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Edited Transcript of SYNA.OQ earnings conference call or presentation 5-Nov-20 10:00pm GMT

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Q1 2021 Synaptics Inc Earnings Call SANTA CLARA Nov 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Synaptics Inc earnings conference call or presentation Thursday, November 5, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Dean Warren Butler Synaptics Incorporated - Senior VP & CFO * Jason Tsai Synaptics Incorporated - Head of IR * Michael E. Hurlston Synaptics Incorporated - President, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Charles Lowell Anderson Colliers Securities LLC, Research Division - VP & Senior Research Analyst * Christopher Adam Jackson Rolland Susquehanna Financial Group, LLLP, Research Division - Senior Analyst * Harrison Barrett Arete Research Services LLP - Analyst * Jason Charles Getz Mizuho Securities Co., Ltd., Research Division - Research Associate * Kevin Edward Cassidy Rosenblatt Securities Inc., Research Division - Senior Semiconductor Research Analyst * Rajvindra S. Gill Needham & Company, LLC, Research Division - Senior Analyst * Zhihua Yang Oppenheimer & Co. Inc., Research Division - Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Synaptics, Inc. First Quarter Fiscal Year 2021 Financial Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your first speaker for today, Mr. Jason Tsai, Head of Investor Relations. Thank you, sir. Please go ahead. -------------------------------------------------------------------------------- Jason Tsai, Synaptics Incorporated - Head of IR [2] -------------------------------------------------------------------------------- Thank you. Good afternoon, and thank you for joining us today on Synaptics' First Quarter Fiscal 2021 Conference Call. My name is Jason Tsai, and with me on today's call are Michael Hurlston, our President and CEO; and Dean Butler, our CFO. 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. 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, other certain -- and certain other noncash or recurring or non-recurring 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, including our expectations regarding the potential impact on our business of the COVID-19 pandemic. Although Synaptics believes our estimate 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 filed with the SEC, including the Synaptics Form 10-K for the fiscal year ended June 27, 2020, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims obligation to update this forward-looking information. I will now turn the call over to Michael. -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Jason. And I'd like to welcome everyone to today's call. We had a strong start to our fiscal year as our ongoing efforts to drive better financial performance for Synaptics resulted in strong revenue growth in the first quarter of our fiscal 2021, with the highest gross margins in more than 7 years, and the highest operating margins in 6 years. We completed the acquisitions of DisplayLink and Broadcom's wireless IoT connectivity business early in the quarter, and have completed both integrations. We are pleased with the initial performance of these 2 acquisitions and are already seeing better than expected revenue as well as robust design-win pipelines. Now let me give you an update on our business. In IoT, as we talked about last quarter, the ongoing effects of the global pandemic have driven additional opportunities in our business, as our customers accelerate new product introductions to drive greater efficiency for enterprises and deliver premium experiences to consumers at home. We are supplying a broad range of products that enable our customers' devices, including our new DisplayLink video interface solutions, audio chipsets and edge-SoC processors that feature far-field voice and echo cancellation. Powered by Synaptics, new solutions from Dell, Google, Logitech, Bose and Poly helped remote teams collaborate more effectively with robust, feature-rich teleconferencing solutions. Our digital audio solutions are seeing strong demand with premium headsets that primarily serve enterprise customers. We are also seeing service providers accelerating product development in order to offer video conferencing and enhanced entertainment products to their customers. Last quarter, we announced wins at 2 U.S. service providers and we now have added 2 more, one in Asia and one in Europe, adding to our momentum in devices that have 4K video and premium Dolby audio capabilities. Both design wins will start shipping in the first half of the next calendar year. In the quarter, Google also began shipping its newest Nest Audio smart speakers that are powered by our edge SoCs with artificial intelligence. In our new wireless connectivity business, demand for our Wi-Fi, Bluetooth and GPS chipsets for the IoT market is extraordinarily strong and our design pipeline continues to grow rapidly. The range of products our connectivity solutions has been designed into is truly remarkable and includes video-enabled doorbells, security cameras, over-the-top streamers, smart displays, smart watches and even e-bikes and drones. As we said earlier, this business is off to a great start, exceeding our initial projections, and we believe it will generate significant growth for Synaptics in the years to come. The combination of best-in-class wireless performance and ultra-low power that comes from chips initially designed for mobile phones has given us a significant leg up on competition as we enter this market. In mobile, our OLED touch controllers continue to do very well, winning virtually every new design by major handset OEMs, using flexible on-cell OLED panels, including new wins at Oppo and OnePlus. We expect more than 10 new smartphones will come to market with our OLED touch controller over the next few months. We also had our major handset OEM