Synaptics Inc (SYNA) 2016 Q1 法說會逐字稿

Good day, and welcome to the Synaptics first quarter 2016 conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to Ms. Jennifer Jarmin. Please go ahead.

Thank you, operator. Good afternoon and thank you for joining us today on Synaptics' first quarter FY16 conference call.

This call is also be 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 Wajid Ali, 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 change in contingent consideration, and certain non-cash or nonrecurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial conditions, results of operations, plans, objectives, future performance, and business. Although Synaptics believes our estimates and assumptions to be reasonable, they are subject to 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 30, 2015 for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Synaptics expressly disclaims any obligation to update this forward-looking information.

With that I will now turn the call over to Rick Bergman. Rick?

Thanks, Jennifer, and I would like to welcome everyone to today's call.

Synaptics delivered record fiscal first-quarter revenue, non-GAAP net income, and non-GAAP net income per share. We benefited from healthy contributions from our fingerprint authentication and display driver products, which helped offset softness from our PC products. Some notable developments since our last earnings call include adding an important fingerprint ID customer in China and the launch of force-sensing in our newest series of ClearPad Touch offerings. And we're seeing strong and growing demands for fingerprint and TDDI solutions as we continue to execute towards those gross levers.

Specifically fiscal first-quarter revenue $470 million was squarely within our guidance range. We consider this to be a very favorable result given industry analyst reports regarding pockets of weakness in global consumer electronics demand. We achieved strong non-GAAP net income of $57 million, or $1.49 per diluted share. Up 40% year-over-year, and gross margins with the midpoint of our guidance range.

During the period we took advantage of weakness in the financial markets by turning up the dial on our stock buybacks, purchasing $125 million worth of synaptic stock, or roughly 1.7 million shares. This represents approximately 5% of shares outstanding, essentially matching the number of shares repurchased in all of FY15. And I am pleased to report that our Board of Directors has increased and extended the authorization for stock repurchases by another $200 million, for a total cumulative authorization of $1.05 billion available through October 2017.

In addition we've added another $100 million to our debt capacity, expanding our arsenal to further support our growth initiatives and efforts to increase shareholder value. As a company, we remain resolutely focused on growth, and are working to deliver the most advanced set of solutions that position Synaptics for ongoing leadership and success within the markets we serve.

I will now provide an update on our core markets. Been Wajid will review our first-quarter results in more detail, and provide our current outlook before opening up the call to your questions.

Starting with the biometrics space. We are very pleased to announce that China-based OEM Lenovo has selected our area touch finger print sensor for its latest smartphone, the Vibe P1. The new Vibe P1 enables secure, password-free access to unlock the device, and provide swift access to applications in the fast growing movement toward secure mobile payment services such as [Alipay].

As highly secure fingerprint authentication becomes prevalent on smartphones, consumers in the entire ecosystem will benefit from safe and easy password-free transactions. Lenovo was a key leader and innovator and an important Synaptics partner, who shares our vision of highly secure and convenient mobile payments. Other activity in this area includes our fingerprint solutions being selected for the new Samsung Note 5 and S6 Edge plus smartphones.

During the quarter, we also certified the latest additions to our fingerprint sensor portfolio with a FIDO alliance. By providing FIDO's certified solutions, our customers can expand their partner network and take full advantage of the market growth opportunity for biometric security. As a founding member of the FIDO alliance, Synaptics has helped pave the way for adoption of password free authentication through our industry-leading portfolio of biometrics solutions.

We also announced collaboration with Microsoft on biometric fingerprint authentication in touchpad technologies on Windows 10. Microsoft leveraged Synaptic's deep expertise in human interface, which is a fundamental element to the operating system. through stringent testing, our advanced image sensing technology and drivers are fully certified with Microsoft precision touchpad specification. Empowering OEM's with Windows 10 ready Synaptics products.

Windows 10 users can benefit from our industry-leading precision touchpad technology and SecurePad, the industry's only solution to integrate secure biometric fingerprint ID technology directly into the touchpad. Collaborating with Microsoft in this project is a testament to our commitment to improve human interfaces.

