Synaptics (SYNA)

I got this through a news feed. It seems to be good news for SYNA, and amazing that they beat out AAPL.

Saul

Reuters: Synaptics beats out Apple for Renesas LCD chip unit

• Renesas (RNECF) plans to sell its 55% stake in iPhone LCD driver IC supplier Renesas SP Drivers to Synaptics (SYNA +2.2%), Reuters reports.

• Apple (AAPL +1.9%), which already develops its own app processors and fingerprint sensors, was previously reported to be interested in buying the stake for $479M. Reuters’ sources state the talks failed to make progress.

• Renesas SP’s LCD drivers stand to complement Synaptics’ touchscreen controller and fingerprint sensor offerings for mobile OEMs.
Renesas SP had revenue of $575M in the fiscal year ending March 31. Syanptics is expected to post FY14 (ends in June) revenue of $918M.

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“Reuters: Synaptics beats out Apple for Renesas LCD chip unit”

I got this through a news feed. It seems to be good news for SYNA, and amazing that they beat out AAPL.

I published the first post in this thread early this morning. It turns out to have been the most important news story of the day, for my stocks at least, as SYNA was up an incredible 12% today. There’s a bit more on the original post.

Saul

SYNA stock is still a buy IMO as the valuation is still very low. I hope that they won’t pay for this acquisition using stock at the current levels.

Chris

Another Press Release on SYNA:

Synaptics ClearPad® In-Cell Technology Powers Huawei’s Latest Flagship Smartphone

Deployment Underscores Display Integration Adoption and Emphasizes Synaptics Position as a Leading Touch Solution Provider to Major China OEM

Synaptics announced that Huawei has once again selected the ClearPad® family of capacitive touchscreen solutions to power the touch interface of its latest flagship smartphone device, the Ascend P7. By leveraging the ClearPad S3350 In-Cell solution, Huawei is able to offer Ascend P7 users glove input, passive pen and moisture-proofing support, while providing seamless touch performance on the first 5-inch full high-definition (FHD) In-Cell touchscreen device from the Chinese market. This design win further highlights Synaptics’ strong relationship with leading Chinese OEMs, like Huawei, who have a global market presence and growing customer base.

Huawei’s implementation of Synaptics’ ClearPad solution in its flagship device demonstrates the strong trend of display integration technology adoption by OEMs. By integrating touch functionality directly into a device’s display, versus an additional discrete sensor layer, OEMs are able to deliver best-in-class touch experience and an excellent display, while providing high-quality design and functionality. Many industry reports indicate that display integration adoption is expected to grow over the next few years as OEMs seek highly integrated solutions and supply chain efficiencies.

ClearPad S3350 Key Benefits:

Brighter Displays: Increases the brightness by 10% by eliminating sensor transmitters on the color filter glass.

Ultra-thin Designs: Provides the thinnest solution available today by reducing up to ~1mm in thickness, depending on the stack-up used.

Total System Cost Savings: Reduces total system cost through supply chain efficiencies and complete removal of a discrete sensor stack up.

Display Noise Immunity: Provides highest display noise immunity by performing touch sensing during display blanking periods.

User Interaction Features: Provides features like glove operation and stylus tracking by utilizing advanced trans-capacitance sensing in the display integrated systems.

"As the world’s third largest smartphone maker, Huawei has continued to push the boundaries of design and innovation and we’re excited to see our industry-leading ClearPad In-Cell technology deployed in the Ascend P7…

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Synaptics ClearPad® In-Cell Technology Powers Huawei’s Latest Flagship Smartphone

It is amazing to me that this company was just under $60, what, 2 weeks ago?

Amazing movement and in the right direction.

Thanks for this one Saul and I hope I can bring one to you at some point that performas as well as this, UBNT, and some of the others you introduced us to.
Mykie
Speaking of which the only reason I am not offering new stocks is I am still missing step one in the Saulocratic method, a penetrating and enlightened research of the company, from top to bottom…still learning that one.

