Synaptics Inc (SYNA) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synaptics Fourth Quarter Conference Call. (Caller instructions.) As a reminder, this conference is being recorded today, Thursday, July 29, 2004. I would now like to turn the conference over to Alex Wellins. 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 Chief Financial Officer.

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 SEC filings, including Form 10K for the fiscal year ended June 30, 2003, 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. And 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. We are pleased to cap off a very successful year in Synaptics, achieving record revenues and profits in fiscal 2004. We ended the year with record revenues of $133.3m, up 32 percent from the prior year, and GAAP net income up 6 to 8 percent to $13m or 40 cents per diluted share.

We experienced record unit volume with unit shipments up over 50 percent during the year. We experienced outstanding execution in both the PC and portable digital entertainment market. We maintain our leadership position in a notebook market by continuing to innovate and to meet our customers' needs. In addition, we successfully grew our revenue contribution for our new target market to approximately 16 percent of total revenues compared to approximately 7 percent in fiscal 2003 and less than 2 percent in fiscal 2002.

Turning to the fourth quarter, our revenues of $35.1m were in line with our expectations and reflect growth of approximately 3 percent from the preceding quarter and 25 percent from the same period last year. GAAP net income for the quarter was $3.7m or 13 cents per diluted share, up 6 percent from the preceding quarter, and 43 percent year-over-year.

Fourth quarter shipments in the notebook market were essentially in line with expectations, increasing slightly over last quarter. Revenue from new market applications continued to grow this year and represent approximately 20 percent of total revenues during the June quarter.

We are very pleased with our overall performance and what turned out to be a backend loaded quarter. This reflects continued caution of our customers regarding notebook demand coupled with third party supply constraints in the portable music player market that were not Synaptics related. Caution with regard to customer order rates appears to be carrying over into the first quarter as we entered June with a backlog of $13.1m, down from $15.4m in March. One [inaudible - heavily accented language] mixed signals from analysts regarding the outlook for corporate and consumer spending. We continue to seek the levels of design activity and positive signs that both the notebook and portable music player markets continue to grow. Despite fluctuating demand from our customers, we continued to see healthy year-over-year growth levels in the second half of the calendar year.

Now I would like to make a few comments about our progress during the past three months. First, in the previous quarter, I reported that we were exploring an opportunity for capacity technology in the desktop PC market. We are pleased to announce that we have secured two design wins in this space and expect to begin shipping both products within the next six months. Although we still can't disclose the nature of this product, we feel this further illustrates the potential to expand our product revenue in the PC market beyond notebooks.

Second, we continue to broaden our customer base in the portable digital entertainment segment. Creative recently announced its [inaudible] MP3 player, which uses Synaptics scroll strip solution in the plastic. This new device boasts a 20 GB hard drive with 24-hours of playtime and demonstrated another example of how Synaptics capacity technology can provide intuitive easy-to-use interface solutions that simplify device navigation and enhance the end-user experience.

During the quarter, we also secured five additional design wins for MP3 players, the majority of which I expect to begin shipping within the next six months. Three of these are with new OEMs, bringing our total customer base to seven and illustrating the momentum building within this market for interface solution. Analysts are projecting a continuous surge in the number of MP3 devices and other manufacturers tend to take advantage of the explosive growth in this market. And we believe that Synaptics is very well positioned to deliver solutions to a broad range of OEMs.

Finally, last quarter we reported that we were on track with product development for PDA interface solution. As we announced earlier this week, we are pleased that HP has incorporated the Synaptics map point solution in its latest iPod PBA. The map point replaces traditional mechanical controls with the capacity sensors to offer scrolling, selection, and on-screen navigation. This is the first implementation of Synaptics capacity technology in the PDA and illustrates our ability to leverage our product technology in a new market.

As we move into a new fiscal year, we are happy to reach a major milestone with a shipment of our hundred millionth interface device, evidence that our sophistication and [inaudible] strategies are working. Specifically, the development of our international offices has improved our service and supports our Asian customers. This, in turn, has allowed us to support over 30 percent growth in unit shipments year-over-year. This milestone also reflects our strategy to diversify our product portfolio through entering new markets as evidenced by success in the portable digital entertainment market. We are proud of our accomplishments thus far and continue to invest and further grow the Company and develop new markets for Synaptics.

