This Apple and Samsung Component Supplier Is Set for Solid Growth

After a solid performance in 2014, this smartphone supplier can get better.

Sharda Sharma
Sharda Sharma
Jul 21, 2014 at 1:00PM
Technology and Telecom

Synaptics (NASDAQ:SYNA) looks like the next hot pick in the semiconductor industry. The Samsung supplier is already up 60% in 2014, but its prospects indicate that there is more to come. In addition, Synaptics' recent acquisition of Renesas has opened new possibilities, as it might also become an Apple (NASDAQ:AAPL) supplier now.

The company is expected to release its fourth-quarter results at the end of July. Driven by growth in biometric solutions, large touchscreen display integration, and expansion in China, Synaptics is expected to report solid results.

Solid growth is expected
Synaptics' fourth-quarter revenue is expected in the range of $300 million-$310  million, up from previous guidance of $275 million-$295 million. This represents an increase of about 30%-35% from the year-ago quarter. Also, the company expects its full-year revenue to be between $933 million-$943 million, an increase of 41%-42% compared to the prior year. Synaptics' better-than-expected performance in both mobile and PC products is expected to drive this performance.

Moreover, Synaptics expects its original equipment manufacturer, or OEM, partners to deliver high-volume products going forward. It is already gaining traction, as the company recently ramped up the production of its single-layer on-cell solution for Chinese customers. Moreover, the company has invested heavily in developing a broad range of solutions that have enabled it to land design wins in China.

Synaptics is focused on the low-end smartphone market. It sees positive trends for the adoption of its single-layer on-cell solutions in the entry-level smartphone arena. Moreover, its in-cell solutions are gaining traction in the mid-to-high end market. So, the company is also trying to tap the high-volume budget smartphone market in countries like China.

This acquisition could be a solid catalyst
Synaptics' display integration solutions are in high demand, with the product category surpassing more than 40% of the company's mobile shipments in the last quarter. Looking ahead, Synaptics believes that it will see an increase in this percentage due to cost and performance benefits for manufacturers. Moreover, Synaptics' acquisition of Renesas might have something to do with the company's confidence.

The company believes that the acquisition will expand its addressable market by 150%. Renesas makes display drivers and is known for being a supplier to Apple. This acquisition has probably allowed Synaptics to buy its way into Apple. What's more, the company believes that Renesas will help it deliver an integrated touch and display driver solution, delivering an all-in-one solution. The company is seeing strong demand for display integration solutions, which allow manufacturers to deliver thinner, lighter, more responsive phones with larger, brighter displays.

Thinner, lighter, and responsive are the attributes that Apple looks to deliver with each new iteration of the iPhone. The smartphone company is working to bring out a revolutionary device, this time with a larger display, and could ship as many as 180 million iPhones this year. If Synaptics lands a spot at Apple, it will be able to expand its market considerably.

Innovation is driving growth in smartphones
Innovation is at the core of Synaptics' growth. Earlier this year, the company had a strong presence at the Mobile World Congress in Barcelona, where it showcased display and other exciting next-generation solutions. Synaptics also enjoyed a rich presence at the Samsung Unpacked event, where the Galaxy S5 was announced. Samsung used Synaptics' ClearTouch technology to drive the touch interface for its flagship smartphone. 

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Samsung's Galaxy S5 came loaded with a lot of new features, such as Synaptics' natural ID fingerprint identification. It leveraged Synaptics' stylus technology, making the S5 the first-ever smartphone with sensitivity down to 1 millimeter, allowing the use of virtually any stylus, including the average pen or pencil. Its natural ID product family comes with a seamless touch authentication experience, as well as advanced security features to provide maximum device and data protection.

Going forward, it is expected that Samsung will, once again, tap Synaptics for its phablet, the Galaxy Note 4. So, the company's innovation has enabled it to build a strong relationship with Samsung.

The bottom line
Solid product innovation, and the growing adoption of biometric solutions, are tailwinds for Synaptics. The company's financial performance is expected to improve at a rapid pace going forward, and shares look set to continue their terrific run up in the stock market.