During the quarter, our industry-leading touchpad solutions were selected by Dell for its Chromebook 13 and the all new Dell XPS 13. HP selected our touchpad for three new models, including the detachable Specter X2, the Star Wars special edition notebook, and the very thin [MV13] notebook. MSI also selected our touchpad for it's new powerful gaming notebook, the GT80.

Moving to our smart display division, Xiaomi, one of the world's largest mobile manufacturers, has adopted our ClearPad S3708 capacitive touch controller solution to power its latest smartphone, the [Mi4C]. By featuring the solution, Xiaomi is able to offer customers new side touch capabilities, which leverage the side of the phone for tracking finger taps and slides. Side touch also enables scrolling without covering the display with hands or fingers, and enables actionable taps to, for example, take photos or change content.

Additionally the Xiaomi Mi4C incorporates Synaptics' DDIC solution, providing industry-leading billion color displays and full HD resolution. We're also excited to announce three new generations of ClearPad discreet touch controller solutions. These new products enable increased functionality in entirely new dimensions of touch, including force-sensing for smartphones, tablets, and automotive applications. Our broad patent portfolio and years of proven experience in touch technologies has enabled us to provide smartphone OEMs and LCMs with cutting-edge user experience solutions.

The new 3600 solution is optimized for mainstream smartphones, and features an all-new silicon architecture for improved touch performance. It supports new features without additional cost, including gloved touch, two finger tracking with moisture on display, user defined gesture recognition and [FaceDetect], which eliminates the need for proximity sensor.

The new 7800 is optimized for large touchscreens up to 17.3 inches, including notebooks, tablets, and automotive applications. The doubling of processing power enables advanced features and performance needed for larger smart devices. The 7800 features 1 millimeter [passive pen] support, excellent palm rejection performance, advanced moisture and glove performance, as well as low-power wake-up gestures.

Synaptics 3700 is our latest flagship discrete touch controller for smartphones. It supports new technologies, including ClearForce variable force sensing, and site touch for edge gesturing, such a scroll and tap. The 3700 represents a massive performance upgrade, doubling MBs in memory over its predecessor to enable these advanced features.

The ClearForce force-sensing feature of the 3700 enables OEMs to differentiate smartphones with new dimensions and user interfaces, such as speed-scrolling, zoom, gaming, and text or photo editing by applying variable force with a finger or stylus. With force sensing now on the consumer's radar due to recent inclusion and certain high-profile devices, there is no doubt that it is becoming a sought-after feature by our mobile customers as they seek advanced technology that drives an enhanced and more productive user experience.

Synaptics has been working closely leading global OEMs and LCMs, and is well-positioned to deliver this new dimension in touch with force-enabled smartphones expected to ship in early 2016, with tablet, wearables, and automotive solutions to follow. As our third-generation force-sensing solution, we offer a rich history in force technology dating back to 1996, including over 60 granted and pending patents, worldwide. This exciting new step in human interface for smartphones will soon become the norm, and highlight Synaptics leadership in touch innovation.

Now, touching on current trends in the industry, clearly there is some general weakness in the market. As we look at the second fiscal quarter, we're projecting moderate sequential growth at the midpoint of our guidance. Revenue from our fingerprint ID products is expected to be a bright spot, reflecting substantial year-over-year growth.

In anticipation of less than stellar market conditions, we are also prudently managing our operating expenses, and expect to drive incremental earnings in the quarter relative to the top line. While the uncertainty of our markets makes rest of FY16 difficult to predict, we continue to expect to achieve an annual revenue growth rate of 20% to 25%. Based on what we're seeing in the market today, we're comfortable with the lower end of that range. However, we will continue to reconsider forecast as we gain more visibility throughout the year.

