RealMoney Silver - Trend Is Your Friend in SYNA

Trend Is Your Friend in SYNA
By Chris Versace
RealMoney Contributor
12/18/2007 2:05 PM EST

Synaptics (SYNA) continues to be one of my favorite names, and even though the shares are up 108% since March 1, recent data points make me think there is more upside from here.

IDC recently published its five-year outlook (2006-2011) for PC shipments. The good news is that total worldwide PC shipments are expected to continue to grow through 2011; the better news for Synaptics is that its premier position in the touchpad market has it well positioned in the faster-growing portable market.

Now, I could quote the IDC forecast that calls for the portable market to grow 18% from 2007 through 2010 compared to 3.8% for the PC desktop market over that period, but let's be honest -- it's kind of hard to forecast out that far with any real degree of accuracy. I do, however, agree with the trend: Portables will continue to take share from desktops.

Let's stick to near-term forecasts. Even on that basis, the worldwide PC portable market is expected to grow 26% in 2008 after expanding 34% in 2007 over 2006. By comparison, the PC desktop market is expected to grow 3% in 2008 after posting 4.3% growth in 2007.

Let's match that up with Street expectations for SYNA in 2008. First Call forecasts that SYNA's calendar 2008 revenue will grow 27.8% over calendar 2007.

In looking at that number, some are bound to say, "But that is more than the 26% expected for portables." And my response would be, "Correct."

That's because SYNA is much more than a portable PC component company. The two other areas that are keys in the next few quarters are its return to the Apple (AAPL) iPod line and its opportunity in the mobile phone market, where original equipment manufactures (OEMs) are eyeing the touch-screen market made popular by Apple's iPhone.

Synaptics is back in with Apple's iPod line and is part of both the iPod Classic and the new iPod Nano, according to iSuppli Corp.'s Teardown Analysis service. As part of this analysis, iSuppli forecast in September that total iPod shipments would reach about 23 million units in 2007 and 27.9 million during 2008.

As I've said recently, Apple is firing on all cylinders -- let's face it, the iPod makes a great holiday present. The Street has been raising its iPod expectations for 2007; Bear Stearns, for example, recently raised its forecast for iPod shipments from 24.3 to an even 25 million.

All About Touch

While Synaptics' technology is not designed in the iPhone -- that position belongs to Cypress Semiconductor (CY) -- Synaptics' touch technology is being used by several mobile-phone OEMs and is being eyed by others as well that are looking to offer competitive products.

One recently launched handset that includes Synaptics is the Voyager by LG, which has seen strong marketing campaigns by Verizon Wireless (VZ) as it tries to compete with the iPhone at AT&T (T) . While I have reservations about how other OEMs will compete with the system approach of the iPhone, Synaptics remains a good food chain play as they try.

With new handset design cycles taking nine months on average, I expect more products on the shelves in 2008 that use Synaptics' technology from existing handset partners and a few new ones.

Consistent Outperformance

One last point that I like about Synaptics is its recent track record for beating expectations. In the trailing four quarters, the company has beaten Street EPS expectations by an average of 25%.

I'm not saying that trend will continue long term, but near-term prospects bode well for at least some upside in the December quarter. I say that even though Street EPS expectations have climbed to 58 cents for the December quarter, up 14% from the 51 cents the Street forecast for the quarter 60 days ago.