Synaptics Inc (SYNA) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Synaptics third quarter 2014 earnings conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, Thursday, April 24, 2014. And I would now like to turn the conference over to Jennifer Jarman of The Blueshirt Group. Please go ahead.

Thank you, Katia. Good afternoon and thank you for joining us today on Synaptics third quarter fiscal 2014 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 Rick Bergman, President and CEO; and Kathy Bayless, CFO. In addition to the Company's GAAP results, management will also provide supplementary results on a non-GAAP basis which excludes share-based compensation charges and certain non-cash or non-recurring items. Please refer to the press release issued after market closed 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. Forward-looking statements give our current expectations or projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. Other Synaptics beliefs or estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate.

Synaptics cautions that actual results may differ materially from any future performance suggested in the Company's forward-looking statements. We refer you to the Company's current and periodic reports filed with the SEC, including the Synaptics Form 10-K for the fiscal year ended June 29,2013, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Synaptics expressly disclaims any obligations to update this forward-looking information. With that, I'll now turn the call over to Rick Bergman. Rick.

Thanks, Jennifer, and I'd like to welcome everyone to today's call. I'm very pleased to report top-line growth that exceeded our expectations for the quarter with revenue of approximately $204 million, up 25% year over year. In addition, we delivered strong non-GAAP net income towards the high end of our guidance range of $23.7 million or $0.63 per diluted share.

We are very excited to report in the first full quarter since the acquisition of Validity that the fingerprint ID business was accretive a quarter ahead of schedule. In fact, our outlook for the fingerprint business has substantially increased. As a result, you'll notice an increase in the contingent consideration liability for the expected earn-out payments that despite negatively impacting our GAAP results is quite positive for the Company's growth outlook.

With the strength of this business combined with solid growth in our core touch platforms, we expect to post another stellar quarter in fiscal Q4 with sequential revenue growth on the order of 40%. I will now provide an update on our core markets, then Kathy will review our third-quarter results in more detail and provide our current outlook before opening up the call to your questions.

Synaptics' presence at Mobile World Congress in Barcelona drove a significant number of booth tours and productive partner meetings. Recent wins across our focused markets were on display alongside several exciting next generation solutions, reinforcing our leadership as the innovator for both touch and fingerprint solutions and affirming our position as a leading human interface solution provider.

Our activities including attendance at the Samsung unpacked event where the Galaxy S5 was announced. As most of you know, we are proud to verify that the Synaptics clear touch technology is being used to drive the touch interface for the industry's highest profile flagship smartphone.

With this solution, we are also enabling a host of added features in the S5. Notably, the device leverages Synaptics stylus technology to be the first smartphone in the industry with sensitivity down to 1 millimeter using virtually any stylus, including the average pen or pencil.

And, as we pioneered in the prior S4 model, our unique 3-D touch capability allows Galaxy S5 users to hover their finger over the touch screen to make selections and scroll through information. Notably, Synaptics is the first company to power the touch interface in back-to-back versions of the most popular Android smartphone, a testament to our reputation for unmatched innovation and unparalleled in-depth system-level engineering support.

We are also happy to confirm that our natural ID fingerprint identification solution is included in the Galaxy S5. The natural ID product family combines a seamless touch authentication experience with advanced security features to provide maximum device and data protection.

Featured in the home button of the S5, device manufacturers can use their unique fingerprint instead of a traditional password to unlock their device. In addition, the S5 is the first smartphone to use fingerprint ID to enable access to a range of exciting new applications in mobile services such as PayPal payment App for our user-friendly and secure mobile experience.

We are happy that Samsung has recently joined us as part of the FIDO Alliance Board of Directors. The commitment across the FIDO membership to share technology to deliver open specifications for universal strong authentication enables FIDO compliant authentication methods to be inner operable, more secure and private, and easier to use. FIDO's continued momentum through the efforts of key industry players such as Bank of America, Google, Lenovo, PayPal, and MasterCard expand the value and market opportunities that our fingerprint identity these solutions can deliver.

As we look back at market traction for biometric solutions in mobile devices accelerating as new models continue to expand. We are highly engaged with our OEM partners and have multiple programs in development with our newest line of sensor products.

On the R&D side, our combined technology teams are driving performance of our identify solutions to new levels of usability and security in line with Synaptics historical focus on innovation and improving user experience. As we continue to broaden our product portfolio simplified device integration and cost effective biometric platforms are in our sights.

