Synaptics Inc (SYNA) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Synaptics third quarter fiscal 2010 conference call. (Operator Instructions). At this time, I would like to turn the conference over to Alex Wellins of The Blueshirt Group. Please go ahead, sir.

Good afternoon, and thanks for joining us today on Synaptics' third quarter fiscal 2010 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 synaptics.com. With me on today's call are the Company's President and CEO, Tom Tiernan, and Kathy Bayless, Chief Financial Officer. In addition to the Company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes non-cash share based- compensation charges and certain other nonoperational and non-cash items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally, we would like to remind you that during the course of this conference call, Synaptics 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 10-K for the fiscal year ended June 30, 2009, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. We expressly disclaim any obligation to update this forward-looking information. That said, I will turn the call over to Tom Tiernan. Tom?

Thanks, Alex, and I would like to welcome everyone to today's call. I'm pleased to report a record fiscal third quarter for revenue, net income and EPS, as well as a return to healthy double digit growth. Our revenue grew 16% over the prior year to $116.2 million in the March quarter, exceeding the high end of our guidance range. Non-GAAP net income grew over 21% to $16.3 million or $0.46 per diluted share, from $13.4 million or $0.38 per diluted share in the year ago period.

At a macro level, we delivered strong performance in both notebook and Mobile applications. Looking ahead, we see strength across our core markets and products; and as evidenced by the guidance contained in our press release, we expect a strong finish to the fiscal year. As a pure play in human interface solutions, Synaptics continues to capitalize on significant industry trends toward the implementation of touch-based solution of a variety of consumer electronic devices. Design activity remains robust. Innovation continues to be an imperative in the markets in which we compete, and we are pleased to announce that we have started volume shipments of our industry-leading ClearPad 3000 technology. Additionally, our Scrybe gesture workflow software is proving to be a hit with our notebook customers, and our Fuse concept Mobile phone continues to garner wide industry recognition and interest. I am also pleased to announce that our Board of Directors has approved an increase of $100 million to our stock repurchase plan.

As a result, we have $138 million of authorization available for stock repurchases through April 2012. We have actively executed on this program in the past to enhance shareholder value, utilizing $285 million to repurchase shares, including the purchase of approximately 5% of our shares outstanding in fiscal 2010. I will ask Kathy to review our financial results with you in detail, and then I will provide you with a closer look at our design wins, recent product innovations and key growth drivers in the markets we serve before taking your questions. Kathy?

Thanks, Tom. As Tom mentioned, we had a record is fiscal Q3 performance. Revenue of $116.2 million for the March quarter increased 16% over the same quarter last year. Revenue from PC applications reflected stronger than expected demand in the notebook sector. PC revenue grew 44% over the prior year period and was roughly flat with the December quarter. Within the non-PC category, revenue from Mobile applications was up slightly both sequentially and year-over-year, reflecting better than typical seasonality in the March quarter. We are quite pleased with our Mobile results, given continued ASP and product mix dynamics. Revenue from portable digital entertainment devices was down significantly from the previous quarter, as anticipated.

The overall revenue mix from PC and non-PC applications was approximately 63% and 37%, respectively, with revenue from Mobile applications comprising 36%. Non-GAAP gross margin was 41.2%, up slightly from our gross margin of 41% in the prior quarter, reflecting our overall product mix during the quarter. Total operating expenses were $35.8 million compared to 39 million in the preceding quarter, including non-cash share base compensation charges of $7.6 million and $11.3 million, respectively. The non-cash share base compensation expense in the December quarter included an incremental one time FAS 123-R charge of $4.5 million. Our non-GAAP operating expenses, excluding share based compensation, increased by approximately 2% and were in line with our expectations.

Total headcount of 555 was up slightly in the March quarter, but under our plan reflecting, the timing of hiring. Interest expense was nominal as compared to $968,000 in the prior quarter. The decrease reflects impact of the settlement of $63 million of our convertible notes in December 2009. Our GAAP tax rates were 0.4% and 13.2%, respectively, in the March and December quarters. Non-GAAP tax rates were 18.5% in the March quarter and 19.6% in the December quarter. Our GAAP tax rates for the March quarter reflected a one-time benefit of $1.8 million from the carry back of a net operating loss. This one time benefit has been excluded from the non-GAAP tax rate. Non-GAAP net income was $16.3 million or $0.46 per diluted share, up 22% and 21%, respectively, compared with the $13.4 million or $0.38 per diluted share in the year ago quarter.

Turning to our balance sheet, cash and short-term investments of $168.7 million was up from $140 million at the end of December, reflecting strong cash flow generation during the quarter. Employee participation in our equity compensation plans contributed $3.4 million during the quarter. Capital expenditures and depreciation were each $2.1 million in the March quarter. Receivables at the end of March were $88 million compared to $100 million at the end of December. The decrease in receivables was primarily due to the lower revenue levels in the March quarter as compared to the December quarter. Day sales outstanding of 68 days was unchanged from the prior quarter. Inventories at the end of March were $18.2 million compared to $15.8 million at the end of December, as we made a conscious decision to build our die bank during the quarter. Inventory turns were 15 compared with 20 in the prior quarter.

