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

Q1 2020 Synaptics Inc Earnings Call

SANTA CLARA Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Synaptics Inc earnings conference call or presentation Thursday, November 7, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dean Warren Butler

Synaptics Incorporated - CFO

* Jason Tsai

Synaptics Incorporated - Head of IR

* Michael E. Hurlston

Synaptics Incorporated - President, CEO & Director

* Saleel Awsare

Synaptics Incorporated - Senior VP & GM of IoT Division

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Conference Call Participants

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* Anthony Joseph Stoss

Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst

* Brett William Simpson

Arete Research Services LLP - Senior Analyst

* Charles Lowell Anderson

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

* Christopher Adam Jackson Rolland

Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

* Rajvindra S. Gill

Needham & Company, LLC, Research Division - Senior Analyst

* 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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Good day, and welcome to the Synaptics First Quarter Fiscal 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jason Tsai, Head of Investor Relations. Please go ahead.

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Jason Tsai, Synaptics Incorporated - Head of IR [2]

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Thank you, Brandon, and good morning. Thank you for joining us today on Synaptics First Quarter Fiscal 2020 Conference Call.

My name is Jason Tsai. I'm the Head of Investor Relations at Synaptics. With me on today's call are Michael Hurlston, our President and CEO; Dean Butler, our CFO; and Saleel Awsare, Senior Vice President and General Manager of our IoT Division. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of our company's website at synaptics.com. In addition to a supplemental slide presentation, we have also posted a copy of these prepared remarks 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 nonrecurring/recurring items. Please refer to the press release issued after market close today for a detailed reconciliation to 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 conditions, 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 suggested in the company's forward-looking statements. We refer you to the company's current and periodic reports with the SEC, including the Synaptics Form 10-K for the fiscal year ended June 29, 2019, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [3]

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Thanks, Jason, and I'd like to welcome everybody to today's call. We got a little bit ahead of ourselves earlier today, so I hope we maintained a decent audience for our actual discussion. Certainly, I'm happy to be speaking to you for the first time since I joined in August.

I'm excited for the future of Synaptics, given our wide array of leadership technology. With the addition of Dean Butler as our new CFO, we have a strong leadership team in place to continue to drive the corporate transformation the company began earlier this year and to become a stronger, more profitable company long term.

Let me start with a quick recap of our financial performance this past quarter. We had numerous, highly successful product launches with many of our Tier 1 OEM customers.

I'm happy to report that revenue, gross profit and operating profitability all exceeded our forecast from just 3 months ago. Revenue was $340 million and exceeded the high end of our range. Our gross margins were also better as the early actions we've begun in focusing on higher-margin products have begun to show results. This is the first time in over 5 years that we have achieved non-GAAP operating gross margins of over 40%. Better OpEx controls with more disciplined spend and more selective product investments also resulted in operating expenses that were lower than expected. As a result, non-GAAP net income increased more than 200% sequentially to $41 million and non-GAAP EPS of $1.22. This is a great start to our fiscal year, and I believe we are putting the pieces together to drive this type of strong performance more consistently going forward.

As part of our corporate transformation, I see an opportunity for us to better align our operations by breaking down internal silos and improve efficiencies. By removing redundancy and streamlining our operations, we should be able to further improve our overall corporate profitability and performance. We're undergoing a full review of our product portfolio and look to further invest in areas where our strong technology in IP will deliver higher margins and growth long term for the company as well as reduce investments in areas that are more commoditized. I want to provide some insights and updates to our Mobile and PC businesses.

In Mobile, we are continuing to focus on the higher gross margin premium segments of the market, which continue to shift toward flexible OLED displays to enable some of the most advanced designs in the industry. We continue to win with our advanced touch controller ICs for premium OLED smartphones with Tier 1, mobile OEMs due to our superior performance and differentiating features. Our solutions are enabling exceptional touch performance in a new generation of phones with displays that fold and bend. And we continue to win major designs with our display drivers across both OLED and LCD.

One example of our success in mobile is with a recently launched flagship Android phone by a leading Chinese OEM that leverages our most advanced touch controller IC for unmatched OLED touchscreen performance. This enabled the world's first active pen capability on flexible OLED display powered by our single-chip, dual y-octa solution that eliminates the need for 2- or 3-chip alternatives that require more real estate and are more expensive. The same phone is paired with our premium OLED flexible display driver IC.