announce their new flagship phones last month, powered by our OLED touch controller. We expect flexible OLED-based smartphones to become the dominant panel technology for smartphones over the next several years, and as a result, expect the penetration of our touch solutions to increase. During this transition, we believe that LCD-based smartphones will continue to hold a stable base and remain an important part of the portfolio longer-term, as we continue to engage with our customer on new designs. We are confident that we are positioned well with leading smartphone OEMs around the world to continue to win with our OLED touch controllers and are excited by the growing opportunity in front of us. In our PC business, we continue to benefit from strong laptop shipments, with our sales up nearly 20% compared to a year ago. Our PC sales did decline about 10% sequentially, due to temporary component constraints that delayed our customers' ability to ship as many units as originally expected. We expect this issue to be resolved and sales of our touchpads and fingerprint sensors to continue their recent strength going into our December quarter. Our PC team secured a number of new design wins this quarter, including a new Acer Chromebook that features our high-performance touchpad. We are currently developing our next generation of touchpad solutions, which span consumers to enterprise-class notebooks. These products bring high-performance capabilities to more cost-sensitive consumer devices, such as Chromebooks, while still maintaining strong margins and are expected to ship in calendar 2021. We are also seeing additional growth opportunities as PC OEMs incorporate larger, more intelligent touchpads with haptic and force feedback, which will significantly increase our dollar content in each laptop. Overall, I'm pleased by the start to our fiscal year and the strong pipeline of design wins across all of our businesses that are leading indicators of growth to come. Our relentless focus on improving our operational efficiencies continues to pay dividends as we become a stronger, more resilient company, able to deliver profitable growth going forward. Now let me turn the call over to Dean to review our first quarter financials and provide our outlook. -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Michael, and good afternoon to everyone. First, I'll start off with a review of our financial results of our recently completed quarter, then provide our current outlook for our fiscal Q2. Before I begin, I'd like to remind everyone that at the beginning of our first quarter, we completed the acquisition of certain rights to Broadcom's wireless IoT connectivity business on July 23 and closed our acquisition of DisplayLink on July 31. Our guidance given on August 5 and our results for the quarter include the contribution from these businesses as of the date of their respective close. Revenue for the September quarter was $328 million, above the midpoint of our guidance. First quarter revenue was up 18% sequentially, reflecting strong demand from our IoT and mobile products, partially offset by a sequential decline in PC. Year-over-year, September quarter revenue was down 3%, driven by a decline in mobile revenues as our prior fiscal year still included our now divested TDDI business. During the quarter, we had 2 customers above 10% of revenue, at 13% and 21%. Revenue from Mobile, IoT and PC were 40%, 35% and 25%, respectively, in the September quarter. Revenue from our Mobile products was up 11% sequentially as we began to support the ramp from one large OEM and was down 28% compared with a year ago quarter, where the year ago quarter results includes the revenue from our now divested TDDI business. On an adjusted basis, excluding TDDI, our Mobile revenue is up 25% versus one year ago. Revenue from our IoT products was up 68% sequentially and 30% year-over-year same quarter, as our IoT-related end markets began rebounding from their lows and now incorporate revenue contributions from the recent 2 acquisitions. Revenue from our PC products was down 10% sequentially, as our customers experienced some modest component shortages during the quarter. This business was up 19% year-over-year, as work-from-home demand continues to drive PC sales globally. For the September quarter, our GAAP gross margin was 41%, which includes $18.7 million of intangible asset amortization, $9.8 million in acquisition-related inventory step-up charges and $800,000 of share-based compensation costs, partially offset by a $600,000 recovery on a previous supply commitment. GAAP operating expenses in the September quarter were $128.5 million, which includes share-based compensation of $20.7 million, acquisition and integration-related costs of $9.1 million, consisting of intangible amortization and onetime legal and integration costs, restructuring and severance-related costs of $5.6 million, retention costs of $3.9 million and amortization of prepaid development costs of $1.7 million. Our GAAP tax expense was $3.6 million for the quarter. In the September quarter, we had a GAAP net loss of $2.8 million or a net loss of $0.08 per share. Now turning to our non-GAAP results. Our September quarter non-GAAP gross margin of 49.7% was above the high end of our guidance range and reflects the continued operational improvements in our product cost structures and a better-than-expected product mix during the quarter. This represents an incredible 1,000 basis point improvement over the past 5 quarters of results. September quarter non-GAAP operating expenses came in below the midpoint of our guidance at $87.5 million, up $7.7 million from the preceding quarter. This quarter-over-quarter increase reflects 2 months of incremental operating costs of the newly acquired businesses, which are now fully integrated into Synaptics. Our non-GAAP tax rate was 12% for the quarter. Non-GAAP net income for the September quarter was $66.7 million