Samsung's Galaxy S5 Will Take This Chipmaker to New Highs

Samsung, Sony, Lenovo, Google, or China; this company is set to benefit from almost all corners of the smartphone universe.

Apr 11, 2014 at 2:30PM

The way chipmaker Synaptics (NASDAQ:SYNA) kicked off the year can be summed up in one word -- inauspicious. First, Synaptics posted mixed results and issued a terrible earnings outlook.  Next, the stock received a downgrade from Oppenheimer due to its high valuation. But Synaptics has engineered a remarkable turnaround and is up in the high teens in 2014.

The company came back with a bang after it was revealed that it is supplying Samsung (NASDAQOTH:SSNLF) with the fingerprint sensor and the touchscreen controller for the Galaxy S5. This has, no doubt, given Synaptics a good shot in the arm. The company will surely look to build upon this design win, and it also has the likes of Sony (NYSE:SNE), Google, and Lenovo (NASDAQOTH:LNVGF) to count upon.

Samsung: Cracking some numbers
Sales of the Galaxy S5 haven't kicked-off yet, although the pre-orders have begun. As such, the device doesn't have any initial sales numbers to show for as of yet. Moreover, Samsung doesn't have any high-flying expectations from the device either as sales of the Galaxy S4 weren't as great as the company had expected. So, Samsung has kept sales expectations for its new flagship modest, according to a Korean publication.

Samsung expects to sell a total of 360 million phones this year, out of which 35% will be premium handsets. This puts the sales number of high-end phones for this year at 126 million, which is still huge. Given that Synaptics was also powering the touchscreen of the Galaxy S4, it can expect to sell a good number of chips this year to Samsung.

Samsung had accounted for 14% of Synaptics' revenue last fiscal year from less than 10% in the preceding year. The Samsung account can grow further as the Korean giant is planning to focus more on sales of its low- to mid-range handsets and tablets.

Now, Synaptics is not focusing on the high-end stuff. Its broad product portfolio also includes mid-range and the lower-end type solutions where the company is seeing robust growth, according to management. However, the good part is that the product mix is expected to be inclined toward the premium segment according to CFO Kathleen Bayless.

More than just Samsung
Samsung isn't the only high-end customer of Synaptics. The company has managed to place its solutions in Sony's (NYSE:SNE) Xperia Z1 and Google's Nexus 5. The Xperia Z1 was one of the driving factors behind a year-over-year surge of 30% in smartphone sales at Sony in the third quarter of last year. The fourth quarter was even better with sales rising 45%. On the other hand, Google called the Nexus 5 a sales success. Thus, Synaptics seems to be pulling all the right strings in the smartphone market.

Synaptics also seems to enjoy a good position among smartphone makers in China, and this could turn out to be a big advantage in the future. Synaptics management states that it has strengthened its relationship with leading Chinese companies such as Lenovo, Huawei, ZTE, Gionee, and Coolpad. The company has been supplying its solutions to these players already, and the deployment of LTE in China could further boost sales.

The roll-out of TD-LTE by China Mobile will give rise to strong demand for LTE handsets. The telco expects 4G handset shipments to reach 200 million this year in China from just 4.6 million units in 2013. Now, Samsung, Lenovo, Coolpad, and Huawei hold the top four positions in the Chinese smartphone market, and since Synaptics sells its solutions to all of these, it is in a good position to take advantage of growth in LTE handsets. 

Another big opportunity
Also, the buyout of Motorola by Lenovo will also positively impact Synaptics. The Moto G was powered by Synaptics' single layer on-cell solution and it has been a success in the European market due to its value for money positioning. The acquisition of the brand by Lenovo will open a bigger market for Motorola as the Chinese company has grand designs for its latest purchase.

Lenovo plans to end Motorola's losses within a few quarters as it will be reestablishing the brand in China and other emerging markets in both the premium and budget segments. This means that Synaptics will have yet another volume player at hand in the smartphone market to count upon. 

Still cheap and worth buying
Over the past one year, Synaptics shares have gained close to 60%. But still, the stock trades at a cheap 16 times last year's earnings, which is almost half of the industry average P/E ratio. This is quite cheap for a company whose earnings were up 56% in the previous quarter on the back of 44% growth in revenue.

In addition, Synaptics has almost negligible debt, is cash flow positive, and regularly buys back shares. So, a cheap valuation, a strong balance sheet, and solid prospects make Synaptics an ideal stock to buy to profit from smartphone sales.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers