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Edited Transcript of SYNA earnings conference call or presentation 7-Feb-19 10:00pm GMT

Q2 2019 Synaptics Inc Earnings Call

SANTA CLARA Feb 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Synaptics Inc earnings conference call or presentation Thursday, February 7, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jennifer Jarman

The Blueshirt Group, LLC - Director

* Kermit Nolan

Synaptics Incorporated - Corporate VP, CAO & Interim CFO

* Richard A. Bergman

Synaptics Incorporated - President, CEO & Director

* Wajid Ali

Synaptics Incorporated - Former Senior VP & CFO

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Conference Call Participants

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* Ari Shusterman

Needham & Company, LLC, Research Division - Analyst

* Brett William Simpson

Arete Research Services LLP - Senior Analyst

* Charles Lowell Anderson

Dougherty & Company LLC, Research Division - VP and Senior Research Analyst

* Kevin Edward Cassidy

Stifel, Nicolaus & Company, Incorporated, Research Division - Director

* Vijay Raghavan Rakesh

Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, please standby, we're about to begin. Good day, and welcome to the Synaptics' Second Quarter Fiscal Year 2019 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Jennifer Jarman of the Blueshirt Group. Please go ahead.

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Jennifer Jarman, The Blueshirt Group, LLC - Director [2]

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Thanks very much, Stephanie. Good afternoon, and thank you for joining us today on Synaptics' Second Quarter Fiscal 2019 Conference Call. With me on today's call are Rick Bergman, President and CEO; Kermit Nolan, newly named Interim CFO; and Wajid Ali, outgoing CFO as announced in this afternoon's press release. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at synaptics.com.

A quick reminder that we have posted a supplemental slide presentation on our Investor Relations website. The supplementary slides have also been furnished as an exhibit to our current report on Form 8-K filed with the SEC earlier today and add additional color on our financial results.

In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition-related costs and certain other noncash or recurring or nonrecurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally, we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Although Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance adjusted in the company's forward-looking statements. We refer you to the company's current and periodic reports filed with the SEC, including the Synaptics Form 10-K for the fiscal year ended June 30, 2018, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims any obligation to update this forward-looking information.

And I'll now turn the call over to Rick Bergman, Rick?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [3]

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Thanks, Jennifer. And I'd like to welcome everyone to today's call. Synaptics posted another strong quarter and a positive first half of our fiscal 2019. Revenue was right on the mark, within our guidance range and up 2% sequentially. I'm very pleased to report that we handedly exceeded our projections for non-GAAP EPS, posting year-over-year growth of 40%. This was driven by our sixth consecutive quarter of improvement in non-GAAP gross margins, which were up 300 basis points over the year ago period as we continue to inch closer towards our medium-term target of 40%.

Our favorable operating performance provides further validation of the positive impact of the Synaptics 3.0 strategy on our company and our financial results. We have made a disciplined smart decisions as we transition into a more diverse company with decreasing reliance on mobile and shifting greater focus to IoT. This has allowed us to steadily improve our margins and amplify our earnings power, boosting our profitability profile and business model.

As we enter the new calendar year, we believe the significance of this transition is even more evident in light of the current conditions affecting certain areas of our business. As widely reported in mobile, a couple of leading OEMs have publicized significant softness in demand. Like others in the supply chain, Synaptics is not insulated from these trends. However, the value of our diverse customer base and strong position with several China OEMs that continue to post growth is helping to somewhat lessen the impact. We remain a clear leader in the field as we continue to deliver innovation that our customers highly value across OLED DDIC, touch and TDDI. In IoT, we are excited to be sampling our next-generation AudioSmart solution to key customers. This is the industry's first 22-nanometer purpose-built solution for the voice market providing low power, cost efficiency and the ability for higher-level integration. As previously noted, we are seeing near-term weakness in the broader consumer IoT market. However, the catalyst for growth remain very attractive and we continue to set ourselves up for strong leadership and success across a multiple opportunities we are addressing with a growing pipeline of design wins.