In summary, we are very pleased with execution of financial results for fiscal 2004. We maintained our leadership position within a competitive notebook market and established ourselves as a clear leader in the fast-growing portable digital entertainment segment. We believe the positive momentum generated over the past year will carry over into fiscal 2005 and that issues regarding limited near term visibility in notebooks and supply chain uncertainty in the portable music player market will be resolved over the balance of the calendar year. We expect fiscal '05 to be another year of record revenue and profit as we continue to capitalize on our position as a permanent player in our market, further leveraging our track record of providing innovative solutions coupled with solid execution. We also remain excited about our prospect for breaking into an additional new market based on our promising development work in areas such as mobile handsets.

In short, we are looking forward to a great year and excited about the future. I will now turn the call over to Russ who will reveal our detailed financial results for the third quarter and provide some guidance on our business outlook.

Thank you, Francis. Unless I specifically note otherwise, all the numbers I discuss regarding our quarterly results will be on a GAAP basis. Revenue for our fourth fiscal quarter was $35.1m, a sequential increase of approximately 3 percent over last quarter's $34.3m and an increase of approximately 25 percent compared to $28.2m during the same period last year. Unit shipments in the notebook market were up sequentially and grew more than 30 percent year-over-year. Revenue from new market applications increased more than 7 percent sequentially and more than 70 percent from the same period last year, again, primarily reflecting the rapid adoption of our product solutions for the high-growth portable music player market.

As anticipated, revenue from dual pointing applications declined sequentially and represented 26 percent of our revenue compared to 30 percent in the prior quarter. For the year, dual pointing applications represented 27 percent of revenue, down from 39 percent in the prior fiscal year, primarily reflecting the following factors: competition for dual pointing solutions, the strength of consumer and small business demand relative to corporate spending, and our increasingly diversified revenue stream.

The growing demand in the portable music player market continued during the quarter and was primarily responsible for increasing our revenue from non-notebook applications to 20 percent of total revenue, reflecting shipments to three different OEMs. Gross margin for the quarter was 43.2 percent, better than expected, primarily reflecting a richer product mix, and compares to 42.5 percent in the preceding quarter and 40.9 percent in the comparable quarter last year.

Operating expenses for the quarter of $9.5m were in line with our expectations, up approximately 3 percent from $9.2m in the preceding quarter. R&D costs of $5.6m were essentially unchanged from the prior quarter as lower project spending offset increased staffing levels. SG&A costs were $3.8m compared to $3.5m in the prior quarter, reflecting the combination of the following: higher sales compensation costs from both headcount additions in the greater China region and our increased sales levels, as well as tax planning and market research activities. Total headcount at the end of June was 197, up from 191 at the end of March as we continued to actively recruit people to staff our internal and external initiatives and meet the demands of our increasing business levels.

Non-cash charges related to the amortization of deferred stock compensation for the June quarter totaled $120k, down slightly from $128k in the prior quarter. Net interest income, which comes primarily from investments and tax-exempt issues, was approximately $233k as compared to $214k in the prior quarter.

Our effective tax rate for the quarter and the year was 38 percent, as we indicated on our last earnings call.

GAAP net income for the quarter increased approximately 6 percent sequentially to $3.7m or 13 cents per diluted share and was up roughly 43 percent from $2.6m or 10 cents per diluted share from the comparable period last year. Non-GAAP net income, which excludes non-cash charges related to the amortization of intangibles and deferred stock compensation, was approximately $3.8m or 14 cents per diluted share compared to $3.6m or 13 cents per diluted share in the prior quarter, and $2.7m or 11 cents per diluted share for the comparable quarter last year.

Now a few comments about our balance sheet. We ended the fiscal year with total cash and short-term investments of $96.3m, up from $77.3m at the end of the prior fiscal year. Cash flow from operations was approximately $4.6m for the quarter and $14.8m for the year.

Stock option exercises contributed approximately $1m for the quarter and stock option exercises plus purchases under our employee stock purchase plan contributed approximately $5.4m for the year. Capital expenditures were approximately $80k for the quarter and $907k for the year. Capital depreciation was $226k for the quarter and approximately $1m for the year. Receivables at the end of the June quarter were $21.9m, up from $18.8m at the end of the March quarter, primarily reflecting the atypical backend loaded quarter that Francis mentioned earlier. As a result, DSOs for the fourth quarter increased to 56 days from 49 days in the March quarter.

