Morningstar | Synaptics Turns in Solid 1Q as Diversification Efforts Take Shape; Shares Undervalued
Synaptics reported fiscal first-quarter results consistent our expectations. The firm benefited from stabilization across its business, with sequential strength in mobile stemming from new chip on film OLED display driver integrated circuit, or DDIC, and touch controllers. Longer term, Synaptics is also pioneering integrated touch and display driver solutions in automotive that will be found in upcoming vehicle launches. Meanwhile, cars with the firm’s fingerprint solutions will begin shipping in 2020. We remain positive on Synaptics’ consumer "Internet of Things" business, as well, particularly with far-field voice solutions found in digital assistants and chips utilized in Android-based set-top boxes. Shares rose over 8% during after-hours trading, and we continue to see an appropriate margin of safety relative to our unchanged fair value estimate of $64 per share. We believe investors with the patience to deal with the volatile nature of the semiconductor component space may find current levels attractive, though we reiterate our no-moat rating and very high uncertainty rating.First-quarter sales were $417.6 million, flat year over year and up 7% sequentially. Mobile sales grew 19% sequentially thanks to the aforementioned new products, with the Huawei Mate 20 Pro utilizing the latest OLED DDIC. Consumer Internet of Things sales fell 10% sequentially, though management noted this is a near-term phenomenon related to softer consumer demand. Positively, gross margins in consumer Internet of Things grew for the first quarter and are expected to grow in the second quarter as well. During the quarter, consolidated gross margins rose 90 basis points sequentially to 33.7%, with further expansion expected throughout fiscal 2019. Management anticipates second-quarter sales at a midpoint of $425 million, down 1% year over year, while full-year Internet of Things sales should grow 10%-15%.
Synaptics is a developer and supplier of custom-designed human interface semiconductor product solutions that enable people to interact with a variety of mobile computing, communications, entertainment, and other electronic devices. The company targets the markets for smartphones, tablets, personal computer, products, Internet of Things, products and other select electronic devices, including devices in automobiles. The company's family of products includes: ClearPad?, ClearView?, TouchView?, Natural ID?, TouchPad?, SecurePad?, ClickPad?, ForcePad?, AudioSmart?, VideoSmart?, ImagingSmart?, and other product solutions.
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