Synaptics Inc (SYNA) 2015 Q3 法說會逐字稿

Good day, and welcome to the Synaptics third-quarter 2015 conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jennifer Jarman. Please go ahead, ma'am.

Thank you, Operator. Good afternoon, and thank you for joining us today on Synaptics' third-quarter FY15 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. We 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 close today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally, we would like to remind you during the course of this conference call Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business.

Although Synaptics believes our 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 28, 2014, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims any obligation to update this forward-looking information. With that, I would like to turn the call over to Rick Bergman. Rick?

Thanks, Jennifer. I'd like to welcome everyone to today's call. I'd like to start off by saying that the last couple of years have been transformative for Synaptics. We have significantly broadened our product portfolio and expanded our customer base within our core smartphone, tablet and notebook markets, which has led to multiple content opportunities in each device and exciting new high-growth product offerings.

As a result we have enjoyed rapid growth, generating two executive calendar years of 50%-plus top-line increases, solidifying our position as the number one human interface company. We have continued to be the innovator in the industry, making significant investments in R&D and new technologies.

We have led the industry in numerous technology advances, including such innovations as in-cell, on-cell, hybrid sensing, Force and TDDI. We have further expanded our product portfolio through major acquisitions of market and technology leaders in fingerprint sensors and display drivers.

We currently have over 1,500 patents and patent applications around the world. As the clear market leader in several key areas such as touch and fingerprint sensors, it is imperative that we take aggressive action to ensure the protection of our valuable intellectual property.

And that is the impetus behind our recent filed patent infringement actions with the US District of Northern California and the ITC, and through which we allege that certain Goodix and BLU products infringe several of our patents. This litigation is important to Synaptics. We'll take whatever steps are necessary to protect our IP and are confident that we will obtain a successful result.

I am pleased to report that during the March quarter we delivered a record revenue, non-GAAP net income and record non-GAAP net income per share. Synaptics continues to be in execution mode as we meet the demand within our pinnacle growth markets is clearly there with fingerprint and TDDI solutions showing momentum, along with the upside from our display driver business.

We continue to focus on delivering an expanded portfolio of the most advanced solutions to meet the needs of our broad customer base within a diverse set of markets. March-quarter revenue of $478 million increased from the immediately preceding quarter, despite the typically downward seasonal trend.

Our performance reflects strength in the DDIC business and a steep ramp of our new fingerprint sensor. We achieved strong non-GAAP net income of $63.5 million, or $1.65 per diluted share, up 162% year over year. And gross margins were at the midpoint of our guidance range, driving strong operating leverage.

During Mobile World Congress in March, Synaptics once again demonstrated that we have the right technologies in the right markets, reinforcing our leadership in touch, biometrics, display, drivers, and display integration and reaffirming our position as a leading human interface solutions provider.

A visit to the booth revealed that our touch technology continues to be prolific across today's consumer devices from phones, tablets and laptops to watches and cameras. The demos included the world's first smartphone with Synaptics touch in display driver integration, the ZTE Lux S6, as well as several Android 1 phones, for which we are the only approved touch vendor.

We also showcased our advanced DDIC technologies at the show, including our contrast control, which optimizes the image by [region] on the display and our content adaptive brightness control. The event also provided the opportunity to highlight our new side swipe and small area sensor fingerprint solutions. Lastly, we demonstrated exciting future concepts such as automotive infotainment solution and introduced combined Force and haptics feedback in the touch bed, thus reducing driver distractions.

Our design win momentum is strong across all of our businesses, and we maintain a keen focus on executing against our product roadmaps and milestones. One of the themes we continue to emphasize is the rapid evolution of the smartphone display market and the trend towards display integration.

To reiterate what I said during past calls, display integration offers OEMs significant benefits: thinner and brighter displays, lower overall system costs, and a simplified supply chain. We continue to believe that over 50% of our smartphones will be display integrated solutions by the end of the calendar year.

As a leader in touch and display driver integration, we're seeing strong interest in adoption from LCMs and OEMs. In addition to the first TDDI phone from ZTE, new phones shipping with our ClearPad 4291 TDDI solution include the Acer Liquid Jade S and the Far East Tone Smart 505. And we expect more phones to follow over the coming months. The ClearPad 4291 supports Intel designs, eliminating the discrete touch sensor by leveraging existing layers in the LCD.

Our second TDDI chip, the ClearPad 4191, is sampling to key OEMs. In addition, the first TDDI product to combine Synaptics touch with RSP display technologies remains on track for later this calendar year.

With the integration of RSP essentially complete, and Synaptics now offers the industry's broadest and deepest portfolio of display integration solutions that enable high performance touch screen solutions with a faster time to market and a simplified supply chain. We believe that Synaptics will continue to lead the market and deliver unmatched technical leadership in real time, local engineering expertise that is highly valued by our display driver customers.