Inventory totaled $6.5m at the end of the quarter, up from $5.5m in the prior quarter as we made progress in increasing our [inaudible] inventory levels. Inventory turns for the quarter were 12 compared to 14 in the prior quarter.

I would like to make a few comments regarding our near term business outlook. We entered the September quarter with backlog of $13.1m, down more than $2m sequentially, which is uncharacteristic going into what has historically been, and by all reports is currently expected to be, the seasonally stronger half of the calendar year. We believe it is clear evidence of our OEMs customers' limited visibility and confidence in consumer and corporate notebook demand and the caution related to the continuing, but reportedly improving, supply chain shortages in the portable music player segment. The combination of the lower backlog, current order patterns, and the mixed data points related to both global economic and market specific conditions, lead us to believe that we will experience a repeat of the non-linear shipping rates of last quarter. Based on these factors, we are taking a prudent approach to our guidance and are projecting sequential revenue growth in the September quarter of 2 to 6 percent. Based on current visibility, we are expecting another sequential increase in revenue in the seasonably stronger December quarter.

Based on our current backlog, we expect gross margins in the September quarter to be toward the middle of our target range of 40 to 45 percent. As in the same period last year, we expect operating expenses to be up sequentially, reflecting the impact of our annual performance review cycle as well as our planned staffing increases and anticipated increases in R&D project expenses. We are expecting our effective tax rate in fiscal 2005 to be 40 to 42 percent, reflecting the combination of our anticipated higher profit levels and our tax planning efforts aimed at reducing our future effective tax rate to the 20 to 30 percent range.

GAAP net income per diluted share for the September quarter is expected to be approximately 12 cents, which includes non-cash expenses related to the amortization of deferred stock compensation of $103k.

In closing, fiscal 2004 was a benchmark year for Synaptics as we took a major step in diversifying our revenue, which had a significant impact on our year-over-year growth and record operating performance. We also further strengthened our balance sheet, adding $19m to our cash balance. The design wins we achieved in the June quarter, both with new customers and for new applications, will allow us to continue to diversify and help drive our revenue growth moving forward. Our growth strategy is clearly working and we will continue to employ the same approach in the new fiscal year of investing selectively to both improve our internal operating efficiencies and to capitalize on promising new market opportunities. Based on continued strong design activity and our expanding customer base, we are optimistic about our growth prospects in fiscal 2005.

That concludes our formal remarks and we will now turn the call over to the operator to start the Q&A session.

Thank you, sir. Ladies and gentlemen, at this time we will begin the question and answer session. (Caller instructions.) One moment please, for the first question. Our first question comes from Andrew Neff with Bear Stearns. Please go ahead with your question.

Sure. A couple of things. Nice outcome. I just want to go back to a couple of things and one is the supply constraints you talked about in the music area. Can you elaborate on that, and what, I mean is this just primarily the issues relating to the iPOD mini which Apple talked about or is it something beyond that? And also, presumably maybe something on the issues relating to the release of HP's iPod? Maybe just go into more detail if you could.

Well, our understanding is, Andy, just based on what's been reported publicly is that they continue to struggle with drive shortages in that portable music player space, primarily related to the 1-inch drive which is the device that shifts within the Apple iPod.

And do you see that situation improving in the current quarter or what do you see going on there?

Well, again, our visibility there is just what we hear and what's publicly reported. Clearly, the growth in that area has certainly attracted new entrants into that. So not only has the existing supplier announced planned capacity increases in the second half of the year, there’s also new entrants that are expected into that market as well. So I would expect that the vendors in that market were qualifying the new guys as well as taking a look at, you know, what's available from the existing suppliers.

I think Andy, you know, the people are working very hard to try to solve that problem. I guess Russ and I probably do not have any definitive insight into what's happening. But I guess they did have an encouraging sign in a sense that they have announced the launch of that particular product internationally not too long ago. So if you read some of those--and those are evidence that, you know, they are beginning a launch. In the case of Apple, they also have announced hPod, a timeframe for the hPod, you know, to be shipping. So--and those evidence may mean this [inaudible] here is getting soft, Andy.