or $1.85 per diluted share, a 52% sequential increase and a 63% year-over-year, as we continue to focus on profitable growth. Now turning to our balance sheet. We ended the quarter with $244 million of cash and short-term investments, a decrease of $519 million from the preceding quarter, primarily due to the 2 recent acquisitions, partially offset by the cash provided by operations during the quarter. Adjusting for the impact of acquisition-related items, cash flow from operations would have been approximately $64 million. Receivables at the end of the September quarter were $228 million, and days of sales outstanding was 62 days. Days of inventory was 62 and ending inventories were $115 million, which includes $16 million of acquisition-related step-up charges. Capital expenditures for the quarter were $3.9 million, and depreciation was $5.2 million. Now turning to our outlook for the second quarter. Based on our backlog of approximately $314 million entering the December quarter, subsequent bookings, customer forecasts, product sell-in and sell-through timing patterns as well as expected product mix, we anticipate the revenue for the December quarter to be in the range of $340 million to $370 million. We expect the revenue mix from IoT, Mobile and PC products in the December quarter to be approximately 41%, 34% and 25%, respectively. I would like to highlight that this is the first quarter in which our IoT products are expected to represent the largest percentage of the company's revenue mix, surpassing Mobile for the first time. Our IoT business represents an important opportunity to drive high-margin revenue growth for the company, targeting a broad and fast-growing TAM. The continuing growth of IoT significantly accelerates our diversification away from mobile and reduces our customer concentration longer term. I will now provide GAAP outlook for our December quarter and follow with non-GAAP outlook. We expect our GAAP gross margin to be in the range of 39% to 42%. We expect our GAAP operating expenses in the December quarter to be in the range of $119 million to $125 million, which includes acquisition-related charges for intangibles and prepaid development cost amortization, stock-based compensation, restructuring costs and the completion of our prior retention program costs. We expect our GAAP tax expense for the second quarter to be similar to that of our first quarter GAAP tax expense. Finally, we expect our GAAP net income per share for the second quarter to be in the range of $0 to $0.35. Now for the non-GAAP outlook for the December quarter. We expect our non-GAAP gross margin in the December quarter to be between 49.5% to 51.5%, and as higher contributions from our IoT products continue to drive improvements. This marks what we anticipate to be the first quarter in 7 years to achieve greater than 50% non-GAAP gross margins. We expect non-GAAP operating expenses in the December quarter to remain flat quarter-over-quarter and be in the range of $87 million to $90 million, as we fully integrate the expenses related to our recent acquisitions, offset by our ongoing cost controls. We anticipate our long-term non-GAAP tax rate for fiscal 2021 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 $1.95 to $2.25 per share. To conclude my remarks, Michael and I have joined Synaptics just over a year ago, and the actions we have taken have improved operational efficiencies and built a strong foundation for profitable growth. And while we have achieved significant financial milestones in a relatively short period, we are still in the early stages of transformation that will enable Synaptics to deliver strong profitable growth going forward. This wraps up our prepared remarks. I'd now like to turn the call over to the operator to start the Q&A session. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) First question comes from the line of Charlie Anderson from Colliers Securities. -------------------------------------------------------------------------------- Charles Lowell Anderson, Colliers Securities LLC, Research Division - VP & Senior Research Analyst [2] -------------------------------------------------------------------------------- Congrats on the continued progress and strong results here. I wanted to ask about IoT, obviously being so strong in the go-forward commentary. It sounds like that is -- both acquisitions performing well. But I wonder maybe if you could talk a little bit about maybe just the trajectory of the IoT business that you bought from Broadcom. I don't know if you want to talk about growth rate or anything else in terms of your expectations there, in terms of how you expect that to trend over time. And then I've got a follow-up. -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [3] -------------------------------------------------------------------------------- Charlie, yes. No. thanks for the compliments. We obviously feel super good about the Broadcom wireless business. That's far exceeded our expectations. I think our initial number when we made the acquisition was around $65 million, and we're far outstripping that. So we feel good about where it's going. It's broad-based in terms of the design wins. I think I made some comments to that effect in my remarks. It's going into traditional customers that we picked up, which were Google and some other telecommunications customers, but now we're getting this broad base of design wins going where we see the products going into drones and e-bikes, golf rangefinders, things of that nature. So we are really, really happy with how that business is performing and think it's going to be a good story for us across the balance of the 4 quarters this year. -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [4] -------------------------------------------------------------------------------- Yes. Charlie, maybe I would just add that the 2 acquisitions are both performing extremely well, but many