Synaptics, Incorporated Now Has a Shot at Apple's Business

The touchscreen specialist scoops up a display driver chipmaker in a deal that makes perfect sense. Can Synaptics win back Apple as a customer now?

Jun 11, 2014 at 1:05PM

Tddi

Touch display driver integration. Source: Synaptics.

It's been a good day so far for Synaptics (NASDAQ:SYNA) investors, as shares have skyrocketed to set fresh all-time highs. In line with previous rumors, Synaptics is purchasing Renesas SP Drivers for $475 million. Further fueling the bullish flames, Synaptics also boosted its revenue outlook. The company now expects record revenue in the range of $300 million to $310 million, up from the prior range of $275 million to $295 million.

A couple of months ago, Apple (NASDAQ:AAPL) had reportedly put in a bid for the display-driver chipmaker, which could have made sense for Apple because Renesas SP Drivers is currently its sole supplier for those chips. Negotiations hit a wall, and Synaptics came out on top.

Details, details
The deal, which is expected to close in the fourth quarter, makes a ton of sense for Synaptics. The company estimates that the acquisition will expand its addressable market opportunity by 50%, and it should be immediately accretive to adjusted earnings. It also paves a potential path for Synaptics to win back Apple as a customer.

Synaptics is taking out $300 million in debt to help finance the acquisition, but it will be well worth it. Since this acquisition is so complementary, Synaptics will enjoy greater scale, and create additional operating leverage.

Integration is key
Touchscreen controller players have been working toward greater levels of integration for years, because it allows for thinner form factors in mobile devices. A couple of years ago, in-cell touch displays were all the rage, which integrates the touch sensor directly into the LCD display. Apple started using in-cell touch in the iPhone 5.

The current frontier of integration is touch display driver integration, or TDDI, which Synaptics has also been working on for years. It launched its first ClearPad Series 4 with TDDI in June 2012. The Renesas SP Drivers deal will accelerate Synaptics' TDDI roadmap even further, and TDDI offers better performance at lower costs.

Syna

Product portfolio unit forecasts. Source: Synaptics.

Synaptics isn't just exaggerating when it calls this acquisition a "game-changing platform level solution."

"Thrilled" about Apple possibilities
Apple used to source touch controllers from Synaptics for the iPod, but it's been eight years since it sold components to Apple. Texas Instruments has historically provided the single touchscreen controller for iPhones, but in 2012, Apple added Broadcom to the mix when it began using two touchscreen controllers to accommodate for the larger display found in the iPhone 5. These are the companies that stand to lose if Synaptics can win over the iBusiness with a TDDI solution. CEO Rick Bergman said he was "thrilled" at the possibility of winning Apple back.

Even beyond Apple, TDDI adoption within the touchscreen market is set to soar, and Synaptics will lead the way. Well played, Synaptics.

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Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

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