Looking ahead to June quarter, based on our backlog of approximately $90 million exiting the March quarter, our expected product mix, customer order patterns and forecasts, we anticipate revenue will be in the range of $136 million to $146 million, an increase of 18% to 26% compared to last year. This outlook sets the stage for strong finish to the fiscal year and reflects continued strong demand for notebook-based products, as well as stronger demand for various Synaptics-enabled Mobile phones. The relatively wide range of revenue we have provided encompasses potential variability and the timing of Mobile product launches. Similar to last quarter, revenue from personal digital entertainment application is underrepresented in our backlog and outlook.

Using our current backlog as a proxy, we expect our non-GAAP gross margin to be similar to the March quarter. We anticipate increased operating expenses this quarter, based on our staffing plans as we enhance our engineering technical capabilities, to meet the opportunities we see ahead. We expect the FAS 123R charge to be in the range of $8.3 million to $8.5 million, and we anticipate our non-GAAP tax rate for the June quarter and fiscal year to be in the range of 18% to 20%. unchanged from our prior guidance. Non-GAAP net income per diluted share for the June quarter is expected to be in the range of $0.57 to $0.67 per share. I will now turn the call back to Tom for an update on our business.

Thanks, Kathy. I'll pick up with a review of our key markets, starting with PCs. We remain the clear leader in delivering TouchPad solutions to notebook OEMs. Subject to the typical quarter to quarter fluctuations we regularly see across our customer base, our market share remains in the 65% to 70% range. We continue to see increased adoption of our innovative features and products. During the March quarter, shipments of multi-finger gesture-enabled TouchPads increased another 10 percentage points and now represent approximately 70% of our TouchPad unit mix.

Additionally, shipments of our ClickPad solution nearly doubled, and now represent approximately 8% of our TouchPad unit mix. We see strong design-in activity for both offerings and expect further market penetration as OEMs seek to differentiate their products' usability and industrial design. Within the commercial notebook space, we are pleased to see growth returns to the category in the quarter just closed. We are more optimistic that the anticipated commercial upgrade cycle could play out later in the year. Synaptics continued to garner a number of notable design wins in the notebook market during the quarter. The sampling of new design shipping in the market include our enhanced DualMode TouchPad and Acer's new Aspire Ethos models. Our multi-finger gesture-enabled TouchPads are now shipping with Asus' new line of EPC netbooks, Lenovo's new Y460 and Y560 IdeaPads, and the Alienware's new high-performance, M11x gaming notebook. And our ClickPads are now shipping with various new HP notebook models, including the ProBook 4720s, the Mini 210 Vivienne Tam Edition, and the TouchMark TM2.

The beta for our Scrybe customizable gesture-based workflow offering has gone well. Production shipments of Scrybe-enabled TouchPads to OEMs will be begin next quarter. As a reminder, Scrybe is an innovative feature built into our TouchPad driver which enables users to launch and execute popular applications and tasks without ever touching the keyboard. We believe this new innovation may also be a key differentiator in our upcoming offerings in the developing [slate] category, where the absence of a physical keyboard encourages gesture-based usage models. We recently announced our first Linux-based TouchPad driver with full multi-fingered gesture support. We believe that the various Linux versions we now support position us well for future devices, including those based on Google's chrome operating system. We also began sampling our large touchscreen technology during the March quarter. We believe large touchscreens represent an incremental market opportunity for our Company.

The ecosystems to support touch-enabled Clamshell and slate form factors is developing, and we anticipate revenue from this new category in fiscal 2011. The Mobile business posted another solid quarter, with Synaptics touchscreens now shipping in over 25 production phone models. The increasing number of phone models we are shipping into demonstrates progress against our goal of expanding the number of Mobile OEMs and products benefiting from our innovative solutions. Adoption of capacitive touchscreens continues to increase, and we remain a clear leader in the Mobile touchscreen market with our ClearPad offerings. Our ownership of the total solutions design, coupled with our portfolio fulfillment model, addresses diverse and evolving needs of our growing customer base. During the March quarter, we added several new OEMs to our Mobile customer base, including Sony Erickson and Microsoft. Our ClearPad unit shipments, as well as our new design wins, continue to reflect a mix of modules, tails and chips. Pricing for modules continues to come down as expected due to continued reductions in costs.

