Synaptics Inc (SYNA) 2003 Q4 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Synaptics fourth quarter conference call. At this time all participants are in a listen only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the '*' followed by the '0'. As a reminder, this conference is being recorded today Thursday July 31st, 2003. I'd now like to turn the conference over to Mr. Alex Wellins of the Blueshirt Group. Please go ahead sir.

Good afternoon and thanks for joining us today on Synaptics fourth quarter and year end conference call. 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 www.synaptics.com. With me on today's call are Francis Lee, President and CEO of Synaptics and Russ Knittel, the company's CFO.

We would like to remind you that during the course of this conference call Synaptics management will make forward-looking statements including predictions and estimates that involve a number of risks and uncertainties. Actual results may differ materially from any future performance suggested in the company's forward-looking statements.

We refer you to the company's form 10-K for the fiscal year ended June 30th, 2002 and form 10-Q for the three month period ended March 31st, 2003 on file with the SEC for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information. Now I would like to turn the call over to Francis Lee. Francis.

Thanks Alex and thanks everyone for joining us on the call today. I'm going to start off by giving you some highlights from our fourth quarter and year end financial results. We are pleased with our performance in the fourth quarter. Revenue is up $28.2m. We're ahead of expectation and reflects growth of roughly 8% from the preceding quarter and 9% from the same period last year. Pro forma net income for the quarter was $2.7m, $0.11 per diluted share. Up from $2.2m or $0.09 per diluted share in the preceding quarter. We finished the year with revenue of $100.7m and pro forma net income of $8.3m, or $0.33 per share. Our results for the year reflect solid execution given a challenging period for the PC market, as well as good progress in our new markets.

As anticipated, Dual Pointing revenue declined 39% of our total revenue from 47% in the prior fiscal year. On the other hand we ended the year with approximately 7% of revenue coming from new market opportunities compared to less than 2% in fiscal 2002. Looking ahead, we expect revenues from our new market initiatives to account for over 10% of our revenue in the current fiscal year.

Fourth quarter shipments in the Notebook market were better than forecast, increasing over last quarter and representing the second consecutive quarter of record shipments. We experienced strong unit volumes and bookings and ended June with a backlog of just under $13m. While we continue to see good levels of design activity in the Notebook category, we continue to experience a mix shift to Single Pointing solutions. Turning to the Non-notebook side we are pleased to announce that more than 14% of revenue during the June quarter was related to our new market opportunities. We believe this is a positive indicator that our technology is highly applicable to new consumer markets.

Before I move on to a discussion of our recent progress within our Notebook and Non-notebook market I want to comment on the recent announcement we made regarding NSM Technology in Hong Kong. This acquisition gives us access to a very solid team of people with both operation and technical skills and experience in doing business in that part of the world. It quickly enhances our ability to support our customers within the greater China area where we now have offices in Taiwan and Hong Kong, along with plans to open an additional office in Shanghai in the near future.

Many of our ODM customers are migrating manufacturing operations from Taiwan to China and our [OEM] customers are also beginning to set up design centers in that region. With our expanded global presence we are now better positioned to provide local sales, operations and engineering support services to our existing customers as well as potential new customers within the Asia Pacific region. I will now talk about some of our specific progress during the past three months, starting with the Notebook market.

First, we just announced a strategic relationship with NXT, a UK based audio and speech technology company. Under our agreement the two companies will work to integrate NXT's flat panel speaker technology in Synaptics TouchPads, which will enable the TouchPad to double as a speaker inside local computers. We decided to pursue this opportunity based on express interest from several of our customers. This is another example of Synaptics leadership in providing innovative, value-added solutions to the PC market.

Second, we continue to see growing interest in our TouchPad under plastic solution, which offers our local customers unique invest or design opportunities. In addition to the Toshiba design SS programs that I mentioned last quarter, this solution is now also available in a [Syntax] M3 Notebook. We also expect two additional design wins to go into production during the next six months.

Third, customer interest in our Fingerprint TouchPad solution continues to be high. Last quarter we talked about the Samsung X10 that is currently shipping, as well as another design win that should move into production in the first half of this fiscal year. While the ramp of this customized Notebook is still in the early stages, we continue to be encouraged by this market opportunity.

