Synaptic (NASDAQ: SYNA) shares surged greater after the chipmaker eased Wall Avenue expectations for the fiscal fourth quarter in early August, driving sturdy will increase in income, gross margin and earnings.
Shares of the corporate, whose chips are utilized in fast-growing verticals such because the Web of Issues (IoT) and cellular, jumped practically 17% the day after the earnings report was launched. Synaptics’ sturdy efficiency is no surprise, as the corporate was sitting on spectacular catalysts.
Nevertheless, buyers who’ve missed Synaptics’ explosive inventory run to this point this yr can nonetheless soar on this bandwagon as its days of large progress are removed from over. Let’s examine why.
Meet Synaptics’ Greatest Progress Engine
Synaptics’ fourth-quarter income jumped 18% year-on-year to $ 327.8 million, whereas adjusted earnings per share jumped 76% to $ 2.18. Wall Avenue analysts anticipated Synaptics to earn $ 2 per share on $ 324.7 million in income, however sturdy demand within the IoT trade and a pointy improve in gross margin helped the corporate exceed estimates. Synaptics ended the quarter with a non-GAAP gross margin of 57.5% – a marked enchancment over the 46.9% a yr in the past – because of the steps taken by the corporate to maneuver to a better margin mannequin. excessive.
The IoT enterprise generated half of Synaptics’ whole income within the final quarter. Section income grew 143% yr over yr, together with the influence of acquisitions, whereas natural progress stood at a decent 30%. The nice half is that Synaptics’ acquisition of BroadcomThe wi-fi IoT enterprise of, accomplished in July 2020, delivers the products to the chipmaker.
Through the earnings convention name, CEO Michael Hurlston stated the corporate has doubled its income in IoT functions similar to residence automation, wearable units, video doorbells, surveillance and health. Extra importantly, Synaptics’ design wins within the IoT trade are anticipated to assist assist this spectacular progress. Hurlston stated:
Our greatest-in-class Wi-Fi 6 and Bluetooth combo chipsets are fashionable with clients designing new options or upgrading their present merchandise. We now have additionally received a number of new design contracts with our GPS options, notably in transportable units. Given our tempo of success, we plan to double once more over the subsequent 18 months.
Synaptics’ margin is ready to enhance additional because of the dominant contribution of the IoT enterprise, which allows the corporate to ship “greater worth merchandise” to its clients. IoT enterprise is anticipated to account for 51% of whole income this quarter and develop 65% yr over yr.
The corporate expects a non-GAAP gross margin of between 52% and 53.5% within the first quarter of the yr, a pointy improve from 41% the earlier yr. Consequently, Synaptics’ earnings are anticipated to drop from $ 1.85 per share a yr in the past to a variety of $ 2.45 to $ 2.75 per share within the present quarter. However Synaptics has another catalyst on the best way that might assist it exceed expectations.
The cellular enterprise is about to step on the gasoline
Synaptics’ cellular enterprise generated 24% of the corporate’s income within the fourth quarter. Section gross sales had been down 35% year-over-year as the corporate divested its TDDI (Contact / Show Integration) LCD cellular enterprise in April 2020 as a consequence of its low margin profile.
Now that the influence of the year-over-year divestiture is within the rear view mirror and Synaptics is specializing in the upper margin natural gentle emitting diode (OLED) unit, the cellular enterprise is poised to revive. the expansion. Synaptics administration identified that the corporate’s second-generation OLED contact controller is now in quantity manufacturing, with the third-generation controller anticipated to be rolled out quickly.
Synaptics reportedly on monitor to ship OLED contact controllers to Apple for the iPhone 12, and the corporate stated final yr that it had certainly received the contract. Since its second-generation OLED contact controller is already in quantity manufacturing, there’s a risk that Synaptics will provide chips to Apple once more.
This might be a giant win for Synaptics, as provide chain rumors point out that Apple could initially produce 90 million items of this yr’s iPhone fashions, up from 75 million items of the iPhone 12. . is supplying its OLED controllers to unique gear producers (OEMs) of Korean and Chinese language smartphones, and the cellular enterprise appears to be like set to blow up.
All of this makes Synaptics a progress inventory to purchase now, particularly since it’s buying and selling at simply 17x ahead earnings versus the S&P 500is a a number of of 31.
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