Syna hits it out of the ballpark

[SaulR80683]

revenue without profit is meaningless.

Hey Neil, In the last two quarters SYNA has used $91 million to repurchase approximately 1.3 million shares of its common stock, or roughly 3.5% of the total shares outstanding.

That really doesn’t sound like that the company isn’t really making money and is trying to put one over on you. And all the analysts, who are usually very skeptical, are raising estimates and price goals. This company really hit it out of the park. Relax and enjoy it. It may not last, but for now it’s great.

Saul

[Alexa225]

I don’t see any issue with them backing out the one-off acquisition costs in the calculation of EPS. This eliminates costs which actually distort the EPS figure; and makes it easier to compare EPS from quarter to quarter.

They will have included both the revenue and ongoing costs of the acquired entities, so it is not correct to say that they’re including revenue, but ignoring costs. What they’re excluding are essentially capital costs.

A return on equity calculation would take these costs into account.

Alex

[SaulR80683]

I don’t see any issue with them backing out the one-off acquisition costs in the calculation of EPS. This eliminates costs which actually distort the EPS figure; and makes it easier to compare EPS from quarter to quarter. They will have included both the revenue and ongoing costs of the acquired entities, so it is not correct to say that they’re including revenue, but ignoring costs. What they’re excluding are essentially capital costs…Alex

That’s a nice way of putting it Alex. Thanks
Saul

[SaulR80683]

Hi Neil, You seem to have been puzzled and upset by SYNA not subtracting the cost of their acquisition from their earnings. Let me say a word about how I see it. The way I see it, the goal of the quarterly report quarterly is to give us, the investors, a picture that reflects how well the business is really functioning.

Here’s an example, getting away from SYNA. Lets talk about ABC whose last five earnings have been 40 cents, 42, 44, 46, 48, and 50 cents. This quarter they made 52 cents, but they used some of that cash they’ve stored up to make an acquisition. Does it make any sense to have them take all the cost of the acquisition off earnings and report 4 cents or 6 cents earnings, or even negative earnings? Does that help you to better understand how well their business is functioning? Or doesn’t that totally distort the picture? And next quarter, when they don’t have the acquisition cost, and make 54 cents, it will look like a huge sequential jump from 6 cents to 54 cents. Will that help you understand the real progress of the business?

I’m sure they will depreciate the acquisition, by the way. They have to, after all. They can’t just decide not too, and no auditing accounting firm that’s checking their books would let them!!! I really don’t think there is anything for us to worry about here. There are standard ways of treating acquisitions and the auditing firm will make sure they do it right. However, remember, that if they depreciate over 20 years, say, they only depreciate an 80th of the price every quarter. (Just guessing here). Hope that helps.

Best

Saul

[brittlerock]

To be fair, that’s not the reason for the acquisition – it’s for the technology and engineering talent, to push forward SYNA’s integrated display offerings. But I think there’s an ever-present risk with SYNA that they’ll be forever plowing whatever profits they make from the current generation of products into trying to stay ahead of the pack with the next generation in an endless race, and that we, as shareholders, won’t ever actually see much (or any) of those profits.

The very nature of the tech industry is built on rapid obsolescence of products. Moore’s law and all that. Faster, smaller, cheaper more capable. But done right, there’s a barrel of money. Look at Intel (during the Andy Grove era). Constant flow of new product that made the prior inventory obsolete. AMD was their closest competitor and really achieved only a relatively small penetration in the PC market. But, they didn’t anticipate the switch to mobile so now they’re playing catch up.

And the same applies to s/w. I was an Enterprise Architect at Boeing. One of my responsibilities was to assist in establishing s/w standards. A truly thankless task. User groups would get vendor presentations. Vendor ABC’s s/w had some feature in their current product that out-performed the current standard. So of course, the group recommended it to displace the current standard.

Easy decisions right? This product is slick. Let’s adopt a new standard. But how about the support costs? Does it integrate and play nicely in our environment? How about the learning curve and training for everyone who would have to switch? Oh, just let them continue to use whatever they’re using, bring this in going forward. And pretty soon our IT guys are supporting 57 different products that all do just about the same thing. How do you staff a help desk for that?

And what about the s/w company, Fly-By-Night Info Slinger, are they financially stable? Are they going to be around next year or are we going to end up supporting an orphan product with no hope of bug fixes or enhancement? Are they willing and able to listen to their customers (by this we meant listen to Boeing)?

That’s not to say we didn’t adopt new standards upon occasion. Only that it’s not as simple as it sounds.

This even applies to airplanes. The 787 has so many innovations I couldn’t begin to list them all. But start with features like greater range allowing for new city pairs, enhanced passenger comfort, lower total cost of ownership and you can begin to see why Boeing would be willing to cannibalize its existing products - they wanted to do so before Airbus did.

Point is, if you invest in a tech company you had better hope they are constantly trying to stay ahead of the curve, and you better be comfortable with a good portion of revenue going to R&D, because if that’s not the case your investment stands a good chance of going rapidly to zero.