Semiconductor company Synaptics (SYNA) is benefiting from a favorable demand environment that has kept the general semiconductor industry uplifted throughout the year. The company is on track to becoming one of the leaders in the areas of Internet of Things (IoT) and augmented/virtual reality (XR) chip design.
Keeping Up With the Strong IoT Demand
Synaptics’ shift of focus away from smartphone DDIC (display driver integrated circuit) and into IoT is proving to not only be accretive to revenues but also beneficial for margin expansion, leading to improving bottom-line performance. The move has diversified its customer base and added new avenues for top-line growth.
The acquisition of voice processing and wireless chipset solutions provider DSPG earlier this month was a major step in this direction. Needham analyst Rajvindra Gill expects the acquisition to be accretive to earnings by $0.75 per share in the fiscal year of 2023, thus raising his EPS estimate for FY’23 to $13.75 from $13. Significantly, Synaptics has been one of Gill’s favorite picks for the current calendar year.
Undoubtedly, there is good reason for Synaptics to be one of the top analysts stocks listed on the Nasdaq. In the last reported quarter, IoT constituted 55% of total revenues, and rallied 70% year-over-year. “Through a combination of divestments, disciplined focus on product portfolio within mobile and an emphasis on increasing mix of higher-margin IoT (60%) products, we expect the company to operate at this level of margins (57%+) going forward and driving earnings through revenue growth,” observed Gill.
XR Provides Another Top-Line Upside
Gill is also encouraged by Synaptics’ position in the growing XR space, which presents an opportunity of about $100 million currently. Moreover, the XR industry is expected to grow significantly over the years, providing a strong top-line upside for the company.
Synaptics’ mobile display drivers stand out in the industry. The company boasts more than 30 models of XR headsets, demand for which is expected to gain further traction as tech giants like Meta Platforms (FB) enter this space.
Experts Opine
Gill is upbeat about the prospects of Synaptics. “We believe SYNA will improve its gross margin and product mix as it shifts towards higher-margin and higher-growth products, particularly OLED, IoT products (voice/video), and products targeted for the automotive market,” said Gill.
The analyst reiterated a Buy rating on the stock and increased the price target to $320 from $300.
The rest of Wall Street is also optimistic about Synaptics, with a Strong Buy consensus rating based on 10 Buys and 1 Hold. The average Synaptics stock price prediction of $283 indicates an upside of 0.76%.
Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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