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Synaptics Inc. Could Be the Big Winner in Smart Cars

By Tim Brugger – Feb 3, 2016 at 9:15AM

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Smart cars will likely be one of the first breakout hit products in the world of IoT, and this “little” interface solutions provider could benefit.

By virtually all accounts, the Internet of Things market is expected to explode in the coming years. Some estimates suggest there will be over 30 billion smart devices in just four years, accounting for nearly $6 trillion in revenue. And among the ones that will lead the way in the race to connect the world around us will be smart cars.

With so much potential revenue at stake, it's no wonder heavy hitters including Alphabet (GOOG 3.16%) (GOOGL 3.06%) and Apple (AAPL -1.26%) are diving into the deep end of the IoT pool with their respective solutions. Both behemoths have already made inroads into the smart car business, inking deals with several of the world's largest automakers.

But it's not just the big boys that will see sales boosts thanks to the proliferation of smart cars. Interface solutions provider Synaptics (SYNA 2.81%) also stands to benefit, particularly given new data that suggests consumers' automotive desires are less about performance, and more about connectivity.

Just the facts
It may come as a surprise to auto enthusiasts, but according to a recent survey, consumers are quickly becoming more interested in a car's infotainment offerings -- in other words, in-dash IoT solutions -- than its actual driving performance. Though Alphabet's futuristic self-driving cars garner much of the press as it relates to smart cars, what consumers are clamoring for in record numbers are connected infotainment units.

In fact, a survey was conducted asking new car buyers in Germany, China, and the U.S. if they would switch car manufacturers if another brand was the only one offering connectivity. A whopping 37% said they'd forego a car's performance for connectivity, up from just 20% two years ago. Alphabet's Android Auto and Apple's CarPlay are both leaders in the smart car market, thanks to their respective operating systems running automotive infotainment centers. But they're not alone.

Another smart car play
With growth in the high-end smartphone market expected to slow down his year, Apple, and to a lesser extent Alphabet, could certainly use another burgeoning market to ease investors' angst. Synaptics' smart car initiatives, on the other hand, are simply icing on what is already a pretty good cake.

Consumers' desire for connected cars also falls directly into the wheelhouse of "little" Synaptics ($2.7 billion in market capitalization). In its recently completed fiscal second quarter , 87% of Synaptics revenue was derived from its mobile solutions, and that figure is expected to increase to 90% this quarter. The data is making it abundantly clear that our cars are evolving into yet another mobile device, much like a drivable tablet or smartphone.

Synaptics and its suite of touch screen, security,  and automotive-specific display solutions are ideally suited for the fast-growing connected car market, and it has already forged deals with some of the world's largest auto manufacturers. And the company is taking more steps to increase its smart car footprint, as evidenced by its recent alliance with France-based automotive supplier Valeo.

The deal with Valeo will result in the industry's first "automotive touchscreen that combines capacitive touch, ClearForce force sensing technology and haptic feedback." "Haptic feedback" involves touch technology on a user interface, like a car's infotainment system, that allows the user to physically feel the interface responding.

And there's more

Another upside to Synaptics' smart car initiatives is that it's easier for them to move the revenue needle at a company of its size -- in contrast to behemoths like Alphabet and Apple. With $470.5 million in sales last quarter, it will take less for Synaptics' connected car plans to provide a measurable and meaningful boost to its top line. And any revenue boost will be a benefit for Synaptics shareholders.

At its current share price of about $74 and valued at over 23 times trailing earnings, Synaptics may not light a fire under growth investors -- but it should. Looking ahead, Synaptics is an absolute steal, trading at a mere 10 times future earnings. Toss in its unassuming, but potentially huge, upside in the smart car infotainment market, and Synaptics warrants a spot near the top of growth investors' buy lists.


Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and 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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