I would like to clarify a few things just on--you made a comment about handsets at one point. Could you elaborate on that at all? I mean, is that something that is ending or are you close to or--.

--No, I think what I said in my summary comment, Andy, something about we continue to work on new market areas, okay? And one of the market areas that I have been reporting and talking about is our desire and [thrust][ph] to be into the mobile handset area. And again, this is one area that if you are very good internally about everything that's been going on, but we have not gotten to the point where, you know, how we define design wins and with a line of sight to revenue. So we have really not elaborated anymore besides what I just talked about that we feel confident working in that market, Andy.

Do you think you could see something this year or next year or you just prefer--.

--Well Andy, as I have elaborated several times before, we are committed in the market place. We are making progresses in there. Unfortunately, the visibility in terms of answering your question here is really somewhat out of our hands. I am confident we will be successful in that space with products and you know, entries into the market. I cannot, you know, size up when.

Okay. I just want to clarify two other things you said. You talked about--you said you had two wins in the desktop area.

Correct.

Are those name brands or are these sort of just minor players? How would you characterize that?

It was names that you would know, Andy.

I know a lot of names.

Yeah. Those are people that you would know. Major players.

Is this something, I mean, is this putting a TouchPad onto a desktop? Is that replacing a mouse or anything?

I don't mean it's about deploying our capacity technology into the desktop area and we are really not at a liberty to talk about that, but hopefully, those kinds of stuff is going to be announced in the not too distant future, Andy.

So it's not just a--not just necessarily a TouchPad. It might be another thing beyond that?

It's just to do with employing of capacity technology into, you know, the PC space [inaudible].

And lastly, I just want to clarify--you said that the GAAP number was about 12 cents. It was--for the next quarter was your outlook. What would be the non-GAAP number?

Well, the only difference right now, Andy, between our GAAP and non-GAAP number is the additional deferred stock-based compensation, which I am expecting to be $103k for the quarter. But it can probably get you--it's not a penny by itself, but depending on where we end up it potentially can round.

And actually just, also to clarify the tax rate. You said the tax rate of 40 to 42 percent. That's a fairly sizeable jump. And you said the goal is to bring the tax rate down. Can you tell me about why the tax rate would go up and why that would--?

--Well again, it's a reflection of both our expected increased profit levels year-over-year, plus as you implement some of these tax planning strategies, sometimes it results in some near term pain for longer term gain and the impact of that.

Can you elaborate what the eventual target would be for that?

Well as I said, in the future we would expect that we would be in the 20 to 30 percent range.

Twenty to 30 percent tax rate. Okay. I mean, how--is that a year to get to that? Is that five years?

It's hard to peg it based on all the moving parts there, but I would say, you know, two to three years out.

Okay. Thank you.

Our next question comes from Scott Barnum, Credit Suisse First Boston. Please go ahead with your question.

Good afternoon, guys. Let me follow back to the question that was just asked about the desktop product. Can you elaborate at all on what you would expect the average selling price to be for that product or the type of volume you might expect?

Well, it's hard to comment on volume. The selling price I would expect to be in the same range as our typical single pointing interface solutions, which are in the $3 to $6 range.

Okay. And you really can't give any color at all on the type of volume that, I mean are we talking several hundred thousand units potential or is this millions of units or--?

--Well, it's hard to speculate, Scott, because we never know what kind of success the device our solution is going into is going to create in the marketplace.

Okay. You did say there were two wins, though, and I assume those are similar products with different manufacturers.

They are with different manufacturers, Scott, okay? Different OEM. And they have always used our capacity technology, but in a different sense, okay, but it's the same core technology style.

Same core technology, just not the exact same product.

Correct, correct.

Another question, you talked--you mentioned that you had a number of new MP3 OEM wins in the quarter, some from existing, some from new OEMs. I just wanted to clarify. Was one of the existing MP3 wins, would that have been the new Apple iPod they just announced?

That's correct.

Okay. Let me follow-up on that then, and ask the question. I know in the past you have said that your content on the mini is less than the full version iPod, and now it looks like the new iPod that is going to replace the full version iPod has the--appears to be the exact same interface as the mini. Can you comment then on these future iPods? Is--the dollar content would be similar, in other words, less than the full version?

