But the report wasn't all good news. Synaptics, which makes the touch-sensitive click wheel for digital music players, forecasted that next-quarter revenues would come in about 10% lower. And the December quarter may not be much better.
The reason mentioned is softness in the portable music player market. Oddly, Apple Computer's
All of this raises the question for investors: Is now the time to own Synaptics?
Here are some facts to consider. Digital music players account for about 30% of the company's overall TouchPad technology sales. If those sales have peaked or the rate of sales has slowed, that would leave a sizable gap in the earnings and revenue for the company going forward. The core business is notebook computers, and that area is growing, but at this point it's not clear whether it's enough to make up the shortfall in the digital player market. Synaptics has plans to sell its technology to mobile phone manufacturers as a way to expand its overall portfolio. Signing these deals will be critical for Synaptics to earn additional revenue.
The company is buying back its shares, which is a Foolishly good indicator that management is confident in the future. Even with reduced earnings estimates of about $0.83 per share, the stock is trading with a forward price-to-earnings ratio of only 20.5.
Per Synaptics' expectations, the next couple of quarters may not impress investors. A mixed picture of hardware demand and Apple's decision to do some of the TouchPad business internally has contributed to the weaker outlook: It's uncertain the extent to which this will affect Synaptics' outlook moving forward. Accordingly, the company has lowered its revenue outlook for two quarters in a row, with no signs of improvement over the next six months. Though the stock is not overvalued in spite of reduced earnings estimates, it's my opinion that investors would be best served by taking a wait-and-see approach before committing any hard-earned dollars.
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Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.