Turning again to our recent progress on the mobile touch screen front, our global teams remain focused on a wide range of solutions and designs with other leading OEMs as our partners continue to deliver highly touted flagship smartphones. The HTC One, officially the M8, received an impressive 8.5 rating from The Verge who noted its performance and design. The One was also named the best smartphone at Mobile World Congress by the GSMA.

Additionally, our ClearPad solutions are currently enhancing the human interface with the Nokia Windows 8.1 phones that will begin shipping this quarter, including the flagship Lumia 930 with the 5-inch black screen for unmatched viewing of images and video even in bright daylight. ClearPad solutions can also be found in the Lumia 630 and 635 phones which deliver an enhanced experience at an affordable price.

We are also powering the human interface for the Asha 230 entry level full touch mobile phone which is designed for users experiencing touch on their phone for the first time. We expect to see more key mobile design ramps from additional OEMs in Q4.

Moving now to display integration. We continue to see increasingly strong demand for display integrated solutions as our OEM and display partners continue to seek out cost effective solutions that enable them to deliver thinner, lighter, more responsive phones with larger, brighter displays. This trend is becoming more and more evident as we begin to see a meaningful progression in the adoption of single-layer on cell solutions in the entry-level smartphone market as well as the continued uptick of Intel solutions for the mid to high end.

During the quarter, we reached a significant milestone as display integration solutions surpassed more than 40% of our mobile shipments. We believe this percentage will continue to increase over time as the cost and performance benefits filter into the majority of the designs.

The proliferation of the display integration solution ties into our growing market presence in China where we continue to work on expanding our penetration through the adoption of solutions such as single layer on-cell for entry-level smartphones. The success we have seen at leading Chinese OEMs is a result of the investments.

We have made to develop the broad range of leading product solutions and local China-based engineering and customer support teams. In the coming quarters, we expect to see our OEM partners deliver high volume wins across the performance spectrum as we recently ramp another leading LTM in China for mass production of our single layer on-cell solution.

Moving to the larger screens, we continue to expand our tablet and touch screen customer base of major OEMs over the last year with our market-leading ClearPad 7500 family of Windows 8.1 certified solutions with active stylus support, technology previously reserved for smaller form factors such as smartphones. Recent key tablet wins include the Samsung Galaxy Tab Pro 8.4, and the Lenovo Yoga tablet 10.

Also being driven by our ClearPad touch solution is the world's slimmest and lightest waterproof tablet, the Xperia Z2 from Sony which was named one of the best tablets of Mobile World Commerce by numerous media outlets. Looking forward, the next touch screen enabled notebook PC design cycle is geared for the back-to-school season, and we expect to participate through mass production shipments with multiple tier one notebook OEMs.

As a human interface solution leader, we continue to look at ways to enhance interactions with our personal electronics. This includes the work we are currently doing with customers on pen touch keyboard implementations. The usage models for touch-enabled keyboards continue to evolve and we continue to work with our OEM customers and supply chain partners on various solutions and go-to market models to generate the greatest return on our investment. This includes potential licensing models. As we determine the ideal delivery method to bring these innovations to market, we are extending our timeline for this revenue opportunity.

Turning to the PC side of our business, the recently announced precision TouchPad implementation with Acer for its E Series of notebook PCs is a significant milestone in the improvement of TouchPad performance across OEM implementations. As a co-engineered solution with Microsoft, Synaptics is delivering the high-performance precision TouchPad that provides a consistent uniform experience across implementations. This is further enhanced by our [tight guard] software which rejects false cursor movements, false clicks, and false scrolls.

Our first ForcePad enabled notebook, the HP Elite Book Folio 1040, has been well received by users and industry media such as laptop who found the ForcePad to be extremely responsive. The next generation of ForcePad solutions are in the hands of our OEM partners and we are excited about expanding the adoption of this pressure sensing family of TouchPads with new models scheduled to ship later this year.

To conclude my formal remarks, our strong performance in the third quarter reflects Synaptics' continued leadership and innovation across our entire product portfolio from TouchPads to touch screens to our new fingerprint ID products, and I think it's safe to say that after just one quarter Synaptics is now the number one supplier for fingerprint authentication solutions to both mobile and PC OEM customers, further differentiating ourselves as the leading humor interface provider.