The two solutions now will be more similar than they were in the past.

All right. Well, are you willing to say then that you are going to have less content in the iPod going forward?

We do have less content in the iPod.

Okay. And then just real quickly if you could maybe do a high level content on design activity in which markets seem to be getting the most interest right now. I know you talked a little about the handset market, but where you are seeing the most activity?

Sure, Scott. I would say that the [inaudible] market continues to grow and I think design wins and design activities there is not that much different than all the previous quarters, okay--the previous historical things that we have seen. I think that the one thing that has a lot of momentum is in the MP3 music player market, Scott. I think people now are beginning to see the successes of the iPod and as you know, Sony has made a big announcement with a player under the Walkman brand in that marketplace. Creative, for example, is now putting the [inaudible] now in place. And we have talked to you about the different number of OEMs and design wins that we have had. That certainly is getting a lot of buzz, Scott. And I can tell you that Synaptics over the last quarters and looking ahead will continue to expect to get pretty involved in that segment. In the case of mobile handsets, you know, unfortunately, like I said, it is beyond the color of how I can with discretion give detailed information to you guys. We are involved in multiple OEMs now, okay? In getting our technology into the handsets, either for navigations or for text entries. And again, you know, I am not at liberty to kind of disclose and peek at what is going on there. I am actually pretty excited about the opportunity to accept. They are not in the same point until new revenue is coming. So from a design activities perspective, the new one that really brings in a lot of buzz and revenue incrementally to Synaptics is the MP3 music player. I wouldn't say that it is any less than what we had before except from a gradient perspective. The other perspective is pretty much, pretty consistent with what we've seen before. I expect us to maintain a leadership role in that market, okay, and continue to service the market here with pretty existing solutions. And then we have this mobile handset stuff. We are kind of still working hard at it, and hopefully, in the not too distant future, I can talk to you more about it. Now, this other PDA announcement that we talked about with our partner, HP, is not what we might call a huge volume, you know, like the way that people would expect from the iPod, for example. But we have aspirations that besides in the PDA market that it would manufacture something differently with different kinds of implementation, although there is not a whole lot of activity going on. So you think about it this way. You have a notebook market continues to be strong and then you have a handheld market of which [inaudible] MP3 music player, what we call PDA entertainment, is leading the charge, and frankly, we are getting tremendous exposure of Synaptics into a number of these applications. And I am pretty excited about our prospects.

Okay. Thank you.

Our next question comes from Michelle Gutierrez with Schwab SoundView. Please go ahead with your question.

Hi. Good afternoon. I wanted to ask about your backlog. It's down pretty substantial during the quarter. But you know, it's been down pretty substantially every quarter for the last year, despite your sales. Is there some other factor in there that's driving your visibility lower that maybe lead times are going down so people don't feel like they have to put in orders earlier? What are some dynamics there because, your backlog is down 15 percent sequentially and from the first quarter it is down probably about 30 percent. So--and meanwhile, your revenue is declining. So what's the--what are the end dynamics there?

Again, it isn't a function of decreasing lead times. Our lead times are in the same range as they've been historically. We really believe it's just a function of the limited visibility that our OEM customers have into end user demand and the caution that that then creates within the whole supply chain for those particular devices.

So the visibility for your OEM customers has decreased that much over the least year. So currently it's lower than what it was a year ago.

Well our backlog year-over-year is almost the same. I think our backlog ending the June '04 period is up 1 or 2 percent from where we were a year ago. So clearly, that is indicative of the fact that visibility is less and clearly it gives us less visibility because when you have backlog that's a much harder number than when you are looking at forecasts and trying to triangulate what's going on in the broader market.

Okay. And then, in terms of your dual point mix, you ended the quarter at about 26 percent this quarter? What do you expect for the September quarter? You know, we are one month into the quarter already, but it seems like a very backend loaded quarter. What are you looking for in September in terms of mix?

Yeah, I mean, I would expect that dual pointing is going to continue to decline as a percent of our total revenue. If you actually look at our dual pointing revenue year-over-year, they are about the same level year-over-year for the full year. So, you know, again, it reflects the fact that we are sharing a bigger portion of that segment of the market with our competitor than we did historically, the fact that notebook demand clearly has come from small business and consumer, not corporate. Even though there is corporate buying going on, it's not sequentially increasing as quickly as small business and consumer. And then there's just the fact that our non-notebook applications are continuing to grow as a percent of our revenue. But on an absolute dollar level, dual pointing solutions year-over-year were actually pretty close in absolute dollars.

