S ynaptics, a force in fingerprint recognition and touchscreen technology, finished calendar 2014 with a bang, and its CEO tells IBD that the company is poised for continued robust growth amid rising global demand for smartphones and tablets.
It's not without some cutting-edge competition, however.
The San Jose, Calif.-based company earlier this year posted earnings of $1.46 per share for the quarter ended in December 2014, ex special items, a 70% jump from a year earlier. Sales surged 125% to $464 million. For its fiscal 2015 third quarter, ending in late March,Synaptics ( SYNA ) projects sales of $450 million to $490 million. At the midpoint of that forecast, sales would more than double from a year earlier.
Synaptics President and CEO Richard Bergman said in an interview that the company has, over the past few years, deftly made the transition from a PC-focused firm to one with a broader approach that resulted in a dominant position devising ever-advancing technology for mobile devices. Its interface software is designed to bolster the user experience and security for smartphone and tablet owners.
About 86% of Synaptics' sales derived from mobile products in the December quarter, compared with 14% from PC products, including notebook computers. Three years ago, Bergman says, PC sales accounted for about 50% of revenue. He says sales linked to PC products have only inched down in that time, meaning Synaptics has maintained share in that arena while producing whopping growth in the mobile field to shift its revenue mix to capitalize on high demand.
"I'm proud of how we've been able to cross that bridge," he said.
Synaptics should keep enjoying "the leading position across high-end smartphones, particularly with content on three leading OEMs (Apple ( AAPL ), Samsung, Xiaomi)," Cowen & Co. analyst Robert Stone said in a research note on March 2.
Samsung unveiled its high-end Galaxy S6 smartphone at the start of the month. It goes on sale April 10.
"Improved Galaxy S6 designs, area fingerprint sensors and Samsung Pay should drive unit growth" for Synaptics, Stone wrote, adding that he thinks some touch technology in that phone, a touch controller, is bySTMicroelectronics ( STM ).
Synaptics' blue-chip customers, he notes, include nine of the top 10 notebook original equipment manufacturers -- all but Apple -- and that Synaptics' designs are in phones or tablets by the likes of Apple, Samsung, Xiaomi, LG, Sharp and others.
Synaptics is part of the Computer-Hardware-Peripherals industry group and has a Composite Rating of 95 from IBD, making it a group leader along with Apple,Zebra Technologies ( ZBRA ) andSuper Micro Computer ( SMCI ). It's seventh-largest in the group by market value, after Apple,Hewlett-Packard Co. (HPQ),Canon (CAJ),Fujifilm Holdings (FUJIY),Xerox (XRX) and Zebra.
Synaptics carved out a dominant position in fingerprint recognition with its so-called "swipe" sensor, embedded in smartphones -- including high-end offerings from Samsung -- and other devices. This technology works as the name implies: a user swipes a finger or thumb across the sensor and it reads the fingerprint, serving as a higher level of security than typing in a password.
Fingerprint Log-Ins Evolve
Bergman says Synaptics will continue to develop advancing versions of the swipe sensor while it simultaneously rolls out new developments in "area" technology, expected to be a key driver of growth in the year ahead and beyond. With an area sensor, users merely touch a finger in a designated area on the device -- a simpler process than swiping and one that affords faster reading of the fingerprint to unlock phones, tablets and computers.
Synaptics already is mass-producing area sensors, Bergman says, and the company anticipates they will be increasingly adopted by numerous mobile producers over the course of calendar 2015.
"We expect several announcements as we go through the year," he said.
In his March 2 research note, analyst Stone mentioned Synaptics' announcement "that the small area 4 x 10mm fingerprint sensor is now in mass production" while describing the Samsung Galaxy S6.
"We estimate that the dollar content per phone (for Synaptics) should be slightly higher compared to the GS5, as the area fingerprint sensor should be worth more than the combination of touchscreen controller and swipe sensor on the GS5," Stone wrote.
The new fingerprint readers, analysts say, could boost growth in mobile as well as in the PC business. Such advances are in high demand as consumers in the U.S., Europe and Asia increasingly access online services such as retail, banking and social media portals, amplifying the appeal of easy-to-manage security measures and providing Synaptics with a long-term growth driver.