As we finish out Q4, our primary focus remains on growth with biometrics large touch screens, display integration, and expansion in China leading the charge. At the start of the fiscal year we projected our annual revenue growth to be similar to the 21% achieved last year. It's now clear that we will not only achieve that goal, but close to double that rate of growth as the strength of our fingerprint ID business augments the growth of our core touch solutions.

We look forward to another exceptional quarter and to updating you on our ongoing efforts to drive strong, sustainable growth. With that, I will turn it over to Kathy for review of our financial results.

Thanks, Rick. We are very pleased with our March quarter results as revenue of $204 million represents record revenue for our third quarter period and exceeded our guidance range. March quarter revenue increased 25% year-over-year and was down less than 1% from our December quarter. Revenue mix from mobile and PC products was approximately 74% and 26% respectively. Revenue from mobile products was up 44% year-over-year and up 13% from the December quarter and consisted predominantly of revenue from mobile phone applications.

We achieved strong mobile phone revenue growth year over year, including a substantial ramp of our fingerprint ID product. Fingerprint product revenue, which contributed to both mobile and PC revenue, represented approximately 15% of total revenue in the quarter.

Revenue from PC applications was down 9% from the prior year and down 26% sequentially. As we've experienced in past quarters, a portion of the sequential decrease was due to the timing of our sell-in versus sell through between the December and seasonally slow March quarter. Despite the continuing weak PC market, Synaptics continues to lead the market for notebook TouchPads and ClickPads.

Non-GAAP gross margin was down 320 basis points year over year and down 50 basis points sequentially at 46.6% and was impacted by overall product mix, including a substantial ramp of our biometrics solutions. The biometrics products are a solution sale where we supply more components and material than just the chip.

Non-GAAP operating expenses were $66.8 million, up $6.4 million from the prior quarter. The 11% increase in non-GAAP operating expenses was primarily due to a full quarter of personnel-related expense related to our acquisition of validity sensors which closed in November, and our post acquisition investment in both R&D and customer support to accelerate market adoptions of our new fingerprint solutions as well as continued investments in our touch product portfolio.

GAAP operating expenses in the March quarter were $128.6 million which includes an increase of $53 million or change to contingent consideration and $8.5 million for share-based compensation. The change to contingent consideration primarily takes into account our current anticipated post acquisition success with biometrics fingerprint solutions, including significant upward revisions to our forecast for fingerprint solutions, increased certainty of those forecasts, an acceleration of the timing of broad adoption. In other words, the increase to the change in contingent consideration represents a favorable development in our outlook for the fingerprint business over the remaining earn-out period.

As Rick mentioned, the fingerprint ID non-GAAP results were accretive in the March quarter, the first full quarter of operation and earlier than anticipated. We anticipate changes due to fair value of contingent consideration could continue to result in volatility in our GAAP operating results as we go forward through the earn-out period.

Our non-GAAP tax rate was 17% in the March quarter compared with 15.5% in the December quarter. Our GAAP tax rate was a negative 12.4%. Third quarter non-GAAP net income was $23.7 million or $0.63 per diluted share for the high end of our guidance range and diluted share count for the March quarter was 37.911 million shares.

Turning to our balance sheet, we ended the quarter with $391 million of cash. During the quarter cash flow from operations was $5.3 million muted by increased working capital needs due to the back-end loaded revenue during the March quarter which resulted in increased receivables and inventory build to prepare for next quarter. Employee participation in our equity incentive programs, including the associated tax benefit, provided net cash of $34.2 million for the quarter.

Capital expenditures were $15.2 million and included $10 million used for the purchase of two buildings located adjacent to our Santa Fe headquarters facility. Depreciation was $3.6 million for the quarter. Receivables at the end of March were 147 -- $[149.7] million and DSOs were for 66 days while inventories were $70.2 million and inventory turns were six. Now I will make comments regarding our quarterly outlook.

Based on our backlog of approximately $145 million entering the June quarter, customer forecast and accepted product mix, we anticipate revenues to be in the range of $275 million to $295 million, an increase of 20% to 28% over the prior year's record revenue. Our expected (technical difficulty) reflects strong growth in mobile product revenue, including significant incremental contribution from our fingerprint ID product.

