Earnings season, especially in the time of Covid-19, can be a bit of a mixed bag. Some businesses have adapted and even found new opportunity in the disruption, while others have struggled to keep their heads above water. One company whose recent earnings did not disappoint is Synaptics. With its impressive IP portfolio, focused predominately on end-point semiconductors, I’ve long considered Synaptics one to watch. It’s been especially interesting lately, as the business is on a significant upswing, coming off a spell of lagging financials and difficulties defining its product roadmap and overall vision. A few months ago, I penned a column on the comeback, due in no small part to the ship’s new captain, CEO and President Michael Hurlston. Since then, I’ve also written on Synaptics’ recent strategic acquisitions of DisplayLink (a leader in universal docking solutions and hi-def video compression) and Broadcom’s IoT wireless assets. This is a more focused, formidable Synaptics than we’ve seen in quite a while—a belief that was corroborated by its recent earnings results. Continuing my coverage of the company’s turnaround, I’d like to share what I learned from tuning in to the call. A quick note before we begin—contributions from the two recent acquisitions wereincluded in Synaptics’ earning guidance, disclosed at the beginning of August.
The numbers do tell the story
The biggest news from the call was that, for the first time, IoT looks as if it’s on track to surpass mobile as Synaptics’ largest business in the upcoming December quarter. Synaptics projects that IoT will make up 41% of its revenue, while mobile and PC make up 34% and 25%, respectively. Additionally, Synaptics says its revenue from IoT products is up 68% sequentially and 30% YoY. The fact that IoT outshined Synaptics’ other businesses at a time when PCs are exploding makes the growth even more remarkable.
To fully understand the significance of this, it’s essential to know that Synaptics first made a name for itself as a maker of interface solutions for mobile devices and PCs—touchpads, touchscreens, fingerprint sensors, pointing devices and the like. The company’s growth in IoT, now backed firmly by the numbers, drives home a point that I’ve been making since at least 2018—it’s time we stopped calling Synaptics a “touchpad” company. On top of this news, design wins for Synaptics’ IoT business keep rolling in, meaning the company will likely continue along this growth trajectory.
As for other news, the call demonstrated that the company’s gross margins continue to expand. Synaptics’ non-GAAP gross margin came in at 49.7%, which is reportedly above the high end of the company’s guidance range. Synaptics is now riding the wave of a 1,000 basis point improvement over the past five quarters, which accounts for the company’s highest non-GAAP margins in the last seven years. For that matter, Synaptics’ financial model is looking even better than many considerably larger semiconductor companies. Revenue for the September quarter came in at $328 million, which, based on the mid-point of Synaptics’ August guidance, implies that the company is on track to set its personal record for non-GAAP EPS.
Acquisitions and wins
Additionally, Synaptics shared that its recent acquisitions are moving along ahead of plan, with integrations completed for both DisplayLink and Broadcom’s wireless IoT connectivity assets. According to CEO Michael Hurlston, the company is happy with these acquisitions' initial performance, showing better than expected revenue and robust design-win pipelines. The call also highlighted four recent wins for its video interface portfolio (which includes DisplayLink solutions)—several headset audio wins, and two unspecified U.S. service providers and one each in Europe and Asia that chose Synaptics’ multimedia edge computing SoCs with AI.
The company also shared that its OLED touch controllers are doing “very well.” Synaptics has purportedly scored wins with every major handset OEM that features flexible on-cell OLED panels in their new designs. For that matter, Synaptics projects that over ten new smartphones featuring its OLED touch controller will come to market over the next few months. The controller will even power an undisclosed, major OEM’s new flagship phones. Talk about traction.
The truth is, Synaptics’ growth in IoT and its improved margins are no accident. It’s the result of a smart, highly concerted strategy. While Synaptics has long had an enviable and valuable IP portfolio (1,800 patents and counting), CEO Michael Hurlston’s efforts to refocus have helped Synaptics better leverage it to benefit its bottom line. With IoT and next-generation vehicles creating new, fast-growing markets for the company, Synaptics is in a great position to continue this growth. If you look at the company’s trajectory, it began in PCs, jumped over to mobile and is now finding an excellent new fit for its technology in IoT. This ability to invest and develop technology in one sector and then successfully adapt and apply that same technology in new focus areas is a significant advantage for Synaptics moving forward. There’s a lot of competition in the space and it will take a lot of hard work, but I think there’s a lot of growth yet to come. It’s definitely a new Synaptics and I’m looking forward to its transformation into an IoT company, I can’t wait to see what comes next!
Note: Moor Insights & Strategy writers and editors may have contributed to this article.