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Grim Mobile and IoT Market Mars Synaptics (SYNA) Q3 Earnings

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Shares of Synaptics Incorporated (SYNA - Free Report) have declined 11.8% in the year-to-date period against its industry’s rally of 16.1%.

The company is hurt by a weakness in the mobile and IoT market. It is facing hurdles in the Mobile Products segment, primarily due to sluggishness in the smartphone market. Moreover, a downturn in the broader consumer IoT market, primarily due to the slowdown in smart home demand, is an overhang on its revenue base.

Further, soft demand for smartphones in China coupled with the ongoing inventory adjustment of a leading customer, mostly Apple (AAPL - Free Report) , which is likely to be cleared by September 2019, prompted the management to provide a weak guidance for the June quarter. The absence of a CEO as well as a CFO is also affecting the company’s near-term outlook.

However, stability in PC products is a positive. The company expects ramp-up of the output of new products like AS3 and USB-C SOC throughout the year to help the IoT segment grow in double digits during the second half of 2019. Besides, its focus on improving its margin and profitability is encouraging.

 

Let’s take a look at the recently released third-quarter fiscal 2019 results.

Assessment of Q3 Results

The company delivered third-quarter fiscal 2019 non-GAAP earnings of 83 cents per share that beat the Zacks Consensus Estimate of 71 cents. However, the figure declined 9.9% from the year-ago quarter.

Revenues decreased approximately 15% from the year-earlier quarter to $334 million and also lagged the Zacks Consensus Estimate of $342 million.

Mobile products (61% of total revenues) revenues of $205 million fell 16% on a year-over-year basis and 25% sequentially.

IoT products (19%) revenues came in at $63.1 million, down 29% on a year-over-year basis and 28% sequentially.

PC products (20%) generated revenues of $66.2 million, which grew 29% year over year and 28% sequentially.

Synaptics reported non-GAAP gross margin of 39.5% in the quarter, which expanded 280 basis points (bps) on a year-over-year basis.

Non-GAAP operating income was down 13% to reach $32.7 million. However, operating margin improved 30 bps to 9.8%.

Synaptics Incorporated Price, Consensus and EPS Surprise

Synaptics Incorporated Price, Consensus and EPS Surprise

Synaptics Incorporated price-consensus-eps-surprise-chart | Synaptics Incorporated Quote

Balance Sheet & Cash Flows

As of Mar 31, 2019, cash & cash equivalents were $328.8 million, up from $283 million reported in the earlier reported quarter.

Synaptics generated net cash from operations of $47 million, down from $59 million in the previous reported quarter.

Guidance for Q4

Non-GAAP earnings are envisioned between 25 cents and 45 cents per share.

For fourth-quarter fiscal 2019, revenues are anticipated in the range of $300-$320 million, indicating a decline of 4-10% from the sequential quarter’s reported figure.

Management expects revenue mix from Mobile, IoT and PC products to be approximately 55%, 25% and 20%, respectively.

Non-GAAP gross margin is forecast in the range of 37.5-38.5%, which might dip slightly sequentially due to product mix within mobile.

Zacks Rank and Stocks to Consider

Synaptics currently carries a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks in the broader Computer and Technology sector are Cadence Design Systems (CDNS - Free Report) and Verint Systems (VRNT - Free Report) , both 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 Cadence and Verint is projected at 12% and 11%, respectively.

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