NEW YORK (TheStreet) – Shares of mobile phone components maker Synaptics (SYNA) are tumbling after research firm Pacific Crest downgraded the stock, saying that the company had probably lost an important contract.
WHAT’S NEW: Pacific Crest analyst John Vinh downgraded Synaptics to Sector Perform from Outperform in a note to investors today. Synaptics, which had supplied touch controllers for Samsung’s Galaxy S smartphones, was probably not chosen to provide the component for the upcoming Galaxy S 6, according to Vinh. A competitor, STMicroelectronics (STM) , was able to offer a touch controller that was “good enough,” and significantly cheaper than Synaptics’ controller, the analyst stated. Synaptics should be able to compensate for the loss by selling more of its other components, but Samsung’s decision is likely to increase investors’ concerns and cause the stock’s multiple to decline, Vinh believes. Additionally, Synaptics is having problems with the development of its fingerprint algorithm and is looking to license software from other providers in order to solve the difficulties, Vinh stated. Increased competition in touch controllers and the difficulties with fingerprint algorithms could cause Synaptics’ profit margins to drop, warned Vinh.