're in production, I meant to say HTC phone, apparently I said, Huawei. We were talking a lot about China. I must have just done a bit flip there. So we're in production with HTC and Samsung fingerprint solutions. Sorry to interrupt, and go ahead Kathy.

Kathleen Bayless

What was the question, again?

Jeff Schreiner - Feltl and Company

Are we doing all fingerprints now, mobile and PC in mobile?

Kathleen Bayless

No, we are still in the broad categories of mobile that would include the fingerprint solutions in mobile products and in PC that includes fingerprint for PC. So the number that I gave broadly, the 15% of total revenue I mean that's a combination of all other the solutions, the mobile solutions and PC solution.

Operator

Our next question comes from the line of Rajvindra Gill with Needham & Company.

Rajvindra Gill - Needham & Company

Just a question Kathy on the OpEx. You've mentioned you guys increasing kind of sequentially as we do kind of the math, it seems like the OpEx is up about $6 million, $7 million quarter-over-quarter. Should we be expecting that type of increase in OpEx on the sequential basis or is it going to kind of taper of, you could then provide some OpEx, that insight going forward would be helpful?

Kathleen Bayless

If you look at the OpEx that in the March quarter, I mean the biggest reason for the increase in the March quarter was the fact that we had Validity for an entire quarter versus December, when we only have them from November forward. We picked up a full quarter of Validity in the March quarter. Going forward, I would say that the absolute number will be lower than what we saw last quarter.

Rajvindra Gill - Needham & Company

And in terms of, Rick, the applications for fingerprint technology, I was wondering if you could elaborate on what are those that are being developed by the industry, in addition to just the unlocking of the phone? And how is the ecosystem being developed in order to spur this technology across more and more devices?

Richard Bergman

Great question, Raj. Internally, it's exciting to announce flagship phones that are utilizing our solution, but in some ways, it's been really exciting over the last month or two, is to see how far and how quickly the ecosystem is moving forward. As you mentioned, there is the unlocking in the phone, the convenience factor there. But more importantly, we want to see a whole security and payment system out there.

So the FIDO Alliance has just gained tremendous momentum. That's where we're putting most of our support behind is how can we create a industry consortium that is seamless to the end-users, so that if you want to make a purchase or some type of banking movement, then you can do that very securely with the fingerprint type or other authentication type of solution.

So the fact that you saw, as an example, just this week Samsung and ARM jumping into the FIDO Alliance as board members, is really a strong indication of how much momentum that this has across with the industries leading, core processor provider and the world's largest smartphone provider coming on board. We're tremendously excited as we're one of the first places to start with applications.

Rajvindra Gill - Needham & Company

And this last question, Kathy, in terms of cash. You ended the quarter with $391.5 million. So obviously some of that cash is going to be used to payout the validity folks based on the earn outs. Is there any other kind of usage of cash going forward?

Kathleen Bayless

Raj, we look at cash basically the same way that we always have. So we're still looking at investing in the business, as you said paying the earn-out payment, so based upon our increased outlook, our likelihood of paying a much higher earn-out payment is definitely out there. And we still have many initiatives in process looking for additional strategic opportunities and there is still opportunistic share backs in our view as well.

Operator

Our next question comes from the line of Charlie Anderson with Dougherty & Company.

Charlie Anderson - Dougherty & Company

I just had a couple of housekeeping questions. Number one, your largest customer, 10% customer, what was the percent of revenue?

Kathleen Bayless

Yes, we had one 10% customer and it was 32%.

Charlie Anderson - Dougherty & Company

And then on the PC, I wondered if you could help us with maybe what the contribution was in that segment for fingerprint, I don't know if you're pulling the segment to that. And then just in general, noticing that that's down even with fingerprint, just some of the dynamics that are going on a PC and then what do you think can go into June there, that's in terms of in terms of embedded in your guidance?

Kathleen Bayless

The biometrics had a pretty steady run rate. It's really kind of a few million dollars, around $5 million. And as far PC in general and the dynamics there, I mean the general market trends for PC this year in calendar '14, as it's still -- the market is still looking like it's down some. We've been doing very well in PC, if you look at our three quarters to date. I mean we're flat-to-up slightly. So really there is just dynamics for us in the quarter-to-quarter sell-in, sell-through.

Operator

Our next question comes from the line of Kevin Cassidy with Stifel Nicolaus.

Dean Grumlose - Stifel Nicolaus

This is Dean Grumlose calling in for Kevin. Regarding your fingerprint recognition seeing the expectations that this technology will ramp very quickly in the market, could you lay out some expectation of what you believe or what maybe reasonable share for Synaptics, perhaps in terms of the difficulty of doing this or your time advantage? Basically you're seeing much competition in this area so far?

