SYNA

Andy, I would love it if you would train your telecommunications eye on another of my big positions, Synaptics (SYNA)

Here are my notes on their December results
Thanks

Saul

Jan 2014 - Reported Dec quarter results

Revenue was $205.8 million, up 44% from $143.0 million.

Adj Net Income was $31.1 million, up 76% from $17.7 million.

Adj Earnings were 86 cents, up 62% from 53 cents.

(Adj Earnings would have been 95 cents if not for the increased headcount and loss from the fingerprint acquisition, which they expect to be accretive as early as the June quarter)

“Excluding the impact of the acquisition of Validity, which closed in early November, our financial performance for the December quarter was above the mid-point of our guidance as we experienced strong year-over-year revenue growth in touchscreen and touchpad products. As we enter the second half of fiscal 2014, we expect to benefit from continued strong organic growth, further augmented by growing contributions from our acquisitions and new product innovations. In addition, we are very excited with the progress of our new Fingerprint ID business and expect the acquisition to be accretive by the end of the fiscal year, earlier than previously anticipated.”

Second Quarter 2014 Business Metrics

Revenue mix from mobile and PC products was approximately 65% and 35%, respectively.

Revenue from mobile products of $133.6 million was up 64% year-over-year.

Revenue from PC products was $72.2 million, up 17%.

Gross Margin was 47%, down sequentially from 49% due to the acquisitions

Cash at December 31st was $369 million.

In the first six months of fiscal 2014, cash flow from operations was $86 million, which means $57 million in the quarter, and the company used $70.3 million to repurchase of approximately 1.7 million shares in the 6 months, of which 0.5 million were bought in the quarter.

Outlook: Considering our backlog, customer forecasts, and the resulting expected product mix, we anticipate revenue to be in the range of $180 million to $200 million for the March quarter. The March quarter outlook reflects seasonality, with incremental revenue from our new Fingerprint ID products.

Great quotes from the Conference Call:

Richard Bergman - President and CEO
“Well, Rob, as I said the top priority is for us is still growth. And as long as we see some great opportunities out there in the markets, in the businesses that we have, we’re going to continue to invest ahead of that curve. So both on the touch controller side as well as the fingerprint side, we see robust opportunities. So we’re investing in both of those businesses.

I will say in the fingerprint side, we’re having a tough time dealing with all the opportunities, so we’re trying to add as many people as quickly as we can over the next couple of quarters, but at the same time, we never compromise. We want the best people in the industry.

I think one of the things that gets a kind of little bit ignored about Synaptics is what we’ve done in terms of investment and R&D. We have kept that at nice, healthy percentages, so we can have that growth. But we do a really good job managing the SG&A side of things as well. It’s about 10% of our revenue. And in that way we kind of manage the overall OpEx, so more of that translates to the bottomline”.

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Sure Saul I will try to get something out this weekend. This company is on the edge of my expertise though since its mainly focused on computers. I can see where they might be a great growth stock thanks for the tip.

Saul have you looked at Yelp yet? They are growing Revenue really fast, they just became cash flow positive and it looks like they should start turning a profit soon. That is another stock I want to look into.

Andy

Andy,

I have not touched base with you in a long time and I just wanted to tell you that you are doing a great job!!! You are so much more comfortable sharing your wisdom than you were last year. Keep up the good work.

David

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Thanks David, you really helped with that class on John Tracy’s book. I feel like I have a better grasp on the financials now. I also don’t let my mistakes shake me up as much. I realize I can’t get everything right, but I hate making mistakes in anything I do. Like everything else, the more I study a company the better I understand them. Also thanks for the tip on Yelp. I read your post on the CLNE board and I couldn’t believe the revenue they are making.

I am also happy about you getting me into TTS. I think they will be a homerun in a few years. Just have to wait and let them get over that little speed bump they had with the brother-in-law.

Thanks again David.

Andy

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Thanks Andy and Saul for the brisk commentary.

I already own 100 shares of Syna at $63 but would like to increase my holdings so I spotted a June 2014 Exp Put option at $65 for $7.10. That would be buying the stock in June for $57.90 or simply spending the $710 for one contract. Seems like a deal to me, given that I’d buy today again at $63 anyway.

Any thoughts?

Mykiemon, I do not use options. I am just not smart enough yet. I can see where it would be great to wait to own a company and get paid to wait but I just haven’t had the time to learn options yet.

Andy

I already own 100 shares of Syna at $63 but would like to increase my holdings so I spotted a June 2014 Exp Put option at $65 for $7.10. That would be buying the stock in June for $57.90 or simply spending the $710 for one contract. Seems like a deal to me, given that I’d buy today again at $63 anyway.

…presuming you’re shorting that june 65 put, then yes, your purchase price, should the stock be below the 65 strike would be 57.90, effectively (65 strike minus the 7.10 you made selling the put)…

…I don’t know what you mean by the phrase “simply spending the $710 for one contract”…

…if the shares are above the 65 strike by june, you keep the 710 dollars per contract you made selling the put…

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I already own 100 shares of Syna at $63 but would like to increase my holdings so I spotted a June 2014 Exp Put option at $65 for $7.10. That would be buying the stock in June for $57.90 or simply spending the $710 for one contract. Seems like a deal to me, given that I’d buy today again at $63 anyway.

Any thoughts?

My thoughts are as follows. Do you want to own more shares or not? Do you think you will probably hold for the long term?

