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Synaptics (SYNA) Q2 Profit May Fall On PC Weakness

 January 22, 2013 04:53 PM

(By Mani) Synaptics, Inc. (NASDAQ: SYNA), a provider of touch screen solutions is expected to report lower sales and profit for its second quarter, when it announces financial results on Jan.24, hurt by weak PC market.

Santa Clara, California-based Synaptics makes custom designed human interface solutions that enable people to interact more easily and intuitively with a wide variety of mobile computing, communications, entertainment, and other electronic devices.

The company currently targets the personal computer, notebooks, ultrabooks, smartphones and feature phones, the tablet market, and other select electronic device markets.

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Synaptics, which competes with Atmel Corp. (NASDAQ: ATML) and Cypress Semiconductor Corp. (NASDAQ: CY), gets more than 50 percent of its revenue from PC market, which is losing share to tablets and smartphones.

Wall Street expects Synaptics to earn 45 cents a share, according to analysts polled by Thomson Reuters. The consensus view represents a drop of about 34 percent from last year's earnings of 68 cents a share.

During the past four quarters, the company's earnings have managed to top Street view thrice while the consensus view remained unchanged in the past 90 days. In the last 30 days, two analysts have upped their earnings estimate on Synaptics.

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Quarterly revenues are expected to decline 5.3 percent to $137.71 million, driven by competitive pressures. The company, which sees second-quarter sales in the range of $134.0 million to $142.0 million, has recorded single-digit revenue drop in the preceding four quarters.

For the first quarter, the company reported net income of $6.1 million or 18 cents per share, compared to $13.0 million or 39 cents per share in the comparable quarter last year. Adjusted net income for the first quarter was 37 cents per share, topping consensus estimate of 34 cents per share for the quarter. Net revenue declined 5 percent to $127.0 million while analysts had a consensus revenue estimate of $124.01 million for the quarter.

As a pioneer and innovator in capacitive touch technology, Synaptics is exposed to one of the most significant secular trends in electronics today—the shift to touch-based human interface solutions. Unfortunately, the hyper-growth of end market opportunities in mobile phones, cameras, PCs, etc. has invited increased competition from both traditional and upstart rivals, and threatened Synaptics' ability to participate in the fast-growing set of opportunities fully.

Synaptics is facing huge opportunities with increasing bill of material share, continued growth in touch screens, and notebook potential. However, these catalysts are a year away now. Additionally, with the success of Windows 8 being uncertain, it is proving difficult to measure the company's performance precisely.

The stock, which has a P/E ratio of 19 times, has gained 36 percent in the past three months and is nearing its support price of $32.32. Out of 15 analysts covering the stock, 8 (53 percent) of them has a rating of "strong buy" or buy," while 6 analysts (40 percent) recommend "hold." One analyst has a "sell" rating on the stock.

"Long term, we believe Synaptics brings a number of significant core competencies to bear, including a rock solid IP portfolio and an ability to engineer easily integrated turnkey solutions for ODMs reliably. However, in the near term these qualities are likely to be overshadowed by share loss and weak PC demand," Oppenheimer analyst Andrew Uerkwitz wrote in a note to clients.



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