I’ve been keeping a close eye on Synaptics as of late. The premium end point semiconductor company traditionally known as a manufacturer of computer touchpads and biometric fingerprint readers, has expanded its purview significantly over the years to include much more. It now plays in mobile, automotive, and IoT, with a diverse range of solutions that include video interfaces, touch controllers for car console displays, audio processors, neural network accelerators, and more. 

While I’ve been an admirer of Synaptics’ technology for a while, the last several years the company has struggled from an operational and market standpoint, trading below its revenue, with its gross margin fluctuating between 35-39%. 

Last year there was an organizational shakeup, in which the company installed a new CEO, Michael Hurlston, with deep ties to Broadcom, and more recently, optical communication technology manufacturer Finisar. I sat in on Synaptics’ recent financial analyst day where I got a chance to learn more from Hurlston and his leadership team about the internal changes being made within the company to get it back on the right track (see that article here, if interested). 

A crucial pillar of Synaptics’ strategy is making sure that the company is “winning” from a technology standpoint—developing better roadmaps and investing in and developing differentiated, high-margin products that align with them. Part of that is finding new ways to combine and leverage Synaptics existing 1,800+ patents, and part of it is making smart, strategic acquisitions. I wanted to give a rundown today on two companies Synaptics recently brought into the fold.

DisplayLink

Synaptics announced at the end of July it was acquiring DisplayLink Corp., known as the leader in universal docking solutions and high-performance video compression. The $305 million dollar, all cash deal quickly closed within two weeks. Getting back to the point of improving Synaptics’ margins, the company says it expects the acquisition to bring in around $94 million every year and immediately be counted towards its non-GAAP gross and operating margins, as well as its non-GAAP earnings.

Broadcom IoT wireless assets

The other recent acquisition, announced at the beginning of July, involves Hurlston’s old friends at Broadcom. Synaptics announced the acquisition of certain manufacturing rights and assets from Broadcom’s wireless IoT business, to a tune of $250 million, all-cash. These assets include rights to some of Broadcom’s current Wi-Fi, Bluetooth and GPS/GNSS offerings, and to top it off, the deal also includes the co-development of future roadmap devices in these areas that Broadcom will design in advanced process nodes. This part of the news jumped out at me, because Hurlston, on the Financial Analyst Day call, emphasized the need for Synaptics to improve its road-mapping and long-term vision. So not only will Synaptics be strengthening its IoT portfolio with the acquisition, one of its key areas of expansion in recent years, but it’ll have a head start on the next generation of offerings stemming from the acquisition, without having to put in additional OPEX investment.

And why exactly does Synaptics want this technology from Broadcom? Well, for one, by adding an expected approximate $65 million annualized sales, it’ll improve the company’s top line. As with DisplayLink, this will also be immediately accretive to its non-GAAP gross margins and earnings. From a portfolio standpoint, though, this is also a smart strategic move. Reliable, best-in-class wireless connectivity is crucial for the growing IoT sector, which Hurlston says will enable Synaptics to appeal even more to makers of home automation products, smart displays, IP cameras, speakers, gaming consoles, and so much more. I would go as far as to say Broadcom’s strong wireless connectivity capabilities and Synaptics’ IoT portfolio appear to be a match made in heaven. 

Wrapping up

This is Hurlston and the leadership team’s strategy at work. Both acquisitions go right along with the company’s plans to invest in high-margin areas, such as premium, consumer IoT. As he stressed during Synaptics’ Financial Analyst Day, Hurlston sees the company as a “portfolio company,” first and foremost. One part of his strategy is to make strategic—not necessarily flashy—acquisitions, whose fruits can quickly and easily be tucked into the company’s current offerings. One path forward for the company, was discovering new ways to combine offerings within its existing portfolio of solutions. It’s hard not to see how the technology gained through these two July acquisitions would not be useful and welcome, combined with Synaptics’ pre-existing IP. 

These deals were a unique fit to Synaptics. For instance, wireless can be tapped across all of the company’s target markets and customers and is a great opportunity to capture those existing sockets and increase its footprint. I cannot think of any company that has made a deal like this with two future roadmap parts at no operating expenses.

Synaptics, under Hurlston’s leadership, is still in the early stages of a remaking of the company and charting it towards a real turnaround. That said, the company is making some quiet but smart moves right now that should get them a little further down the road and put them in a more powerful position in IoT markets. I look forward to seeing what comes next.

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