Taking into account our overall revenue mix, we expect non-GAAP gross margin for the June quarter to be approximately 45% to 46% reflecting the overall product mix, including a continuing ramp of the biometrics product. We expect non-GAAP operating expenses in the June quarter to increase from March as we continue to invest in engineering and infield customer support to expand our overall product portfolio and customer base. We anticipate the FAS-123R charge in the fourth quarter to be in the range of $8.6 million to $8.9 million.

GAAP expenses will also include a non-cash charge of approximately $5 million to $6 million related to intangible amortization and change in contingent consideration. However, the change to contingent consideration could vary depending upon the changes to assumptions that drive the accounting value.

We anticipate non-GAAP cash-based tax rate for the June quarter and the year to remain in the range from 16% to 18%. (technical difficulty) shares are expected to be approximately $39 million for the June quarter. Non-GAAP net income per diluted share for the June quarter is anticipated to be in the range of $1.10 to $1.32 per share.

In closing, we are very pleased with the financial results through the first three quarters of the first fiscal year and are well-positioned to achieve record revenue and record non-GAAP net income in both the fourth quarter and fiscal year. With that, we will now turn the call over to the operator to start the Q&A. Operator.

(Operator Instructions ) Rob Stone with Cowen and Company.

Hi, Rick and Kathy. Congratulations on the strong finish to the year.

Thank you.

I know you're probably not ready to break this out by sub segments in terms of contribution by validity but, Rick, could you provide us any color, in terms of some sense of the number of customers or number of different SKUs that are now active in fingerprint biometrics? It sounds like maybe both the PC and mobile parts of the ID business are growing?

Certainly exciting growth period for biometrics business. We took a fairly substantial risk that in November with a sizable acquisition for us and it's very encouraging to see the adoption of our solutions and the adoption of fingerprint across the industry. In terms of the ones I can talk about obviously are the announced ones, so the Samsung and Huawei are the two phones that were in, and then every notebook PC uses our fingerprint solution, as well.

For the most part, we're engaged with, I would say, just about every OEM on solutions of varying types, fingerprint solutions that we expect to roll out more in the middle of the year until, obviously, a year from now, depending on the timeframe of the various OEMs and the type of solution their implementing. Okay. And my follow-up question is on area sensors as opposed to swipe sensors. I think in the past you said sometime in the second half of the calendar year you expect products to be shipping with various sensors. Is that still the timeline? Yes, we're executing right on schedule with those products and we expect to see solutions out there in the latter part of the year, yes.

So, the ramp-up in the June quarter continues to be swipe sensors?

For the most part, yes. There's more in production with the swipe sensors at this point.

Great. Thank you very much.

Andrew Huang with Sterne, Agee.

Congratulations on the quarter and the guidance.

Thank you.

I was just curious if you can give us any color on what your exposure was in the quarter to China handset makers?

China handset makers, we've had that questions for few quarters now, so we've been looking -- we've been talking about our growth in China and as far as the contribution of China domestic handset makers it's been growing. It grew -- it's up to about low teens right now, so it continues to track as a percentage of our revenue. It keeps growing as our revenue grows overall.

Okay. And I guess the follow-on question to that would be when I look at your June quarter revenue guidance, should I assume that there are some fingerprint sensors in there with Chinese handset OEMs, or not?

At this point we're not going to illuminate where we're getting specific success with our fingerprint sensors. Just to say that -- I'll say again that similar to Rob's question we're seeing broad-based interest in all regions of the world for our solutions.

Okay, thanks. I will get back in the queue.

Our next question comes from the line of John Vinh with Pacific Crest Securities.

Hi. Thanks for taking my question. Just a follow-up question on the area sensor. Rick, you said you expect that to start ramping at the end of the year. Can you maybe further elaborate? Have you secured any design wins for area fingerprint sensors at this point in time?

In this business we've learned there's no such thing as a design win until you see it sitting on a shelf somewhere. So, I don't really want to confirm anything, other then there's been very strong interest in our touch sensor at this point for fingerprint solutions, and it's clearly a trend in the industry.

And then can you update us, we're another quarter in to this, in terms of what you're seeing in terms of customer interest on fingerprint area versus swipe sensors. Is there still more interest in area sensors, and do you expect the market to move more heavily towards area sensors in the back, or do you expect it to be more evenly distributed?