Jumping to our PC business, Synaptics continues to remain the market share leader for both TouchPads and secure fingerprint sensors. We have numerous new design wins across all the OEM leaders, including Dell, HP and Lenovo. I wanted to take this opportunity to make clear that we remain committed to this business as we look to extend our leadership while continuing to innovate and differentiate.

With that, let me turn the call over to Saleel and have him give you an update on the IoT business. Saleel?

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Saleel Awsare, Synaptics Incorporated - Senior VP & GM of IoT Division [4]

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Thank you, Michael. Our IoT business continues to build upon our strong relationships with some of the world's largest OEMs. We saw several successful launches of new products powered by our IoT solutions from some of the world's leading consumer electronics companies and we are even more excited by what's in the pipeline for 2020.

We are building a strong franchise around our edge computing SoC products and this quarter, a leading U.S. search provider launched a new smart speaker and a new smart Wi-Fi mesh router solution, both of which packed 1 teraop of performance using our quad-core SoC with integrated neural network accelerators.

The value proposition for the consumer is that these new generation of products, with AI at the edge, will deliver much better performance and speed with low latency by learning and processing commands locally. This can enable 3 to 10x improvement in performance as compared to their previous generation product.

We have a strong pipeline of new products ranging from our sound bars to 5G gateways and media streamers that are being introduced by hardware OEMs and service providers globally using our edge AI computing platform.

These new products are building upon our expertise in edge technology that offers a combination of voice, video and computer vision with AI capabilities. By incorporating more of our proprietary software, firmware and intelligence into these solutions, we will enable better performance with greater personalization and customization while enhancing privacy and security to deliver a more seamless user experience for the consumer in multitude of connected devices that will become more pervasive in our lives.

This includes Verizon, who also announced a new 5G home router featuring Synaptics' far-field Voice DSP and integrated Alexa wake word technology.

For our high-speed, wired connectivity franchise, we made a small acquisition in this space last quarter that will significantly expand our TAM longer term. We are seeing our opportunities in high-speed, wired connectivity increasing meaningfully over the next few years and will continue to invest in this key area.

For our digital audio SoC solutions for headphones, we launched in box with a leading Korean OEM with their newest flagship handset last quarter, their first flagship shipping with a USB, Type-C wired headset. We are excited by this opportunity and continue to invest in our differentiating road map as we see more leading Android smartphone OEMs looking to make USB Type-C wired headsets a standard for their upcoming flagship handsets.

Lastly, let me touch upon our Auto business. We are excited about the long-term opportunity with our leading technologies and capabilities for enabling touchscreens and are very pleased to have design-ins at 6 major OEMs across Europe, North America, Japan and China. Many of these OEMs are planning to transition the majority of their future display systems to a simpler and lower cost integrated solution platform using TDDI, and we are winning the majority of these sockets. With that, I'll turn the call back over to Michael. Michael?

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [5]

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Thanks for the update, Saleel. Before I turn the call over to Dean to discuss the financials, I'd just like to say that I'm really excited about the opportunity ahead for Synaptics. Since I've been on board, I've been really impressed by the strong team we have in place, our broad portfolio of technology and IP and the great customers and partners we have today.

We still have a lot of work ahead of us as we continue down the path of transformation, but I'm confident we have the building blocks in place to drive Synaptics to become an even stronger company built on differentiated and sustainable franchises that generate better profitability long term. Now let me turn the call over to Dean to review our first quarter financials and provide our outlook.

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Dean Warren Butler, Synaptics Incorporated - CFO [6]

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Thanks, Michael, and hello to everyone on the phone. Before I get started, I would just like to say it's an honor for me to join Synaptics. I'm excited to be part of such a great company.

Revenue for the first quarter of fiscal 2020 of $340 million was approximately 3% above our high-end guidance range, up 15% from the preceding quarter and down 19% from the same quarter last fiscal year.

Our revenue beat for the quarter primarily reflects a better-than-expected demand from Huawei. We had 2 customers above 10% of revenue at 12% and 12%.

For the September quarter, our GAAP gross margin was 37.1%, which includes $15.4 million of intangible asset amortization, $700,000 of share-based compensation costs and $1.2 million partial reversal of a previously accrued loss on supplier commitment agreement.

GAAP operating expenses in the September quarter were $123 million, which includes share-based compensation of $10.5 million, intangible amortization of $2.9 million, restructuring expenses of $6.6 million, retention program costs of $3.8 million and a $3.7 million charge related to an acquisition of a technology startup company.