Our continued confidence in our long-term growth opportunities stems from Synaptics unmatched product portfolio and our strong positioning based on our leadership and innovation. We are executing on a product milestones, with our first combined TDDI offering expected to begin shipping at the end of our calendar year, and becoming a meaningful growth contributor in the second half of FY16.

In addition, the appetite for our fingerprint authentication solutions continues to intensify, and our efforts to expand our penetration within the broader market are paying off. We're seeing increased momentum for our biometric products, and expect to layer on multiple new design wins with a growing number of customers as we enter the next calendar year.

To conclude my formal remarks, we are very pleased with our Q1 performance given the overall market dynamics. We expect to hold steady in Q2 amidst this continued backdrop, followed by strong momentum from our key biometrics and TDDI growth pillars over the second half of the fiscal year. We look forward to taking a deeper dive into these market opportunities, as well as the evolving growth areas, such as autos and wearables during our upcoming analyst and investor day. We hope to see all of you there.

With that, I'll now turn it over to Wajid.

Thanks, Rick.

We are pleased with our topline results, as revenue came in at the midpoint of our range. And represents record first-quarter revenue. September quarter revenue increased 66% year-over-year. And was down 2% sequentially. During the quarter, we had three customers above the 10% threshold.

We achieved strong mobile revenue growth year-over-year, while the revenue mix from mobile and PC products was approximately 88% and 12%, respectively. Revenue from mobile products was up 106% compared with the year ago quarter, and was down 3% sequentially. Revenue from PC products was down 30% year-over-year, and up 9% sequentially. Our strong year-over-year mobile revenue growth was driven primarily by display driver solutions.

Non-GAAP gross margin of 38% was at the midpoint of our guidance range, and primarily reflects overall product mix. Non-GAAP operating expenses came in according to plan at $109.2 million, up $2 million from the proceeding quarter. Contributing to the increase in non-GAAP operating expense was increased compensation cost and increased legal expenses related to ongoing litigation activity.

GAAP operating expenses in the September quarter were $130 million, which include share-based compensation of $11.5 million, net acquisition related costs of $7.4 million, consisting of intangibles amortization and change in contingent consideration, and $1.9 million of severance costs related to restructuring of the former RSP operations. Our non-GAAP tax rate was 17% in the September quarter, while our GAAP tax rate was 27.9%.

Non-GAAP net income for the September quarter was also a record for our first quarter at $56.9 million, or $1.49 for diluted share. A 43% increase year-over-year as compared with $40.9 million, or $1.04 per diluted share in the first quarter FY15.

Turning to our balance sheet. We've ended the quarter with $275 million of cash. Receivables at the end of September were $349 million, and DSOs 67 days reflecting backend loaded quarter. While inventories were $146 million and inventory turns were 8, all consistent with our expectations.

Cash flow from operations was $12.3 million for the quarter, primarily reflecting the impact of a backend loaded revenue quarter, with a receivables up almost $25 million. Capital expenditures for the quarter were $9.9 million, and depreciation was $7.9 million. As Rick mentioned, during the quarter we used $125 million to repurchase 1.67 million shares. Further, our Board of Directors has increased and extended the authorization for stock repurchases to October 2017, bringing our cumulative authorization to $1.05 billion, of which we have used $777 million since the inception of our stock repurchase program.

During the quarter, we worked with our bank syndicate to increase our revolving credit facility by $100 million. At this time, $150 million remains available under the credit facility for general corporate purposes, including our stock repurchase program.

Now, I will make a few comments regarding our quarterly outlook. Based on our backlog of approximately $214 million entering the December quarter, subsequent bookings, customer forecasts, product sell-in and sell-through timing patterns, as well as expected product mix, we anticipate revenue for the December quarter to be in the range of $460 million to $500 million. We expect the revenue mix from mobile and PC products to be roughly similar to the proceeding quarter.

Taking into account our overall revenue mix, we expect non-GAAP gross margin for the December quarter to be approximately 37% to 39%. We expect non-GAAP operating expenses in the December quarter to decline by up to 100 basis points from the September quarter. We anticipate the FAS 123r charge in the second quarter to be in the range of $12.2 million to $12.7 million.