By leveraging our combined sales and support infrastructure, we're successfully expanding the customer base in market segments for our display driver products. ATC and Asus are shipping new smartphones that include Synaptics DDICs. On the development front, our engineering team is delivering multiple new products for the highest display resolutions available today, and has successfully lit up state-of-the-art ultra high definition LCD panel for next-generation products.

In addition to expanding our customer base, we're executing by leveraging our technology in complete solutions to win multiple new designs in emerging markets and to address new opportunities such as wearables. New devices in the China market now shipping in mass production include smartphones from Huawei, DTE, Coolpad, Oppo, Xiaomi, [Chino], Lucien, TCL and Lenovo.

As of today, approximately 30% of our phones in China ship with display integrated touch screens. And we have strong traction in other regions of Asia. For example, Synaptics two-chip Intel solutions are now shipping in the HTCM9 and in multiple LG phones.

As you know, the wearables market has received heightened attention as of late. Synaptics is leveraging our robust and proven touch technologies and applying them to this market with design wins in many new smart watches. New watches now shipping in mass production with Synaptics touch solutions include the LG Urbane, G Watch and G Round, the Sony Smart Watch 3 and others from HTC, Huawei and TCL.

Moving to the biometric authentication space, the promise of strong security that is also simple and foolproof continues to accelerate consumer demand for fingerprint sensors in smartphones and tablets. The adoption of mobile payments is extending the opportunity for fingerprint sensors beyond just the high-end smartphone segment, and we're bullish on the ramp of our products.

During the quarter, we announced our small area touch fingerprint sensor, which I'm pleased to confirm is now available worldwide on the Samsung Galaxy S6 and Edge smartphones. This solution provides the end user with the ability to unlock the device or authenticate with an elegant touch of the finger, streamlining access to online banking and social media portals. We expect additional phones to launch with our small area touch solution later this calendar year.

We also continue to focus on developing area touch sensor solutions for smartphones and tablets with larger form factors, and are investing in innovations that provide greater security. Additionally, we launched our slim slide fingerprint sensor during the quarter, which, when integrated into a smartphone or tablet, enables single-handed operation in thinner form factors.

As a multi-platform Company and a leading Microsoft Windows 10 partner, we're also working to ensure ecosystem readiness for quick adoption of biometric authentication across the PC industry. This includes both SecurePad for the notebook market and our natural ID fingerprint-enabled mouse for the desktop market.

Microsoft has already announced a compelling biometrics framework expected to be launched with Windows 10. This will encompass biometric input, including the fingerprint sensing, for features such as Windows login. We expect there to be robust PC features to discuss as part of this initiative.

The biometric backbone for Windows PC will increase the demand and attach rate for both Windows 10 notebook and desktop PCs. Our advocacy for improving both the convenience and security by eliminating passwords is strengthened by our partnership with Microsoft and aligns directly with our role as a founding Board member of the FIDO Alliance.

As mobile payments become widely adopted, consumers demand the same authentication experience across all of their devices from smartphones to notebooks to desktops. Synaptics is poised to deliver this experience. Look for us to make some exciting announcements on the desktop side at Computex, and also notebook shipments later this year.

The March quarter brought several design wins for our ClickPad solution, recently released with the HP Specter X360, the third generation of Lenovo X1 Carbon, and the third generation of the Lenovo Yoga. We also see added traction with Windows Precision TouchPad adoption with the shipment of the Dell XPS 13.

With recent industry developments in 3D touch, we expect adoption of our Force-Sensing TouchPad solutions to accelerate. Synaptics has been shipping ForcePad since 2013 and it's currently available on three platforms including HP's flagship Elite Book Folio 1020 and the Folio X2-1011. Our second-generation ForcePad is sampling to key OEMs and we believe that Force-Sensing enables the user experience in many devices, including smartphones, tablets and notebook PCs.

Before I conclude my formal remarks, I'd like to provide a brief update on the CFO transition. The recruitment process is going very well. We hope to conclude our efforts in the near future. We'll update you as soon as possible.

To wrap up my section, our strong performance in the third quarter is further validation of our progress in executing across the expanding opportunities in front of us. Synaptics is a more diversified Company, with a broader product portfolio and increased scale to capitalize on an array of exciting growth engines, including biometrics, display drivers, TDDI and the further penetration of our solutions within emerging markets like China.

Our continued innovation and systems-level expertise is enabling us to drive adoption and lead the evolution of human interface technologies as we strive to be number one in each of the markets we serve. We look forward to ending the fiscal year with another strong quarter, as we are well poised to achieve our robust annual revenue growth forecast of over 75%. With that, I'll turn it over to Kathy for a review of our financial results.

Thanks, Rick. As Rick indicated, we achieved record revenue, non-GAAP net income and net income per share for the March quarter. As revenue of $478 million exceeded the midpoint of our guidance range.

March-quarter revenue increased 134% year over year. With the strength of our expanded product portfolio, March-quarter revenue was up 3% in the December quarter -- from the December quarter, despite a typical seasonal quarter.

We had four customers above the 10% threshold during the period. The revenue mix from mobile and PC products was approximately 87% and 13%, respectively.