Well, since we're 100% swipe now, we certainly expect to see the trend more towards touch. So, part of that is with the continued interest in swipe. It still brings a number of advantages. It's going to be a lower cost solution. In addition, you actually can fit it in a smaller form factor as well, so you could imagine that today's implementations are either on the back of the phone or, in the case of Samsung, on the front of the phone. But you can also start to imagine OEMs might want to put it on the side of the phone.

At that point you only have a couple millimeters to play with and it's really hard or impossible to have a touch sensor at that point, and that's where swipe would be a more appropriate type of implementation. So, clearly there's a trend to move towards touch, but we expect to see swipe sensors for many years ahead.

Got it. And then my last question and I will get back in the queue is it sounds like the mix of biometrics is having an impact on your gross margin mix going forward. Kathy, I was wondering, you mentioned that you ship more than just sensors to your customers. Are you doing the module packaging, and that's what's impacting kind of the gross margins there? We've also been hearing about some initial yield issues on the fingerprint side. If you could elaborate, that would be great.

The solution itself, right, is not just the chip, so it's the chip plus the flex sensor. So, again, it's more than just a chip. There is additional materials that come into play, and so I think as we talked about before, the biometrics product, when you look at the mobile product or just the chip-based solutions, there are about 50. These particular solutions are right around the corporate, we're running from corporate average standpoint, and our PC modules are below that. That's basically what we're doing. No major change, really, in what we're selling from a solution standpoint.

Thank you.

Osten Bernardez with Cross Research.

Good afternoon. Thanks for taking my questions. I guess to begin, would you be able to give us an update as to what you're current LTRs contribution is large touch screen, and whether that's on track with what you guided towards during your analyst day?

Sure. We still haven't -- we haven't broken out large touch screens yet and, but it has been moving up as we talked about at analyst day last year. Large touch screens was probably around 5% of total revenue and it's been picking up as a percentage of revenue, but it's still not quite 10%. But it's on track for what we talked about at analyst day for this year, where we said we expect it to double or triple.

Got it. And then with respect to your mobile display interface ASP's, would you be able to give us some color in terms of how they're trending on a year-over-year basis and what you're expecting that to do in the June quarter?

I will talk about the broader trends, and if Kathy would like to eliminate the shorter term trend. The broader trend is similar to the message we have given in past calls, which is with a given segment of the market the ASP's actually kind of hold in there. So our higher end ASPs for the flagship phones continues to be interesting. However, of course, the market is -- there is more growth in the lower end. So from an overall perspective, of course, as we participate more and more in the low-end and mid-range, that makes our ASPs go down a bit. But we aren't seeing broad-based degradation of ASP's across every segment.

Just to reiterate Rick's point, it's really -- our blended average ASP is trending down because of the fact that we have a broader mix of mid range and lower end solutions as we go forward.

Thank you very much.

Jeff Schreiner with Feltl and Company.

Rick, I'd like to come back to the touch-based fingerprint sensors real quickly.

Sure.

Has Synaptics sampled touch-base fingerprint sensors at this time?

Yes, absolutely. We actually showed samples back at CES.

Okay, that's what I thought. I just wanted to make sure that I was correct. Just as a follow on to that really, are these kind of touch sensor ASPs going to be dramatically different than what you're seeing for the smaller form factor-type swipe? We've heard ASP ranges as high as $6 to $8. Is that where we should be thinking about as these solutions start to roll out?

Well, it goes back to Kathy's statement a little bit. It depends what level you're talking about. There is the chip ASP and there's the sensor and that can either be a flex or it can be actually BGA-type of packaging solution, we offer both, and then there is actually the entire module. For example, in the Samsung phone there's the button itself. People tend to mix those three together at times. We tend to be in that middle category, where we're selling both the chip and some type of sensor.

So, the ASPs you gave are well above what we would expect to see for an area sensor. There is a rough ballpark that we have given is for the chip plus sensor around $2-ish for swipe type of solution and roughly double that for an area sensor. Of course that will go down over time in the coming months and years.

Okay. And just quickly from me, I wanted to clarify with Kathy, and it's my last question here, is all the fingerprint, including PCs, now in mobile no longer doing PC and mobile as the types of businesses that you had described before?

Just one second. One my colleagues point out that I made a misstatement. I think it was Rob's question at the very beginning when I said fingerprint solutions that were in production. I meant to say HTC phone. Apparently I said Huawei.