GAAP expenses will also include non-cash charges of approximately $19 million related to intangibles amortization, of which approximately $14 million will be reflected in cost of sales. We anticipate our non-GAAP long-term cash-based tax rate for FY16 to remain in the range of 16% to 18%. Non-GAAP net income per diluted share for the December quarter is anticipated to be in the range of $1.45 to $1.75 per share.

As we pass the one-year mark of consolidated operations with RSP, we expect our business to reflect moderate year-over-year growth on a quarterly basis, accelerating over the latter half of the fiscal year based on expanding momentum for our fingerprint ID and TDDI product solutions.

In closing, we are pleased with our record first-quarter financial results and believe we are well positioned to achieve record revenue and record non-GAAP net income per share in FY16. We believe we continue to be very well poised to capitalize on the opportunities in front of us.

With that, we will now turn the call over to the operator to start the Q&A session. Operator?

Thank you.

(Operator Instructions)

First question, Rob Stone.

Hi guys. Rick, I wanted to start with how you're thinking about the full-year guide. Previously, 20% to 25%, now I think you said you are comfortable with 20%.

Is that mainly an assessment of end-market demand? Or are you seeing changes in what you though would be uptake of various new product initiatives? Fingerprint, TDDI, et cetera. Any color would be great.

Sure Rob, just to clarify, we said the lower end of our range. Not exactly 20%. On our comments in the script there.

And what is driving that, clearly as we look forward -- you heard me during the prepared remarks talk about a lot of products working on, so in some ways, to use a metaphor, we're loading up the gun with a lot of bullets. And it just takes a while for those to get in, get designed in to new products and those products rolling out into the marketplace. So for example, I talked about TDDI, talked about some fingerprint solutions, I talked about three different touch controller solutions.

So this marks kind of my fourth anniversary here at Synaptics, it's almost kind of amazing amount of different products and opportunities now that we have as we look forward. And so I continue to be excited about what we're seeing with the fingerprint solutions with the TDDI. Again, we're at -- on TDDI, we're just at the beginning of that ramp and we'll have multiple solutions over the course of the middle of next year. That will be in volume production, and there's strong customer interest and demand, and those are at higher ASPs than we have enjoyed that in our past.

So, It's a lot of those things coming together, and I think you followed us I know for long time. You've seen, we have always had this back half uptick for a variety of different reasons over the years, but again, we are seeing that trend. Based on what we're seeing on the marketplace, the only thing that gives us a little bit of pause is -- as you heard us talk about, there's been a lot of churn in the marketplace, little bit more slowness in China. PC market isn't what people expected this year, but overall we still feel really good about the growth prospects we have as a company.

Great. My one follow-up question then is with respect to ClearForce and ForceTouch displays. Just be clear, you are expecting to see more than one OEM launching solutions with that in early calendar 2016? So the second half of your fiscal year?

And you mentioned strong patent position and years of research, do you see any competing alternative in the market at this time? So, any color on timing and competition would be great.

Okay. So, we have been working on these solutions for the most part with some OEMs for the entire calendar year. So the short answer is yes, you will see multiple OEM launches in the first half of calendar year 2016.

And what we're leveraging is -- certainly, we have a strong IP portfolio given our work in this area. This has always been a natural extension, is what we thought. Of course adding a third dimension to touch pad or a clear touch solution seems quite obvious and intuitive for a human interface. We just kind of needed something to get the market to move along.

And so there's obviously one other competing solution of there that we have seen in a recent phone launch, but they don't supply the general marketplace, and there's a couple of smaller players that out there talking about force solutions, but when it comes to IP, manufacturing experience, the user experience that we have, the technology, the algorithms, nobody else really compares to us that can offer the product to the rest of the OEMs.

Great, thanks, I'll jump back in the queue.

Next question, (inaudible). Please go ahead.