The PC market is a bright spot for Synaptics, generating year-over-year growth and demonstrates sustained power of our investments and innovations even in mature markets, where we have been operating for a long time. While we are not immune to component shortages across the industry, we are benefiting from increased content for PC through growing attach rates for our capacitive fingerprint solutions.

Lastly, we remain very well positioned in automotive, where we will remain on a trajectory to double our revenue by 2021.

Armed with the ability to better navigate downward market cycles under Synaptics 3.0, we remain very excited about the main growth drivers of our business, including IoT, OLED and automotive where we continue to invest to support our broad solutions platform and premium customer base. In addition, we are laser focused on strong execution as we deliver our next generation of products, which I'll now discuss as we review recent progress across our 4 key markets.

Let's begin with our IoT division. Synaptics power devices continue to proliferate in areas from smart speakers to set-top boxes and sound bars to voice-enabled car accessories and high-fidelity digital headsets in high-end smartphones. In fact, it's now common to have multiple products powered by Synaptics in your home, office and car. Our new series of Smart Edge AudioSmart solutions leveraging 22 nanometers is now sampling at key customers and is expected to begin shipping in fiscal Q4. These include the world's first fully integrated SoCs comprising neural network acceleration, our proprietary wake word engine, our highly advanced far-field voice processing. Targeting a broad variety of voice-enabled smart home devices, including hubs, WiFi repeaters, speakers and appliances, the AudioSmart AS3xx product family incorporates a new powerful machine learning engine. Ensuring a high-level of device and system security is a fundamental differentiator of this new set of products. This ranges from a dedicated security processor to architecting every element of the SoC in system implementation. The AS371 solution with SyNAP on-device intelligence, it enhances consumer privacy by greatly reducing the need to continuously send personal data to the cloud. Voice is rapidly becoming the preferred interface for interacting with devices. Recently at CES, 2 of our product partners launched the first car accessories with Google Assistant in our far-field-voice solution: the JBL Link Drive and the Anker Roav Bolt. Another success in the IoT space includes a selection of our VideoSmart and AudioSmart technologies by SK broadband in Korea for its upcoming DTV consumer devices to be launched in 2019. This partnership is expected to power next-generation services to 4 million subscribers. Synaptics VideoSmart technologies have a leading market position in the fastest-growing segment in the IPTV, OTT industry, where service providers have adopted Android as a software platform. Industry analyst report that over 70% of TV operators worldwide are considering Android and that there will be over 100 million devices shipped by calendar year 2022 with Android TV. In addition to the latest 4K HDR video and security technologies, our VideoSmart family has added AI to its differentiating feature set. Our AudioSmart far-field voice DSP technologies are also being adopted by TV providers for enabling consumers to use their voice to control their TV in home automation services.

Now let's turn to our mobile division. Our strategic investments and timing of product rollouts in smartphone displays are really paying off as the TDDI market continues to grow rapidly and as broader OLED capacity begins to materialize. Our ClearView OLED display driver leveraging flexible chip-on-film packaging or COF has been widely adopted by several major smartphone OEMs. As we move into the next generation of solutions, we believe that we are now sampling the industry's lowest power OLED DDIC, which consumes 40% less power than the prior version. Synaptics continues to lead the evolution towards bezel-free and brilliantly immersive Infinity displays for both OLED and LCD smartphones with our innovative COF designs, highlighted by over 20 projects already in mass production, including the world's largest OEMs. Our close partnership with key display manufacturers in China, Japan and Korea are arming global smartphone OEMs with state-of-the-art touch and display technology across all resolutions, whether OLED or LCD panels. We have built a mature COF supply chain to address the rapid trend toward bezel-free phones in our early innovations in TouchView TDDI and discrete DDICs are enabling the market to flourish with vivid smartphone display showcasing our feature-rich technology.