We are talking a lot about China and I must have done a bit flip there. So, we are in production with HTC and Samsung fingerprint solutions. Sorry for interrupting. Go ahead, Kathy.

What was the question again?

Yes. No problem. Are we doing all fingerprints now mobile and PC in mobile?

No. We are still in the broad categories of mobile that would include the fingerprint solutions in mobile products in PC; that includes fingerprints for PC. So, the number that I gave broadly, the 15% of total revenue, that's a combination of all of the solutions, the mobile solutions and PC solutions.

Okay. Thank you.

Rajvindra Gill with Needham & Company.

Thanks and congratulations on excellent results. Just a question, Kathy, on the OpEx. You mentioned this increasing sequentially. If we do the math it seems like the OpEx is up about $6, $7 million quarter over quarter. Should we be expecting that type of increase in OpEx on a sequential basis, or is it going to kind of taper off? If you could provide some OpEx insight going forward would be helpful.

Sure, Raji. If you look at the OpEx in the March quarter, the biggest reason for the increase in the March quarter was the fact that we had validity for an entire quarter versus December when we only had them from November forward, so that was -- we picked up a full quarter of validity in the March quarter. Going forward, I would say that the absolute number would be lower than what we saw last quarter.

Okay. And in terms of the applications for fingerprint technology, I was wondering if you could elaborate on what are those that are being developed by the industry in addition to just the unlocking of the phone? And how is the ecosystem being developed in order to spur this technology across more devices?

Great question, Raji. It's certainly exciting to announce flagship phones that are utilizing our solution, but in some ways it's been really exciting over the last month or two to see how far and how quickly the ecosystem is moving forward. As you mentioned, there's the unlocking of the phone, the convenience factor there, but more importantly we want to see all whole security and payment system out there. So, the FIDO Alliance is just gaining tremendous momentum and that's where we're putting most of our support behind, is how can we create an industry consortium that is seamless to the end users, so that if you want to make a purchase or some type of banking movement, then you can do that very securely with a fingerprint type or other authentication type of solution.

So, the fact that you saw as an example just this week Samsung and ARM jumping into the FIDO Alliance as Board members is really a strong indication of how much momentum that this has across with the industry's leading core processor provider and the world largest smartphone provider coming on board. We're tremendously excited as one of the first places to start with applications.

And this last question, Kathy, in terms of cash end of the quarter was $391.5 million. Obviously, some of that cash is going to be used to pay out the Validity folks based on the earn out. Is there any other kind of usage of cash going forward?

Raji, we look at cash basically the same way that we always have. We're still looking at investing in the business. As you said, paying the earn-out payment, so based upon our increased outlook, our likelihood of paying a much higher earn-out payment is definitely out there. And we still have many initiatives in process looking at for additional strategic opportunities, and there's still opportunistic share back in our view, as well.

Thank you,

Thank you. Charlie Anderson with Dougherty & Company.

Yes. Thank you and congratulations again. I just had a couple housekeeping questions. Number one, your largest customer, 10% customer, what was the percent of revenue?

Yes. We had one 10% customer and it was 32%.

32%. Thank you. And then on the PC, I wondered if you could help us with what the contribution was in that segment for fingerprint? I don't know if you're willing to segment that. And then just in general noticing that that's down even with fingerprint, just some of the dynamics that are going on in PC and then what are you thinking going into June there in terms of embedding your guidance?

The biometrics had a pretty steady run rate. It's really a few million dollars, around $5 million. And as far as PC in general and the dynamics there, the general market trends for PC this year and calendar 2014 is it's still -- the market is still looking like it's down some. We've been doing very well in PC. If you look at our three quarters to date, we're flat to up slightly. So really there is just dynamics for us on the quarter to quarter sell-in and sell through.

Got it. Thank you so much.

Kevin Cassidy, Stifel Nicolaus.

Hello. This is [Dean Rumwell] calling in for Kevin. Thank you very much for taking my call. Guarding the fingerprint recognition, seeing the expectations that this technology will ramp quickly in the market. Could you lay out some expectation of what you believe what may be a reasonable share for Synaptics, perhaps in terms of the difficulty of doing this, or your time advantage? Basically, are you seeing much competition in this area so far?

Dean, again great question. We certainly are seeing competition out there, and competition only makes us stronger and better, and I think we've proven that we're quite capable of competing out in the marketplace. When we acquired Validity back in November, we made it very clear that our goal was to be the clear number one provider in this space and that goal is unshaken. So, we're continuing to march forward.