A sampling of notable new touchscreen designs now shipping include ClearPad 2000 solutions and the new Sony Erickson Xpiria X10 Mini, two Microsoft Kin models and HTC Desire handsets. We also started shipping our most advanced capacitive touchscreen, the ClearPad 3000, into both LG's LU2300 smartphone and its innovative Arena Max phone. We continue to incorporate our ClearPad technology into the reference designs of key industry partners, most recently in Marvell's ARMADA 610 next generation applications processor and Texas Instruments' Blaze Mobile Development Platform. Synaptics' investment in expanding its ClearPad touchscreen platform has resulted in several recent innovations. We are pleased to have started sampling highly accurate, pen-based input viewings to enable applications such as text entry and gaming, as well as an advanced proximity feature for ClearPad 3000.

We expect to see Mobile phones incorporating these new solutions in the market in fiscal 2011. We continue to demonstrate the benefits of our Fuse concept phone, most recently Mobile World Congress. Fuse features multiple touch sensors and human interface technologies. Customer interest is high, and following on our past success with various concept prototypes, we are optimistic that Fuse will help pave the way for a new generation of Mobile devices. Finally, we continue to leverage our technology to penetrate new market opportunities. Examples include a new design win in the personal navigation device market, as well as our first design wins in the home appliance market, providing the capacitive touch control panel solutions for the new Samsung Hauzen ZERO air conditioner and the Sharp (Inaudible) microwave oven. We are also pleased to have our TouchPad technology incorporated into Texas Instruments' new Nspire calculator, the first calculator on the market to include capacitive touch-based input.

As we stated, our March quarter results exceeded expectations, and we have issued strong guidance for our fiscal fourth quarter. Since our last quarterly conference call, the notebook market firmed up faster than we had anticipated, and we are experiencing solid performance in the Mobile market, with several Synaptics-enabled phones seeing greater than expected demand. In fiscal 2010, we have reinforced our leadership position in notebooks while beginning our transition to a portfolio business model in Mobile. While the variability in our business has widened as a result of the dynamics associated with our Mobile business, here is how we view our key markets. First, given our leadership position in notebooks, we should continue to generally track the market growth, Albeit with some variability based on timing of sell-in to the supply chain. Second, revenue contribution from Mobile will continue to reflect the impact of product mix of modules, tails and chips, coupled with in-demand for specific phones.

While the number of touchscreen Mobile phones offered by OEMs is growing, unit volumes seem to be concentrated in a relatively few successful models. These dynamics will likely continue to create revenue variability in our Mobile results. As such, unit growth and revenue may not correlate. And third, revenue from portable consumer devices in new markets will continue to be opportunistic. The portable digital entertainment segment in particular is highly concentrated, and enhanced Mobile phone applications seem to be clouding the need for single function devices like portable media players. That said, we enter our fourth fiscal quarter with strong momentum, and our guidance range comprehends the possibility of our best revenue quarter ever. Our markets are experiencing solid growth, and our product lineup has never been stronger.

Our ability to execute and service our customers locally through our in-country design centers is unequaled, and our customers continue to turn to us to develop innovative human interface solutions that help them differentiate their end products. Synaptics is uniquely positioned in the market to take advantage of these trends through its core competence in human interface design. With that, let's turn the call over to the operator start the Q&A session. Operator?

(Operator Instructions). And our first question comes from the line of Ian Ing. Please state your company name, followed by your question.

Yes, Broadpoint AmTech. Congratulations on the powerful results. Your notebook revenues were down about 1% it looks like, and I think industry units were about down to 8%. Could you discuss any impact on the shift to higher end notebooks in terms of your TouchPad ASPs, and if it's more of a corporate or consumer strength?

Hi, Ian. This is Kathy. Just wanted to -- I'll try to provide a little more color on that. I mean, the strength of the notebook sector, as Tom mentioned, I mean, we still view our market share to be 65% to 70% range. As far as the strength in the Mobile market, Tom also mentioned that we did start seeing some improvement in commercial boxes. I think just in general, though, we did see strong unit demand throughout our product lineup in the notebook market. From the ASP standpoint, we have continued to provide the leading solutions into the market, including our multi-fingered gesture enabled TouchPad. And as Tom also mentioned, the adoption of our ClickPads almost doubled during the quarter. So ClickPads do carry a higher ASP, and as the adoption of ClickPads continues, it does provide -- it will provide an additional uplift to our overall notebook ASP.

The only thing I will add to that, Ian, is we are just very happy of the wonderful growth we experienced last quarter in that market. And it's on the back of the innovative technologies that we have been talking about for sometime now and, all of those are becoming a bigger and bigger share of our total unit mix there. Of course, the commercial return of the growth definitely helps as well, and we hope that will continue. So we are really benefiting now from the features and value add that we have been bringing to that market over the past couple of quarters.

Great. Thanks. And more of a general question here. As we look ahead to the next quarter, you are going to provide full year guidance. It's going to be a more difficult year-over-year comp at this point, and you have had some variability in expectations this year. So can you just generally give us a sense of what you are going to be doing a little different this time around in terms of accurate forecasting and visibility and conservatism?