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Hi Chris,

SYNA stock is still a buy IMO as the valuation is still very low. I hope that they won’t pay for this acquisition using stock at the current levels.

I own some SYNA but would like to buy more. A hangup of mine is worrying about buying after a fast and steep run up.

I looked at a chart and it shows SYNA PE is somewhere north of 68 (Morningstar). Can you explain to me your thought processes after seeing that number and how that PE becomes cheap via continued earnings?

In other words, can you explain to me when you look at that 68, how you get comfortable buying more. I don’t think you can rationalize it’s ok because the PE is going higher so the answer must lie in the knowledge of how SYNA intends to increase the earnings, thereby bringing down that PE. (I’m making an unwarranted assumption that PE matter and that it should be as low as possible when buying. That is probably my bias.)

Please help me understand your thought process on this since A. I’d like to deepen my position and B. It seems to expensive to me, since just a few weeks ago it was under 60 (I wanted to buy it there but ran out of money) and it is sporting such a high PE.

Thanks and please understand I’m not being critical but looking for an opportunity to learn a new thought process.
Mykiei

I looked at a chart and it shows SYNA PE is somewhere north of 68 (Morningstar). Can you explain to me your thought processes after seeing that number and how that PE becomes cheap via continued earnings?

In other words, can you explain to me when you look at that 68, how you get comfortable buying more.

Mykie, If there is a single point that I can teach you from my experience, it’s to not look at PE’s on Morningstar or Yahoo or anywhere else for stocks you are serious about buying. You have no idea at all where they are getting their figures, or even if some clerk typed in a wrong number or moved a decimal point. If you are serious about a stock you must take the 15 minutes it would take to look back through the last four earnings press releases. (I actually usually get the last eight earnings by seeing the year over year comparisons).

Mykie, a quick glance at just the last quarterly report will show you where you are going wrong. Their adjusted earnings were 63 cents, but they reported GAAP earnings of a LOSS of $1.12, which horribly distorted the trailing earnings. That was mostly because of a charge of $1.56 in acquisition costs due to the recent acquisition of the fingerprint business which is doing so incredibly well already, and some stock based compensation charges. The stock based compensation is non-cash (and usually that kind of acquisition costs are non-cash too). Mykie, you just can’t use GAAP earnings to evaluate a company. Synaptic’s adjusted trailing earnings are $4.19, and their trailing PE is 16.3, which explains why they didn’t get sold off when all the high flyers were getting killed during the last two months, and why they are making new highs now.

I can’t give any guarantee for future earnings, I don’t know anything about microchips, but based on current PE, they are cheap.

Best

Saul

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PS As I remember, without going back and rereading the conference call, part of the reason they had such high acquisition costs is that they had promised payments to the previous owners of the fingerprint business, based on revenues and earnings for the first year (“contingent” payments, which are “contingent” on results).

The fingerprint business was doing so well, accretive long before they expected, that they had to increase their allowance for future contingent payments substantially. That kills GAAP earnings, but GAAP gives a perversely opposite view of how the business is doing: Business is doing so well that they had to plan for more contingent payments, so if you just pay attention to GAAP you just see a big loss, and the better they are doing the bigger the GAAP loss you see. It’s crazy.

Saul

PPS - Mykie, I hope I didn’t come across too critical in the first response in my previous post, but if you are going to invest thousands of dollars in a stock, you simply MUST take the time to at least read the last few earning press releases and the most recent conference call. I’m not talking about an in-depth reading of the financials. I’ve no accounting skills, and I rarely, very rarely even, read the 10Q’s and other filings, etc, but you can’t just rely on some service to give you a PE that you have no idea where it came from.

Best

Saul

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Mykie, you just can’t use GAAP earnings to evaluate a company.

I just glanced at SYNA’s 10Q and I didn’t see any reference to either GAAP or non-GAAP numbers. I know this is a very basic question, but how do I get one versus the other?