As I mentioned in my prepared remarks, I believe we have commanding share, basically 100% in the notebook segment right now. And as you look in the mobile segment, it's very high, as well, obviously fueled by the great design win that we had on the Samsung Galaxy S5, and my unique plan to continue to go from there.

In the area of the ThinTouch keyboard, could you provide some outline of when this may start to contribute substantial revenue, and what kind of design pipeline you may have at this time? Anything you're able to offer is helpful.

Again, previously -- let me try to help to shed some light. Previously, were targeting more towards the tail end of this calendar year to start seeing some revenue. But actually as we've worked with our ODM and OEM partners out there it's become clear that it's going to move out a little more in time than that. And we're looking at, as I mentioned in our prepared remarks, we're looking at potentially different models.

Frankly, keyboards are a tough, tough business model out there, typically running in the mid teens from a margin perspective. That's quite a bit different than what Synaptics does and is capable of doing on a sustained basis. So, I mentioned licensing looks to be the more promising avenue other than some niche plays that we may make in the keyboard market, but it's not a calendar 2014 opportunity for us.

Is it more adoption period or is it cost and pricing?

It's always a combination. There's usually never one reason. Certainly cost is a factor that comes into the notebook segment. Just like everywhere else, they are under high pressure from pricing as they try to drive down to the 299 level and potentially even below. The technology we've been able to get to a state now where it's very exciting, and as we demoed at CES and at Mobile World Congress and elsewhere, we actually have a pretty solid solution now. So we just have to find that right combination in terms of the business model in the right applications where we can be successful with this technology.

Thank you very much.

Brett Simpson with Arete Research.

Thanks, very much. I have a couple questions on fingerprinting, and as we go back to the touch controller days, the early days of smartphones we saw quite a bit of shift from module to chip-only solutions. And I'm wondering how do you think the fingerprinting market can play out when you get touching and sensing over the next couple of years? Do you think this is a similar shift where it's going to be a chip solution we currently sell in smartphones, or do you think there is going to be a module opportunity, and maybe you can explain why, if you think fingerprinting is going to be a module offering for Synaptics over time.

No. I would characterize it as you're using some of the same terms, but it's certainly different in terms of the relative cost and value and so on. From a fingerprint sensor, and that's why I said it's a chip plus sensor, so you can't really ship the chip without the sensor. It has to be mounted someplace.

So, it's mounted in either the BGA, which then becomes a sensor or in the flex cable which then becomes the sensor. It's actually an awkward business model to try to disaggregate that. And the relative cost is a lot different. Back in the old touch days with the module it would be an $8, $9, $10 sensor with a $1, $1.50 device. Here, the relative values are much different, in terms of the chip value versus the flex value. So you don't get the margin stacking that started to happen, in, call it, the old days, which was three years or four years ago.

Maybe just a follow-up on that. Can you compare what you would sell as a complete module in touch with your sensing, and how do you think the chip ASPs might evolve? Because we hear a lot of different numbers from various (inaudible) who want to get into the market as how you think a film-based chip solution might sell for over time. (Inaudible) play their versus a module price. So, any numbers you can show with us would be very helpful.

Okay. I understand. It's unfortunate the real challenge, because there's a very wide range of potential answers there. It's highly dependent on what the OEM wants from a module perspective. You can certainly see something pretty basic, which would be just in effect our sensor with some type of coating on it, to something very elaborate, which potentially the iPhone is the other extreme.

So, it can be a couple dollars to many dollars add on top of the basic chip plus sensor. So, in terms of the chip plus sensor, I kind of gave you a rough range. And that's even pretty rough because it's highly dependent on exactly what we implement there, but kind of the $2 to $4 to $5 range.

And maybe just one final followup. In the traditional touch controller business for smartphones, you mentioned in the flagship market in the high end ASP you hung in there quite well. So if we back up the Validity revenues in the June quarter you have just guided, is the organic smartphone touch controller business going to grow year over year, or is it going to be relatively flat? Give us some direction if you can on how you think that organic business is going to trend in mobile. Thank you.

We haven't broken out all the details on Q4, though I think we have very strong expectations for the June quarter and we see nice growth basically across the product.