Richard Bergman

We certainly are seeing new competition out there. Competition only makes us stronger and better and I think we've proven that we're quite capable of competing out in the marketplace. When we acquired Validity back in November, we made it very clear that our goal is to be the clear number one provider in this space and that goal was unshaken. So we're continuing to march forward.

As I mentioned in my prepared remarks, I believe we have commanding share, basically a 100% in the notebook segment right now. And then as you look in the mobile segment, it's very high as well, obviously fueled by the great design win that we had on the Samsung Galaxy S5 and we plan to continue to go from there.

Dean Grumlose - Stifel Nicolaus

In the areas of ThinTouch keyboard, could you provide some outline of when this may start to contribute substantial revenue and what kind of design pipeline you may have at this time? Anything you're able to offer, it's helpful.

Richard Bergman

Let me try to help to shed some light. Previously, we were targeting more towards the tailwind of this calendar year to start seeing some revenue, but as actually we've worked with our ODM and OEM partners out there, it's become clear that it's going to move out a little more in time. And we're looking at as I mentioned in my prepared remarks, we're looking at potentially different models, because it's frankly, keyboards are a tough, tough business model out there, typically running in the mid-teens from a margin perspective. That's quite a bit different than what Synaptics does, and is capable of doing on a sustained basis. I mentioned licensing looks to be the more promising avenue other than some niche place that we may make in the keyboard market, but it's not a calendar '14 opportunity for us.

Dean Grumlose - Stifel Nicolaus

Is it more adoption period or is it cost and pricing?

Richard Bergman

Well, it's always a combination. It's usually never one reason. So certainly cost is a factor that comes into the notebook segment, just like everywhere else, they are into high pressure from pricing as they try to drive down to the 299 level and potentially even below. The technology we've been able to get to a state now where it's very exciting and as we demoed at CES and at Mobile World Congress and elsewhere, we actually have a pretty solid solution now. So we do have to find the right combination in terms of the business model and the right applications where we can successful of this technology.

Operator

Our next question comes from the line of Brett Simpson with Arete Research.

Brett Simpson - Arete Research

I had couple of question on fingerprints. And as we go back to the touch controller days, the early days in smartphones, we saw quite a bit shift from module to chip-only solutions. And a more then how do you think this fingerprinting market can play out, when you get touch-easier sensing over the next couple of years.

Do you think this is a similar shift where it's going to be a chip solution probably sell in smartphones or do you think there is going to be a module opportunity, and maybe you can explain why, if you think fingerprinting is going to be a module offering for Synaptics over time?

Richard Bergman

No. I would characterize it as, we were using some of the same terms, but it's certainly different in terms of the relative cost and values and so on. From a fingerprint sensor, and that's why I said it's a chip plus sensor, so you can't really ship the chip without the sensor, it has to be mounted some place. So it's mounted nearer to in the VGA, which then becomes the sensor or in a flex cable, which then becomes the sensor. It's actually an awkward business model to try to disaggregate that.

And then the relative cost is a lot different, back in the old touch space with the module. It could be $8, $9, $10 sensor with a $1 or $1.50 device. Here the relative values are much different in terms of the chip value versus the flex value. So you don't get that margin stacking that started to happen in the call it the old days, which was three years or four years ago.

Brett Simpson - Arete Research

Then maybe just a follow-up on that. I mean, can you maybe just compare what would you sell just to the complete module in touch area sensing? And how do you think the chip ASPs might evolve, because we hear a lot of different numbers from biggest players who run against the markets as to how do you think a film-based chip solution might sell for a overtime. And was there inflation play there versus a module price. So any number you can share with us will be very helpful?

Richard Bergman

I understand. It's unfortunately the real challenge, because there's a very wide range of the potential answers there, because it's highly dependent on what the OEM wants from a module perspective. You can certainly see something pretty basic, which would be just in effect our sensors with some type of coding on it to something very elaborate, which potentially the iPhone is in the other extreme.

And so it can be a couple of dollars added to many dollars, added on top of the basic chip plus sensor. So in terms of the chip plus sensor, I kind of gave you a rough range, and that's even pretty rough, because its highly dependent on exactly what we implement there, but kind of $2 to $4 to $5 range.

Brett Simpson - Arete Research

Maybe just one final follow-up. In the traditional touch controller business for smartphones, you mentioned in the flagship market, and the high-end ASPs would hang in there quite well. So if we back out the Validity revenues in the June quarter you just guided, is the organic smartphone touch controller business going to grow year-on-year or is that going to be relatively flat or give us some direction if you can on how you think that organic business is trying to mold?

Kathleen Bayless

We haven't broken out the all the details on Q4, but I think we have very strong expectations for the June quarter and we see nice growth basically across the products.