Jeb

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That’s a good point Saul and I am starting to understand better why you look only at Non-Gaap. Even though they tried to make Gaap so that it would tell you how a company is doing it has become so convoluted that now it hides a lot of things the companies are doing that are good. And I agree about now using any site for your p/e if you are serious because their can be a lot of problems with how they calculated or mis-calculated their P/E. Syna’s new finger print technology is really growing and is in the new Samsung phone. You can go here to see what they are up to.

http://www.synaptics.com/en/news.php

They have really done well moving from pc to cell phones and are now, in my opinion, the best human interface to PC/CELL phone company out there.

Andy

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I just glanced at SYNA’s 10Q and I didn’t see any reference to either GAAP or non-GAAP numbers. I know this is a very basic question, but how do I get one versus the other?

Look at the 8k which is usually published before the 10q or 10k. otherwise if it isn’t there they will usually put the non-gaap numbers somewhere in the 10q or 10k. All the reported numbers, which are Gaap, will be in the 10q and 10k. Hope this is clear.

Andy

Jebbo,

From their quarterly report: http://finance.yahoo.com/news/synaptics-reports-third-quarte…

Further, the company substantially increased its outlook for the fingerprint ID business, resulting in an increase to contingent consideration on expected future earn-out payments. Including the charge for change to contingent consideration of $53.0 million, GAAP net loss … was $(40.1) million, or $(1.12) per diluted share. (GAAP) net income for the comparable quarter last year of $36.4 million, or $1.07 per diluted share, included the benefit of a non-recurring, non-cash tax item of $15.8 million (which GAAP had to include but non-GAAP didn’t so non-GAAP isn’t always to the benefit of the numbers).

Non-GAAP net income for the third quarter of fiscal 2014 was $23.7 million, or $0.63 per diluted share, compared with non-GAAP net income of $27.0 million, or $0.79 per diluted share, for the third quarter of fiscal 2013. (See attached table for a reconciliation of GAAP to non-GAAP financial measures.)

I tried to copy and paste a table listing Non GAAP earnings from the SYNA Investor Relations page. 8K form, 4/24/2014, and this is what it looked like. Anyone know how to copy and paste a table into these posts?

D.

SYNAPTICS INCORPORATED
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)

Three Months Ended
March 31, Nine Months Ended
March 31,
2014 2013 2014 2013
GAAP gross margin

$ 92,430 $ 81,083 $ 296,254 $ 210,683
Acquisition related costs

2,378 — 4,548 —
Share-based compensation

328 249 844 690

Non-GAAP gross margin

$ 95,136 $ 81,332 $ 301,646 $ 211,373

GAAP gross margin - percentage of revenue

45.2 % 49.6 % 46.8 % 48.6 %
Share-based compensation - percentage of revenue

1.3 % 0.2 % 0.9 % 0.2 %

Non-GAAP gross margin - percentage of revenue

46.6 % 49.8 % 47.7 % 48.8 %

GAAP research and development expense

$ 49,412 $ 36,740 $ 135,785 $ 103,799
Share-based compensation

(4,951 ) (3,993 ) (13,119 ) (11,783 )

Non-GAAP research and development expense

$ 44,461 $ 32,747 $ 122,666 $ 92,016

GAAP selling, general, and administrative expense

$ 25,803 $ 20,183 $ 69,703 $ 58,099
Share-based compensation

(3,496 ) (3,991 ) (9,476 ) (12,233 )
Transaction costs

— — (2,000 ) —

Non-GAAP selling, general, and administrative expense

$ 22,307 $ 16,192 $ 58,227 $ 45,866

GAAP operating (loss)/income

$ (36,143 ) $ 23,661 $ 33,128 $ 46,922
Acquisition related costs

55,736 499 62,186 1,863
Share-based compensation

8,775 8,233 23,439 24,706
Transaction costs

— — 2,000 —

Non-GAAP operating income

$ 28,368 $ 32,393 $ 120,753 $ 73,491

GAAP net (loss)/income

$ (40,056 ) $ 36,446 $ 12,217 $ 53,613
Acquisition related costs

55,736 499 62,186 1,863
Share-based compensation

8,775 8,233 23,439 24,706
Non-cash interest income

(278 ) — (751 ) —
Tax adjustments

(434 ) (18,168 ) 3,683 (22,745 )