Revenue from mobile products was up 177% year over year and 5% from the December quarter and consisted predominantly of touch, fingerprint and DDIC solutions for mobile phones. Our strong year-over-year mobile revenue growth was driven primarily by fingerprint and DDIC solutions.

The growth in the fingerprint business more than doubled this quarter from last year. And strong contributions from new DDIC customers and products helped to offset seasonal downward trends in touch and in the ramp cycle of a large DDIC customer.

DDIC solutions represented slightly under 50% of mobile revenue in the March quarter. Further, we achieved solid contributions from China-based mobile customers, and expect revenue from this portion of the business to more than double from last year as we exit the fiscal year.

Revenue from PC applications was up 12% from the prior year and down 8% sequentially. Synaptics continues to lead the market for notebook touchpads, with our ClickPad and ForcePad solutions contributing over 65% of PC product revenue.

Non-GAAP gross margin improved to 38% and was at the midpoint of our guidance range, a 200-basis-point increase from the December quarter due to overall product mix. In addition, with the completion of the integration of RSP, we incurred minimal transition costs in the March quarter compared to the December quarter.

GAAP gross margins of 34.4% includes approximately $16 million of intangible amortization, of which $10 million is associated with the RSP acquisition. The RSP acquisition intangibles include supplier arrangement and developed technology intangible assets.

Non-GAAP operating expenses were $103.3 million, up $4.8 million from the prior quarter, primarily due to additional investments in engineering and go-to-market personnel to accelerate our TDDI solutions and broaden our infield customer support for fingerprint and DDIC.

GAAP operating expenses in the March quarter were $112.5 million, including $11.2 million of share-based compensation and non-cash charges of approximately $4.7 million for intangible amortization, partially offset by $6.7 million reduction of contingent consideration.

The strong year-over-year increase in revenue and gross margin dollars in the March quarter drove a 174% increase in non-GAAP operating profit dollars. In addition, we achieved 16% non-GAAP operating margin.

Non-GAAP tax rate was 17% in the March quarter, reflecting our anticipated long-term cash tax rate. Our GAAP tax rate was 38%. Third-quarter non-GAAP net income was $63.5 million, or $1.65 per diluted share, a 162% increase over the prior year.

Turning to our balance sheet. We ended the third quarter with $381 million of cash. The cash balance increased $53 million from the prior quarter.

Cash flow from operations was $128 million during the March quarter and $172 million year to date. Cash flow from operations in the December and March quarters were impacted by the timing of certain transactions related to the acquisition of RSP and the cutover in October from Renaissance's financial systems and services. These transactions primarily related to the purchase and payment of $115 million of closing date RSP inventory from Renaissance in the December quarter, as well as the receipt and payment from Renaissance in the March quarter related to RSP sales in October and prior periods.

The cash balance reflects the payment during the quarter of $48 million for the settlement of working capital hold-back liability related to the RSP acquisition. We have an additional hold-back liability related to the RSP acquisition of approximately $61 million to address post-closing adjustments, which we expect to be settled in late FY16.

Further, we used $20 million for share repurchases during the March quarter, bringing our year-to-date stock repurchases to approximately $111 million for 1.5 million shares, or 4.2% of our shares outstanding. The remaining share repurchase authorization is $89 million, available through July 2016.

Capital expenditures for the quarter were $6.6 million, and depreciation was $6.7 million. Receivables at the end of March were $320 million, reflecting 60 days of sales outstanding, and inventories were $152 million, while inventory churns were 8.

Now, I will make a few comments regarding our quarterly outlook. Based on our backlog of approximately $248 million entering the June quarter, customer forecasts and expected product mix, we expect to have another very strong quarter.

We anticipate revenue to be in the range of $460 million to $500 million, reflective of positive sequential trends in touch and fingerprint, partially offset by product cycle trends in DDIC. Taking into account our overall revenue mix, we expect non-GAAP gross margin for the June quarter to be 37% to 39%, consistent with Q3 and in our target range.

We expect non-GAAP operating expenses in the June quarter to increase from the March quarter, reflecting our continuing investment in engineering and infield customer support to expand our overall product portfolio and customer base, primarily related to our high-growth opportunities in fingerprint and to accelerate our TDDI solutions into the market. We anticipate the FAS 123(R) charge in the June quarter to be in the range of $11.5 million to $12 million.

GAAP expenses will also include non-cash charges of approximately $20 million related to intangible amortization, of which approximately $15 million will be reflected in cost of sales. We anticipate our non-GAAP long-term cash-based tax rate for the June quarter and the fiscal year to remain in the range of 16% to 18%. Non-GAAP net income per diluted share for the June quarter is anticipated to be in the range of $1.50 to $1.80 per share.

In closing, we are extremely pleased with the financial results through the third quarter of FY15. We have already achieved record annual revenue and non-GAAP net income, and we have one more quarter to go.

With that, we'll now turn the call over to the Operator to start the Q&A. Operator?

