Synaptics Incorporated (SYNA) Analyst & Investor Meeting Conference Call August 07, 2012, 12:00 pm ET Executives Rick Bergman - President & CEO Mark Vena - SVP, PC Products Kevin Barber - SVP & General Manager, Handheld Division Fred Caldwell - Manager Tim Bajarin - President, Creative Strategies Stan Swearingen - SVP, Research and Development Kathy Bayless - SVP & CFO Analysts Pat Moorhead - Moor Insights and Strategy Presentation Unidentified Company Representative
So that's the rough agenda that we have this morning. I do want to share with you a little bit about some disclosure here and bring your intention to the fact that we may make forward-looking statements during the course of this presentation. Please refer to our filings on the Form 10-Q and Form 10-K with the SEC for specific risk factors that could materially impact our business.So after the legal introduction, it’s my pleasure to actually introduce Rick Bergman, President and CEO of Synaptics. Rick Bergman Alright, good morning and certainly welcome. As [Ted] said, this is our first analyst day. So 10 years from now you can tell your children or grandchildren I was at the first Synaptics Analyst Day and believe it or not, they actually use physical objects to interact with their computer or computing device and their screens and all these other things. And also welcome to the people on the webcast as well. We appreciate you joining us from that form. So first I saw a number of you at CES and if you remember at CES that was my 100th day on job and now it today marks a little over 300 days as CEO of Synaptics. And looking back to January, our target markets actually haven't really changed, nor have our core strategies. But what has changed is we’ve made some critical milestones in our vision as a human interface and a company. And so I am going to talk through what we are going to do in terms of growth, some of the strategies there and then where we are going in the future and my team will come up and talk to specific market segments, the products and technologies. And through the course of the day, of course, we should be able to answer any questions and please during the breaks review the demos; we have some really exciting material.
Okay, so to jump in, just to be clear, we are the human user interface company and as you meet the team and see the demos and so on, you will see, based on the 25 plus years of history we have, it’s deep in our DNA that certainly no other company in the industry is so focused in one area of computing like Synaptics. We are focused on three core markets and you will hear me repeat this multiple times, certainly the notebook, smartphone and tablets and that’s the target markets that we are going after.Before I jump ahead, I wanted to take a little bit of a look back as well in terms of financial picture. If you look at from a 2008 basis, you will certainly see some interesting growth on just a smaller basis, but also when you move a little bit upward and look over the last two to three years, actually growth is stagnated. From a company perspective, our operating model is very solid and operating profit traditionally in the upper teens. But again, as you look over the last several years, you will see that’s flattened and stagnated; that ties back to topline growth, so again you are going to hear a big focus today is around growth. How do we get that topline moving again? And to a certain degree, we have to answer some critical questions. First, are we in the right markets, are these markets growing fast enough, are they big enough for Synaptics to continue to grow; do we have the right technologies, do leverage the core inherent capabilities where we actually understand better than any one human behavior, do we have the right scale as a company. So as I look through that over the last 300 days, I have come back with a resounding yes and certainly that’s my expectation. We are positioned to win. We are going to be number one in our target markets and as we go through the course of this morning I hope you come to that same conclusion as well.
So now let's drill into each of these markets. Fiscal ’13 is a very interesting year for us; in notebooks, of course there is Windows 8 and we've talked to you a ton about Windows 8; how important that is a touch first operating system. What does that mean to Synaptics? What does that mean to the PC or computing industry in general? A very big inflection point; but that's not it. And there is ultrabooks. Obviously the ultrabook momentum started earlier this calendar year, you've already seen price points now below $700. You will see volumes accelerate as we go through the course of this year, again helped by Windows 8, but also just in general to get that thinner and lighter experience.And then there's another thing that I want to talk about just a week ago. The higher resolution screens which obviously are becoming a key factor as new notebooks are released over the course of this year. High resolution screens, higher bandwidth, the need for a new interface technology such as display port, thinner and nice, better power management as well. Now let's shift to smartphones. This year already you've seen the innovators come out with In-Cell, in production smartphones. Kevin is going to talk a great deal about what In-Cell means to the industry but in ’13 you are going to see many, many phones that levers this In-Cell technology. Likewise and what we call TDDI, touch and display driver integrated, you will see the innovators in ’13 come out with phones and that momentum will continue through the course of the year. And now let's shift over to the tablet market. There is new players in the tablet market adding new form factors, interesting innovation. Windows 8 will play a role there as well. And then more recently we’ve seen the importance of an integrated keyboard solution, so a lot of things happening in our target market. So of course we look in a much longer horizon than just fiscal ’13; what does it mean three four years down of here.