Thank you. My question, just getting back to the full-year guide, it is a pretty aggressive fiscal Q3 fiscal Q4, and among the many drivers that you listed, which ones do you think is going to be the primary driver for you to make the low end of the range, as you pointed out?

Sure [Ambrish], thanks for the question, and maybe Wajid can jump in here as well if I miss the mark on the answers there. Really, it comes down to three different elements.

One is probably -- clearly, from a percentage perspective, is TDDI. As I mentioned, we do have a couple of products in production today. They are relatively low volume and it is giving us good experience, and we're learning a lot from them. As we committed way back, I think at the beginning of the calendar year, that we would have the first joint developed solution from the former RSP team, our Japan design team, along with our leadership touch technology from our primarily US-based team out in volume production by the end of the calendar year. Certainly beginning that ramp. And we would have a family of products by the middle of next year.

We're right on track with that schedule. The first one's always the toughest one, and we got that out and it came out in great shape, and now we're working on multiple follow up chips. So long answer on -- that's the TDDI solution, and it certainly could be a nice pop for us by our Q4 fiscal.

Fingerprint, this continues to grow and grow. We see growth in this current quarter, and we think we will be able to see sequential growth over each of the next couple of quarters, as well. Tremendous amount of activity; we've done real well with Samsung. We've added multiple Samsung phones as part of solutions that use our technology, and we kind of busted the dam, so to speak, with the Lenovo design win in the last fiscal quarter, and there will be a number of other phones joining that parade in the first half of calendar 2016.

And then finally, we do see some additional opportunities we've mentioned in the DDIC area. Relatively speaking, there's some new -- we've mentioned this again in the past, there's some new LCMs that we can engage with that can help drive some growth, as we move into the first part of calendar 2016 as well.

So those three elements.

Okay that's helpful, Rick, thanks for that. And my second question is actually on the technology front.

If you look at the ADI solution and they talk about the [converged] technology that they have pooled from the industrial piece of the business, what are some of the key differentiating pieces in your solution, in ClearForce, that will enable you to -- let's assume that you are the second largest supplier. Assuming that they keep Apple for multiple generations.

So, what are the key underlying technology elements? And I understand IP and algorithms and whatnot, but from a chip side, chip perspective, what do you bring that would be harder for others to -- others in Asia, for example, to emulate and copy? Thank you.

Okay, I would love to give you a very detailed answer, on that, Ambrish, but I also don't want to show my competitive hand here either.

As you can imagine, we're Synaptics, and when we delivered touch solutions, we deliver a whole family and a multiple generational family as well. We have some solutions that you will see in the first half of calendar 2016. You will see different solutions, frankly, later in the year. As you can imagine, we have a roadmap on ForceTouch.

Some of those capabilities are matching what we have seen from analog devices and in other cases will be entirely different. One area that I think that probably will stand out is the cost-effectiveness of our solution. As we mentioned before, we don't require an additional device. We could leverage our existing touch controllers, we built in the capability into those touch controllers, at least for the first wave of solutions.

To me given the competitiveness of the smartphone market, that's clearly a requirement, and the fact that we want to see force not just deployed as a very high-end solution, but across the mid-range phones as well. So key technology's clearly the user experience that we bring, the manufacturing I mentioned, that we bring -- once you start in to talk about variable force, across the screen, suddenly you have to measure everywhere on that screen and have that consistency in manufacturing. That's a nontrivial problem to attack, and you really want to go with an experienced vendor.

And then of course, stating the obvious again, is the IP and background that we bring to the table that nobody else out in the marketplace really has that.

Thank you.

Next, Osten Bernardez, please go ahead.

Good afternoon. Thanks for taking my questions. First question I have, Rick if you could -- could you share just some details in terms of what kind of traction you are getting with vendors and supply chain partners selling into India, Indonesia, and other emerging markets outside of China? And I understand that it's probably some of the same -- it is the same supply chain that you work with to get into some of the domestic vendors there, as well.

