October 20, 2008 - Synaptics Inc. (SYNA-NASDAQ) develops and supplies custom-designed human interface solutions that enable people to interact with various mobile computing, communications, entertainment, and other electronic devices. It targets the personal computer (PC) market and the market for digital lifestyle products, including portable digital music and video players, mobile phones, and other select electronic device markets with its customized interface solutions.

Synaptics' user interface solutions for digital lifestyle products comprise the ScrollStrip and TouchRing, which are scrolling solutions that allow users to navigate through menus and content; LightTouch capacitive buttons, which provide illuminated button functionality; and MobileTouch, NavPoint, and ClearPad. The company sells its products to PC OEMs, as well as to various consumer electronics manufacturers primarily in the United States, Taiwan, China, Korea, Japan, Hong Kong, Switzerland, Singapore, and Malaysia. Synaptics Incorporated was founded in 1986 and is based in Santa Clara, California.

This stock recently had a 3 for 2 stock split. Not many other stocks are splitting these days, but the company decided to add more shares to the float and bring the price down a little to entice more investors. Management also decided to buy more of its own stock, up to $80 million worth of it. With earnings growing quickly, it's probably the best investment the company can make.

Earnings per share were 34 cents in 2006, quite a drop from 87 cents in 2005. Then they jumped to 63 cents in 2007, followed by 96 cents in 2008 (fiscal year ends on June 30). This year, analysts predict $1.72, then for 2010, $2.10. First quarter earnings will be announced on October 23. Look for 44 cents a share, up from 36 cents in the first quarter of last year. Next quarter, analysts see 52 cents a share, up 30% from the 40 cents of the second quarter last year. Earnings over the last 5 years, have grown, on average, 31.3% a year. Analysts see growth of 20.8% a year, on average, for the next 5.

For earnings to move ahead, revenues have to lead the way. In 2006, they were $185 million, followed by $266.8 million. Last year, they hit $361.1 million. This year, analysts see $451.9 million and next year $541.92 million. Fourth quarter revenue jumped by 35% in 2008, compared to the last year's fourth quarter. Driving the growth: cell phone touch screens. They accounted for 30% of sales in the quarter, tripling their revenues from the previous year. But the company warns that further growth isn't coming soon as contracts for new design wins are slowing as are customer orders. Analysts feel this is a temporary setback. 9 out of 10 of the top 10 laptop computer makers are SYNA customers. Industry analysts believe laptop sales will increase by 25% in 2009.

Look for PC touchpad sales to fill in the void in the first quarter, according to management, keeping revenue growth consistent. (This will be known on October 23.) Since the company has a large order backlog, it seems feasible. Adding to revenues in the future will be recently introduced products like Proximity Sensing which allows hidden touch sensitive icons to light up when a user's hand gets close to volume controls on a monitor or a remote control, as examples. This feature creates a sleeker design for the device as well as power saving since the unit doesn't have to stay illuminated. Another new idea, recently introduced in Japan: a touchscreen phone that allows users to write Japanese characters with their fingers. Innovation has always been a hallmark of SYNA. It has a history of being first to market with new and popular technologies.

Some numbers: Market cap is $1.2 billion with 42.5 million shares outstanding. There's $146.5 million in cash and the Current Ratio is 4.76 to 1. There's $3.25 in cash per share. Debt to Equity ratio is 1.1. The beta is very high at 2.72. The stock has rallied from a low of $14.70 earlier this year (split adjusted), hitting $35.90 only a few weeks ago and is now trading about 20% below that. There's no dividend.

Synaptics is an innovative high technology company with a strong record of earnings and revenue growth. While the current P/E is high, with record earnings expected this year and next, the valuation becomes more reasonable. Management, always a key to successful stocks, has proven it can deliver new products as well as good profits. If you're looking for a tech stock, you'll want to spend more time investigating SYNA.

Company Web site: www.synaptics.com

 Ted Allrich