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Synaptics (SYNA) Q3 Earnings Beat, Revenues Miss Estimates

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Synaptics Incorporated (SYNA - Free Report) delivered third-quarter fiscal 2018 non-GAAP earnings of 92 centsper share that beat the Zacks Consensus Estimate by a couple of cents. The figure also surpassed the mid-point of management’s guided range of 80 cents to $1 per share. However, the figure declined 27.6% from the year-ago quarter.

Revenues declined approximately 11.3% from the year-ago quarter to $394 million, in line with management’s guidance range of $380-$420 million, owing to seasonality. The figure lagged the Zacks Consensus Estimate of $401 million.

Segmental Highlights

In order to maintain ease of reporting, fingerprint products are classified according to the type of device.

Mobile products (62.1% of total revenues) include display driver, touchscreen and applicable fingerprint products. This segment reported revenues of $244.8 million, declining 34% on a year-over-year basis. Weakness in the smart-phone market hurt mobile products’ revenues.

However, fingerprint business holds promise. Notably, New Vivo smart-phone, the X21 Plus UD leverages Clear ID in-display fingerprint solution developed by Synaptics.

Consumer IoT products (22.6%) revenues came in at $89.0 million. Per the company data, approximately $23.6 million of mobile product revenues has been reclassified as Consumer IoT revenues, for the reported quarter. Automotive, VR, as well as voice and video-enabled products are gaining traction.

Chip-on-film (CoF) solutions enhance the display of LCD phones. Unabated demand for LCD panels and introduction of TDDI and DDIC CoF solutions gathered mass orders for the company. AudioSmart, ImagingSmart and VideoSmart gained wide scale adoption. New design wins in IoT provided further impetus.

Synaptics AudioSmart far-field voice DSP technology finds application in Japan’s NTT DOCOMO’s Simple Mic speaker. Additionally, the technology can leverage Bixby, Google Assistant and Alexa.

PC products (15.3%) generated revenues of $60.2 million, which grew 13% year over year. The segment accounts for includes applicable fingerprint products. TouchPad & ClickPad gained adoption from leading PC makers including the likes of Dell and Lenovo during the quarter.

Operating Details

Synaptics reported non-GAAP gross margin of 36.8%, which expanded 370 basis points ("bps") on a year-over-year basis, was near the high end of management’s guided range of 35-37%. This can be attributed to a favorable product mix.

Non-GAAP Selling, General and Administrative ("SG&A") expenses declined 15.34% year over year to $26.5 million while Research and development "(R&D") expenses surged 28.8% to $81 million.

Consequently, non-GAAP operating income declined 28.8% to reach 37.6 million.

Balance Sheet & Cash Flows

As on Mar 31, 2018, cash & cash equivalents were $283.4 million, up from $252 million, reported in the previous quarter.

Synaptics generated net cash from operations of $34 million, down from $63 million in the previous quarter.

Guidance for Q4

Non-GAAP earnings are envisioned to come in between 80 cents to $1 per share. The Zacks Consensus Estimate is currently pegged at $1.18 cents per share, flat year over year ahead of high-end of the guided range.

For fourth-quarter fiscal 2018, revenues are anticipated to be in the range of $370-$410 million,representing a decline of 8.7% year over year using the mid-point of the range, sluggishness in the smart-phone market and spot shortages on TDDI and DDIC products.

Synaptics is likely to miss the current Zacks Consensus Estimate, pegged at $422.5 million, reflecting a decrease of 1% from the year-ago quarter.

Management expects revenue mix from Mobile, Consumer IoT and PC products to be approximately 58%, 25% and 17%, respectively.

Non-GAAP gross margin is expected to be in the range of 36-37%, translating to a year-over-year expansion of almost 400 bps considering the mid-point of the range.

Non-GAAP operating expenses are anticipated to be in the range of $103-$107 million.

Conclusion

Synaptics is well poised to benefit from a diversified product portfolio and investments in infinity displays, and consumer IoT in the remainder of the fiscal year. The company looks forward to prioritizing its OLED display drivers, in-display fingerprint-enabled mobiles and voice-enabled products.

The acquisitions of Conexant Systems and Multimedia Solutions Business of Marvell Technology Group are helping it expand customer base.

Lower demand for smart-phones is likely to hurt the company’s top-line growth. However, Synaptics’ focus on enhancing in-display fingerprint sensing, Touch and Display Driver Integration ("TDDI") and OLED DDIC portfolio will help it counter the growing headwinds, going forward.

Synaptics Incorporated Price, Consensus and EPS Surprise

Synaptics Incorporated Price, Consensus and EPS Surprise | Synaptics Incorporated Quote

Zacks Rank & Stocks to Consider

Synaptics carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector are Citrix Systems, Inc (CTXS - Free Report) , NetApp, Inc. (NTAP - Free Report) and PTC Inc. (PTC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Citrix, NetApp and PTC are currently pegged at 9.05%, 10.34% and 38.22%, respectively.

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