(Operator instructions)

Rajvindra Gill, Needham & Company.

Yes, thanks for taking my questions and congrats on the solid results. Just for a point of clarification, you had talked about adoption of Force Touch. Is that going to occur in the smartphones and tablet market, as well as the smart watches? Are there other markets, if you can elaborate on which markets you want to position this technology?

Sure, thanks for the question, Raji. Right now, obviously, where we're seeing the Force technology from Synaptics. We announced a product, it's been about three years ago, called the ForcePad. And then, that showed up in HP notebooks two years ago, in a kind of across the notebook product lineup now, our OEM base, we're seeing much greater interest levels in Force.

And that's now translating over to other market segments, as well. Certainly as smartphones, potentially smart watches and tablets, and so on. As you can imagine, it is adding a third dimension to traditional touch products. So it has a great deal of appeal out there.

It is not an easy technology to implement, it's taken us a number of years of refining it, and getting it correctly. But, it does hold a lot of promise, more broadly. It helps us in automotive, as well. In fact, that's probably where we see the strongest interest, is in automotive. Because, it allows you to not have false activation, which can occur with a classic touch screen.

And, Kathy, can you talk a little about the puts and takes of the drivers for the revenue guidance? You talked about the high level Touch and fingerprint ramping in the June quarter, offset by product cycle terms, and there's TDDI. I wonder if can you elaborate on what you're seeing in each of those markets as you go into June.

I think you encapsulized it pretty good, Raji. In the June quarter, we're seeing a nice uptick in the traditional parts of the business, in the Touch business. Also, we've got in the fingerprint business, we started seeing a strong ramp this quarter, and into next quarter for the area-based sensor solution. The DDIC business, again, we expect it to be strong. But, it may not be quite as strong, just because of product cycle, ramp schedules, you know, in that particular business. But net net, we expect to have a very strong quarter in the fourth quarter.

And just last question from me before I get back in the queue. The gross margins being flat, when you have kind of a good quarter in terms of revenue mix, I was expecting maybe that the margin might be a bit higher, the gross margins, given that the Renaissance business is a lower margin business. I wonder if you could maybe talk a little bit about some of the puts and takes on the margin fronts, as we progress? Thank you.

As we look at the portfolio of the products right now, we have such a wide range. Whether it is in a particular part of the business, or just within skew by skew, within the business. Right now, the gross margin range, 37 to 39, we think that's reasonable. But then again, we have a lot of puts and takes on pluses and minuses going on within the business.

And we'll go next to Ambrish Srivastava at BMO Harris.

Thank you. First question, Rick, on the end markets, there is a lot of disconnect. Or at least with that, various companies reporting results. If you look at your end markets mobile and PC, how did they two behave? I know that you said that China is supposed to grow again in the second quarter. If you can please help us understand what you're seeing, versus what some other guys might be seeing.

And then on the second part of my next question, a little bit longer term. Back at mobile world, there was a lot of angst over what Qualcomm had announced. I just wanted your perspective on what you think, competitively, of their solution, verses what you have. And I know you're already sampling something similar to that, in terms of functionality. Thank you.

Thank you, Ambrish. On the first half of the question, what is going on the market. We obviously have been listening and paying attention, and I think you're correct. There is, call it, mixed signals out there, of strength and weaknesses.

So what we're seeing is, clearly China is not going to be the booming market that we've enjoyed the last couple of years, where it just seemed we couldn't keep up with the demand out there, through the course of calendar Q2. It seemed to be still a growth, but more muted market in China.

Now, what's helping us, of course is, we have some new products in fingerprint and so on. So, from an overall financial perspective, as you just heard, we have a slightly uptick, in terms of the overall revenue.

On the PC side, kind of the same thing. Again, Q2 is historically a strong quarter for us. There is -- we can move back now, to a year-to-year decline in the PC market, from a system perspective. But we have new content in the PC, such as higher value touch pads, as well as the prospect of selling fingerprint solutions there, as well.

But I would say that PC is consistent with what we're seeing weakness, down year over year, in the single-digits type of range. And then you also talked about Qualcomm and their competitive solution, which uses a different approach that they announced back at Mobile World Congress. I would say there was a big surge of interest in that area, and then it seemed to die down.

It's a matter of what I said, for anybody that was at Mobile World Congress. We don't see that competitive solution active in the market, in terms of design wins. It does take a different approach than what we've taken. When we decided to invest in fingerprint authentication solutions, we took a broad look at various solutions out there.

And really landed on what we thought was the best solution, in terms of timeliness to market, overall risk, cost and then road map. And, accord to that to that capacitive touch solution today, but we'll always keep our eyes open for other authentication solutions.

So, hearing a long-winded answer there. Keeping our eyes on the radar for all different types of competitive solution. But we feel we like we have the best technology and by far, the broadest, strongest road map in the industry.

Okay. Very good. Thank you. Good luck.

Rob Stone, Cowen and Company.