Well, yes. Great question. It has been a challenge --

High class problem here.

We've talked before, with the Mobile business developing as it is and our explicit strategy to offer up portfolio fulfillment models, there is greater variability in that part of the business. That's grown to be a large chunk of business for Synaptics, and it's affected the variability that we see in the total Company results. We do plan and intend to provide guidance when we get into our July call based on the best visibility we have at that point in time. And as I said in the prepared remarks, the way to think about our Company going into next year is at high level, to basically track the notebook market growth, continue to expect lumpiness, as we called it before, in the Mobile market; with in any particular quarter unit growth not necessarily correlating with revenue growth based on the mix of products that we happen to ship in that quarter. And third, to treat the emerging and personal digital entertainment market as opportunistic. We are still very much focused on notebooks and Mobile, and we look at that part of our business -- the emerging part of our business and the inbound designs that come in with that business -- on their own merits and treat that opportunistically.

Okay, great. Thank you very much.

Thank you. Our next question comes from the line of Kevin Cassidy. Please state your company name followed by your question.

This is Thomas Weisel Partners, and this is (Inaudible) for Kevin Cassidy. I was just hoping you guys could maybe shed some more color on any handset opportunities you guys have seen recently? What's going on, what sort of quoting activity, and number of design wins?

Yes. No problem, Kevin. A couple of things there. So as I mentioned in the prepared remarks, we exceeded over 25 production SKUs in the market so far, and so that continues to increase. We broke out of our previous range. We are a leader in that market, and of course that market itself is growing. We are very pleased with the current level of business that we are seeing in the Company. Our design centers around the world remain full -- more than enough opportunity to address out there; and the market, frankly, is developing in line with our expectation, and we think that portfolio approach that we have is really driving business for our Company, because we are able to engage in the various account needs out there uniquely in the market. We feel we are positioned to win. Design wins are very healthy, and our prospects are very good.

All right, great. Thanks. And one follow-up, and one sort of -- I just missed a guidance statement. But on your emerging market opportunities, obviously the ones outside of PC and handsets, are you guys sort of investing a little bit more aggressively than in the past, and sort of how is the traction going over there?

Well, we had -- as you have probably listened on the last couple of calls, we are seeing penetration into new markets. We have talked before beyond the personal digital media player space penetration into remote controls, penetration into navigation devices, digital cameras. We talked today about our -- frankly, it's our OneTouch solution shipping into the home appliances market. So we continue to see attraction there. We do treat the business somewhat opportunistically. But overall, capacitive touch technology is being incorporated into many nooks and crannies in the market, and we are well positioned to play there.

Okay, great. And the final thing I had was a quick -- I just missed the operating expense guide that you guys put up. Could you just repeat that? Or did you? Did I miss it?

Operating expenses, we didn't provide specific guidance. We just said that we do expect it to increase in concert with our hiring plans this quarter.

Okay. How much more hiring do you guys plan to do this quarter?

Well, you can check our website out. We have quite a few openings out there.

Okay.

I would just add that the net hiring that we were able to accomplish in the quarter just closed. It was a bit less than we had planned. We wanted to hire more, but the way timing worked out and the locations of these guys, we just couldn't get to where we wanted to be. And so we do expect a definite tick up this quarter.

Okay, great. Thank you so much, guys.

Thank you. Our next question comes from the line of Rob Stone. Please state your company name followed by your question.

Cowen and Company. Couple of questions, if I may. I wanted to just revisit the commentary about the drivers for the strong fiscal Q4. Can you give us a sense of how much of this rates to the initial ramp of new products versus the ongoing run rate of strong notebooks and other products that are already in the market? Just trying to get a sense of whether the June quarter might represent the upper amplitude of some of the lumpiness that you have talked about, vis-a-vis the September quarter.

Hi, Rob. This is Kathy. When I look at the fourth quarter, I mean, our overall bookings momentum continues to be very strong in both the Mobile side of the business and the notebook side of the business. If we drill down into the backlog, we talked about backlog being $90 million entering the June quarter. And when I look down into the backlog, both Mobile and notebook are well represented in the backlog. And even from a mix standpoint, when we look at the backlog and also our outlook, the mix of notebook and Mobile is pretty comparable to the March quarter. And again, that means that personal digital entertainment devices are underrepresented in the backlog and the outlook. As far as any other color, we are just seeing strong growth basically from notebook customers in general; and then in the Mobile side, we did mention that we do have several new customers in the mix this quarter, and we are seeing some additional ramps of new phones in the June quarter.

And, Rob, I just want to take it back a level -- and any quarter -- and this is true across all of the applications we are in -- we are shipping and introducing roughly 20% to 25% of the SKU base as new products during the quarter. So when we model the growth for the Company, we take that into account. And so it is well represented across products already in the market as well as new product entering the market.