Yes. I think that's an important point to emphasize, not so much year over year, but sequentially quarter over quarter. I want to say at least one or two more times because I'm not sure I'll ever get to say it in my career: 40% sequential growth. So, we obviously have broad range of products.

So, the laggerts are growing 20% sequentially quarter over quarter. As an example, if you want to position it that way, and then, obviously, we have some star products that are growing at a much higher rate. But, on average, it's 40%. But we are seeing tremendous growth opportunities across all the different products.

I think the other thing that is very exciting is, if you look at the comments that we made, as well, is core business, basically, right now it's not -- basically achieving more than the 21% that we achieved in FY13 that we laid out at the beginning of the fiscal year. And Validity is basically in the fingerprint products, or topping it up even more. So very successful year.

Is there any guidance you can give us. You've done a great job in the flagship part of the market, and we can see it in a shift. A lot of the growth is going to be in low end smart phones. Can you give us a relative market share, if you're willing to split the business up between flagship and low end? Where do you guys sit when you sit back and look at the overall time of the day? Where do you sit in the flagship market, market share, and how should we think about Synaptics in the lower price categories?

Brett, thanks a lot for the question. As we've mentioned, it's a real challenge to get our market shares in these various businesses and then when you break it down into segments. So we always circled our financial analyst day in August is when we shed light once a year and have all our marketing and sales people to do their job to gather all those facts into one place. So, here we'll just be able to do broad strokes, and broad strokes are very high share in the high-end part of the marketplace, obviously, excluding Apple in our analysis. And then as we move down, our chair becomes relatively lower thereafter.

We are making strides in that low-end and mid range. Really the displayed integration is what's opening the door for us there. It's been a several year investment, as you know, and it's good to see the volume really start to kick in, in our March quarter, in terms of the number solutions actually, getting out to our OEM partners and of course going out to OEM users.

Thanks so much.

(Operator Instructions )

Liwen Zhang with Zhang with Blaylock.

Thank you for taking my questions and congratulations. I have one question on gross margin, follow on John Vinh's question. Looking at your computer and the mobile mix, for the March quarter it was pretty similar to, I believe, a September quarter. So, what I don't understand is when you look at the delta between these two gross margins, and is it fair to conclude that single print solution is more toward the low end of corporate average gross margin range?

Yes. Liwen, as I mentioned before, the biometric fingerprint solutions are more of the average corporate gross margin that we're at. And if we go back a couple of quarters, we're also the statement around what we've been doing as far as penetrating further in the market. So then quarter on quarter from a mix standpoint we continue to have very, very strong share in the premium size, smartphone market, but we are also continuing to grow the number of solutions and the mid range and the lower end. So, again, as we progress, there is some mixed movement within the mobile side of the business, and now we're pulling in the biometrics products, as well.

Okay. Despite our lower ASP for mid to low (inaudible- heavy accent), so the gross margin for solutions for mid to low end also is less than for the high end, is that fair to say that?

Yes. We said that for while. Premium is great. It's very nice gross margin, and as you get to the mid and lower end, we do give up a few points.

Okay got it. Thank you.

Followup question from the line of Andrew Huang from Sterne, Agee.

Thanks. There has been a lot of talk about fingerprint sensors and then the transition from swipe to area. I was just curious from a gross margin perspective, is there any difference between those two?

There's no baseline reason why there would be a difference, Andrew. I mentioned the type of sensors we can use both in either an area or a swipe-type of sensor. Both have a touch controller. So, over time potentially swipe will move more to lower end phones a year or two years from now. You could expect that natural trend to occur, but nothing in the next several quarters that would suggest different margin profile.

Great. And then my follow-up with on ThinTouch. Obviously there's a lot of value of having a thin keyboard for let's say a tablet cover. And there is also a lot of value having a thin keyboard for a notebook. So, I'm just curious, based on your best guess, where do you think your first design win would be in?

We pointed to a few areas of value. You hit on one of them, which is tablet covers, and then the other one is retractable type of keyboards, which you simply can't do with a traditional keyboard.

Okay. Thank you.

Thank you, and this concludes our question-and-answer session. I'd like to turn the conference back over to management for closing remarks.

All right. Thank you. We obviously had another exciting quarter and it looks like we're in the midst of even more excitement this quarter. So, I'd like to thank everyone for joining us and I look forward to updating you next quarter.

Thank you. Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.