Hi, Rick and Kathy. I wanted to start, Rick, with the subject of IP. And, in particular, to focus a little bit on fingerprint. You mentioned you have in total something over 1,500 patents and patent applications.

Do you see, potentially, the need to defend your technology on the fingerprint side, as well, with lots of new entrants likely to be attracted to this new market?

Okay, Rob, thanks for the question. You know, as I'm sure you or anyone else on the call can understand, we're pretty limited in what we can say during a period of active litigation. That being said, let me provide a little bit of color.

We have made big investments, whether it is our internally home grown technologies, such as our Touch solutions. Or, whether it is inorganic approaches, such as fingerprint, where the IP and technology and so forth, and the long-term leadership is a key decision factor, when we make acquisitions

Such as, when we acquired Validity as, really, one of the two innovators in this overall space. Along with that, if I remember correctly, 135 patents came along with that acquisition as well. Certainly we're not sitting still, since we've had that product line for 18 months. We continue to actively file new patents. And we're being the innovator and leader in that market as well.

And we have a process where we continue to book and review potential infringes of our technology. And in this particular case, we believe Goodix and BLU Products were infringing several of our patents, and that was more in the Touch area.

But, we take IP very seriously, as a core strength of the company. And as the innovator in the industry, we'll continue to go through that process and we'll look at the fingerprint's space, the display driver space, the Touch space, wherever we continue to compete. And it is our intention to continue to vigorously protect our IP around the world.

Okay. My follow-up question is also on fingerprints. You mentioned you looked forward to shipping the small area sensors on other products in the second half of the calendar year. What do you see as the time-to-market road map for the sideswipe? And are you in discussions with potential customers there?

Certainly. As we've said, the Touch or the area sensors for fingerprint have engendered a lot of the excitement recently. And clearly, our Samsung design win is evidence of our strength in that particular area.

But, we continue to see interest in Swipe solutions. I believe you'll see some coming out later in this calendar year, that will continue to help grow that business as well. It is a more cost-effective solution. And being on the side of the phone as an example, it allows you not to occupy very precious real estate on the top or back of the phone. So we continue to see interest in that particular technology. So, you'll see additional announcements through the course of this calendar year.

All right. I'll jump back into the queue.

Kevin Cassidy, Stifel.

Hi, thanks for taking my question and congratulations on the great results. On the RSP display drivers, can you talk about some of your cost reduction plans, and moving? You mentioned that you're getting more design wins with it, outside your original customers. Can you say a little more about that progress?

Sure. Display driver tends to be a lower margin business, as we've discussed. And it is high volume, which is the good news. But you actually have to have a pretty active cost reduction strategy.

In Touch, we tended to waterfall our products, although that is changing there, as well. What became high end, became mid-range. And you didn't actively cost reduce with, at least, the new design. It is different with display drivers.

Without going into too much details on the specifics of our strategy, clearly, when we bring it a new, say resolution part out, it comes out in a premium process node. And then, we immediately start to look at how we can cost reduce it. One of the simplest thing we can do, some of the display drivers, for example, have memory in nodes. And that is a great power reduction step for technology.

Cost reduction is obviously, then remove that out. Where you move into the more of the mid-range. And the LCD manufacturers aren't willing to pay that premium for having the embedded memory.

And so, we tend to have a family, and that is one of the reasons, Kevin, why we had to do the acquisition of RSP. We just simply couldn't keep up with the demand of all the different resolutions, and follow a cost reduction road map as well. Now, with hundreds of display driver engineers, we have a very broad and robust product pipeline.

Okay. Great. And the diversification of the customer base?

I would say that's going really well. So, we talked a little bit about it on the call in December. And we said that we were actually, in the March quarter, we expected to see that already starting. And as we went through the March quarter and the results, we did see a substantial increase in the newer customers, newer designs in the marketplace there.

So, we have actively deployed our global infield support team. We're still building on that. And, we continue to believe we have got a lot of opportunity ahead of us there.

Okay.

One thing, Kevin, that we have brought to line, that's helped, is -- through the script, you might have heard the comment, two-chip Intel. Well, previously, let's say a year ago, it was one chip.

It was just our Touch chip, and it would ship with a competing display driver device. As an example, now when they do Intel designs, we often go with a two-chip solution. Of course, that is our Touch solution and then there is a separate DDIC as well, that is now off in a Synaptic's DDIC. And then of course, we offer TDDI that moves it into a one-chip solution.

Right. Good progress there. Thank you.

Paul Coster at JPMorgan.

Thanks for taking my question. It's a little bit of a surprise when you don't win a slot, these days. Although you had this tremendous success with the small area touch for the flagship handset, recently, you lost the touch driver.

It seems to go contrary to the whole notion of this sort of value proposition that comes from your holistic approach, and your integrated solutions. Can you explain what's happening there, so we can contextualize that one?

Just so we make sure we are talking about the same thing. Which design did you say you're claiming we lost?

Actually, I think it's DDIC, the touch driver.

