Why This Samsung Supplier Should Continue Outperforming

Presence in Samsung's flagship phone and new customer wins are key catalysts for this tech stock.

Jun 11, 2014 at 1:30PM

Synaptics (NASDAQ:SYNA) is on a solid run in 2014. The stock has appreciated 14% so far this year as its touchscreen and fingerprint ID solutions have found their way into Samsung's (NASDAQOTH:SSNLF) latest Galaxy flagship smartphone. Synaptics is also gaining momentum at the expense of other key customers such as Nokia and Chinese smartphone companies.

Driven by its impressive product innovation, Synaptics' business is on a roll as evident from its third-quarter results. Moreover, its outlook indicates that the performance can improve further. Let's take a look at Synaptics' recent results and see why it is a good buy for the long run.

Robust performance
Synaptics' revenue jumped an impressive 25% to $204.3 million in the third quarter, primarily driven by the adoption of its fingerprint ID solutions. The company expects revenue for the June quarter to be in the range of $275 million to $295 million on the back of strong sequential growth across its product portfolio. This will be an increase of 20% to 28% over the prior-year quarter.

Synaptics has significantly increased the outlook for its fingerprint business, and combined with solid growth in its core touch platforms, it expects to post stellar results going forward.

Products gaining traction
Synaptics is making a number of moves to increase customer engagement and attract new clients. Its presence at the Mobile World Congress in Barcelona earlier this year drove a significant number of booth tours and productive partner meetings. The company displayed several next-generation solutions for both touch and fingerprint. 

However, the most high-profile customer win for Synaptics is Samsung. Its ClearTouch technology is being used to drive the touch interface for the Galaxy S5. With this solution, it's also enabling a host of added features in the device.

Remarkably, Synaptics is the first company to power the touch interface in back-to-back versions of the Samsung flagship. This indicates the efficiency and popularity of the company's solutions. Also, the Galaxy S5 is experiencing strong demand across the world. It has already sold more units than the Galaxy S4 in its first month with 11 million units. So, there is a possibility that Samsung might need to produce more units as the device has performed ahead of its expectations. This will result in more demand for Synaptics' solutions.

Synaptics might see more growth going forward as the market for biometric solutions in mobile devices is accelerating. The company is highly engaged with its OEM partners in multiple programs and developments in the newest line of sensor products.

Impressive product innovation will lead to more growth
Synaptics' research teams are innovating its identity solutions to new levels of usability and security. The company has been broadening its product portfolio with simplified device integration and cost-effective biometric platforms. 

Additionally, its ClearPad solutions are also gaining traction with Nokia's Windows 8.1 phones that are expected to begin shipping this quarter. Synaptics is providing its solutions for the flagship Lumia 930 for the 5-inch clear black screen. ClearPad solutions will also find their way into the Lumia 630 and 635 budget phones meant for the emerging markets. The Asha 230 entry-level full touch mobile phone will also play a role in enhancing Synaptics' revenue.

For larger screens, it has continued to expand its tablet and touchscreen customer base at major OEMs over the last year with the ClearPad 7500 family of Windows 8.1 certified solutions with active stylus support. 

Moreover, Synaptics is seeing strong demand for display-integrated solutions. Its OEM and display partners are looking for cost-effective solutions to deliver thinner, lighter, more responsive phones with larger and brighter displays. Display integration solutions accounted for more than 40% of its mobile shipments in the previous quarter, and this percentage is expected to increase over time. 

Synaptics is also growing its presence in China. It is working to expand its penetration through the adoption of its single layer on-cell for entry-level smartphones.

Synaptics is benefiting from the adoption of its solutions by different customers across the globe. Its product innovation is strong, and presence in both high-end and budget smartphones will continue driving its growth in the future. Investors should take a closer look at Synaptics as it could prove to be a good long-term investment.

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Amit Patel 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.

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