In the quarter, we accrued a GAAP tax benefit of $4.9 million. GAAP net income for the quarter was $4 million or a net income of $0.12 per diluted share. On a non-GAAP basis, our September quarter non-GAAP gross margin was 41.5%, which was above the high end of our guidance range and primarily reflects an overall better product mix. The September quarter non-GAAP operating expenses were below the low end of our guidance range at $95.5 million and down $5.6 million from the preceding quarter primarily reflecting the benefit of the restructuring we announced in the June quarter and prudent expense management.

Our non-GAAP tax rate was 12%. Non-GAAP net income for September quarter was $41 million or $1.22 per diluted share, an 8% decline year-over-year compared with $44.6 million or $1.24 per diluted share in the first quarter of fiscal 2019.

Now turning to our balance sheet. We ended the quarter with approximately $351 million of cash on hand, an increase of $23 million from the prior quarter. The increase in cash for the quarter was primarily driven by cash flow from operations of $47 million, which was partially offset by $17 million of cash used in our share repurchase program for the purchase of 556,000 shares. Receivables at the end of the September quarter were $232 million and DSOs dropped to 61 days, reflecting a more evenly loaded quarter relative to prior quarters. Inventories were $138 million and inventory days were 63 days, down from 75 days in the prior quarter.

Capital expenditures for the quarter were $5 million and depreciation was $7.2 million. Now let me discuss our outlook. Based on our backlog entering the December quarter of approximately $265 million, subsequent bookings, customer forecasts, product sell-in and sell-through timing patterns as well as expected product mix, we are anticipating revenue for the December quarter to be in the range of $345 million to $365 million. We expect the revenue mix from our Mobile, IoT and PC products to be approximately 54%, 25% and 21%, respectively.

While our fiscal Q1 results and our fiscal Q2 revenue outlook are stronger than what we expected 3 months ago, it remains too early to determine whether this near-term strength is due to better end demand or simply orders ahead of the expected tariff increases in December. There remains significant macro uncertainty given the rapidly changing trade environment, so we believe it is prudent to maintain our full year revenue guidance of down 10% to 20% as compared to our full year fiscal 2019 revenue.

I will now provide a GAAP outlook for our December quarter and follow it with non-GAAP outlook. We expect our GAAP gross margins to range from 38% to 40%. We expect our GAAP operating expenses in the range of $121 million to $126 million, which includes noncash charges for intangible amortization, stock-based compensation, and we also expect to accrue restructuring costs and retention-related costs. Finally, we expect our GAAP tax rate for fiscal 2020 to be in the range of 15% to 20% for the fiscal year.

I will now provide non-GAAP outlook for our December quarter. We expect non-GAAP gross margin in the December quarter to be between 40.5% and 42.5%, and anticipate this is our second quarter consecutively with non-GAAP gross margins above 40%. We expect non-GAAP operating expenses in the December quarter to be in the range of $90 million to $93 million. We are continuing to evaluate our portfolio and spend, and believe there could be additional cost savings longer term with a more disciplined resource allocation. We anticipate that our non-GAAP tax rate for fiscal 2020 to continue to be in the range of 11% to 13%. Non-GAAP net income per diluted share for the December quarter is anticipated to be in the range of $1.35 to $1.55 per share.

This wraps up our prepared comments. I'd now like to turn the call over to the operator to start the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question will come from Charlie Anderson with Dougherty & Company.

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Charles Lowell Anderson, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [2]

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Welcome to Michael and Dean and congrats on a good start. Wanted to start on -- Michael, since this is your first call, maybe if you could just sort of articulate what were some of the reasons that you were attracted to Synaptics in the first place? And then as you had a few months under your belt and you've assessed the operations, where do you see some of the most headroom for improvement, either operationally or financially? And then I've got a follow-up.

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [3]

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Yes, good question. Certainly, some of the drivers -- coming here I thought that the company was potentially underappreciated and I thought there was opportunity to drive shareholder value, and we've still got a lot of work to do, but early returns are certainly encouraging. We also -- a lot of the technology that the company's engaged with, I have past experience with, with having -- competing against Synaptics on touch products, on -- what was the old Marvell business on set-top box products. So there was a lot of familiarity with the business and certainly belief that I could help the company near term in terms of some of the marketing and sales activity. So there definitely seems to be some opportunity to drive some shareholder value and certainly familiarity with the products was -- were the key motivating factors.

