Synaptics Well On Its Way To A Comeback

By Patrick Moorhead - September 10, 2020
Synaptics leadership team and from where they hail 

The tech market can be a fickle one. Companies once considered sure bets can quickly fall from grace, while other young upstarts rise to fill their place. The drama can get a little Shakespearean. As a tech analyst, I always like to pay special attention to companies in the process of turning around a business—everybody likes a comeback story, right? Well, while the world was sleeping, a semi comeback story could already be here inside of one year, and this time, it’s Synaptics. 

I’d like to discuss Synaptics, a San Jose-based company that specializes in premium end-point semiconductors in products like laptop touchpads (think Lenovo ThinkPad), smartphone touchscreens (think Apple), voice and AI for smart speakers (think Google mini) and much, much more. The company has flourished in the last year under the guidance of new CEO Michael Hurlston, who took the reins back in August of 2019. I tuned into the company’s recent Financial Analyst Day, where Hurlston and the new management team shared some details on his own journey and efforts to chart a new course for Synaptics. Here’s what I learned. I will be following up with a drill-down into its two recent acquisitions, DisplayLink and Broadcom’s IoT wireless solutions in another write-up.

Synaptics basics 

Synaptics has been around for a long time—it was founded in 1986 and went public in 2002. There’s actually a very good chance you’ve used Synaptics technology without knowing it if you’ve ever used a laptop, smartphone, or smart speaker. The company holds over 1,800 patents, spanning consumer IoT (e.g. multimedia processors, far-field voice, computer vision, neural network accelerators), mobile (display drivers, touch controllers), PC (video interfaces, pointing devices, fingerprint sensors, touchpads) and auto (touch controllers for console displays, display drivers, TDDI). The company boasts a global footprint, with 18 sites worldwide and over 1,400 employees, and as of 2020, its market cap is evaluated at around $2.5B.  

Synaptics product footprint 

Hurlston came to Synaptics last year, after a tenure as CEO of a company called Finisar, and before that, 16 years with Broadcom, with stints heading up worldwide sales and running the company’s Wireless Connect group. According to Hurlston, his first impression when arriving at Synaptics was, in three words, “opportunity, opportunity, opportunity.” He cited the company’s struggles with its gross margin, which for years fluctuated between 35-39%. Hurlston also saw unique opportunity in the fact that Synaptics, at the time, was trading below its revenue.

Synaptics at the time, while certainly developing great technology, did not have roadmaps in place to provide direction and long-term vision. Moreover, Hurlston says he saw a talented engineering team that was not being fully harnessed or challenged, lacking processes around who was working on what, and what their ROI was. As in the case of the company roadmap, the engineering team seemed to lack direction. 

The third big area for improvement that Hurlston noted was a lack of understanding and coordination with Synaptics’ customers. Instead of attempting to influence the technology and direction of its customers, Synaptics was primarily taking direction from them without offering its expertise to help guide decision-making.

A turnaround strategy takes shape

The first component of the Synaptics turnaround strategy revolves around “winning with teams.” Noting the lack of direction and management at the time of his arrival, Hurlston set about remaking the company’s 10 person management team with all new faces—some from outside the company, who have worked with Hurlston before, and others promoted internally. As Hurlston noted, in order to change a company culture and mindset, you need to change who is making the decisions at the top. He described his early months at the company as working primarily as a “recruitment officer.” Now, though, he says the team is in place.

Synaptics' repositioning 

The next pillar is “winning with technology.” A major part of the strategy is fully leveraging Synaptics’ large portfolio of technology (1,800+ patents, as I mentioned earlier) and marshalling its global workforce to combine different products and pieces into new “world-class leading products.” The company says it has been working to develop differentiated, high-margin products and roadmaps that utilize the company’s talent worldwide. 

I mentioned earlier the areas which Synaptics plays in. Historically, though, the company started in the PC sector, and more recently, in the mobile sector. Now, Synaptics is moving into new spheres such as automotive and consumer IoT. A neat thing, in my opinion, is the company’s ability to invest in and build technology in one business, and then transfer it to another. The rise of technologies such as IoT, the smart home and next generation vehicles have opened up new markets for the likes of Synaptics and its human interface technology, much of which can be adapted to suit these new opportunities. 

The company estimates its current TAM at over $11 billion, with its current serviceable market (SAM) around half of that, at $5 billion (a number that Synaptics says is estimated to grow by 7% compounded through the year 2023). To get there, the company says it’s focused on building a balanced portfolio of high-margin, differentiated products, developing a diversified base of tier-one customers, and staking out technology leadership in each of its core areas.

That brings us to how the company says it is addressing the final area in need of improvement—operational focus. According to Hurlston, a major priority is streamlining operations by reducing its number of foundry partners (of which there are currently 10—a lot for a company of Synaptics’ size) and building stronger relationships with the ones who remain. Synaptics also plans to slim down the number of packaging and testing sites it currently operates (currently sitting at 21). Additionally, Synaptics plans to simplify its sales teams, so each account is only dealing with one salesperson. Instead of having multiple sales teams for its different businesses, each salesperson will now bring relevant opportunities to their account from across its businesses, even if the original sales call was focused on one particular business.

Hurlston regards Synaptics as a portfolio company. Further, it’s the management team’s job to help the company maximize the value of said portfolio—improving upon current product lines, developing roadmaps, and challenging their engineers to develop highly innovative products (within a certain risk profile, naturally). Additionally, Hurlston said that his leadership team won’t hesitate to divest product lines, such as it did with its mobile LCD TDDI business, that do not meet the company’s bar, while seeking acquisitions that tuck in nicely to its portfolio. We saw this with its latest two acquisitions, DisplayLink and Broadcom’s IoT wireless business, which make a lot of sense after what the company outlined at Investor Day. 

Wrapping up

While Synaptics certainly still has a ways to go before it can claim a full comeback success story, I came away from the call impressed with Hurlston and the leadership team’s focused vision and strategy for what needs to happen in the coming years. While acknowledging that there is still long road ahead for the company, with much room for improvement, Hurlston seems confident that Synaptics now has the right team, technology, and strategy in place to chart a course towards becoming a “great company.” I think he’s got all the right ingredients, and I look forward to seeing what comes of all of it.

Note: Moor Insights & Strategy writers and editors may have contributed to this article.

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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.