Touch. So, as we've discussed OEMs, decisions sometimes are made on a number of different factors. And not always technology leadership, where we believe we continue to be the only touch vendor out there that has the best technology, across the board, as you pointed out.

But we're not going to win 100%. I think we did that back in 2013, where we virtually got every single phone that was announced. But since then, certain competitors can zero in, in the regional play, or a certain skew. So we won't win 100% of the designs out there.

However, I would like to point out, and it kind of ties into the prior question. So, yes, we did lose that socket, but you still saw our revenue grow. That points to the diversification of our products and customer base, and everything else.

So, what would have been, frankly, devastating two years ago for us, it is certainly a bump in the road, but we're going to get back in there fighting. And our revenue is still growing. And I think our prospects are as bright as ever.

The second question I've got is this, you've previously talked to 15% to 20% growth, post FY15, as your target. Do you still feel comfortable with that? And, if you were to force rank the revenue growth drivers, could you still give us an approximate approximation of what the drivers are?

Yes, Paul, thanks for reminding me of that goal. So, yes, we're a growth company. So, I should continue to emphasize that, and our target is certainly 15% plus growth, year over year. Obviously, as we're starting to knock on the door of being a multi billion dollar company, mathematically, that gets to be more and more challenging, because the lumps have to be much bigger now, to maintain to that level of growth.

As we look forward into FY16, or calendar 2016, clearly, the same ones we've been talking about as growth drivers are still there. Absolutely our biometrics, our fingerprint solutions, we've done great. As Kathy mentioned in her remarks, we're in the process of doubling our business, year over year, in that particular area. And it is ramping.

There is still a lot of growth left, certainly, in that area.

The other big one is, of course, TDDI. Just at the cusp of ramping that product. I mentioned, we have one product out there in production, now. Another one is actually starting to ship in production, although the phones haven't appeared in the marketplace.

And then, we have really, the strength is yet to come, which is the combined devices that use our Touch technology and the display technology from the former RSP team. And once we get that full line up there later at the end of this calendar year, that will certainly be the other big driver for our growth over the next 12, 18, 24 months.

Thank you.

Charlie Anderson at Dougherty & Company.

Thanks for taking my questions. I wanted to hone in on the product cycle changes this year, versus last year. RSP was kind of ramping through the year last year, and you're going to appear to have a down quarter in June. I wonder if you could talk about the difference this year, versus last year. And maybe, are there any ASP dynamics in there product to product? And then also, what does it say to the September quarter, that maybe we're having a lower June quarter?

Well, I'll start off and maybe we're spoiling you, Charlie. We're not down, actually. We've guided slightly up quarter over quarter, and certainly year over year, we're incredibly up. I don't remember what the percentage is, but I don't think we've slowed down too much.

I think what you're pointing out is, as I said, we've kind of spoiled you the last couple years, where we would often talk 40% to 50% sequential quarterly growth, between our fiscal Q3 and Q4. Part of it is, we have a different product line up, a different set of customers. And their relative impact of those customers, on a product lineup.

So it is no mystery, like Samsung, say two years ago, when we won the S4 touch socket. That was a big, big uplift for our Company. Because we were chugging along at $150 million a quarter, and that one socket had big impact. As we move forward this year, we are a different company. And there is still Samsung, and certainly they're still ramping the S6, and that helps us with our fingerprint solution there.

But there is other customers out there that also drive a lot of volume where Q2s -- calendar Q2 is lighter. I wouldn't jump top any couldn't solutions. Our metrics and solutions are growing this quarter. But there is other customers out there that also drive a lot volume, where calendar Q2 is lighter.

And, so, I wouldn't jump to any conclusion. And Kathy mentioned, our Touch and biometric solutions are growing nicely, the current quarter we're in. But there's other areas that are going down. So our seasonal pattern is changing. We're not, obviously, going to comment on the September quarter, at this junction.

But, we will have a different seasonal pattern as we become a more mobile company, as well. It just happens that the second half of the calendar year tends to be stronger. And hopefully, we'll get to enjoy some of that strength that will come along in the second half of the calendar year.

I was just going to add, Charlie, we started talking about this again, last quarter is with the advent of the RSP business. There was the traditional Synaptics business, which we had a particular seasonal pattern. We saw the strong upticks in the June quarter, and as Rick mentioned earlier, there is some -- China's going to be up in the June quarter, but it is not the same strength that we've seen the last couple of years.

Also, the PC business, it is a little softer. So we're not seeing the big strength, necessarily, in the June quarter. But -- and again the RSP business has a different pattern overall. So typically, that pattern was very, very strong December.

And in the March quarter, we've actually brought on more DDIC but, there are some product cycles that are a little bit different in that business, versus the traditional Synaptics business. But net net, we're looking for, as we said, we expect to see a more stable trend. A nice strong growth, as we continue to move forward.

And then, just a take on, I wonder if you can speak today to your visibility to the back half, and some of those large customers that you inherited from RSP?