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Charles Lowell Anderson, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [4]

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Okay. Great. And then on gross margin, I thought it was interesting you have a similar mix in September by end market that you had in June, but yet the gross margins are up over 200 basis points. So I wonder if maybe you guys can articulate what was going on there, maybe between -- within the segments in terms of products that helped enhance the margin. And as we look forward to maybe a higher margin profile over time, what are some of the products that are going to sort of carry you on your way there?

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [5]

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I think, as Dean spoke, where on the mobile products, although the overall revenue mix was very similar within the segments -- within the mobile segment in particular, our mix was better. It was more toward the high-end products, the more margin-favorable products. And as I said in my comments, as we go forward, it's going to be our intention to focus more on those products and try to maintain consistency on the gross margin line, which is, I think, exactly what Dean read out. So although, you're right on the macro mix, within each of the subsegments, you had some moving pieces and those moving pieces led to the favorability.

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Dean Warren Butler, Synaptics Incorporated - CFO [6]

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And then maybe I'll just add, Charlie, that as you can see in our guidance for this quarter, we actually believe this is a sustainable kind of margin position for us going forward.

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Operator [7]

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(Operator Instructions) The next question will come from Anthony Stoss with Craig-Hallum.

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Anthony Joseph Stoss, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [8]

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My congrats as well. Welcome, Michael and Dean. I know you didn't want to elaborate at whether you thought your strength in Huawei was tariff-related, but can you tell if you're taking share at Huawei? And then maybe for Dean, in terms of your December quarter guide, do you expect all the divisions to be up sequentially or would there be 1 or more down?

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [9]

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Yes. Anthony, let me start with the first part. Relative to taking share, again, I think it's more mix-related. As we talked about, we had design wins on the high end of their line, and I think that led to both revenue and margin favorability at Huawei. Huawei is a customer that we continue to see strength in as we looked forward, but whether we're taking share or just improving our mix at Huawei, as Dean said, remains to be seen.

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Dean Warren Butler, Synaptics Incorporated - CFO [10]

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Yes, and as far as it comes for your second question, so what we kind of expect is that our PC business is relatively flat. We think our Mobile business should do well, and we also believe our IoT business relatively flat this quarter.

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Anthony Joseph Stoss, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [11]

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Got it. Any unusual competitive pricing? I mean given gross margins are strong, especially in the -- or excuse me, on the mobile side do you -- in the past Synaptics has seen a lot of pressure there. Is it just a transition to OLED? Or any thoughts on the competitive environment would be helpful.

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [12]

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Yes. I think it's really mix-related. Certainly, we're -- we continue to see pressure at the low end of the market. That is very much true and your comments to that effect still are there. I think what we've done is shifted our attention more to high-end handsets and had some success there, which really was the gross margin tailwind.

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Operator [13]

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The next question will come from Raji Gill with Needham & Company.

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Rajvindra S. Gill, Needham & Company, LLC, Research Division - Senior Analyst [14]

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Michael, my congrats and welcome as well. The commentary around keeping the annual guidance down 10% to 20% year-over-year seems prudent to me. But I just wanted to get a sense of the impact on a quarter-by-quarter basis. If you assume that it's going to be a pretty big drop-off in March and not really -- and a small pickup in June. So it seems like a lot of orders might've been pulled in. So I'm trying to balance between the pull-in versus your competitive position at Huawei, your share gains at Huawei because you've indicated a pretty big drop-off in March and a small recovery in June.

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Dean Warren Butler, Synaptics Incorporated - CFO [15]

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Yes. As you might imagine, I mean the visibility on the dynamics being placed out there in the global trade war with -- and the potential pre-tariff kind of action. It's difficult for us to assess, so we would kind of be cautious on that. But I would really say, if you look at kind of typical seasonality for us, first half is generally kind of our high watermark, and if you follow a typical seasonality, we would typically be down a little bit from here, looking out to the second half of the year, which puts you back in the range of where we kind of anticipated a full year versus 2019.

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Rajvindra S. Gill, Needham & Company, LLC, Research Division - Senior Analyst [16]

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Okay. And in terms of the gross margin, the gross margin at 41.5% based on a mix of 54% Mobile, 25% IoT, 21% PCs, the Mobile -- the margin improvement is really related to a positive-mix shift within Mobile. So I wanted to get a sense, back to my earlier point, how sustainable that mix shift within mobile to higher-end products of Huawei is? And are there plans to kind of improve the IoT margins or improve the mix of IoT, which is obviously very high margin business as we go forward when you look at kind of the strategic plan going forward.