Finally, OEM activities surrounding us in [...] facility appear to be strong, driven by growing adoption of wireless networks. Today Synaptics (inaudible) solutions within that circle [centrenal] model stemming from some of our more recent design wins and we continue to believe this trend will have a long-term positive impact on our Notebook market. We also continue to make further progress in our new markets, which in the June quarter included the following milestones. We continued to see progress in the portable digital entertainment market. In edition of Apple iPod designs currently in production, Synaptics has also secured our first design win with a flash MP3 manufacturer that we expect to see in production during the December quarter. This brings the total number of MP3 OEMs who will be using Synaptics products to three.

We are very encouraged by what's going in this market place. As you know, there is a lot of buzz lately around the success of Apple, which have favorable implications for iPod, as well as some of the wins based on live music services to launch later this year. These trends are helping to drive broadbase interest in the portable digital entertainment device market and we think this is an area where we could see sustainable revenues for the foreseeable future.

As you know, we began shipping our embedded Chinese Carrousel Recognition TouchPad products for public pay phones to our [inaudible] during the June quarter. As I have said before there is some uncertainty regarding the timing and extent of the rollout given that this is a new product for the Chinese market and carries some risks regarding consumer adoption. So it is still a little early for us to predict the magnitude of this opportunity. But we will continue to keep you posted on our progress.

Moving on to the Handheld market. We are excited about the level of interest regarding the use of our technology in both mixed generation cell phones and PBAs. During the last quarter we mentioned that our design team is in development on the Capacity Touch Solution for the mobile phone market. Continue to make progress to securing the assignment in this area and we hope to be able to update you further on this product next quarter. We also engaged in design activities using our Capacity Touch technology for PBAs. In summary we are very pleased with our execution during this past year. We maintained our market leadership within the local market despite a highly competitive environment and we began to see our new market strategy pay off as we made positive inroads in some exciting new sectors. As we enter fiscal 2004 we will be faced with similar challenges in the Notebook sector. The competitive solutions now available in the Dual Pointing segment and the mix shift towards consumables we expect our Dual Pointing product mix to continue to decline in the current fiscal year.

Russ will talk about the impact of this trend on our near term outlook. But I will close by saying that despite the factors affecting the Notebook market, we expect to remain the leader in this space by providing innovative solutions and localized support to our OEM customers while continuing our demonstrated ability to further improve our products. We will continue to press ahead in our new market initiatives and I firmly believe that we will be successful in developing a meaningful and sustainable growth business in this new area. We have a scaleable business model that ensures our ability to maintain profitability and a solid balance sheet that provides a good foundation for supporting our business objectives.

With that, I will now turn the call over to Russ who will review our detailed financial results for the fourth quarter and provide some guidance on our business outlook.

Thanks Francis. Unless I specifically note otherwise, all numbers I discuss during our quarterly results will be on a pro forma basis, which excludes non-cash charges related to the amortization of intangibles and deferred stock compensation, which for the quarter totaled $136,000.

These pro forma results should not be considered as substitute for the results reported using generally accepted accounting principals. Beginning next quarter, Synaptics will report GAAP numbers but we will continue to provide information on non-cash charges.

Revenue for our fourth quarter was $28.2m, a sequential increase of approximately 8% over last quarter's $26.1m and an increase of approximately 9% compared to the $25.8m during the comparable quarter last year. This sequential increase was driven primarily by shipments into some of new market areas. Dual Point revenue during the quarter was approximately 31% of total revenue compared to 42% of total revenue in the March quarter, reflecting both our product mix shift to Single Pointing solution and the impact of decreased revenue from Non-notebook application.

This continued shift towards Single Pointing solutions reflects the fact that demand for Notebooks is currently weighted towards the consumer versus corporate market as well as the impact of competitive solutions in the Dual Point segment. Non-notebook revenue for the fourth quarter represented more than 14% of total revenue, reflecting greater than expected demand from the MP3 market and the first shipments of our CCR enabled TouchPad for the China public telephone application. As Francis mentioned earlier, we expect that Non-notebook applications will contribute more than 10% of our revenue in fiscal 2004. However, revenues in this category will likely vary from quarter to quarter depending on initial production ramp rates and ultimately by customer adoption rates.