of our designs and recent quarter results and guidance are around some of our base business, that's really being driven a lot by work-from-home products, telecommunication, video conferencing, around our audio products, edge-SoC products. -------------------------------------------------------------------------------- Charles Lowell Anderson, Colliers Securities LLC, Research Division - VP & Senior Research Analyst [5] -------------------------------------------------------------------------------- Great. That's excellent. So for my follow-up, I was curious on the PC market. Obviously, you identified some of the supply challenges there, but it looks like it's going to be strong here in the September quarter. Maybe if you could just remind us how we should be thinking about the PC end market as we navigate the rest of the pandemic and work-from-home situation, finishing out this year then into next year. If you have any thoughts there? I know we're sort of in uncertain times here, but whatever you can share would be great. -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [6] -------------------------------------------------------------------------------- Yes, Charlie. I mean, I think we had said previously that we see this continuing to run into the first calendar quarter of next year. And I think that's holding up. And probably, now, we can feel better about even extending that runway. We continue to believe that, eventually, this will return to more of a steady state. I think the December guide, as you correctly said, indicates a lot of strength in the PC business. And I think that's the case. I think we see that continuing in the March quarter, we're seeing signs that, that continues even into the June quarter. But again, I think it will return to a more normal run rate here at some point, which just -- it keeps -- the runway keeps extending, which is good news. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Next question comes from the line of Raji Gill from Needham. -------------------------------------------------------------------------------- Rajvindra S. Gill, Needham & Company, LLC, Research Division - Senior Analyst [8] -------------------------------------------------------------------------------- Yes, congrats as well. Question on the gross margins. Excellent job on exceeding 50% gross margin. So for the guidance, December, 50.5%. Now that we have kind of exceeded this 50% range, given the mix of business that you have with Mobile, IoT and PCs, is there another leg in the gross margin story as you kind of progress throughout fiscal-year '21 and fiscal-year '22? And then how should we think about kind of the next stage with respect to gross margin? -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [9] -------------------------------------------------------------------------------- Yes. It's a good question, Raji. So what we've always said is 50% is our target, but we're not stopping there. We're certainly not satisfied with getting to 50% and holding. We do think we have a little more legs on it. Really, it's around the growth in our IoT business, really, which carries the higher gross margins for us. That's really been kicking on as of late. The other element is, I mean, although we've increased 1,000 basis points over 5 quarters, that's certainly not sustainable. At some point, it will level off, and we can't keep adding 1, 2 points a quarter. But we're not satisfied stopping here, and we do think there's probably a little room to keep running. -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [10] -------------------------------------------------------------------------------- And I mean, I think, Raji, Dean said in his remarks, I think 2 good things have happened for us. One is the continued improvement on gross margin. But 2 is the mix shift toward IoT. And the 2 go hand-in-hand. Our IoT business is strong. We put a lot of emphasis around that. We obviously want to keep our PC business and our Mobile business running, but we want to have the IoT business be the kind of the growth driver. So as long as that continues to be true, we see pretty good -- a pretty good tailwind on the gross margin story. -------------------------------------------------------------------------------- Rajvindra S. Gill, Needham & Company, LLC, Research Division - Senior Analyst [11] -------------------------------------------------------------------------------- And for my follow-up, excellent momentum on OLED touch controllers in the smartphone market. I wanted to get your sense in terms of these -- the 10 new smartphone designs that you have as well as the flagship customer. How do we think about the OLED attach rates in 2021? And any sense of kind of what they are this year? And are the attach rates of OLED tied to kind of the upgrade cycle we're seeing in 5G, which has just been phenomenal in terms of the number of units that are coming -- that are being generated in 5G smartphones? Do they go hand in hand? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [12] -------------------------------------------------------------------------------- I think the answer to your second question is simply yes. Most of -- most every OLED -- flexible OLED is -- panel is tied to a 5G handset. Now that being said, what we are seeing, and this was the first part of your question, is that the flexible OLED is pushing down the SKU stack. So we're seeing now flexible OLEDs go from the very high-end premium phones at Chinese handset makers to more mid-tier. And that's the comments in the prepared remarks that we talked about where we see an increasing attach rate. It's -- we're pretty saturated at the high end, but we are starting to see flexible on-cell OLED push down the SKU stack, and we think that's going to be good news for us. -------------------------------------------------------------------------------- Rajvindra S. Gill, Needham & Company, LLC, Research Division - Senior Analyst [13] -------------------------------------------------------------------------------- And just to follow-up on that. Any update in terms of the OLED, TDDI solution and how that will change the dynamics in the smartphone industry? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [14] -------------------------------------------------------------------------------- We -- I think that we -- we sort of hinted at this in the comments, obviously, there is an ASP ratio between our display driver and our touch controllers. And as our mix shifts towards touch controllers, top line is impacted because, I'd say, we've been talking about sort of $1-ish ASPs on touch controllers and somewhere at $3 and up if we talk about OLED, DDICs. Our job, Raji, is to get our OLED DDIC business up and going. Again, we think our best vehicle to do that is TDDI. We're actually seeing some interesting traction. We've got some new products that we're getting set to introduce to customers just around DDIC alone, and we think that, that also could help. But we have to do that. And I think we're still on track for kind of mid next year for some of those introductions. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Next question comes from the line of Kevin Cassidy from Rosenblatt. -------------------------------------------------------------------------------- Kevin Edward Cassidy, Rosenblatt Securities Inc., Research Division - Senior Semiconductor Research Analyst [16] -------------------------------------------------------------------------------- And I also congratulate you on great results, especially the gross margin line. Question, on the 2 new service providers that you have in Asia and Europe, congratulations on that, any chance that there's any attach rate of some of your new products with those? Or is it just the SoC? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [17] -------------------------------------------------------------------------------- Good question, Kevin. I think it's just the SoC. I think, in both cases, it's just the SoC, but we are starting to see what we talked about, particularly with you, in the announcement of the Broadcom acquisition, that we're being able to couple the wireless asset with our edge SoC. I think in these 2 cases, that's -- it's actually disaggregated, but we've got a pretty strong pipeline. And there, it's more of a bundle play, and that's part of the reason we think our wireless business is really, really going to do well for us across the remainder of the year. -------------------------------------------------------------------------------- Kevin Edward Cassidy, Rosenblatt Securities Inc., Research Division - Senior Semiconductor Research Analyst [18] -------------------------------------------------------------------------------- Okay, great. And you touched on my follow-up question was, your funnel for new designs. Are they -- I guess, how far along, since you had these 2 wins or the kind of the cadence of 2 wins every quarter? Or are they more spaced out? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [19] -------------------------------------------------------------------------------- I think we accelerate. I mean, we feel really good about a couple of things in the service provider market. We have a set of new SKUs that are coming out from the service providers as they try to get into more consumery types of devices. You've got video conferencing panels that are coming out. You've got sound bars that are coming out. You've got over-the-top streamers that are coming out. And we seem to be doing pretty well there. The combination of our audio performance, far-field voice and our video display capability is giving us a good leg up in those more nichey markets. But we're also feel good about our trajectory in core set-top box. We think that we've got the right mix. We're getting set to introduce some new products to the market. And that hit an interesting cost point, and we think we can start clicking off wins in significant set-top box customers as well. So it's a mixed story, but I think our trajectory is going to accelerate in that business, as we keep talking to you across the remaining quarters of this year. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Next question comes from the line of Ambrish Srivastava from BMO Capital Markets. -------------------------------------------------------------------------------- Unidentified Analyst, [21] -------------------------------------------------------------------------------- This is Jameson calling in for Ambrish. So the first thing I wanted to ask you guys about is the guidance for the Q is very impressive for next quarter. It seems like you guys are well underway with design wins and long-term plans with your portfolio diversification. But looking forward, do you anticipate IoT to continue to be a larger portion of revenue, larger than Mobile, going forward and beyond this guidance? -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [22] -------------------------------------------------------------------------------- Yes, Jameson good question. So we rolled out earlier this year a vision of actually driving our IoT business to the largest component of our revenue contribution going forward. This is the first quarter that we've gotten there that IoT has actually exceeded our prior Mobile position. And we are going to continue to focus on IoT. That's where we think we have the greatest growth potential. It's where we can garner the most gross margin and profit potential going forward. So in short order, yes, we do see IoT continue to be the larger portion of our revenue going forward. -------------------------------------------------------------------------------- Unidentified Analyst, [23] -------------------------------------------------------------------------------- Okay. Perfect. And then a follow-up, just looking at your guidance for mobile of around $120 million. This