Personally, I would not sell the puts that you mentioned in this situation. That is given the following assumptions: 1) I want to own more SYNA, probably for the long term. 2) I think SYNA is a good value at current price. 3) I think SYNA may go above $65 before expiration. I would either just buy the stock or sell deeper in the money puts.

My reasoning is as follows assuming that you agree with my above assumptions. If you pocket the premium and the option expires worthless, will you be happy or will you wish that you actually owned the shares?

Buy more shares can also be done in stages. Buy a little and if it drops you can buy more.

The other alternative is to sell deeper in the money puts for a higher premium. In this case, I would chose a strike price that is at least 20% higher than the current price. In fact, I did this recently with SYNA. I already owned a 2% position and I wanted to increase my position to a 3% position. My first 2% position has an average cost basis of %58.30. At the time I was considering buying more, the price had jumped to the lose $60s. The decision to buy shares or sell puts really came down to 2 factors: 1) do I want to use cash or get an interest free loan to buy the shares. Buying shares outright would require cash. Selling deep in the money puts is almost like buying shares without putting up the cash. My decision on this usually depends how much cash I have and how much cash do I want to have. My cash position is usually in the 3-10% of my portfolio range. 2) Entry price: selling puts almost always will give you a lower entry price. The downside is that the stock price may soar and then I make less money that I could have. I also risk not getting more shares and my return becomes limited to the premium. If I have chosen a stock that I think is a good value with great prospects, I don’t want to limit my return too much. In this example, I have only a 3% cash position so I decided to sell the SYNA puts. I chose the Jan15 $80 puts for a premium of about $20.50 per share which would give me an entry price (if assigned) of $59.50. Alternative, I could have bought the shares for around $63. I got to keep my cash and I am not paying any interest on the short position because I have enough marginable securities to cover.

Chris

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Hi Andy,

Based upon my ability, brains and temperment, I am not what one would call a natural. In fact, if there were an interview for an option trader, I would NOT get hired. But, and I say this with no distortion whatsoever, following Jim G. and Jeff F with their guidance and creative thinking,makes it fairly simple.

Really…and if I can help aim you in that direction, I would be happy to.
Mykie
a happy MF option trader that sometimes even forgets what he has done

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Hi Huibs,

After I read what I had posted I tried to correct it but alas…

…I don’t know what you mean by the phrase “simply spending the $710 for one contract”…

…if the shares are above the 65 strike by june, you keep the 710 dollars per contract you made selling the put…

What I meant was if the SP is higher than I"ll just KEEP the $710 and spend it.

Sorry for the mal writing

But Huibs, does that sound like a good option trade to you? I usually stick very closely to what Jeff and Jim offer but this looked too good to pass up.

Myklemon,
When you sell the PUT you are not SPENDING you are collecting the $710
If the puts gets assigned to you ($65 strike minus the $7.10), that is when you are spending $5790.00.
I hope that is clear
Erik
P.S. I like the trade

Hi Chris,

Thanks for your comments. They are really helpful.

So I searched my motivation and decided I do want to increase my position but I want a lower entry price.

The premium has drifted down today (I was out all day and didn’t get to check until now) so I’m looking at the Jan 15, $75 Puts for $16.35 which would set my basis at $58.65, if I’m successful tomorrow, with $3K more cash in my account.

Last question, how did you come to the $80 strike? Does a fundamental analysis suggest a market price higher than $80 by then and would that same fundamental analysis suggest $75 is too low?

Gracias,
Mykie
PS I also have enough securities to cover and in fact this will be in my IRA

But Huibs, does that sound like a good option trade to you? I usually stick very closely to what Jeff and Jim offer but this looked too good to pass up.

…I would probably sell the June 60’s for 4.65, break even 55.65, 7.25% return over 108 days, 24.50% annualized…

…a bit more conservative…

When you sell the PUT you are not SPENDING you are collecting the $710

…Hey Erik, I think Myklemon was saying if he wasn’t assigned he’d get to keep the 710 “to spend”…

:slight_smile:

Mykie,

Last question, how did you come to the $80 strike? Does a fundamental analysis suggest a market price higher than $80 by then and would that same fundamental analysis suggest $75 is too low?

I chose $80 strike because I think the price could be above $80 (maybe significantly above) so I wanted to collect more premium in order to leave less money on the table in the event the stock goes way up. I could have bought more shares instead for around $63. Again, if you sell the puts instead of buying the shares you may limit your upside. And in this case (for me), the puts were sold as a substitute for buying shares. Remember, there are many uses for options and each purpose requires a specific use of the option.

Chris

Chris and Huibs,

Interesting discussion and thanks for the input.

I will see what comes of it manana. I really like the company and may buy more shares and then sell a put to lower my basis further.

Fool on

Really…and if I can help aim you in that direction, I would be happy to.
Mykie
a happy MF option trader that sometimes even forgets what he has done

Thanks Mykie, when I get ready to learn options I will definetly give you a shout out. Thanks for your help.

Andy

“… when I get ready to learn options I will definetly give you a shout out…”

You’re most welcome Andy but make sure you understand where I fit in the educational schematic…rudimentary to basic but with such a good understanding of that primary level, (mainly because I have been stuck here for almost a year), you will be able to find better info and move faster up the learning curve and then…I can use you for advice :slight_smile:

Fools being Fools
Mykie