The no-moat human interface solutions developer announced a new OLED display driver chip and optical-based fingerprint sensor that we expect will be prevalent in future flagship smartphones.
On Tuesday, Synaptics
held its annual analyst day in which management highlighted the company’s growth strategies and financial projections. We came away from the presentations reassured in the firm’s opportunities in biometrics (fingerprint sensors), touch and display driver integrated, or TDDI, and OLED. Additionally, Synaptics announced a new OLED display driver chip and optical-based fingerprint sensor that we expect will be prevalent in future flagship smartphones. The financial model presented by management is consistent with our internal model, and we are maintaining our $77 fair value estimate and no-moat rating for Synaptics. With shares trading in four-star territory, we believe prospective investors may find current levels appealing.
Abhinav Davuluri is a senior equity analyst for Morningstar.
Management provided financial forecasts for the mid-term, including an average top-line growth rate of 15%. The attach rate of advanced solutions from Synaptics is projected to continue to rise, ultimately driving this target. In the near-term, strong growth in fingerprint sensors and TDDI will be offset by declines in display driver chips. The former segments have benefitted from increased diversification among a host of OEMs, in addition to more advanced products. Meanwhile, the latter will suffer from weaker ASPs at main customer Apple. We note that the firm’s margins will be hampered in the near-term as TDDI solutions currently have a lower initial gross margin profile (due to an elevated initial cost structure and focus on entry-level devices). However, as future generations of TDDI proliferate into more mainstream and flagship devices, we expect these headwinds to mitigate.
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