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [17]

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Yes. I mean I think your read is right that the margin mix is something that we believe is sustainable. We -- we're really focusing a lot more on high-end wins and trying to put more wood behind the arrow. So we've got reasonable traction, and as you likely know, at 2 of the 3 maker handset OEMs at the high end, and I think that's helped the margin mix. I think with respect to the IoT business, it's a huge area of focus for us. I think we like our prospects there, both in the Automotive segment and in Edge SoC, and I think we have good design win traction in both segments, but as you know, the semiconductor [tenant] takes time for those design wins to materialize in our revenue line, in our gross margin line. So we're very focused on it. I think that we're trying to drive sales in both of those segments, but it's going to take some time to see pull-through.

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Rajvindra S. Gill, Needham & Company, LLC, Research Division - Senior Analyst [18]

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And last question for me, Saleel. So there seems to be some good traction on the wired digital headsets with the USB-C products. Wanted to get a sense, are you guys moving into also wireless, untethered earbuds and competing with [TELUS] and others? And how would you rank your kind of noise cancellation technology in that particular market?

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Saleel Awsare, Synaptics Incorporated - Senior VP & GM of IoT Division [19]

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Great question, Raji. Yes, we continue to lead in the USB Type-C tethered wired headsets. And as I said earlier that has become a franchise for us. And the -- true wireless and wireless is moving forward, and we have a robust road map in place. And I don't have a lot to share with you today, but just be looking out for it. I'm very excited about our technology. If you come to CES, you'll be able to see some of our great demos around ANC and noise cancellation. I believe we have market-leading solutions.

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Operator [20]

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The next question will come from Vijay Rakesh with Mizuho.

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [21]

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Welcome Mike and Dean, congratulations here. Just on the IoT side, Saleel, is that -- are you looking for that to be growing flat for the fiscal year versus the overall business, let's say, being in the -- down 10% to 20%?

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Saleel Awsare, Synaptics Incorporated - Senior VP & GM of IoT Division [22]

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Vijay, so we spoke at the last call, and we're holding what we've said that we're going to grow in the double-digit -- in the low teens for the year, fiscal '19 to fiscal '20, and we're holding to that.

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [23]

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In the IoT.

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Saleel Awsare, Synaptics Incorporated - Senior VP & GM of IoT Division [24]

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In the IoT business. Yes, I want to be clear. Thank you, Michael. Does that...

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [25]

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No, that helps. And when you look at the OLED shipments, you had mentioned the single-chip that drives lower power on lower footprint, smaller footprint. What percent of your OLED -- of your driver ICs do you think would be OLED exiting this year and if you look at the first half of next year?

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [26]

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That's...

(technical difficulty)

...calculate, I don't know if I have that at the tip of my finger, Vijay. Again, it's a focus area for us, but how the actual numbers break down, I don't know.

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [27]

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Got it. And last question. I know you've mentioned this potential for the pull-in. Did your -- is your mix on Huawei going up as you go in December -- into the December quarter?

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Dean Warren Butler, Synaptics Incorporated - CFO [28]

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So as we're entering the December quarter, our Huawei's mix is not going up. And so -- what I would say on Huawei is, we think we've taken a conservative view for our Huawei exposure here in our December quarter. And we're really comfortable on how we've modeled it into our outlook.

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [29]

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There is no change.

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Dean Warren Butler, Synaptics Incorporated - CFO [30]

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Yes, there's no change in the overall exposure. That's right.

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Operator [31]

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(Operator Instructions) The next question will come from Christopher Rolland with Susquehanna International (sic) [Financial] Group.

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Christopher Adam Jackson Rolland, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [32]

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Great quarter here and Michael, welcome aboard. I guess the first one is for you, Michael. Just talking about kind of how you're thinking about Synaptics, their longer-term road map, the kind of strategic future that you see for Synaptics. And I think some of the bigger questions are, are you going to continue to focus on the consumer or might you try to move into other areas? Are there some tech tuck-ins that you think you need to help fill out that road map? And then lastly, I'd say, sort of an overarching theme here for Synaptics of old at least is that the Taiwanese guys seem to cut-and-paste Synaptics' technology almost like they're gunning for you guys. Any early thoughts on how you can break this cycle and differentiate?