Market research firm IHS recently predicted that the global volume of fingerprint sensor-enabled devices would balloon from 317 million units at the end of 2014 to 1.4 billion units by 2020.
Synaptics is "always focused on product improvement and solid execution," Liwen Zhang, an analyst at Blaylock Beal Van, told IBD. "I think they will continue to do well, continue to deliver."
Fingerprint recognition is one of "two pillars of growth going forward" for Synaptics, Bergman said. The other is touch display driver integration, or TDDI, which combines into a single chip both touch control and the technology used to display the screen on computers and mobile devices.
This simplifies design, resulting in thinner touchscreens and brighter displays. It also reduces the number of components needed in the manufacturing process, trimming costs and providing Synaptics' customers added incentive to invest in the chips. Synaptics estimates that more than half of all smartphones will have a display-integrated touchscreen by the end of this year.
TDDI Chips Fire Up
In a billion-unit-per-year business, Stifel Nicolaus analyst Kevin Cassidy said, Synaptics' forecast means the TDDI chips could soon be in some 500,000 smartphones, adding "that's a pretty big market."
The TDDI advance grew out of Synaptics' 2014 acquisition of Renesas SP Drivers, or RSP, a supplier of display drivers for smartphones and tablets. Synaptics combined RSP's display expertise with its own, aiming to lift the caliber of TDDI and accelerate its adoption.
Bergman said that near-term, Synaptics is squarely focused on its efforts in fingerprint recognition and TDDI and doesn't have more acquisitions on its front burner.
Deals could help the company drive future growth, he said, adding, "we will continue to look."
The December-quarter results were the first to include the acquisition of RSP, which contributed about half of Synaptics' sales. Without RSP, sales would have grown about 10% vs. a year earlier.
The vast majority of what Synaptics produces gets sold into Asia, where PC and mobile devices are typically manufactured. Though he did not have a geographic breakdown, Bergman said the end products that contain Synaptics' technology are sold all over the world, from the U.S. to Europe to China.
The latter is where Synaptics is now seeing tremendous growth. It expects that to continue, Bergman said, not only due to China's massive population but also because the average resident there is gaining spending power, fueling demand for new tech-driven products.
"We have a big emphasis on China," he said.
Analysts note that competition in the tech world, particularly when it comes to those working on mobile devices, is fierce and presents a prominent possible downside for Synaptics. Just this month, chipmaking giantQualcomm (QCOM) announced new technology that uses ultrasonic sound waves to read fingerprints, even more seamlessly than what is already being rolled out by Synaptics and Apple's own in-house efforts for its iPhones. Qualcomm has said its Snapdragon Sense ID 3D Fingerprint Technology can read fingerprints when a finger is wet or dirty, for instance.
Analysts covering Synaptics point to the company's long history of innovation and of staving off competitive pressures.
It has operated in the touchpad space for 15 years and has long maintained a roughly two-thirds market share in the segment, Cassidy said. The company, he added, gets ahead of competition and stays there by constantly developing new technology while finding ways to do so at reasonable costs. Its acquisition of RSP, he said, gives it significant added scale that should enable it to continue to produce on these fronts.
On Qualcomm specifically, Cassidy said it remains to be seen how well the new offering will be received by consumers and, perhaps more important, whether the technology can be brought to market at a favorable price. He said Qualcomm's decision to go with the technology "adds a lot of credibility to it," but pricing of smartphone components is "very sensitive," as makers of the phones are in heated competition to deliver innovation at attractive rates.
"I don't think anyone new to the (fingerprint recognition) market is going to make a shift in who controls volume for at least another year," he added.
Longer term, Cassidy said, he expects Synaptics to become a force in developing technology for touchscreens in cars and, eventually, in other areas of consumers' daily lives, from appliances to products that have yet to be invented.
"I think they are going to be the survivor throughout all of this," Cassidy said of Synaptics. "They've proven that they always find a way."
Synaptics' stock is up 17% so far this year.