Yes, I was just trying to get a sense of -- since the -- particularly the Mobile product cycles, as you noted in the past, are relatively shorter than for notebooks, whether there was a particular influence of initial ramp up and channel fill of some of those new devices this time.

It's pretty -- it's across the board in terms of existing products and new products, and there is a lot of puts and takes there. But it's definitely averaged out across the board.

Okay, my next question --

I would just add to that, as Tom said, the Mobile side of the business does-- will continue to be lumpy because of the mix portfolio and new products ramping in any particular quarter.

You mentioned ClickPad was -- I can't quite recall now, but a high single digit percent of the unit. Do you have a sense of what the ultimate penetration potential might be for ClickPad notebooks?

Great question. It will definitely be based on our visibility, so far well north of that. And as we have talked about before, ClickPad subsumes some of the mechanicals that historically had not been part of Synaptics' content. So it is definitely going to grow north of 8% and definitely be a key growth engine for the Company.

Okay. And are you able to -- you mentioned OneTouch was going into the appliances. In the past, you have always said OneTouch, I think, was still low single digit percent of rev. Any more color you can provide there?

Yes, Rob, it still is low single digit.

My last question is just a housekeeping one for Kathy. I guess you had some amount of option exercise. What are you thinking of for weighted average shares underlying your EPS guidance for the fourth quarter?

Well, weighted average shares -- I mean, we expect that the share count will be up a little bit. So I mean, I would factor in a few hundred thousand incremental shares.

Great, thank you very much.

Thanks, Rob.

Thank you. Our next question comes from the line of Yair Reiner. Please state your company name follow by your question.

Yes, Yair Reiner for Oppenheimer and Company. Congrats on the strong quarter, Tom and Kathy.

Thank you, Yair.

Thank you.

So first, the coverage you have from the backlog for next quarter is on the high side, I think about 64% at the midpoint. It typically isn't that high except for some of the exceptional quarters we have had over kind of the last year and a half. What are some of the factors that are causing you to have exceptionally high coverage in your backlog?

Hi, Yair. Let me take a shot at that. Some of the factors -- I think we really saw our bookings momentum pick up after Chinese New Year, so some of that impact was reflected in the March quarter. But the bookings momentum has really continued since that point in time, and is still continuing early into this quarter. And as I said earlier, as far as the backlog goes, notebook and Mobile are well represented in the backlog, and as well as a broad mix of customers and products.

Yes, and Yair, the only additional thing I would add to that is market acceptance of our new products across both categories or both mainstream categories have been quite strong. And as we mentioned in the remarks, we are continuing to increase our customer base, our account base, and products associated with that.

Great. On the notebook side of the business, have you seen any mix going away from the netbooks to notebooks, and to what extent has that helped your ASPs and overall performance of that business?

Great question. And yes, in the March quarter just closed, it was a bit less than we had experienced in previous quarters.

And then final question for me. I know we are not in the next fiscal year yet, but looking out if you could, do you think next year you have an opportunity to grow the Mobile business? It's been kind of flattish now for a few quarters. If you had to guess right now, do you see growth there going forward?

Well, as I mentioned in our prepared remarks for the Company, we definitely see growth, and we will give you guys the best visibility we have as we get into the July call.

Good. Thanks, and congrats again on the strong quarter.

Thank you.

Thank you. Our next question comes from the line of Rajvindra Gill. Please state your company name followed by your question.

Yes, thank you. Needham & Company. Congrats again on very good results. Just want to talk a little bit about the pricing dynamic in the Mobile handset market. Any color there in terms of module pricing? Any color in terms of the mix of fulfillment models in the March quarter and heading to the June quarter? And if you could talk a little bit about the competitive landscape as you go beyond the June quarter, that will be helpful in the handset market. Thank you.

Hi, Rajvindra. I will take a start at that question. Looking at the Mobile market, what we did during the quarter -- I mean, as Tom said, I mean, we are still shipping a portfolio of products between modules, tails and chips. When we looked at the overall ASPs, we talked for a couple quarters that when you look at all of the touchscreen phones that we are shipping into the market, the blended average ASP is within that $2 to $6 dollar range, which is the sweet spot for the Company. So we continue to be in that range. And as far as trends go, Tom alluded to the fact that cost for modules are continuing to come down, and therefore pricing is continuing to come down. And again, we view that as a very positive trend because it enables the additional penetration of capacity of touchscreen solutions into the handset market.

Yes, and the only thing I would add there, Rajvindra, is just getting back to the module ASP and the cost and pricing associated with that, we have been seeing reductions in costs primarily related to the substrate -- the sensors themselves -- over the last, geez, four to six quarters or so, and we expect that's going to continue. I don't think we bottom out there yet. And we will continue as a Company to pass that on in the form of lower ASPs to our customer base. In terms of the competitive landscape -- that was the other part of your question. Frankly, nothing much has changed in the Mobile market. It is the same cast of characters that we have competed with over the last number of quarters, and we don't see a big shift in that competitive dynamic.