Okay. And if I just look at this quarter as a snapshot, it was 26 percent, down from 30 percent last quarter, but your gross margins actually increased. What were some of the factors there because I think that dual point is like your highest margin product right now, or among the highest margin products right now.

Generally speaking, that's true. But as I've said before, I mean, the gross margin range on our single pointing solutions is actually pretty broad. I mean, it can be anywhere from the mid-40s to the mid-20s and depending on the mix of product that's going through our manufacturing facilities at our contract manufacturers, which is all predicated on in-demand for the devices they are incorporated into, that's what drives it. And in addition to that, as you know, one of the things that we are constantly doing internally is working on cost improvement programs, not just managing our suppliers and the supply chain, but looking for ways to introduce efficiencies in the manufacturing process that will create cost reductions as we complete assembly and test products.

Okay. Then just one more question. On your inventories, you said that you increased your ASIC buffer inventory levels? Are you seeing prices increase there? Is that the reason why you are increasing your buffer inventories?

No, one of the things that we've seen--one of the things that we do, as you know one of our goals, is to try to have a six-month rolling supply of our ASIC's and we've actually been running a little short of that given the big demand for our product. And so, this quarter we've made some progress in getting back to--towards that six-month level. Prices though have not been a significant factor for us and they are not factoring into our decision to build inventory. It really is that longer term goal we have of maintaining six-month forward-looking supply.

Six months is a lot of supplies. That's a significant amount of supplies. Is that typical for Synaptic?

That is what we target.

And then, not only in terms of component inventory, how about the pricing in terms of your products, the dual point and the single point products? Have they been holding pretty steady? You did mention your competitors there.

We have not seen any atypical pricing pressure.

Okay. Great. Thanks a lot.

Thank you.

Our next question comes from Rob Stone with S. G. Cowen and Company. Please go ahead with your question.

Hi, guys. Most of my questions have already been asked. But Francis, I wonder if you could comment a little bit further on what Russ is alluding to in terms of cost reduction efforts, what you may have going on with respect to, you know, another skin of the ASIC. In that same vein, you have talked on past calls about some of your new technology areas, you know, TouchPad speaker integration and so forth. If you could just get us a product roadmap overview, please.

Sure. Okay, a big part of our efforts in here, as Russ alluded to here, is constantly moving on cost reducing our products. There are several ways, obviously, to cost reduce a product besides squeezing suppliers, you know, to be more efficient. For example, you know, the new ASIC, that had been released in the hand-held market. We are constantly improving the yield, you know, improving our test [inaudible], improving out test structures. So those things will benefit in general across a whole spectrum of devices that really goes into that kind of product. Now we also have a continuously moved product like we have products right now that basically have chip on board kind of architecture that do not require the packages. So a lot of the time, when you take a cost reduction, some of which is a very broad and aligning and kind of cross improvement. Some of this is targeted at some devices faster than other devices. And I would say that, Rob, giving them time, you know, there could be more than ten of those projects going on and they are constantly running. So that demands sometimes the entire product family, sometimes specific ones and it is really difficult for one to kind of judge. From an ASIC product role perspective, we have two main ones that kind of run the line. There are actually a number of chips that we are running in our line. So to meet incremental different segmentation of the market, it's a few of the same core technology, different flavors, will go in different kinds of packages, go into different kinds of implementations, and it's almost too numerous for me to tell you, other than the fact that there is continuously a few more ASIC's in the line that we're doing it. And there's also a few ways that we are pretty excited about how we implement TouchSensing differently than putting on the PCB that we are working on. And again, a lot of it is probably before its time for me to probably be more specific about that class of products. So when you kind of talk through that in a general product sense, okay, the new ASIC that's coming out will be more targeted towards low power, low voltage, more features, lower cost, hopefully, and in general they will be. And then in areas of besides the chip there is actually a number of projects working on, for example, defense and technology and the sensors and stuff like that. We are actually pretty about excited about that we are confident that in spite of the competitive marketplace we will be able to hold our own in terms of gross margin.