Okay, another great question. And you're right, it is a lot of the same vendors that you see participating in the marketplace in India or Indonesia. And some of those same vendors recognize that's where the growth is, as we moved to kind of single -- high single-digits growth in the smartphone market. Those areas are double-digit growth.

One example I can point to, for example, is the Samsung A8 device that uses our fingerprint solution. It's targeted -- one of the target markets was India. Another one of course was China as well, and that has done very well from what I understand.

We also work with Google. Actually, the name escapes me on the particular initiative they have, but they want to set a baseline of Android features, and we are on the improved vendor list for touch, as an example, on how we are penetrating the India and Indonesia markets. The other nice advantage that we have is more and more touch solutions move to display integration.

If it's a white-box type of phone that sometimes the smaller vendors use, our displays get integrated with our solution, and now we've set up a distribution sales force to participate in that market, and we work with the display vendors and they kind of just end up there and we don't have to do a lot of handholding. It's the great part about being in kind of by far the leader on display integration.

We continue to keep our eye on India. One advantage we have is actually we have a pretty sizable engineering team now in India, and so if ever need, we can supply or provide local support there, as well.

Thank you, and then secondly, I was just wondering with respect to the share repurchase and your raised revolver, how should we be thinking about your thoughts on allocating capital towards -- be it acquisitions versus share repurchase?

And is there any sort of -- given the longer term trajectory that you've set out historically in the past for Synaptics of being a double-digit sales grower and where you are today from a share repurchase pace standpoint, are you hinting towards any sort of preference, here? In terms of moving away from being a major acquirer of other assets? How should we think about that? Thank you.

Not delivering any hints, I think over the last number of years, we've actually consistently purchased our own shares. And when the market, due to -- call it numerous forces out there moved into the mid-70s and even the upper 60s, we jumped into action, because it was, in our view, based on what we can see in the market and our opportunities, there is no better investment out there then Synaptics stock.

So we were very aggressive last quarter. Now that's not an indication, and so I should be very clear: we are a growth company. And that is our first priority, is to make sure that we continue to grow that top line. We've done two major acquisitions. Kind of one over the last -- one each over the last couple of fiscal years. We are continuing to be actively engaged to look for other opportunities that can help us fulfill our vision and mission of being the human interface leader.

But it has to make sense as well, we're not going to grow just for the sake of growing. It has to be a profitable growth, and again, has to be very strategic in nature. We're not giving up that mission, but we will continue to provide returns to our shareholders as necessary by acquiring our own stock.

Wajid?

Okay I think I covered it.

Thank you

Next question, Charlie Andersen.

Thank you for taking my question. I wonder, if we think about context of the lower end of guidance for revenue, how should we think about margins for the rest of the year both gross and operating?

So Charlie, Hi. It's Wajid.

We've talked about our operating model a number of times, and we expect the full-year to fall within our operating model, and just as a reminder, our gross margin model is 37% to 40%. Over the last couple quarters, we've trended in the 37% to 39% range. Q1 was no different. Q2 our guide is pointing to that range as well. We expect Q3 and Q4, based on what we see and what Rick talked about earlier in terms of our product mix, we continue to expect to see that our gross margins will fall into that range.

Now, as far as operating margins are concerned, we've talked about operating margins of 15% or better. We've had a few quarters with the RSP acquisition. Where we have demonstrated that level of operating profit. Q1 was close to 15%, and we expect Q2, based on the mid-point of our guidance, to also be there, and we expect to drive Q3 and Q4 with that type of operating profit model as well.

So we're going to operate within those parameters for the remainder of the year.

Perfect, and then I had a question on ClearForce. I wonder how we should think about ASPs for that product? Are there scenarios where you will sell it as a module and will have a higher ASP, lower gross margin? Just generally speaking, how we should think about ASPs for that would be great.

To address kind of the middle part of your question there, we have no intention of re-entering the module business for ClearForce.

Obviously, we had some history there about five years ago, but there's plenty of folks out there that do a fine job of doing that. That doesn't mean we don't have to roll up our sleeves and get into some mechanical aspects and other aspects of ClearForce that we did not have to. But again, that's how we add value, that system level knowledge that our customers really appreciate.

