What to Expect When Synaptics Reports

Synaptics (NASDAQ: SYNA  ) will report its second-quarter earnings on Thursday, as shares have rocketed to all-time highs. A weak outlook from last quarter, as well as a poor preliminary report from Samsung (NASDAQOTH: SSNLF  ) hasn't slowed the company down significantly. Pressure from Apple (NASDAQ: AAPL  ) and low-end Google (NASDAQ: GOOGL  ) Android phone manufacturers hurt Samsung's fourth-quarter results, but will they hurt Synaptics?

Synaptics once had a growing business as the provider of TouchPads for laptop computers. As the PC market faces pressure, however, Synaptics has diversified into mobile device touchscreens, which now make up a much larger portion of its revenue.

Still, the declining PC market weighs on Synaptics, and the company is working to increase its revenue per unit to offset declining shipments. Synaptics saw an increase in revenue for its PC unit in the first quarter, and expects a further increase to offset weaker mobile unit results.

Stats on Synaptics

Analyst EPS Estimate

$0.89

Year-Ago EPS

$0.53

Revenue Estimate

$201.49 million

Change from Year-Ago Revenue

40.9%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance

Setting the bar lower
Analysts lowered earnings estimates by $0.08 per share after Synaptics released lower-than-expected guidance for the second quarter. The stock plunged 15% that day, but has since recovered. It's gone on to reach new all-time highs recently.

After growing revenue 75% in the first quarter, and on the heels of fantastic revenue growth thoughout the 2013 fiscal year, analysts and investors were expecting more of the same for Synaptics in the second quarter of fiscal 2014. Analysts were expecting sales growth of 46%, on average, while the company guided for just 34%-45%.

The effect of Samsung's product cycle is weighing on the company, and it appears Samsung's forecast was actually more optimistic than it should have been. Apple's release of the iPhone 5s and 5c seems to have cut into Samsung's market share more than expected. Moreover, Samsung is feeling pressure on the low end of the market as well.

New developments last quarter
Last quarter, Synaptics closed its acquisition of Validity Sensors.l The company specializes in fingerprint scanners, like the one featured in Apple's iPhone 5s. Synaptics is hoping to partner with both mobile device and PC makers to implement Validity solutions in its products, but doesn't expect that to add much to the company's second-quarter results. Validity generates approximately $15 million-$20 million in annual revenue.

Meanwhile, Synaptics has generated some important design wins this past quarter. Most notably, Google selected the company for its flagship Nexus 5 touchscreen. It will use Synaptics' ClearPad 3350 in-cell design to produce a lighter, thinner phone.

Synaptics already has a strong relationship with Google and its subsidiary, Motorola. In fact, its in-cell technology is in the Motorola Droid Mini, and its previous generation product is in the Moto X.

Additionally, Hewlett-Packard will be the first to use Synaptics' ForcePad solution in its high-end EliteBook Folio. ForcePad improves on the previous TouchPad by replacing the mechanical parts with force sensors. This innovation ultimately allows for thinner notebook computers.

What to watch for
In Synaptics earnings report, watch to see if the company can increase its PC segment revenue, despite headwinds in the number of notebook computer shipments. The company forecast its mobile unit -- which includes large PC touchscreens -- to decline slightly in the second quarter, while PC growth offsets some of the loss. The pressure of Samsung's poor device sales, one of the company's biggest clients, means that PC growth will have to improve significantly for the company to beat analyst estimates once again.

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