We continue to see an appropriate margin of safety for investors looking for an appealing growth story in the semiconductor space.
On June 12, Synaptics
announced two acquisitions to bolster its consumer "Internet of Things," or IoT, strategy. The first was Conexant Systems, a leader in voice- and audio-processing services for the smart home in a mixed cash and stock deal of roughly $342 million. In addition, Synaptics acquired the multimedia solutions business, or MSB, of Marvell Technology, which also sells processors for smart-home products, in an all-cash transaction of $95 million. While there aren’t any clear revenue synergies with Synaptics' portfolio of smartphone components, consumer IoT is a strong growth vector, and both acquisitions boast impressive customers (Amazon Echo for Conexant and Google Home for Marvell’s MSB). Management estimates that Synaptics’ addressable market for calendar 2020 is now $10.3 billion versus $7.5 billion previously, which we view as reasonable. Both deals are expected to close in the first quarter of the firm’s fiscal 2018 (or the third quarter of calendar 2017). At this juncture, we are maintaining our fair value estimate of $77 for no-moat Synaptics, and we continue to see an appropriate margin of safety for investors looking for an appealing growth story in the semiconductor space.
Abhinav Davuluri is a senior equity analyst for Morningstar.
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