Some of the latest adopters of Synaptics' TDDI include Huawei, who selected our TouchView technology for multiple models, including the P20, the Honor 8 and 10 Lite as well as 5 other models. In addition, Oppo chose our TDDI for its new F5 and Vivo for its new V9 models. Synaptics' leadership in OLED has also led to several discrete touch wins, including 2 new models from Oppo and 3 new Vivo phones. Our VR portfolio was also gaining traction with our R63455 DDIC being selected for the latest QUALCOMM reference headset design. The 2K resolution of our solution helps eliminate the screen door effect and enables higher resolution content to be sent over existing data protocols like USB Type-C.

Now let's move to another key growth area, automotive, where the connected car is driving market trends towards more and larger displays. In the prior quarter, we talked about several display manufacturers building 4 in-cell automotive panels using Synaptics' TDDI solution. I'm pleased to say that we are now seeing those efforts transform into design-ins across Japan, Europe, China and the U.S., demonstrating wide adoption of the technology and industry recognition of Synaptics' strength in display and touch integration. We had several automotive TDDI display panels at CES this year, which were well received by OEMs and Tier 1s. And likewise, Synaptics' solutions were also displayed by multiple OEMs in their booths. In addition, we laid out the first OEM production panel using Synaptics TDDI this month. We expect cars with Synaptics TDDI technology to roll out of assembly lines towards the end of calendar year 2020.

Now let's turn to our PC division, where our strong TouchPad business continues to command market share leadership and our PC fingerprint business is strong and growing. In fact, our newest Match-in-Sensor fingerprint solution will be shipping in leading PC OEMs' products starting this quarter. Our footprint in PC also includes Skype-certified audio codecs and display interface technologies. Our leadership in these areas, along with key partnerships with leaders such as Microsoft, AMD, Intel and standards such as FIDO, continue to define the road maps of PC OEMs globally.

In the quarter, we announced that CLEVO, a leading OEM/ODM notebook manufacturer for a variety of global consumer brands, is featuring Synaptics' state-of-the-art SecurePad gamma technology for several of its new high-performance notebook series. An industry first, the CLEVO SecurePad gamma integration merges Synaptics' newest glass-based TouchPad technology with our new cutting-edge OXi-based Clear ID optical fingerprint sensor into a single module for notebook PCs. We are glad to be able to demo one of these models at CES.

You may recall, in 2016, we announced an exclusive partnership with OXi Technology, a Shanghai-based developer of unique and patented optical fingerprint technology. The collaboration includes combining technology from each company into development of new proprietary optical sensing solutions. And we are pleased to see this starting to accumulate in innovative new user interfaces.

Before we move to discussing of the financials, I'd like to address the CFO transition announced today, as Wajid has decided to pursue an executive level opportunity at another publicly-held company. On behalf of the board, I'd like to thank him for his numerous contributions to Synaptics over the last several years, and we wish him well with his next venture. We're pleased to announce that our longtime VP of Finance and Corporate Controller, Kermit Nolan, who has been with the company for nearly 15 years has been promoted to Corporate VP, Chief Accounting Officer and Interim CFO. We've also begun a search for a new CFO.

With that, I'd like to give Wajid an opportunity to say a few words.

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Wajid Ali, Synaptics Incorporated - Former Senior VP & CFO [4]

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Thanks, Rick. This is a very bittersweet transition, as I've made a personal decision to pursue an opportunity that makes a lot of sense for me from a professional development standpoint. It's been quite a privilege to work with Synaptics these past 4 years, along with such a talented executive team. And I'm truly thankful to have played a role in the company's transformation and expanded growth and profit potential. Having worked very closely with Kermit during my tenure here, I have the utmost faith in his abilities as Interim CFO.

And it's my pleasure to now introduce him to walk you through the Q2 financial results and outlook.