Gross margins of 40.9% for the June quarter were within our target range and compared to 42.5% in the comparable quarter last year and 41.1% in the preceding quarter. Lower gross margins for the quarter reflect both the product mix shift from Dual Pointing to Single Pointing solutions and higher than expected yield losses. Pro forma operating expenses for the quarter of $7.6m were in line with our expectations and down slightly from $7.7m in the preceding quarter. R&D costs of $4.8m were down from $4.9m in the prior quarter and primarily reflect lower project spending. SG&A costs were $2.8m compared to $2.7m in the prior quarter and reflects small increases in staffing and higher market research related expenditures. Total headcount at the end of this quarter was 176 compared to 172 at the end of the March quarter and 174 at the end of December.

Net interest income, which comes primarily from investments in tax exempt issues, was $210,000 for the quarter, down slightly from last quarter primarily reflecting lower average interest rates in our fixed income portfolio. Pro forma net income for the quarter increased approximately 24% sequentially to $2.7m, or $0.11 per diluted share. This compares to $2.2m, or $0.09 per diluted share in the immediately preceding quarter and $2.7m and $0.10 per diluted share for the comparable quarter last year.

I'd like to touch upon a few items related to our balance sheet. We ended the quarter with total cash and short-term investments of $77.3m, up from $72.9m at the end of the preceding quarter. Cashflow from operations was $4.5m for the quarter and over $11m for the year. During the quarter, other items contributing to cash were option exercises and the employee stock purchase plan totaling $852,000 and repayments of employee loans of approximately $736,000, which were partially offset by cash used in the acquisition of NSM Technology Limited of approximately $1m and capital expenditures for the quarter of approximately $407,000. Capital depreciation during the quarter was $387,000. Receivables at the end of the third quarter were $13.2m compared to $14.2m last quarter.

DSO at the end of the quarter improved at 42 days compared to 49 days at the end of the March quarter benefiting from the record backlog entering the June quarter. Inventory totaled $6.4m at the end of the quarter compared to $5.8m at the end of the March quarter, resulting in inventory turns of 10 compared to 11 last quarter, reflecting the impact of the higher inventory levels. Now I would like to make a few comments regarding the current business environment and our outlook. As we have mentioned previously, the market dynamics in the Notebook sector have been influenced over the past several quarters by a number of important developments, including consolidation, the movement from captive manufacturing to outsourcing, more design responsibilities being transferred from the OEMs to their ODMs, particularly for low end Notebooks, and aggressive pricing in both the OEM and the ODM levels as they compete for market share within a soft economic environment.

In addition to these supply side dynamics, current demand for Notebooks is being driven largely by consumers and small businesses. In this environment, competition for new consumer based designs is intensifying, particularly for Dual Pointing applications. This has led to aggressive pricing and a decline from the two times multiple we previously realized for Dual Pointing solutions to multiples within the 1.4-1.5 range.

These factors coupled with our focus on balancing our market share and profitability resulted in a product mix shift towards Single Pointing solutions. So while we continued to see strong unit demand and have maintained our market leadership position, our revenue level reflects a reduction in our overall average selling prices associated with this shift. We believe this trend will continue over the near-term and expect Dual Pointing solutions to trend down to 20%-30% of our revenue in fiscal 2004.

Our growth outside of Notebooks, as well as higher priced products such as our integrated Fingerprint TouchPad Module could mitigate some of the pressure on the top line. We are still relatively early in these new applications and it is too early to tell what end user adoption rates will be. Therefore we're projecting a more cautious near-term outlook despite entering seasonally stronger periods for the Notebook sector. Coming off a stronger than expected June quarter, which included strong revenue contributions from our new market, we are forecasting a nominal revenue increase of up to 1% in the September quarter. This would represent growth of at least 27% over the same quarter last year. Current visibility suggests similar revenue results in the December quarter as we continue to work through the current market dynamics.

We expect to be able to maintain our gross margins within the target range of 40%-45% based on the backlog. Going into the September quarter we would expect gross margins to be at the lower end of this range. Operating expenditures will be up sequentially in the September quarter, primarily reflecting increased compensation costs resulting from both the impact of our annual fiscal performance review cycle and increased staffing levels. In addition, the higher product development and project related expenses. We also expect to incur costs associated with transitioning certain functions from our San Jose and Taiwan offices for our new office in Hong Kong. These one-time costs are expected to be approximately $400,000. GAAP net income per diluted share for the September quarter is expected to be $0.07. Non-cash expenses are estimated to be approximately $140,000.