Speak to the back half in terms of revenues? Or ramp rates? Or --

Just visibility in terms of design win activity. Ability to retain some of the customers that you inherited.

Yes, obviously, we're not going to comment on any customer specific sockets. Other than, we're doing great in the DDIC business. We're recovering some of the business that, I think, was lost a bit in the whole acquisition process.

There was a bit of a cloud over RSP, in terms of where they're going to end up and who was going to be managing the company, and just naturally, that happens in an acquisition scenario.

So we've had to go back to some LCD manufacturers and say hey, we're here, and we're ready to support you, and everything else. And we put the infrastructure in place. As Kathy mentioned, we picked up some nice business in that area. We certainly want to service the new business as well as existing customers.

Right. Thanks so much.

Liwen Zhang from Blaylock.

Thank you for taking my questions and congratulations on solid results. First question is regarding your litigation case. Obviously, Goodix does not only support the BLU, but why did you pick a BAU product in this case?

Well, as I mentioned, we actually look across the board and decide our litigation strategy. I really can't go into it, really any more specifics than that, other than when we took a look at the Goodix and BLU Products, they were infringing our patents, at least that was our belief. And we just felt we couldn't let it go any longer, and we decided to take action in that particular case.

My second one is in terms of DDIC, is your strategy to expanding customer portfolio. And what did you hear feedback from your original customer? You know, I mean, were they concerned of a supply constraint down the road?

Could you elaborate a little more on that question, or what specific area you want clarification on?

Sure. Regarding your display driver business from RSP, and your strategy is right now, is trying to expand customer portfolio, to increase the demand and sales. But have you heard anything from your original customer? And do they have any concerns for the supply constraints, down the road?

No. So let me try to address both of the -- I think the questions we're getting. So, the former RSP tended to do focus on Sharp, JDI and the LG display, as their three primary customers. And they did a little business outside of those three, but it was relatively minor.

One of the things we brought to the table was a different support structure in China and Taiwan, and elsewhere, to support a broader base of customers. And, again, that is what Kathy was talking about. When we saw some nice growth in the prior quarter, was starting to pick up business at some of the other LCD manufacturers.

We didn't sacrifice the original three, by any stretch. Those are clearly the most important customers that we have in the DDIC space. And that same support that they were accustomed to from RSP is continuing on.

As you well know, we didn't talk about synergy and headcount reductions, or anything with the RSP acquisition. We talked about we're a growth company. We're going to actually add headcount, to support those new customers and add products into our portfolio. So there was no sacrificing of their key value proposition, which was great support, hands-on support.

So that is, I believe, there is a second half of your question? Did I cover it?

I think you covered it. Thank you.

Tom Sepenzis at Northland Capital Markets.

Thanks for taking my questions. I think you mentioned that you have a 2KTDDI product, in your prepared comments. What is the highest resolution TDDI product you have qualified right now, at a display maker?

So right now, the two products that we have in production are what's called HD, so 720P is the more common term you hear for televisions. (multiple speakers).

Sorry, so you don't have one that is 1920 by 1080 yet, that's actually been qualified, is that correct?

That is correct. That would be full HD, and you could imagine there is strong demand, and you could imagine we're certainly working on that.

Yes. I was just wondering maybe, can you talk about timing, as to when you think you might introduce 1080 and 2K?

We're working -- what we already have is discrete DDIC devices, and they're already in volume production at this juncture, or close equivalence to those.

Clearly have the technology, and without pre-announcing products, we're going to be taking that leading display technology, and combining it with our Touch, and that's part of that full-product road map that I was talking about being in production, later this calendar year.

For TDDI, what we said is, we're starting at kind of the mid-range. So the HD products, and what we're doing is, we expand the product portfolio, particularly as we bring in the new chips with RSP. We're addressing a wider and wider range of screen resolutions in the marketplace.

So, it is a very exciting opportunity, and we have had a great set of DDI products out in the marketplace already, addressing all of those high resolution displays.

Thank you. And then just from the higher level, with TDDI, when you get it all fully integrated, the touch and the display drivers, from an ASP side is that on par with the two discrete solutions, or is it higher, lower?

How do you see that unfolding. Does it impact ASP's positively? What is the real end game there?

Well we're--

Like a market -- is it just a market share grab, basically, I guess is what I'm trying to get at?

The rate's playing out front of us, in terms of the value that we can bring. But, our belief is, it's at least a one plus one equals two. And we're actually hoping there is above two, because it brings more system value to the LCD manufacturer. They can save system level costs and there is the other benefits that I articulated in the script.

So there is obviously -- this is a semiconductor industry type of feedback as well. Things get integrated, right. It is an interesting pace, but as long as we continue to be the innovator, and lead with new resolutions, and we will certainly always certainly lead with touch technology and display technology. We certainly think we'll get a premium over the market.

Ostin Bernardez at Cross Research.

Thanks for taking my questions. Just to begin, with respect to your fingerprint sensor and unit demand there for their March and June quarters, versus, let's say, a year ago. Last year, you basically had a design into just one phone at the time.