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Kermit Nolan, Synaptics Incorporated - Corporate VP, CAO & Interim CFO [5]

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Thank you, Wajid, for your support and confidence. And hello, everyone. Synaptics posted solid second quarter results with revenues of $425.5 million, at the midpoint of our guidance range and up 2% sequentially. As reflected in the presentation materials that were released in advance of this call, revenue from mobile, IoT and PC products was approximately 65%, 20% and 15%, respectively. Revenue from mobile products was up 5% compared with the year-ago quarter and up 4% sequentially. Revenue from IoT products was down 18% year-over-year and up 1% sequentially.

As we discussed last quarter, we have shifted a large portion of our investment dollars from in-display fingerprint to IoT to enable stronger growth of IoT over the midterm, which we believe will become more evident towards the end of the fiscal year. Revenue from PC products was up 4% year-over-year and down 7% sequentially.

During the quarter, we had 2 customers above 10% of revenue, at 14% and 20%. For the December quarter, our GAAP gross margin was 35.2%, which includes $15.1 million in intangible asset amortization and $800,000 of share-based compensation costs. GAAP operating expenses in the December quarter were $124.8 million, which includes share-based compensation of $15.4 million, acquisition-related costs of $3.3 million consisting primarily of intangibles amortization and some transitory compensation program costs, and restructuring expenses of $2.1 million. Our GAAP tax rate for the second quarter was 36.2%. In the December quarter, we had GAAP net income of $12.8 million or $0.36 per diluted share. On a non-GAAP basis, our December quarter non-GAAP gross margin of 38.9% was near the high end of our guidance range and primarily reflects overall product mix.

December quarter non-GAAP operating expenses were $104 million, which was below the low end of our guidance range.

For the second quarter, our non-GAAP tax rate was 12%. Non-GAAP net income for the December quarter was $54.4 million or $1.55 per diluted share, 42% year-over-year -- increase of 42% year-over-year compared with $38.2 million or $1.11 per diluted share in the December quarter of last fiscal year.

Turning to our balance sheet. We ended the quarter with $283 million of cash, an increase of $20 million from the preceding quarter, which reflects approximately $59 million of cash flow from operations, net of $38 million used to repurchase approximately 988,000 shares during the quarter. We expect to continue to be active on an opportunistic basis with regard to our stock repurchase program. Receivables at the end of December were 326 million and DSOs were 69 days, reflecting a back-end loaded quarter. Inventories were $146 million and inventory turns were 7.1. Capital expenditures for the quarter were $4.4 million and depreciation was $9.2 million.

Now I will make a few comments regarding our quarterly outlook, which reflects the broader market factors that Rick mentioned earlier. Based on our backlog of approximately $255 million entering the March quarter, subsequent bookings, customer forecast, products' sell-in and sell-through timing patterns as well as expected product mix, we anticipate revenue for the March quarter to be in the range of $340 million to $380 million. We expect the revenue mix from mobile, IoT and PC products to be approximately 62% 20% and 18%, respectively.

I will now provide GAAP outlook data for our March quarter, and we'll follow with non-GAAP outlook data. We anticipate the stock-based compensation charge in the third quarter to be in the range of $16.5 million to $17.5 million. In addition, March quarter GAAP expenses will include noncash charges of approximately $18 million, related to intangibles amortization, of which approximately $15 million will be reflected in cost of sales. Finally, we expect our GAAP tax rate for fiscal 2019 to be in the range of 25% to 30% for the fiscal year.

I will now provide non-GAAP outlook data for our March quarter. Taking into account our overall revenue mix, we expect non-GAAP gross margin in the March quarter to be between 38% and 39%. We expect non-GAAP operating expenses in the March quarter to be in the range of $102 million to $106 million. We anticipate our non-GAAP long-term tax rate for fiscal 2019 to be in the range of 11% to 13%.

Non-GAAP net income per diluted share for the March quarter is anticipated to be in the range of $0.70 to $1 per share.

In closing my comments, I'd like to point out that we continue to diversify our product mix with greater focus on maximizing profitability. And we are operating within our short-term model for gross margins and operating profit as we look at the fiscal year. As you know, historically, the March quarter is our seasonally lowest period, with the back half of the calendar year generally being much stronger. While quarterly patterns maybe more volatile due to the -- due to global economic factors, we continue to focus on our short-term model with an eye towards the midterm.