In closing, we remain strategically focused on diversifying our revenue and our business through continued investment in our new market initiatives and expect moderate revenue growth in fiscal 2004 which will be driven by these efforts. We have demonstrated our ability to execute in a tough market and the flexibility of our business model will allow us to adapt to the changing dynamics in the Notebook market, while our Non-notebook business continues to take hold.

We enter fiscal 2004 with a strong cash position and expect to remain solidly profitable. As Francis said earlier, we believe our strategy of leveraging our core technology into new markets is working and we are confident that our efforts will lead to long-term sustainable growth. That concludes our formal remarks and we'll now turn the call over to the Operator to start the question and answer session.

Thank you sir. Ladies and gentlemen at this time we will begin the question and answer session. If you have a question, please press the '*' followed by the '1' on your push button phone. If you would like to decline from the polling process, press the '*' followed by the '2'. You will hear a three tone prompt acknowledging your selection and your questions will be polled in the order that they are received. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment for our first question. Our first question comes from Andrew Neff. Please state your company, followed by your question.

Bear Stearns. A couple of questions if I could. One, just to verify. You said the Non-notebook was 14% in the quarter?

That is correct, yes.

And Russ was that mostly Apple, or where there other things in there?

It was primarily from Apple and the initial shipments into the China public telephone program.

But when you look at next year and you say it is going to be greater than 10%, do you mean like 11%, 12% or like 40%, 50%? Greater than 10%, there is a lot of room.

We just expect it to be greater than 10% based on our current visibility Andy.

Will Apple still be most of that or other things that are going to be a component of that?

Apple has been very successful in that sector. As Francis said we have a couple of more design wins. We have two other OEMs in that space. So we would to see revenue from those in fiscal year '04 in addition to what we would see with Apple.

Okay and lastly, in terms of the outlook for this quarter, Apple business tends to be seasonal. But still you would expect a good build for the holiday season. The Notebook market is also seasonally strong. Just wondering any other particular reasons for the, I think is a conservative tone in your outlook for the current quarter?

Well again one of the things that boosted our Non-notebook revenue this quarter was that initial shipment into the China telephone application. That's not a shipment that will repeat in this quarter and clearly that impacts our quarter-to-quarter compare.

How large was it, can you say at all?

Well we haven't commented on that Andy. What we have said in the past is we're not interested in opportunity unless they represent at least $1m of opportunity to us. So it was a reasonable number in the quarter.

Okay and then just really the inventory build, any particular reason behind that beyond just building for the anticipation of the seasonal factors?

Yes, I mean as you know we target inventory turns of eight to nine. So at 10 we're still a little short of where we would like to be. We try to target six month rolling supply of our basic and we're actually a little short of that now.

Okay. Thank you and then Francis just if I can ask one last question for you? As you look at the competitive landscape do you see any ... isAlps the primary competitor you see there? How would you describe that environment?

Well I think that by and large the competitive environment really has not changed a whole lot Andy. I mean there is really two major players in that space in the Notebook market. It is Alps and Synaptics. We continue to lead Alps by a long shot. We will be similar in terms of percentage between the two companies the way that we can see it today. I think what is significant here is Alps clearly has identified a portion of this market, meaning the Dual Pointing, that they want to go after. So that would be the main changes in the landscape. In terms of design activity and design win, you know Andy when I look at it between year-to-year you know we actually have just about the same, if not more, design wins in the last fiscal year and the previous fiscal year. When I talk about design activity remaining strong, we are very confident that we continue to be the leader in this space Andy.

Thank you.

Our next question comes from Rob Stone. Please state your company, followed by your question.

SG Cowen Securities. Francis, on the new market, any comment? I didn't hear anything unless I missed it in the prepared remarks about large format touch screens?

Yes, I think the large format touch screen in the previous quarter, what we did was we're actually beginning shipment into the ATM market through Siebel and that continues. The issue with that sector here is adoption rate and the market size on that. It is obviously not as big as some of the other stuff that we are talking about. So why there is still development in that thing, there was really nothing significant for us to report this quarter, at least moving forward that we can see at this time Rob.

Okay. In terms of your competition now in Dual Pointing, can you comment on how your solution may be differentiated at this point versus Alps other than on price? Are they offering something that is really a comfortable solution?