All right, great. And if you could -- you mentioned in your remarks that you are sampling a highly accurate pen-touch solution for gaming. And maybe if you could provide a little bit of color on the evolution of that product? And also, what do you see as opportunities for the touch enabled -- TouchPad market for the tablet PCs and for touch-enabled notebooks? How do you see that market evolving? Obviously, the Apple iPad has been fairly successful. Maybe any color or strategic direction with respect to that market, and maybe talk a little bit about some of the potential competitors that you see in that market?

Sure. So let me take those in that order. So first on pen and also the proximity feature, both of those are features that are built on top of our Series 3000 ClearPad offering. So they are not distinct stand-alone product. They are all just extra features and functionality that we are rolling into our ClearPad 3000 offering. And we feel very confident in the acceptance of this kind of advanced technology built on these capacitive platforms in the market. So we are very optimistic about positioning that new features and capabilities in the market. In the context of what we would call large touch screens in our world, what we see in the market is really across multiple categories, or what today are considered multiple categories.

You may recall in the last couple quarters we have announced a few design wins at eReaders. We see activity there continuing. We see lot of OEM planning and interest in different kinds of either Clamshell touch-based touchscreens or slate and tablet orientations. Of course, Apple coming out with the iPod has done wonders to bring market awareness to that kind of category. How those things are going to morph together or apart over time is anybody's guess. The good thing that we really look at is what is central to all those devices is touch, and the human interface and the primary human interface technology to be touched, and that plays well for companies like ours and for the market.

Thank you.

Our next question comes from the line of Blayne Curtis. Please state your company name followed by your question.

Thanks, Jefferies. Tom, I just wanted to dig into your comments that you made about the market with the Mobile market with the revenue not going to track with the units. You are shipping modules today, so are you looking out and seeing a more pronounced mix shift to chips and tails? And then I have a follow-up.

Yes, great question, Blayne, so let me first correct you. We are shipping a mix of products today, as we have been and will continue to ship over time. Do you have a repeat of the other part of your question?

Well, I mean, I guess if you can give any sort of -- I know you are shipping a mix, but I'm trying to get a better understanding. Maybe another way to ask it is if you blend the ASPs between modules, chips and tails, what kind of rough compression are we looking at for next year?

Well, as we have been the last couple of quarters and remain this quarter -- the quarter just closed -- if you take our ASPs across all of the Mobile touchscreens we ship, it remains in the $2 to $6 range. That's the sweet spot for the Company. As I have also mentioned, the module component of our business, the costs there continue to come down, and so we are passing those along in terms of the lower ASPs. But as long as this blend of products we are shipping hits within that range -- that is the sweet spot for the Company -- we will do just fine.

It's just a big range. I'm trying to get a better sense as to where you are starting from and where that can go.

Understood.

Okay. Thanks, guys. That's all I have.

Thank you. Our next question comes from the line of Shaw Wu. Please state your company name followed by your question.

Okay, thanks. Kaufman Brothers. I also want to offer my congratulations. Just a clarification -- a little more color. First question is, Tom, you talked about having more than 25 design wins in the Mobile space, and if I recall correctly the previous range, you said it was 20 to 25. Now more than 25; just trying to get more color on that. What does that mean? Is it closer to 25 or closer to 30? And then the second question is just for Kathy on gross margin, you talk about how mix was -- helped you do better there, and you also talked about some cost initiatives that you have been undergoing. Any comment on forward gross margin? Those are my two questions. Thanks.

Yes, thanks, Shaw. So let me start with the first. So yes, we definitely broke out of the 20 to 25 active production SKU range that we have been in the last couple of quarters, and we are now in the 25 do 30 range. And as I have mentioned in the previous discussion, we expect that to continue to grow. And what that means is that one, there is more SKUs in the market now. And for a capacitive touchscreens, more models going into the market with capacitive touchscreens, and our penetration in that market continues to go up. Kathy?

Yes, Shaw, on the gross margin side, what we have seen is, we've been operating around the 41% percentage points for several quarters now. And that's -- any variability we see on a quarter to quarter basis is really just based upon the mix of the particular products in that particular quarter. And as far as having any additional view beyond that, we are looking at staying somewhere in that 40% to 42% kind of range.

Okay. And if I may, just a follow-up with Tom. Just in terms of debt sign wins for the Mobile space, do you see -- in terms of your growth profile for your Mobile business, do you see it coming more from new wins? Or is it more the -- kind of the existing -- or do you see it more so as success of the existing models? Where do you see the ramp opportunity there?