So let’s talk about each of those target markets. Of course, the notebook market about 12% annual growth over the next three or four years, so big market with reasonable growth rates. But within that, and what about ultrabook; depending on the starting point, very, very aggressive growth rates, but we actually think in 2014, 35% of the marketplace will be ultrabooks.The smartphone marketplace; this year 645 million units, very big base. Now the torrid growth rates that we’ve seen over the last several years obviously are going away to a more modest mid 20 growth rate over the next few years, but still even with that growth rate by 2015, 1.1 billion smartphones in the marketplace, almost doubling the size of our target market. And then finally tablets or in this case, I have actually put tablets, and put it to a single category called Large Touchscreens, LTS, I’ll use that phrase going forward. That includes of course the screens that you have with the tablet as well as those notebooks that have displays with touch enable. And there you see the tablet growth rate, but also then you start to see a big chunk coming in which is notebooks with touch. So it’s our belief in 2014 about 30% of all notebooks will be touch enabled; which of course then drives a very nice growth rate in and of itself. You know I talked about our three core markets and let me clear those are our three target markets, but there are other markets out there that we get lots of questions about and certainly with the right opportunity in the future, if we’ll get automotive for example, in a few years it could be 40 unit million opportunity. We are going to be oriented towards those three core markets, but those other markets are going to be very interested in display integration and when they move into display integration those markets in effect will come to Synaptics; we don’t have to go out to those markets; they are going to want this integrated display for same reason smartphone manufacturer, tablet manufacturers want integrated displays as well.
So at this point, I hope we understand we are in some really interesting markets both from the fiscal ‘13 inflection point as well as the growth and size of these markets. But, what about technology, what about the products; can we compete in these markets. Let’s look back in our past year and look at some of the technologies we have introduced.So first, we have first LTS integrated solution; one chip solution for the LTS market. We introduced Design Studio which really helps our OEMS with designing our products; you are going to hear great deal about that from one our technologist shortly. Our competitors are really scrambling to try to come close to matching this capability. We already have talked about In-Cell technology, so two phones in production before any other solutions have been introduced. TDDI, first one to sample and the first supplier to even talk about having samples and then of course in the PC space, next-generation of Quickpad and then ForcePad, so wait till you see the demos with ForcePad and some of the innovation and technology that brings forward. Now how do we fuel that type of technology and innovation? We've made a commitment to R&D. As we look back to the last five years, you see each year our R&D both absolute and percentages gone up year after year and that's going to continue in fiscal ’13 as well as we discussed in the conference call last week, we are going to continue to invest. Those investments have been oriented towards our handheld business; the vast majority of our R&D goes in that direction. So it’s no accident that we are first with In-Cell, no accident that we are first with TDDI, but we recognize we can't do it all ourselves. There's a ton of innovation going out there in the industry. So we've made a couple of acquisitions over the past few months and let me step through each of those.
So there is Pacinian which brings the in touch technology into the market, some ways are very obvious horizontal play for Synaptics, expanding from our touch pad into the entire keyboard deck, very innovative technology for that thin and light that I was talking about, important to that in two of our core markets both notebooks and tablets.So let me just give you a quick visual on this. And if you look at the play with this at lunch time or during the break, so as you can see not even two credit cards’ with the keyboard and yet it still has the performance that consumers expect and want with a keyboard, so just amazing technology. It’s sampling today and will be in production in a year from now. Read the rest of this transcript for free on seekingalpha.com