Replies to post #356791 on Zeev's Turnips Patch-No Politics (ZEEV)

[MyHunch]

I saw that, and now I have to be even more careful with SYNA. I am in just one position at 26.45 and so am eligible for a double up somewhere down there (g)!

[Logothetis]

Interesting perspective on SYNA. Thinking of buying...

Synaptics, Inc. BUY
(SYNA - $25.88) Price Target: $35
Joseph P. Sullivan, CFA
Senior Research Analyst
[phone]
[e-mail]

Rumors abound, questioning a change in the competitive landscape and possible
loss of a key customer in Apple. Real or not - we don't know for sure, but can
offer up a couple of scenarios that reflect the impact to our model. Lowering
price target to $35 given the current uncertainties and reiterate Buy.

" Rumors abound. Synaptics shares have come under tremendous pressure largely
due to speculation the Company has lost one of its key customers, Apple, or at
least is no longer a sole source for the iPod interface. Speculation began
with a Powerbook release from Apple that included a new Trackpad interface that
was not based on a Synaptics solution. The next leap comes that this is a
precursor to Synaptics either losing or sharing the iPod interface business from
Apple. Real or not, we don't know the answer for sure but we do offer our
analysis of how a change could impact Synaptics' results.
" Potential scenarios. The possible scenarios around the impact of this loss
include: 1) eliminate all iPod revenue from our model going forward, 2) assume
it's a dual source relationship and roughly split 50/50 or 3) assume a new chip
vendor is involved, with a lower ASP but higher gross margin for Synaptics. For
comparison, our current FY06 revenue estimate is $267.0 million and our current
FY06 EPS estimate is $1.39.
- Scenario 1: All iPod business is gone - FY06 revenue reduced by $75 million
to a range near $190 million. EPS likely reduced to range of $0.80 to $0.85.
- Scenario 2: Dual source with iPod business - FY06 revenue reduced by $35 to
$40 million to a range of $225 million to $230 million. EPS likely in a range
of $1.10 to $1.15.
- Scenario 3: New chip vendor - FY06 revenue reduced by $15 million to a range
near $250 million, gross margins increased. EPS likely unchanged in a range of
$1.35 to $1.40.
" World beyond iPod. We are still working to find the details regarding the
additional MP3 design wins for Synaptics, as the new devices are expected to be
announced within the next several weeks. We also remain encouraged by the
activity in the mobile phone market and believe Synaptics may be in a position
to announce a win during its next conference call. We raise these points
because there is still a growing base of business beyond the iPod for Synaptics.
The Creative Zen Micro is arguably the hottest selling MP3 player currently
and we believe our current assumptions remain conservative regarding the
potential revenue contribution for Synaptics from other non-Notebook customers.

STOCK OPPORTUNITY
At this time we have not formally adjusted our estimates for Synaptics. Given
the perceived risk to the estimates, we are lowering our price target to $35
from $49. The revised price target implies a multiple of 30x the likely dual
source iPod scenario of $1.15 EPS in FY06. Given the potential accelerated
growth to be provided from the mobile handset market, we believe this is still
an appropriate multiple in valuing the stock. We are maintaining our Buy
recommendation.