Well, again, it depends what period you are looking at. But the -- as you know, the life cycles of Mobile phones, at least what we have experienced, tend to be quite a bit shorter than those in notebook business. They range anywhere from six months or less sometimes, to up to 12. So when we are giving you the guidance we are giving you for this quarter -- and you can take it forward in terms of the churn and the churn in the product line -- it does represent a very healthy design win portfolio that ultimately will address the market as we go forward.

Okay, guys. Thanks.

Thank you.

Thank you. Our next question comes from the line of John Vinh. Please state your company name followed by your question.

Yes, it's Collins Stewart, thanks for taking my question.

Hey, John.

Hey, Tom. So if I look at kind of your comp here, you guys are shipping kind of a record number of handset SKUs -- 25 to 30 over the last couple of quarters -- and if I look at your Mobile handset revenues over the last couple of quarters, they have been down or kind of flat on a year-over-year basis. I was wondering if you could maybe reconcile that of -- and talk about how much of that is maybe kind of a mix shift of tail SKUs, tail chip SKUs versus modules, or how much of that is share shifts going on? Because it seems, obviously, if your SKU and your market penetration is going up but your revenues are still kind of flattish, does that imply that maybe you are seeing a higher mix of chips at this point?

Well, yes. Great question, John. So again, it depends how far you go back. But as you know, when we started this business way back when, almost everything we shipped at that point in time was modules. And over the past year or more, we have been shifting that business to a portfolio model, where today we do have a very good mix between the three different forms of fulfillment. We don't see a trend one way or another. It continues to be a good mix. And then layered on top of that, particularly for the module component of our mix, cost and prices have been coming down and will continue to come down in the foreseeable future. So some of the flatness, if you will, in the revenue profile quarter to quarter is related to those dynamics.

On the cost (inaudible) front, you noted cost (inaudible) on the (inaudible) of the last several quarters, on a year-over-year basis, Tom, what do you think on the component side or on a percentage basis these sensors have been able to cost (inaudible). Is it --

It's hard to tell. The only color I could really give there with any clarity is that the pet base or plastic base substrate side is not coming down as aggressively as it was before, although it is still coming down. And glass, which was kind of fixed for awhile, is with new competitors in the market starting to come down to companies like ours and other players in the market in the present.

Got it. And then where do we stand on capacitive modules relative to cost of resistive modules? Are we going to hit parody any time soon there?

Yes, another great question. So the way I usually look at that in our Company is there is really two kinds of resistive technology -- the flat touch window orientation, and then the more classic older style bezelled orientation. I think we are already in the range -- at least the upper end of the range -- of the touch window-type resistive. So we are seeing in the market phones that maybe a year ago or even six months ago may have gone to touch window resistive in the present seem to be going more toward capacitive. In terms of the bezelled older style resistive, we are still -- I think the industry and our Company is still definitely not close to those kind of price points yet. It is going to take awhile to get there.

Great. Thanks very much.

Thank you. Our next question from the line of Charlie Anderson. Please state your company name followed by your question.

Yes, Dougherty & Company. Thanks for taking my questions. First question on Fuse. You mentioned, Tom, you guys have had a lot of good feedback on it. I wonder how soon we might see a phone in the market that adopts that concept through your capacitive touch? And if you could talk a little bit, too, about how complex that is, if modifications need to be made to the operating system, if we need to see applications come out that have that functionality for using the back of the phone? Just if you would give -- provide a little bit more color there.

Yes, great question, Charlie. And as you know, Fuse does incorporate multiple human interface technologies -- multiple touch sensors, multiple forms of force, proximity, haptics and such. So it's not just a single technology. And so the way we look at that is that that kind of concept device is what we work with generally are the R&D -- th e more research oriented teams of our customer base with -- to work with them to figure out with them -- concurrently with them -- how their architecture and their phones need to morph to take advantage of this new human interface technology. So as specific demonstrations of Fuse come into market in more of a one-off way -- meaning TouchPad on the back or touchscreen with proximity or force sensing, you will probably see them come and dribble out use model by use model. The total package of Fuse, I think, is sometime away and is really contention on what parts of Fuse the OEMs want to adopt.

And then a question for Kathy. I was wondering if you could provide the sort of all-in unit growth in the quarter?

Yes, all-in unit growth, typically we don't break out our unit growth. We just provide our revenue, and we talk about -- as we said, the notebook sector of the market, or the PC based sector, was around 63% of revenue, and Mobile was about 37%, 36%, with PDE very underrepresented in the Acer revenue this quarter.

Yes. And then the only thing I would like to get out there, guys, is that as a Company -- although we do talk about unit shares in notebook because they is solid third party data out there that we can triangulate against -- the way we manage this Company and the applications that we are selling into is not based on a unit share target. It's based more on a share of wallet target and where we can add value and bring new innovations to market. So we are not really hung up on unit-based shipments or particular unit-based shares. We are focused on how to deliver the best return to the Company in the applications that are out there.

Okay. Thanks, guys.

