Shares of Synaptics drop after fiscal 3Q profit slides

Shares of Synaptics Inc. dropped Friday morning after the computer components manufacturer said fiscal third-quarter earnings tumbled nearly 47 percent and it took a charge related to auction-rate securities.

The stock fell $2.25, or 6.7 percent, to $31.59.

For the period ended March 31, Synaptics posted profit of $3 million, or 12 cents per share, compared with profit of $5.6 million, or 20 cents per share, in the year-ago period.

Excluding certain charges, including stock-based compensation costs, profit was $8.8 million, or 35 cents per share.

The number of outstanding diluted shares fell about 15 percent between the periods, to 25.3 million from 29.6 million.

Revenue jumped 23 percent to $78.9 million from $64.3 million.

Analysts polled by Thomson Financial expected, on average, earnings of 35 cents per share on revenue of $77.6 million. Analysts often exclude one-time charges.

Synaptics said it took a $7.3 million impairment charge during the period and has $48.6 million invested in auction-rate securities. Cash and short-term investments, excluding auction-rate securities, totaled $156.6 million.

"We are confident that our existing cash and other short-term investments and our expected future cash flow from operations will be sufficient to allow us to continue to hold our current auction-rate securities," Chief Financial Officer Russ Knittel said in a statement. "If we hold our auction-rate securities to term, and if the issuer pays all amounts due, the impairment charges would be reversed."

For the fiscal fourth quarter, Synaptics expects to post revenue of $90 million to $95 million, above analysts' $87.5 million expectation.

Craig-Hallum Capital analyst Anthony Stoss kept a "Buy" rating after the results, but grew concerned the company guided for gross margins of 40 percent, below his 41 percent expectation.

He lowered his fiscal 2008 estimate to profit of $1.92 per share from $1.94 per share.

Stoss' $39 price target implies he expects the stock to rise about 15 percent above Thursday's $33.84 close.

"We are encouraged that Synaptics plays in several of the fastest-growing areas of technology," Stoss said in a note to clients. "We would like to see continued improvement in gross margins in order to more fully showcase the outstanding leverage in the model given the excellent" revenue growth.