Really, I mean we believe that our solution has a lot of superior features and capabilities. There is one advantage that Alps probably has is they are more of a front line supplier okay. So they tend to a lot of the time package their new pointing solution along with products like keyboards for example Rob okay. They post the solutions there and they probably have practicability you know in the way how we perceive it in terms of how they package their total solution to their OEMs. I would say that is probably by far the most noticeable difference between the two companies.

As far as the rest of the Dual Pointing solutions consider, we believe our Capacity Pointing Stick is actually in many ways more superior then a lot of the existing sticks out in the market place today. We are the only company that services a Capacity Stick in a local market that we know of.

So Alps is using resistors for their Dual Point solutions?

Correct.

Stick only is a portion of the market that with new opportunities for you and you had a few design wins. Didn't hear much about that either. Is Stick only as a percentage of the overall market going away? Is it less significant or what is going on there?

I think what we are seeing here is I think the Stick only players are mainly Toshiba and IBM. What we see there is the trend seems to be that they are either moving into capacity for TouchPad or they are actually moving into Dual Pointing. So actually the Stick size of the pie going forward is actually going to be smaller.

As far as we are concerned we are actually beginning shipment into the Stick only market here Russ this quarter or? We began last quarter already. So it continues. We've realized revenue in this. But it is just not a big percentage of our revenue mix Rob.

Okay. Finally some comments related to margin. You've mentioned yield loss. Is that a token yield loss issue or is that something where your sub-con is having yield problems putting the modules together?

It was at the sub-con level Rob and if you look at the quarter's results it was worth about one point in margin. It isn't what we planned. We can fix that. We wouldn't expect it to recur.

But even so on mix you're looking for margin towards the low end of the range?

Based on current visibility provided by that.

Okay. In terms of the mix effect of the Non-notebook portion of the market, how are margins for the product you are presently shipping relative to your Notebook margin? Is that a mix factor also?

Rob we continue to target 40%-45% of the blended gross margin. Based on not having a whole lot of diversification there yet, it is probably not prudent to comment on margins specific in that area.

Yes, understood. Thank you.

Our next question comes from Michelle Gutierrez. Please state your company, followed by your question.

Hi, SoundView.

Hi Michelle.

Hi, nice results. I just wanted to ask you where do you see underlying Notebook growth going forward?

Well the last numbers that I have seen from IDC Michelle suggest around 13%-14% growth.

That's for the second half of this year?

Year-over-year is the last number I saw. Calendar year '04 over calendar year '03.

Okay. Going back into the numbers that you gave us in terms of percentage of sales, if 14% of your revenues came from Non-notebook applications that means your Notebook revenues actually declined 2% during the quarter. I'm assuming that a lot of that is due to some mix shift away from Dual Point solutions. Can you talk about that a little bit more? Give us a little more color there?

Well that is what happened. Our units grew quarter-over-quarter and our units grew nicely year-over-year. We grew...

Can you quantify that for us?

In the mid teens year-over-year.

Okay.

But it is an impact on the top line of that mix shift from Dual Pointing to Single Pointing solutions and in addition, the aggressive pricing that we have talked about in going after Dual Pointing designs.

Okay. Then did any customers account for greater than 10% of sales this quarter?

We only had one 10% customer and I think it was Inventec (ph).

Could you say that again I'm sorry. It was Impact?

Inventec.

Inventec, okay.

Contract manufacture for the OEMs. That's not terribly indicative of anything in our business because generally as you know the guys we sell to are not the guys that are making the purchasing decision. So whoever we're shipping to is really a reflection of how the ODMs are shifting share and winning business with the OEM.

So let me just clarify that. If let's say for iPod the Apple solution, would you be shipping ... would Apple be the customer there or would the sub-contractor be the customer?

They're sub-contractors.

Okay. What do you see in terms of market share? I think last quarter you were [70%] of all TouchPads. What will that be for the quarter?

We don't measure on a quarterly basis. We try to look at rolling two or rolling fourth quarter basis. What we can tell you is that we're pretty comfortable saying that we've maintained our share year-over-year.

Okay. And you talked at length about the ASP pressures on the Notebook part of the business. Can you talk about the ASPs on the Non-notebook business? You know is the Touch Wheel for the iPod still about two times the multiple and the Chinese character Recognition Phones, what kind of multiple are you getting on those this quarter?