And with that, I'll hand the call back to Rick

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [6]

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Thanks, Kermit. While we can't control the broader market conditions, we continue to march forward with our disciplined strategy and targeted investments under Synaptics 3.0, which has better equipped us to weather gyrations in our markets by expanding our product portfolio and diversifying our customer base, while pressing ahead in voice and other growth areas of the business.

Ultimately, we are investing to win. As shown at CES, Synaptics is #1 in numerous key areas across our technology portfolio, and we intend to expand our share. We are well positioned for leadership in IoT with solutions based on vertically-integrated software, firmware and hardware, and as a strategic supplier to key market leaders. We continue to innovate and lead in the mobile market with strong growth opportunities across LCD, TDDI and OLED display and touch. We are forging a strong growth path in automotive, where we are leading the transition to TDDI and expect to benefit as the connected car drives a revolution in the need for displays.

Lastly, we continue to innovate in the PC market where we remain a leader in touch and are capitalizing on additional growth opportunities through fingerprint as well as voice and audio solutions.

Our investments are focused on driving technology and product leadership in high-growth markets as well as rapidly increasing our dollar content per box. By carefully developing our product road map, we are successfully executing to our financial targets with expanding margins and profitability.

With that, we'll now turn the call over to the operator to start the Q&A session. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Kevin Cassidy from Stifel.

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Kevin Edward Cassidy, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [2]

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Congratulations on the good results, and good luck, Wajid. On the -- maybe you'd mentioned it slightly, I don't know what kind of a snapback we would see in the coming quarters. Can you give us an idea of what our channel inventory is like and maybe even the situation on TDDI wafers?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [3]

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Sure, Kevin. So I think as you discussed in the past, for the majority of our business, the idea of a channel isn't a huge concept. We certainly for our new IoT businesses, where there's smaller companies, that starts to play a bigger and bigger role for us. But for our mobile customers, we kind of manage that -- indirectly have some of that effect with the display manufacturers. But for the most part, we're comfortable, and we've accounted for any of that certainly in the guidance that we have. And as we march forward, certainly there's additional opportunity, and that kind of leads into your second question, which is TDDI. There the -- any inventory is very, very lean. So we have now, at this point I can say, supply is meeting demand. We believe we have adequate support from several of our sources to meet the demand out there, and it's somewhat unfortunate, though, because we had to pass on a few opportunities last fall that we would otherwise be rolling with if we had the wafer supply. But at this juncture, we're ready to continue forward and grow that business.

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Kevin Edward Cassidy, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [4]

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Okay, great. And maybe just gross margin seems to be holding up very well, even in the -- with weakness. Is the IoT driving that? And is there room for gross margin expansion still?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [5]

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Yes, Kevin, if I put out there, the goal for the company is to get to 40%, and we're going to have to work at it. And it's -- we have 6 in a row, and we're not committing that we'll continue to every hit that -- going up every quarter, because ultimately we're focused on increasing earnings per share. As you can tell just from the percentages, IoT isn't the #1 reason anymore that our gross margin is going up. It's -- I'd say it's 2 things. Our product mix has been somewhat favorable across all 3 businesses. And then the second factor is just the incredible focus that we have internally on that and recognizing the need that we want to continue to have gross margins go up across the company.

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Operator [6]

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(Operator Instructions) We'll move on to Vijay Rakesh from Mizuho.

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [7]

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I guess, a good quarter and guide year and best of luck, Wajid. Just on the inventory side, I was wondering if you could give us a little more color on how inventories look in the (inaudible).

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [8]

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Vijay, thanks for the question, but we kind of heard the first part. But then you said inventory and the line broke up quite a bit. Could you repeat it, please?

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [9]

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Which inventory is in the channel at the distributors?