Our next question comes from the line of Daniel Amir. Please state your company name followed by your question.

Yes, from Lazard. Thanks, and congratulations on a good quarter. A couple of questions here. First of all, in terms of the large screen touch market that you mentioned towards tablets and notebooks and maybe future to monitors, there are other players in the market that are currently shipping already to the market. And in addition, there is also non-capacitive technologies there as well -- optical or et cetera. I mean, how does Synaptics position itself coming into that market when you're not necessarily the first or the leader like you were maybe in the Mobile phone space?

Yes, Daniel, let me let you know how we think about that. So first of all when you look at capacitive touchscreen technology, we were really focusing our offering on 15 inches and below; meaning, where we think it's going to really take off is in categories like slates, like you might find with the iPads, tablets, convertibles, smaller Clamshell notebooks, eReaders, that kind of orientation. And in those types of products, they are very much focused on thinness, industrial design, weight -- all of which lend themselves to using capacitive based inputs. For monitors and desktop monitors, large screen sizes, there are other technologies that are probably more price performance advantage than capacitive in those applications where slimline design and weight and so on don't have a big impact. So we are not really focused on the really large screen of the market like you would find on a desktop monitor for touch.

In terms of other players in the market, we have as a Company in the past chosen not to participate in what used to be called the tablet market because it was just a very nichey market. It never really developed any volumes. Our technology itself is very capable of doing that. We had just not decided to really invest our Company resources in it at that point in time. Now that we were seeing that a lot of the key elements in the stack are falling into place -- the operating systems, the reengineered user interfaces for a lot of the applications, the usage models that companies like Apple are able to put in play -- we think it's time for us to scale our technology in that size. We don't have to be first to market all the time. We are sampling products already and we expect revenue in fiscal '11.

Okay, great. And in terms of the capacitive phone market, can you give us kind of a best guess what you think the unit growth of that market is kind of in 2010?

Yes, calendar '09 to calendar 2010, we are expecting somewhere around the order of doubling of the market on a unit basis.

Okay, and then Kathy, final question to you, how should we look at kind of inventory going forward? We saw an uptick of a few million here this quarter. Is that the level that you would like to continue? Or how should we look at that?

Well, we specifically took a decision to increase our die banks. So capacity out in the market, the markets are firming up. So we wanted to make sure that we had some additional chips in our own inventory. I wouldn't see that it would change dramatically from where we are right now.

And if you look at the Company's performance over the last several years, we have been hovering in the range of 14 to 16 turns. Of course very strong quarters, it's higher turns, and seasonally low quarters are at the lower end of that range. But that's a very typical number for us.

Okay, great. Thanks a lot.

Thank you. And our final question for today comes from the line of Anthony Stoss. Please state your company name followed by your question.

Craig-Hallum. Hi, Tom and Kathy. Most of my questions have been asked, except for, Tom, if you wouldn't mind talking about normal annual price declines on the PC side for ASPs, your increasing functionality, multi-finger and such. Are you able to deflect a lot of that normal annual decline? And then any component constraints that might hinder you guys from reaching kind of next quarter? I would love to hear your thoughts on that as well.

Yes, great question, Tony. So let's talk about -- or specifically talking about TouchPads and notebooks, correct?

Yes.

Yes. So first of all, you know that every new SKU that we introduce on an annual to two-year cycle, depending on the model, is repriced, okay, with new features and functionality. That said, SKUs that are in the market, we generally model in roughly a point, little bit more, reduction per quarter over the lifetime of that particular SKU. That would be normal for our Company. And yes, the whole play our Company has been making and continues to make is we continue to increase the number of features and the functionality in the TouchPads that we are shipping. A lot of that comes in the form of the driver in addition to the hardware. And we do drive premiums in those new incarnations of the technology, and we price them accordingly when we are selling into those specific designs.

Okay, and then the component constraint question?

Component constraints, it is getting tight it seems. So far we have been able to avoid any major shipment challenges for the Company. But it is definitely getting constrained in the market.

And then last question for Kathy, I didn't know if you guys mentioned, did you buy back shares at all in the quarter?

No, we didn't buy back any shares this quarter. On a year-to-date basis, we have bought back 1.8 million shares or about 5% of the total shares outstanding. And if you heard the prepared remarks, Tom mentioned that we are really pleased that our Board of Directors has authorized an increase in our share repurchase program of $100 million. So we now have on an ongoing basis $138 million under the plan which will be in effect for the next two years.

Okay. Great. Thanks, guys.

Thank you.

Thank you. At this time, I would like to turn the conference back to management for any closing remarks.

Yes, well, thank you for being on the call with us today. We look forward to seeing you on the road and updating you again on our next quarterly call.

Thank you, sir. Ladies and gentlemen, this does conclude the Synaptics third quarter fiscal 2010 conference call. Thank you very much for your participation. You may now disconnect.