Great. That was actually my final question for you or Russ, whether you have any reason to change your typical gross margin range as you think about fiscal '05 overall.

No. I--based on what we currently expect, the blended range of 40 to 45 percent is what we would--that's what we would forecast going forward for the foreseeable future.

Great. Thanks, everyone.

Our next question comes from Tamike Dandra with Banc of America Securities. Please go ahead with your question.

Hi. This is Jason Jones for [inaudible]. Just a couple of questions. Can you elaborate a little bit on the notebook supply chain? I mean, is there any inventory issue there or is the weakness really from an end demand perspective?

Well I think the inventory issues there are not clear and we clearly saw with our product coming out of the quarter that our product with the OEMs had increased beyond the two to three week range that they typically target. Now since a month has passed here, generally speaking, they've brought that down. But the fact that our notebook--shipments into the notebook market for us actually increased sequentially. We think we are going to end up paying for that in the September quarter because our current view is that total notebook shipments, March to June, are actually going to be down 2 to 3 percent, while our shipments into that market were actually up. So I think there are still some issues with inventory. You know, you--there's been public announcements of certain OEMs delaying launches of new products. Now I don't know if that's necessarily inventory related of the existing product or it's just caution in trying to further put stuff into the channel. But clearly there is some uncertainty there and it's hard to peg what inventory levels really are. But my guess is there's probably still some issues.

Okay. Great. And then the second, just a quickie. You guys give a number for notebook market share at this point or do you have some guidance there?

We look at market share kind of on a trailing four-quarter basis. And usually in that we suggest that our market share is in the mid-50 percent range.

Okay. Great. Thanks a lot.

Our next question comes from Sachez Chelaro with RBC Capital Markets. Please go ahead with your question.

Yeah. Good afternoon Russ and Francis. Quick question I think on the notebook. I am just trying to understand. Based on I think what you are commenting on, your press release, unless there are issues in the notebook market right now, do you see a backlog increasing substantially for the December quarter or is this driven mainly by your iPod and music MP3 player market? Where are you seeing more visibility into the calendar Q4?

Well it's too early for us to see backlog building for December yet. But if you look at the guidance that we've given for the current quarter, the September quarter, we are expecting that that growth will come from the non-notebook application. Again, a reflection of what's going on in the notebook market plus the comment that I had just made previously, which is we actually shipped more units in the June quarter from the March quarter. I think when the dust settles on the overall notebook market it's going to show that the trend there was actually the reverse.

Okay. Let's--sorry to beat this to death here. You said historically stronger December quarter. Through the September quarter basically your backlog has been decreasing here. Is this a dynamic of a backlog in the--you know, if you were to look between notebook and MP3, don't you need to have a bigger backlog in the MP3 players versus notebook? How do you--how do you justify your backlog going down? Going back to the earlier question that was--I'm not clear on when your backlog is going down. How do you respond to this market dynamics here?

Well again, as we saw in the June quarter, we got off to a slow start. It was a backend loaded quarter. As people were placing orders, they were scheduling delivery times out towards the end of the quarter as opposed to mid-quarter and we are seeing kind of a repeat of that. The backlog that we have when we look at the product mix within that is what leads to the guidance today in terms of margins and the relative mix of product between notebook and non-notebook applications.

Let me ask you the question in a different way. In the notebook market, you know, it sounds like we have a repeat of 2003 here. So you are not seeing any corporate demand, let's say if you were not talking to all the executives and so on. Do you guys see the corporate demand coming back or is this again still very muted?

There is corporate demand, but it's not what is creating the growth year-over-year. Our view is that it's still small business and consumers that are driving the unit increase year-over-year in notebooks.

Okay. Thank you very much.

Ladies and gentlemen, that concludes the question and answer session. Gentlemen, please continue.

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

Ladies and gentlemen, that concludes the Synaptics Fourth Quarter Conference Call. If you would like to listen to a replay of today's conference, you may dial 1 800 405-2236, or you may dial 303-590-3000 and enter the access number of 11002337. Once again, if you would like to listen to a replay of today's conference, you may dial 1-800-405-2236, or you may dial 303-590-3000 and enter the access number of 11002337. Thank you for participating. You may now disconnect.