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Kermit Nolan, Synaptics Incorporated - Corporate VP, CAO & Interim CFO [10]

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Inventory in the channel at distributors.

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [11]

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If you're asking about, do we have inventory in the channel or at distributors. Someone answered that question for Kevin. Like a lot of our -- we aren't like a lot of our semiconductor peers that have the large international distributors. We run pretty lean with the exception of our IoT business, which for a portion of that business with the smaller customers, we do stock inventory. Now we do have somewhat of a channel through the display manufacturers. But as an example, with TDDI right now is very lean because of our ability to meet the market demands through the winter. So overall, the general channel or inventory that we've already sold, so to speak, is fairly lean for Synaptics.

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [12]

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Got it. And just on the gross margin side. Obviously, it used to be -- you guys are executing well. As you look at 2019, how do you see the gross margin plays out through the rest of the year?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [13]

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Sure, I'll start, and then if Kermit wants to add some comments as well. A lot of it's still, as I said, comes down to mix. And so as we kind of look out through the calendar year, you start to see seasonality. And we have big hopes for our IoT business, and that tends to be a second half of the calendar year business. So we'll continue to work the gross margins. You saw our guidance for this quarter. And as I mentioned on Kevin's question, from a focus perspective, the company will do our best to continue to inch it up as we move forward.

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Operator [14]

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(Operator Instructions) And it looks like we have a question from Kevin Cassidy from Stifel.

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Kevin Edward Cassidy, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [15]

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Just on the OpEx, it looks like there was very good control. Can we expect that going forward? Or there are some onetime changes there?

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Kermit Nolan, Synaptics Incorporated - Corporate VP, CAO & Interim CFO [16]

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I think, again, we've taken actions over the last 2.5 years to bring our OpEx in line with our revenues. We are definitely anticipating this quarter to be in that range of $102 million to $106 million. I'd like to think that we will maintain that. Obviously, there's also investment into IoT. But my expectation is we will keep the OpEx down in the $102 million to $106 million range, hopefully this quarter and next quarter, for sure.

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Kevin Edward Cassidy, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [17]

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Okay, great. And maybe as a follow-up. Rick, you mentioned the 22-nanometer devices. Does that give you a cost advantage also? Or is the -- maybe Moore's Law not work out as well as for just driving cost, but maybe more for performance?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [18]

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No. We -- Kevin, we recognize we're in consumer devices, which there's always cost pressure on those type of devices. So when we made that selection, we really felt 22-nanometer was a sweet spot, especially the global foundries process, which is an SOI-type of process, which gives better power -- performance power than some of the other CMOS technologies out there. But also because it's not quite in the 12 or 14-nanometer node, where you talk some pretty darn expensive wafers and mass costs and so forth, we really felt it gave us a notch up from what was 28-nanometer, at the right cost point and then the right power performance ratio as well as the ability to continue to integrate.

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Operator [19]

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Up next is Ari Shusterman from Needham & Company.

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Ari Shusterman, Needham & Company, LLC, Research Division - Analyst [20]

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This is Ari. I'm taking this question from -- for Raji Gill, Needham & Company. So within consumer IoT for auto, who are your key partners right now and what new partners are trying to attract to your platform? And same goes for consumer IoT for smart home.

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [21]