When you look at an MP3 application, what we've said is this. The pricing for that is in line with the pricing for an equivalent Single Pointing solution in Notebooks. That's in the $3-$6 range.

Okay. You talk about your ASP declines. Can you quantify that all for us?

What we typically see year-over-year is somewhere between 6%-8% and that's a reflection of ... no that ends up being the result of what's negotiated with the OEM when you win the design up front. So you win the design. We normally will give them forward quarterly pricing that historically will reflect 6%-8% price declines over the life of the project. So that's kind of what's baked in on a historical level. Where we've seen a lot of price pressure as we've said in the past is where we're competing for new design wins in the Dual Pointing space. That's an area where we had clearly a disproportionate share of that segment of the Notebook market because there was more dollars there, more revenue content. It's been a sweet spot that helps us to target it and they've been very aggressive with pricing. And as I mentioned in our formal remarks we've seen now in price the Dual Pointing solution as low as 1.4-1.5 times the Single Pointing solution. When we initially got into this market you know we were getting roughly two times, which you would expect because you are selling two solutions instead of one.

Okay. Is there a significant price difference between Apple's solution and your solution?

Well it's a question of balancing market share and profitability objectives. I mean there are some Dual Pointing designs where based on the way they priced it we don't believe they can make any money at it and we chose not to follow them.

So there has been some irrational pricing in Dual Pointing solutions at this point?

We've talked about that before. Yes, the multiples ... I mean when you're selling two solutions and pricing that as though you're selling one and a half solutions, that's fairly aggressive.

Okay. Just one final question. You said that a big portion of this mix shift is driven by the consumer mix of the Notebook market. What are you seeing in the corporate side of the market, especially going forward? We see some strength at Dell and at HP in terms of their corporate sales going into Notebook. I just wondered what your forecast there was? Thanks a lot.

Okay. I mean clearly when we look at the last three or four quarters I think it is pretty clear that Notebook demand is being driven by consumers and small businesses, which tend to buy lower end boxes. As you know all of the major OEMs today have Notebooks that sell at $1,000 or less. It is at the low end where the demand seems to be coming from. At least the recent demand.

Based on historical trends, I think you will see continued demand for consumers in the second half of the year. Going into next year I don't think we have enough visibility yet to say what's going to develop.

Thanks a lot Russ.

Our next question comes from Matthew Curtis. Please state your company, followed by your question.

Kenny Securities. Good evening gentlemen and again congratulations.

Thank you.

I'll move through my questions somewhat quickly here. First Russ, I think you had attributed the drop in the DSOs to the backlog as you went into the June quarter. Were there any other irregular payment patterns that were specific to this quarter? Anything else that contributed to that?

No. I mean we went into the quarter with very strong backlogs. We got off to a really good start. It gives you more time during the quarter to collect on those receivables. Sometimes the start is aligned right and things come in on time and things work out better than you expected.

I mean we target 50-55 days. I mean that's kind of our expected range. So to be at 42 or 43 days that's just an outstanding result.

Excellent. Could you guys give us a little insight on the NXT announcement? I understand from your comments that there was interest from several customers that you're working with for a solution like this. Are we looking at an ASP similar to a Single Pointing solution for this and what time to market are we looking at? Are there specific designs you're already working on or is it still in the general planning stage? Can you give us some color on that?

Yes certainly Mat. What we have done is we actually have done a few demo products integrating that technology. So basically the agreement that we have with NXT is a strategic one. Basically we will license their technology and prop it into a TouchPad. In fact their TouchPad will become part of their speaker right. So now the OEMs have a choice of either using the existing speaker using ours or actually replacing the speaker that they have in the local computer. You know you look at the cost of for space reasons and use our TouchPad as the family speaker as well.

We actually have done a number of technology road shows and product concept roadshows with a number of OEMs and frankly the reception that we got has been pretty successful.

So that is kind of how it precipitated. We feel that there is an interest in this particular implementation technology. So moving forward, what we're working on is basically product ties of their technology into our product as well as customize it with any OEMs that maybe interested to utilize that technology.