And this year, you obviously have some sensors still shipping into some older devices, as well as your new ramp of your touch area sensor. Is the demand today, sort of on pace with what you saw last year for the Swipe?

Could you discuss the trends that you've seen? How we should be thinking about the seasonality fingerprints, into June, and a little bit into the September quarter, as much as you can? Thanks.

Okay. So, from an overall market perspective, we are quite bullish about what biometrics or fingerprint we do into the market a year ago, or even further back in October, when we initially announced the Validity acquisition.

Sometimes you get these wrong and sometimes you get them right. This one, we landed in the right column, a pretty strong ramp at the time, in the next couple years. And in 2015 becoming strong, in 2016 even better. That's what we're seeing.

As noted by Kathy in her remarks, we have over 2X the revenue in our fiscal Q3 with fingerprint. It gives you an idea that, of course, there were ramps last year, there's ramps this year. There's a little ASP difference, but we're seeing a stronger run right now, in the fingerprint solutions, clearly from a year ago. And, I think quite consistent with some of the growth projections we talked about.

And we're looking forward to seeing additional customers, and phones, rolling into the market over the course of this calendar year, as well, to help fuel that growth.

Okay. With respect to the DDIC business, can you provide a range of the magnitude of seasonality to be expected into June? And, to what extent are some of your new DDIC customers offsetting some of that seasonality? And also, separately, Kathy, could you give any color as to the RSP contribution on the EPS side for the quarter?

Well, we basically, I mean -- I'll start at the end of the question. So, I mean we definitely integrated RSP into the entire business. So, I mean there isn't a specific contribution at that level, for that particular -- for the business, in and of itself.

So the resources have all been assimilated. We have broad teams basically working on multiple different products, working on TDDI products, as well as DDI and other products. Our sales team is fully integrated. So, from a specific standpoint, we don't have any specific information related to the business. Because it has been fully integrated.

If you're looking, as far as moving into the fourth quarter, we did in the March quarter, for the last two quarters, we've seen DDI business be about 50% in total revenue in each of those quarters. As we move into the June quarter, again, we've got seasonal strength. We also have more strength from the fingerprint business, due to its ramps kicking in.

So we're expecting to see, just based upon normal patterns within that business, that the total, the revenue will drop some into the fourth quarter. But it's -- I would say it is quite normal, still a very strong piece of business.

Of course, it is our first quarter, our season going through this. Now, we can look at RSP and we can look at some of the competitors in the DDIC business. And it is clearly a first half calendar year, second half calendar year type of phenomenon, where the first half tends to be tough and then the second half tends to be stronger. But that can be very skew and OEM dependant as well. So, in terms of the overall market, that's the expectation.

Anthony Stoss at Craig-Hallum.

Hi Rick and Kathy, nice job for March, and maybe only one of the only hands that can pull the guys that buck the trend and actually were up sequentially for March, so congrats there.

Thank you.

Rick, can you give us a sense, in terms of the number of RSP customers in the March quarter, versus the December quarter? And how you see any limitations, in terms of new customers coming on-line throughout the year. Secondly, Rick, you talked about roughly 30% of your shipments in the China being on the TDDI solution. Where do you see that heading, kind of exiting this calendar year into next? Thanks.

Okay. So let me start with the first one. And I think Kathy got a better handle on the second one. So, maybe I'll let her take the second one.

So, in terms of customers, I mean the true, direct customers for, call it the ex-RSP or DDIC products, are the LCD manufacturers. And there is 10 of them around the world of substantial size, maybe a dozen. It wasn't that RSP didn't sell to all 10 or 12 of them. They tend to be pretty focussed on the three that I mentioned earlier in the Q&A.

We're expanding that focus clearly, and so there is three good-sized one, that's in China. Boe, Tenma and Troy and if you look to Taiwan as examples, there is AUO, innoLux and then, several smaller ones besides. We're working on all of them at this juncture.

Many of them we had already been working with, of course, with in-sell/on-sell type of technology, allowing our sales team to have additional products in their so-called bag, was a great thing for them and a great thing for us. So those 12 now, roughly speaking, we're working with all of them at this juncture. And the second question, Kathy?

Tony, I think the second question was related to the comment we made as far as display integrated solutions in China. So, what we said basically was, display integrated solutions were about 30% of what was shipped, that product shipped into the China market. And, again, that is the broad category of the integrated solution.

Today, I mean, that is primarily your on-sell, your two-chip in-sell solution. Again, we just started shipping TDDI into that marketplace. So again on the broad range of display integrated solutions, we already have a nice percentage basically, They're being shipped into China.

So, a lot more opportunity to continue to grow the China business. And to move our more advanced TDDI solutions into that market.

And that concludes today's question-and-answer session. At this time, I will turn the conference back to the management.

Thank you, everyone, for joining us on the call today. And we look forward, certainly, to updating you again next quarter in July.

And that does conclude today's conference. We thank you for your participation.