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [33]

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Okay, Christopher. No. Thanks for the question. Look I -- and everybody's said the same thing and congratulated us on the quarter. The quarter was a relatively good. We've got a lot of work to do. I think that we see opportunity. We still think that there's room to grow this business on both the top line and on gross margin. So while it was better than we forecast, I would say that we still have a lot of opportunity here at the company and it goes to what your -- the second part of your question which is, where do we see the road map going? I think we're in the process of evaluating that. Dean is kicking off a full portfolio review. We're going to embark on that this quarter and really look at where we are from a technology standpoint and try to figure out where we do place our bets. What I can tell you in response to [me] -- the last part of your question, certainly, the Taiwanese are competitors. Chinese are competitors at the low end of the market. We generally want to be avoiding that piece of the business. I think in the past, there has been an atmosphere of grow the top line almost at all costs and not worry about gross margin and bottom line profitability. I think Dean, Saleel and myself have definitely altered that culture. We want to be very disciplined in top line growth and grow profitably with good gross margin. So while we don't have a clear answer yet on which technologies are going to be building blocks and which aren't, we know that the theme has changed substantially from the past administration.

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Christopher Adam Jackson Rolland, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [34]

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Excellent. And then perhaps just getting into the weeds a little bit more. Maybe a little bit more detail on Huawei, why that was so much stronger there? Is it just a unit thing? Or are you really taking share across the Huawei line? What do they like about the Synaptics' products? And do you think that the share that you're taking is durable?

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [35]

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Yes, maybe part of it was -- Dean alluded to it during his comments around first half versus second half. We, I think, took a fairly conservative view going into the quarter as to how the Huawei numbers would shape up. And we did better than expected. So it wasn't necessarily share gains or anything like that. It was probably a relatively conservative view of their forecast trying to be prudent on tariffs and other macro problems. Our view is they -- their sales were far better than expected, and we got dragged along with that. I don't know if, Christopher, that answered the question?

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Christopher Adam Jackson Rolland, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [36]

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Yes. No, that's great.

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Operator [37]

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The next question will come from Brett Simpson with Arete Research.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [38]

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Michael, I just wanted to ask -- I mean I appreciate you're still undergoing a full portfolio review and you're relatively new to the business, but maybe you can just share with us, from a higher level, what are the areas where you think Synaptics has a real opportunity to transform the most? I mean looking at the IP and the skill sets and the resources today, what are you most excited about what the business has done this far?

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [39]

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I would say 2 things are true, Brett. One, I think that our touch products, both in mobile and PC are world-class. And I think that in the past, we didn't emphasize that enough. I think that we have opportunity in touch to take share. And again, I think focusing on high end and leading technology, I think, that's a big opportunity for us. I think the second big thing is this neural network that Saleel has talked about in the past. There are 2 aspects to that: one, we have intelligence built into our audio solutions and as Saleel spoke to, we do intend to move into the true wireless area of the market and use and take advantage of some of the neural networking there for wake words and simple commands that would be computed locally on the headset.

And then secondly, that very same technology is in our edge SoCs that we've talked about in the past, but we really want to use that to differentiate. I think that in the past, our customers were using that neural network, and they were doing more of the differentiation. Our intention going forward is going to be to apply our own software resources to exercise neural network and actually deliver more differentiation to our customers.

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Brett William Simpson, Arete Research Services LLP - Senior Analyst [40]

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Great. And maybe just a quick follow-up. On the Mobile business specifically, when you look at that book of business today, how much of that Mobile business would you say is below the threshold of margin you think is acceptable to the future of Synaptics? I'm just trying to get a sense for what portion of Mobile really is maybe more of the commodity end versus where you think is really sort of accepting margins for going forward.

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Dean Warren Butler, Synaptics Incorporated - CFO [41]

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Yes. I would say -- this is Dean. So that is something we absolutely take a look at internally, but we don't break that out externally. As Michael alluded to, [a lot] should be going through a portfolio review to make sure that you're aligning our go-forward strategy to the highest shareholder value creation.

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Operator [42]

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There are no further questions at this time. I will now turn the call over to CEO, Michael Hurlston.

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Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [43]

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I want to thank everybody for spending time with us this afternoon. I appreciate the questions and the attention, and we look forward to speaking with you again next quarter.

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Operator [44]

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Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect your lines.