Now if you look at the interest from the OEMs like I said, they are very interested. But you know we are still a bit away in terms of incorporating that into our product. Certainly it will be a little bit further away in terms of that product getting to market. And to the extent that OEMs and Synaptics come to grips fast with defining our product and also fitting it into certain platforms then you will determine the speed of where you see a product using that particular technology. But it is actually a pretty neat implementation of additional capability into the TouchPad.

Okay. So we are still like in the range of 12 months out from seeing a product like this hit the market?

I would say that that's hard to say. Like I said it is going to be determined by opened windows and slots of existing OEM platforms. Ability for us to design products together with them then put it into a schedule. So I mean it could be that long. It could be longer than that. It could be shorter than that. Really to a large extent depending on how the OEM schedules and product and technology fit together.

Okay. Are you far enough along in the process to have some kind of feel for what kind of ASP in terms of multiple that you're going to get from this product?

Yes. I mean during the initial discussion you know we obviously floated the value it is to them right. So it is something that fits our business model. We feel comfortable about it. The [...] is done and finalized. It's too early to tell. But certainly has given us enough indication that we're moving ahead with this agreement.

Okay.

The product Matt does give indication it is going to be higher than our Single Pointing ASP.

Okay. In terms of some of your other new solutions that you've had recently such as the TouchPad under plastic and the Fingerprint Integrated Solution, have you found that customers that are interested in those particular solutions are using those as Single Pointing solutions? I guess my question is by definition of the design, are we moving ourselves more towards Single Pointing solutions?

Well Matt I mean what we notice during our interaction with OEMs and we have routine technology and marketing discussions with our OEMs there. What we sense there is number one like Russ and I talked about earlier, about this mix going to a higher consumer box. Certainly the consumers in general are very interested in styles. They kind of like the wow factors. We actually have a number of products in our pipeline similar to the speaker integration technology that our OEMs are very interested in terms of in the consumer line okay.

The Fingerprinting Solution is more in the commercial area and that really served the purpose of corporate security. Whether those things are Single Pointing and Dual Pointing is really kind off a separate value proposition. You know in the case of Dual Pointing, it is mainly in the business community that offers the end user a choice of either interface solution that drove the adoption. Because the corporate IT spending continues to be tight, the general, the ability of the interest of market growth going to consumers. As well as is the Synaptics case. There is a competitor out there and they are offering similar solutions. Those factors are what really drives the Dual Pointing transition and also the consumer product adoption about whether it is there.

Okay. Moving on a little bit to some of your other initiatives. Your cell phone initiative. I understand you guys are not ready to announce a specific design win yet but you are doing engineering work. Are you doing engineering work on a specific design for a specific customer or are we still in the general stages of that development there?

Actually it is the former Matthew. We are doing design work with specific customers for specific models okay. We can see them in work in progress in designing our capacity solution with text entry for basically SMS type of application. We are just not at the stage. We have other milestones in announcing that design. We expect to continuously update you and the rest of the population here next quarter. But I am actually pretty excited and happy with the progress. So even though we cannot kind of highlight any specifics to you yet, I can assure you that we're making great progress towards that implementation.

Okay. Coming up here at the end. You mentioned some of the Dual Pointing ASPs are coming under significant pressure from Alps. The Single Pointing solutions have those ASPs started to level off to a normal decline at this point or are you seeing increasing competition at the same point there?

I would say for TouchPad what we have seen there is pretty traditional. We haven't seen the same sort of very aggressive approach that they've taken on the Dual Pointing solution.

Thanks and then finally, if you could just refresh my memory. The multiple that you're getting for your new TouchPad under plastic in your Fingerprint module?

Well again the under plastic stuff is still in the range we've given you for Single Pointing solutions, which is 3%-6% of the box on the high end. The Fingerprint module today is a multiple of 4%-6% Single Pointing solution.

Right, thank you gentlemen. Congratulations again.

Thank you.

Gentlemen there are no further questions. Please continue with any closing remarks.

Okay well thank you again for being on the call with us today and we look forward to updating you again next quarter. Thank you.

Ladies and gentlemen, this concludes the Synaptics fourth quarter conference call. If you would like to listen to a replay of today's conference call, please dial 1800 405 2236 or 303 590 3000 followed by the access number of 544 405. Once again those numbers are 1800 405 2236 or 303 590 3000 followed by the access number of 544 405. Thank you for your participation. You may now disconnect.