would imply that mobile is going to be down year-over-year, I think even excluding TDDI. So I'm just curious on why it's down sequentially, when seasonally, it's tended to be up. Is this mostly due to the TDDI divestiture? And if so, how should we think about mobile seasonality going forward as well as the low longer term trends? -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [24] -------------------------------------------------------------------------------- Yes. So I alluded to it in the prepared remarks on an adjusted, excluding TDDI for a year-over-year basis, our Mobile business is actually up 25%. So I think we're on the right trajectory from a year-on-year look. But we do have a little bit of transition between OLED touch controllers versus more historically, the LCD display drivers. So there's a bit of a transition right now, but there's a nice base for us around these LCD display drivers, which has a nice stable revenue base that we can grow our touch controllers from. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Next question comes from the line of Christopher Rolland from Susquehanna. -------------------------------------------------------------------------------- Christopher Adam Jackson Rolland, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [26] -------------------------------------------------------------------------------- Congrats on the nice quarter. My question is around DisplayLink. You guys broke out the contribution or the revenue run rate for 2019. But I was wondering if we could get an update, with one quarter to go, maybe on what 2020 is looking like and what kind of growth we've seen year-over-year there? And then also, I think you talked about DisplayLink. I think you bought it for $305 million, but I just read the 10-Q quickly, and I think it said $443 million. Just wanted to reconcile that to make sure that I read that correctly. -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [27] -------------------------------------------------------------------------------- Yes, first, Chris, let me just give you a quick accounting one. So yes, the purchase price was $305 million. On the Q, it will say the $443 million, which is the difference between the one-for-one cash purchase that was actually part of the company when we acquired it. So think about it as market cap versus enterprise value difference on the cash that we acquired when we closed that business. So that's the basic bridge. And I think in the Q, you can see that breakdown. On the DisplayLink and sort of growth updates, that business continues to do well. It's on par for what we had expected when we announced the deal transaction. There are -- it's too early for us to say what a full year contribution might be. It, of course, is in this dynamic around work from home and PCs and how that market evolves, which is a bit volatile from our perspective right now. As you can see from our PC quarter and Q1 and then how we're guiding into Q2, there does seem to be a little bit of volatility within that PC market. And of course, that DisplayLink business is somewhat attached to a PC market. So I think it'd be a little early for us to sort of give guidance on what that full year looks like, but we do feel good about it. -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [28] -------------------------------------------------------------------------------- Yes. Remember, Chris, our fiscal year starts July 1. So we're actually only 1/4 to the way through. You said year-end December, we've got a little bit of ways to go. What I'd say about the DisplayLink, in addition to what Dean said, is we've got these interesting set of wins that have developed around these video conferencing panels that are appearing everywhere. The -- we talked about it in the prepared remarks, people like Poly and Bose are launching video conferencing panels and the video compression technology that DisplayLink offers is perfect for those kinds of applications. So we've certainly seen very, very good strength in the traditional docking station business. And then we've seen this new layer as we get into more video conferencing-like applications where DisplayLink technology is a nice fit. And we didn't quite appreciate the number of design wins that the team had won when we acquired the business, but it's fairly appreciable. -------------------------------------------------------------------------------- Christopher Adam Jackson Rolland, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [29] -------------------------------------------------------------------------------- Great. As a follow-up, just on the PC side of things, you guys talked about a temporary component constraint, perhaps more detail there. Is this a PC OEM? Or is this something more in the supply chain itself? And then also, Michael, you talked about PC dollar content today and that increase when we go to things like haptics, for example. Where are we today? And where could we go on that side? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [30] -------------------------------------------------------------------------------- Yes, maybe I'll take the second part of it. Dean can talk a little bit about the supply chain issues. In the -- in certain instances, we will sell the entire touchpad to a PC OEM, and a traditional sort of 2-inch by 3-inch touch pad, all-in, maybe somewhere in the $8 to $10 range. As you get into these larger pads that we described with haptics and force involved, you're talking about ASPs that are on the order of 3x higher. So it's a significant step-up that we could get. Those are very prevalent today in Mac. We don't participate in that business at all. But you can see that, that's set a trend that the other PC OEMs are trying to follow. And in that context, we feel good about an increasing attach rate. And in that increasing attach rate, we think we can step up our content by somewhere in the order of 3x. So