Richard Bergman

I think that's an important point to emphasize, not too much year-over-year, but sequential quarter-over-quarter. I want to say at least one or two more times, because I'm not sure I'll ever get to say in my carrier, 40% sequential growth. So we have a broad range of products. So the laggards are growing 20% sequentially quarter-over-quarter.

As an example, if you want to position it that way, and then obviously we have some star products that are growing at a much higher rate, but on average of course its 40%. But we're seeing tremendous growth opportunities across all the different products.

Kathleen Bayless

I think the other thing that is very exciting is, if you look at the comments that we made as well as core business basically right now it's not basically achieving more than the 21% that we achieved in fiscal '13, and we laid out at the beginning of the fiscal year. And Validity is basically in the fingerprint product, so topping it up even more. So a very successful year.

Brett Simpson - Arete Research

Is there any guidance you can give us, I mean you've done great job in the flagship part of the market. And we can see there's been a shift, all the growth it can be in low-end smartphones. Can you give us sort of relative market share, if you wanted to split the business up between flagship and low end? I mean where do you guys sit, when you sit back and look at the overall, what time of the day, where do you sit in the flagship market, with the market share and should we think about Synaptics in the lower price categories?

Richard Bergman

And as we've mentioned, it's a real challenge to get our market shares in these various businesses, and then when you break it down in the segment. So we kind of always circled our financial Analyst Day in August is when we shed light once a year and have all our marketing and sales people do their best job to gather all those bags into one place. So here we'll just be able to do broad strokes, and the broad strokes are very high share in the high-end part of the marketplace, obviously excluding Apple in our analysis.

And then as we kind of move down, our share becomes relatively lower thereafter. We are making strides in that low-end and mid-range, really the display integration is what's opening the door for us there. We've made a several year investment, as you know, and it's good to see the volume really started to kick in our March quarter in terms of the number of solutions actually hitting out to our OEM partners and then of course going out to end-users.

Operator

Our next question comes from the line of Liwen Zhang with Blaylock.

Liwen Zhang - Blaylock

I have a one question on gross margin, actually a follow-on the John Vinh's question. So looking at your computer and the mobile mix for the March quarter, it was pretty similar to, I believe the September quarter. And so what I don't understand is you look at the delta between these two gross margins. And is it fair to conclude that fingerprint solution is more towards to your low-end of corporate average gross margin range?

Kathleen Bayless

Yes, I mean, Liwen, as I mentioned before, the biometric fingerprint solutions, they are more at the average total gross margin that we're at. And if we go back a couple of quarters, we're also the statement around what we've been doing as far as penetrating further in the market.

So again quarter-on-quarter, from a mix standpoint, we continue to have very, very strong share in the premium side, smartphone market, but we also are continuing to grow the number of solutions in the mid-range and the lower-end. So again, as we progress, there is some mix movement within the mobile side of the business and now we're pulling in the biometrics products as well.

Liwen Zhang - Blaylock

Despite the lower ASP for mid-to-low-end smartphone, so the gross margin for solutions for mid-to-low-end also is less than for the high end, is that fair to say that?

Kathleen Bayless

Yes. We said that for a while, so premium is great. It's very nice gross margin and as you get to the mid and the lower-end, we do give up a few points.

Operator

Our next question is a follow-up question from the line of Andrew Huang with Sterne, Agee.

Andrew Huang - Sterne, Agee

There has been a lot of talk about fingerprint sensors and then the transition from swipe to area. I was just curious from a gross perspective, is there any difference between those two?

Richard Bergman

There is no baseline reason why there would be a difference, Andrew. I mentioned the type of sensors you can use both in either an area or a swipe type of sensor and both have a touch controller. So over time potentially as swipe will move, as I mentioned more to lower-end phones, a year or two years from now, you could expect that natural trend to occur, but nothing in the next several quarters that would suggest different margin profile.

Andrew Huang - Sterne, Agee

And then my follow-up was on ThinTouch. Obviously, there is a lot of value of having a thin keyboard, for let's say a tablet cover. It is also a lot of value in having in think keyboard for notebook. So I am just curious like based on your best guess, where do you think your first design win would be in?

Richard Bergman

Well, we've pointed to a few areas of value. You kind of hit on one of them, which is tablet covers and then the other one is retractable type of keyboards, which you simply can't do with the traditional keyboard.

Operator

And this concludes our question-and-answer session. I'd like to turn the conference back over to management for closing remarks.

Richard Bergman

Well, thank you. We obviously had another exciting quarter and it looks like we're in the midst of even more excitement this quarter. So I'd like to thank everybody for joining us and I look forward to updating you next quarter.

Operator

Thank you. Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!