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So our key partners in -- let me start with automotive. As you can imagine, it's bit of a combination. We really have to meet with 3 different entities. One is the classic-branded OEMs. And until some of these products are announced, I can't really go into who they are. But they want to understand, and it's so important to them with the connected car about where display technology is at, we meet with them. In some cases, they'll use a Tier 1 or in other cases, they'll go directly to a display manufacturer, and the display manufacturers are starting to look more and more like Tier 1s. We have to work with those Tier 1s or display manufacturers to get our product designed in. And you can imagine who the display manufacturers are in the world out there. It's all the names you know, whether it's Samsung, LGD, BOE, AUO, et cetera, that participate in the automobile market. As we shift to IoT, it's a much more fragmented ecosystem. And we work with all of the key ecosystem players. Of course, Google is a big customer, but we've been a strong supporter of their initiatives around Android and what they've done just globally, whether it's smartphones or anything. We also, of course, work with Amazon as one of their certified partners on voice. And many of the Amazon third-party solutions are based on our technology that you see available out there. When you move into the -- to China you have Baidu, Tencent, Alibaba, who we also work but for similar reasons. With IoT then you shift into -- there's also the server provider market. So you're asking kind of a broad question. I guess, in some ways, we did a presentation at CES, and we list many of those partners and customers in that presentation, if you go out to our Investor Relations website. But the server provider platforms are all the providers out there worldwide. So it's a quite worldwide audience, and I believe telecom. We mentioned SK broadband on this particular call. So that's a smattering of the partners that we work with in those 2 spaces.

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Ari Shusterman, Needham & Company, LLC, Research Division - Analyst [22]

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And just one quick follow-up. When it comes to OLED, can you give a little more color and some updates on the road map?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [23]

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As much as that's publicly available. So today, we have a qHD solution for OLED as well as a Full HD. And those could be used either with flexible or rigid OLED panels. We hinted very strongly in the script that we're done a power -- a lower power version of those devices, which has now begun sampling in the marketplace. And then beyond that you can expect us to continue to innovate around display quality, power and higher levels of integration.

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Operator [24]

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And next we have Charlie Anderson from Dougherty & Company.

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Charles Lowell Anderson, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [25]

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I'm hopping between calls here, so sorry if some of this has been asked. Just on the IoT, it looks like where you're guiding to in the March quarter will be down, maybe, 19%-or-so after down 18%-or-so in December, if my math is right. So I guess, I'm just curious what you see as potentially turning that around. I know you have a bunch of new products, specifically within IoT. And then as it turns around, I'm kind of curious how the margin profile changes. I know the Marvell business you bought and the Conexant business you bought had very different gross margins, so in terms of -- when you do see that growing, is it margin -- is it helpful on the gross margin? And then, I've got a follow-up.

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [26]

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Okay. Thanks, Charlie. So in some ways, I think, we should examine to why is our Q3 guidance down year-over-year. The 2 kind of reasons there, and that's persisted from what we said about Q2, so kind of no news there, is that a lot of our business was in the smart speaker business, and it just had a fantastic year, kind of, as it came out of the chute there, and so that weakness is persisting into Q3. That's kind of one factor. Then the other factor is just more broadly, the whole IoT market is slower. As you've heard, I'm sure the last few weeks, those 2 factors kind of had the lower year-over-year growth. We kind of expected to kind of grow from here. As I mentioned in my prepared remarks, we will be in mass production with our 22-nanometer products in our fiscal Q4, and that certainly gives us a nice boost. They tend to be a little higher ASP products. And then as we swing into more seasonality in the back half of the year, I think, the year-on-year compares will be much more favorable. And so we certainly expect that business to grow going forward. In terms of gross margin, Charlie, you're right, Conexant gross margins were a bit higher, the Marvell margins were a bit lower than 50%. We kind of balanced out a bit above 50% gross margin. That's where we expect our IoT business to continue to operate going forward.

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Charles Lowell Anderson, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [27]

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Okay, great. And then, Rick, just sort of big picture question. You've exposure on the LCD side and then also exposure on the OLED side. I'm curious just as to sort of the consumer taste shift and sort of what you're seeing realtime in terms of what people are after. Has anything changed in your view of what you need to invest in from a LCD versus OLED perspective internally?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [28]

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Sure. So again, as I mentioned to a previous caller, we actually have our best look at the trends between the 2 in terms of percent of the marketplace in the Investor Relations site with the presentation we did at CES where we showed OLED. Non-Korean suppliers has been a little less than 100 million displays this year, so nothing to change out over the past month. So we're really excited about the OLED ramp, and we think it will continue to be a higher and higher percentages of smartphone marketplace. Kind of balancing that, though, of course, I think, consumers are speaking in terms of price points that they want for their phones. And LCD continues to have a substantial cost advantage versus OLED displays at least for the next couple of years. So we're kind of sticking with that mix going forward. As you can imagine, we are shifting more of our investment dollars to OLED because there are higher growth rates there. Well, we also want to maintain our share and position in the LCD market. I guess, I should add there, Charlie, as well, that's independent of automotive where we certainly are picking up our investment in automotive will be -- vast majority of that will be LCD for the next decade.