it's a pretty big step-up for us. And again, attach rates are very, very small right now, but we think that'll increase. -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [31] -------------------------------------------------------------------------------- Yes. And Chris, on your question around the PC supply chain, we did notice that we had, what seemed to be a couple of component shortages on the OEM side within their supply chain. It was mid-quarter in the September quarter where we noticed a lot of softness, where it seemed like they were having issues getting all of the components that they needed relative to our initial expectations. What I will say is, in recent weeks and at the end of our September quarter, that business really took off again. And our backlog continues to remain strong. So we think there was probably just a transitory component that was causing them short-term issues. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Next question comes from the line of Harrison Barrett from Arete Research. -------------------------------------------------------------------------------- Harrison Barrett, Arete Research Services LLP - Analyst [33] -------------------------------------------------------------------------------- So you mentioned a move into some Chromebooks coming in calendar '21. Is this an opportunistic move? Or are you going after a significant business here? And then sort of if we take that along with your existing business in PC, which is clearly staying stronger for longer, do you think that puts your stable PC run rate much higher going forward when all the dust finally settles? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [34] -------------------------------------------------------------------------------- Fair question. I think historically, we have not been indexed heavily to consumer notebooks in general, and Chromebook, in particular. And we see the Chromebooks now, particularly as sort of a segment of the market, that are trying to pick up higher performance components, touchpads and to some degree, fingerprint sensors. And that represents a growth opportunity, to your point. That, coupled with what we talked about with Chris on the last call, the larger touchpads and the haptics and force, we do think that there is an opportunity for us to gain market share. I'd say, Chromebook is going to be a market share gain because we haven't historically played there and then increased content in our existing base, which is primarily commercial notebook. So in a dynamic, where we do believe that PC will eventually settle to a new normal, we have opportunity to grow off a base that could be changing in the back half of the year potentially, potentially not. I mean it's -- we keep calling it as something that's declining. So far, we see no signs of slowing. We just feel like it won't continue. So we've been cautious in terms of providing color. But in that cautiousness, certainly unique to us, there's some growth dynamic, Harrison. -------------------------------------------------------------------------------- Harrison Barrett, Arete Research Services LLP - Analyst [35] -------------------------------------------------------------------------------- That's very helpful. And then just as a follow-up, looking at the December quarter guide, you're seeing OpEx pretty much flat. When do you think this ticks back above $90 million? Or do you think you can keep it down at this level going forward? And then just looking at the implied EBIT margins from there, you're looking at 25% plus at this stage. Is there a road to 30%? -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [36] -------------------------------------------------------------------------------- Yes. So on the OpEx question, yes, it stays down below $90 million is sort of our view. We've done a great job since Michael and I joined. And even prior to Michael and I getting on board, is actually starting to rationalize the cost structure of the company. We've gotten it down below this $90 million mark. Before the acquisitions, I think we hit the $80 mark. And now that we've been in a position to absorb these 2 recent acquisitions, we think we can continue to hold it down below this $90 million mark, and we don't see that changing anytime soon. And you're right, the operating margin for the EBIT on the non-GAAP side is roughly 25 points at the midpoint, if you sort of do the math, plus or minus. I would say going forward, can we drive to a 30%, as part of your question, that's really going to depend on, can we get the IoT revenue and the scale around the company to get there? I think if you look across the semiconductor landscape, there's not many companies that are at the 30% EBIT level. And those that are, have significant scale. And so we would look to grow specifically our IoT business, which comes with higher gross margins. And faster growth rates to sort of to get us there to that scale level. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- The next question comes from the line of Martin Yang from Oppenheimer. -------------------------------------------------------------------------------- Zhihua Yang, Oppenheimer & Co. Inc., Research Division - Associate [38] -------------------------------------------------------------------------------- First on your Chromebook opportunity, you mentioned that you can attack at this market with a reasonable margin. Is that due to your operating efficiency improvements? Or was that more due to a different design for Chromebook products? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [39] -------------------------------------------------------------------------------- It's -- Martin, it's both. I would say the lead headline is operational efficiency. We've done a good job in our operations team focusing on the cost of these pads and taking cost out, not only of our IC, that drives it, but all the other componentry that goes around it. So I'd say that's the lead headline. But we also came up with a more cost-efficient design for Chromebooks, and that's helped as well. So it's a little bit of both, but I'd say, for the most part, it's been cost that we've been able to take out on an operational basis. -------------------------------------------------------------------------------- Zhihua Yang, Oppenheimer & Co. Inc., Research Division - Associate [40] -------------------------------------------------------------------------------- Got it. And also another question on potential component constraints and supply chain bottlenecks. Do you see any potential affecting other of your segments like Mobile or IoT? -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [41] -------------------------------------------------------------------------------- So far, I would say, external component shortages, we've not seen. We definitely -- in the semiconductor supply chain, there are some tight spots. And we continue to work around that. Our guide obviously contemplates some of the tight spots that we've seen in the semiconductor supply chain itself. But external factors, and I think that's the gist of your question, Martin, I don't know if Dean has any color, but I don't think we've seen anything other than the blip that Dean talked about in the PC segment last quarter. -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [42] -------------------------------------------------------------------------------- Yes, we don't see anything that we'd specifically highlight. But if there are other shortages that were out there from an industry landscape, it wouldn't necessarily surprise us, given that what we can see on the semiconductor supply chain side right now. -------------------------------------------------------------------------------- Zhihua Yang, Oppenheimer & Co. Inc., Research Division - Associate [43] -------------------------------------------------------------------------------- Got it. Would you able to tell us, how would December looks like for PC without the constraints? -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [44] -------------------------------------------------------------------------------- So for the PC, specifically, we don't -- we factored in any constraints that we know of today into our December quarter guidance. We -- from what we are able to align with all of our suppliers and vendors, we think we can fulfill the demand that's out there for the PC for the December quarter. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- (Operator Instructions) The last question comes from the line of Jason Getz from Mizuho Securities. -------------------------------------------------------------------------------- Jason Charles Getz, Mizuho Securities Co., Ltd., Research Division - Research Associate [46] -------------------------------------------------------------------------------- I just want to follow up on a couple of comments from earlier. You had mentioned your flexible OLED moving from the premium, down to the mid-tier SKUs. I was wondering, as you move down that SKU stack, if you're seeing any ASP pressure there and any impacts to gross margins that may have. -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [47] -------------------------------------------------------------------------------- Yes. I mean there is a little bit of ASP pressure as you move down the SKU stack. We've done well. As I think we've characterized in previous calls, our gross margin in the business overall is good. So even with the pressure, I think we're holding up relatively well. But yes, as you move down, you're moving down into more cost-sensitive areas and there's going to be a bit more pressure on ASP than you see in the high-end phones. -------------------------------------------------------------------------------- Jason Charles Getz, Mizuho Securities Co., Ltd., Research Division - Research Associate [48] -------------------------------------------------------------------------------- Great. And then as a follow-up, I think last quarter, you had mentioned you expected the DisplayLink and Broadcom businesses to add about $30 million to the September quarter top line. It sounds like it came in a little bit better than that, but I was wondering if you could give an idea of where they came in for September and kind of how you see that mix versus legacy Synaptics going forward? -------------------------------------------------------------------------------- Dean Warren Butler, Synaptics Incorporated - Senior VP & CFO [49] -------------------------------------------------------------------------------- Yes. We're not breaking out the numbers specifically in our guide or in going forward. What I will say is, we broke it out last guide, given it was the first time that these businesses had been incorporated. We had closed on of these businesses, I think, a couple of weeks just prior to our announcement. And for the September quarter, they came in right at where we expected. I mean, we weren't surprised sort of either way. What we are surprised on is going forward, we do see actually these businesses, on a combined basis, doing a little bit better than what we originally expected. So I would say only good news from our vantage point. -------------------------------------------------------------------------------- Operator [50] -------------------------------------------------------------------------------- I'll now turn the call over back to Mr. Michael Hurlston. -------------------------------------------------------------------------------- Michael E. Hurlston, Synaptics Incorporated - President, CEO & Director [51] -------------------------------------------------------------------------------- I'd like to thank all of you for joining us today. We look forward to speaking to you at our upcoming virtual investor conferences during the quarter. Thanks a lot. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.