Non-GAAP net income

$ 23,743 $ 27,010 $ 100,774 $ 57,437

GAAP net (loss)/income per share - diluted

$ (1.12 ) $ 1.07 $ 0.33 $ 1.58
Acquisition related costs

1.56 0.01 1.76 0.06
Share-based compensation

0.25 0.24 0.64 0.73
Non-cash interest income

(0.01 ) — (0.02 ) —
Tax adjustments

(0.01 ) (0.53 ) 0.05 (0.67 )
Non-GAAP share adjustment

(0.04 ) — — —

Non-GAAP net income per share - diluted

$ 0.63 0.79 2.76 $ 1.70

Mykie, a quick glance at just the last quarterly report will show you where you are going wrong.

Thanks Saul,

I have read this innumerable times before here on this board but somehow, this time it got through the admixture of intimidation of numbers and mental laziness.

You have no idea how much this is going to help me process better/smarter trades…well, maybe you do since you have banged it into my head several times now.

Gracias,
Mykie

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PPS - Mykie, I hope I didn’t come across too critical in the first response in my previous post, but if you are going to invest thousands of dollars in a stock, you simply MUST take the time to at least read the last few earning press release

Saul,

You must be kidding. I’m trying to find ways to thank you sufficiently for the major blockage you just cleared out of my brain. I would bet way more than 2/3rd of all retail investors do what I USED to do so this is a major advantage for me.

I owe you for that one based upon my favorite saying:

Feedback is a gift, whether negative or positive.

Your feedback wasn’t even negative…unadulterated gift.
Thanks again
Mykie

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You must be kidding. I’m trying to find ways to thank you sufficiently for the major blockage you just cleared out of my brain. I would bet way more than 2/3rd of all retail investors do what I USED to do so this is a major advantage for me.

Mykie,

Saul answered your question about PE and this is probably the single most important learning on this Board. Without it you simply cannot get any gauge for how well a company is doing.

I have said that SYNA below $60 is a huge gift and I loaded up to almost 10% after their last earnings report. Their business is just performing so well, they seem to have great growth ahead, and the stock is still cheap (even at $66). That’s my opinion and I’m putting my money behind it.

They announced yesterday that they will likely acquire another company. If this goes through it will become even for difficult to figure out growth and performance. Future quarters won’t be directly comparing because their 2 new businesses will represent a huge part of their future revenues and earnings. And the earnings will be distorted be acquisition costs for several more quarters.

Chris

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Non-GAAP net income for the third quarter of fiscal 2014 was $23.7 million, or $0.63 per diluted share, compared with non-GAAP net income of $27.0 million, or $0.79 per diluted share, for the third quarter of fiscal 2013. (See attached table for a reconciliation of GAAP to non-GAAP financial measures.)

So their non gaap net income per diluted share went down yoy.

I guess I need to understand the difference between diluted and non diluted shares and how to get those numbers so I can calculate an accurate, non gaap PE.

Anyone? I know I’m learning this piecemeal but I am taking notes.
Mykie

Yes it did go down year over year. They didn’t explain why, but on the day they announced that the stock opened about 10% up, which I figured was because they said they had so much new business with the fingerprint division. It could have been down because they had extra expenses from building the new business, but they really didn’t specify.

Saul

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Drdm it can be a major pain trying to get the tables correct and it is time consuming that’s why most people don’t like doing them but after you do them for awhile they do get easier. You need to put pre in these brackets < > at the start of the table and put /pre in these bracket < > at the end of the table. Then preview message and try to get it fixed where you want. Good luck.

Andy

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Thanks Andy. I may practice posting that SYNA 8K page just for the heck of it. I’ll see how the reformatting goes.

D.