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Operator [29]

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(Operator Instructions) We'll move on to Brett Simpson from Arete Research.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [30]

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Rick, I just had a follow-up on the mobile business. I wonder whether you could give us a sense for how you see TDDI as a market opportunity this year. Do you think in calendar '19, TDDI will grow just bearing in mind there is a transition to OLED underway? And then just on the OLED side, can you give us a sense for what portion of your mobile business is OLED today or help us sort of size this? And how you think the ramp will play out? It's helpful knowing that you're seeing non-Korean OLED at like 100 million units this year. But any market share projections or anything you can help us just sort of figure out where you're positioned and how you think it plays out over the course of calendar '19, that would be very helpful.

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [31]

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Sure. I mean, I'll see if I can kind of address each of those questions. On the TDDI side, clearly the market will be bigger in 2019 than 2018. Now one of the challenges, of course, we have is we had a pretty good share in 2018. And so our goal is to maintain that share as best we can. And it won't be a huge growth driver for us, but we still see the opportunity in calendar '19 to grow that business year-over-year. There is just -- today, most of the TDDI market is in the Full HD segment. The HD segment, for example, is still a mix of discrete-type of solutions, but that's going to change very quickly as everybody is getting the benefits of TDDI finally. So a pretty rapid shift. That's in the presentation that I mentioned as well, our view on what percentage of the market or what opportunity we have in TDDI. And OLED, I have to remind myself, there's a couple of pieces to OLED. One is the display drivers, which I tend to talk most about. And it's -- the business as part of the company is -- sorry, I'm doing some quick math here. It's still relatively small, think in the 5%-ish area of our quarterly results, maybe even here a bit lower than that. As we move forward, of course, we expect that to be higher, that -- the 5% with the display driver comment. Of course, we sell touch controllers, and there we participate much more broadly in the OLED markets. And the -- I mentioned 3 design wins that we had with Oppo and Vivo, and those are all with Samsung display, as an example. That business is even bigger than the kind of the 5% category that I talked about. So we're a fairly reasonable sized participant in the OLED market today.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [32]

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Right. And, Rick, just a follow-up on that. As you look at the sort of the year playing out for OLED in calendar '19, how do you see that non-Korean display, the OLED opportunity, the 100-million-unit market that you described, how do you think your market share plays out? And can you give us a sense as to how that business evolves as we go through the year?

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [33]

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Well, it will ramp through the year, of course, as these various suppliers are bringing on capacity. So I don't know if I can give you a Q1 in this and Q4 that type of number. I will say it is a bit less than 100 million units, as best as we can tell. And our market share, again, it's really hard to, for me, to peg down a particular product line, especially when we're in the early stages. But it's kind of historically in the small display market. We've been in the 30-ish percent market share.

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Operator [34]

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(Operator Instructions)

And I apologize. Would you mind clarifying that last answer. I apologize, I interrupted.

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [35]

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Certainly. I just wanted to make it clear, it's part of our Sam or the non-Korean OLED display manufacturers.

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Operator [36]

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(Operator Instructions) And there are no further questions. I'd like to turn it back over to management for closing remarks.

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Richard A. Bergman, Synaptics Incorporated - President, CEO & Director [37]

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Okay. Thank you, everyone, for joining us on the call today. We look forward to seeing some of you again soon at Mobile World Congress in the latter part of the month. Goodbye.

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Operator [38]

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And this concludes today's call. Thank you for your participation. You may now disconnect.