In terms of ASPs, there should be some opportunities there. As we've discussed in the past, we don't need -- at this point, our solutions don't require an additional device, but it does drive a device that has more compute power, more memory, more channels to support the force function. So that will tend to slant the product mix to the higher end. Typically, our higher-end products have higher ASPs and higher margins.

Perfect. Thanks so much.

Next question, John Vinh.

Hi, thanks for taking my question. Just a follow-up on the force sensing. One, you mentioned analog devices. Are you seeing them in the marketplace at all, or are they just captive right now?

And then just a follow-up question on just the opportunity as we think about 2016, is this going to be a meaningful revenue contributor for you in terms of -- higher ASPs translates to more meaningful, higher revenue growth? Or is there also a share regain opportunity for you in 2016?

Okay, so let's start off with the analog devices. Frankly, John, I just leverage it off the question. It's a convenient way to talk about it without mentioning the customer's name. That being said, no, we don't see any -- call it broad spread interaction in the marketplace with ADIs solution with other vendors at this point. Now maybe at some point they will jump into the market, but in general, I don't believe they compete in the mobile space. So we're not really anticipating it.

So in your second half of your question, as I had mentioned, yes, we do expect higher ASPs in the marketplace. In general, we do pretty well in the high end, so this just solidifies our position out there in the higher end of the marketplace. Whether we have share gains or not, I think it's a little early to make those calls.

Great, and then my follow-up question. One of your peers is reporting today as indicating that one of your larger customers, which typically launches a flagship phone in the first half of the calendar year is pulling in their launch slightly so they got better visibility and confidence that Q1 could be better than seasonal, into the March quarter.

Are you seeing the same thing? And is that also driving some increased confidence in your end that you going to see potentially sequential revenue growth into the March quarter?

Of course, John, I'm not going to jump into the party if one of our peers has talked about one of our OEM launches. I'm not going to comment on their timing or the magnitude of those launches. At this point, I'm only going to talk about Q2, and we gave as much color as we could on the second half of the year.

So, can we take advantage if there is pull-ins and all that? We have the world's best operations organization, and we don't talk about it a lot, but they accomplish miracles all the time. We love customer challenges, whether it's two weeks from now or two months from now.

We love when our customers pull in launches or increase volume.

Great thank you.

Next question, Paul Coster.

Hi, thanks. This is Paul Chung on for Coster. Actually all of my questions have been asked, thanks.

Next question, Anthony Stoss.

Hey, Rick. The last several quarters, you've been talking about robust design activity on the TDDI side. I'm curious if you can give us a sense of the ramp heading into next calendar year? And also, is there any limiting factors on the production side that's prevented you from (inaudible) that TDDI solutions quicker? Thanks.

Okay, so first you asked about the timing or the steepness of the ramp.

The timing is, again, what I think I have been saying for at least a couple quarters now is, we would have our first unified TDDI device ramping in volume production at the end of this calendar year. We are right on target.

In terms of limitations, the biggest limitation is that it tends to be a longer design and cycle then maybe historically you've seen from us with our touch control -- our discrete touch controller solutions, as an example. We have to work with the LCD manufacturers very early on. They actually cut glass specifically for our solution because we have a specific pin-out. The other limitation there is, in some cases, it's the first time they are doing in-cell touch solutions. We kind of have to go through that learning cycle with them.

All of that is good, because it obviously embeds us then as the incumbent supplier, but it does take a while. Now, we've built that into the discussion that we've had in terms of available solutions for our side on TDDI, as well as the expected ramp that we have from our customer base. That's why [we said] well, we'll start this year -- we'll be fairly light as we go through that learning cycle, but once we get that first device out there, get those first solutions, the LCM manufacturers understand how to build with our TDDIs and do embedded -- excuse me, do in-cell touch.

You will see a very nice ramp as we move through the balance of the fiscal year, and then of course calendar 2016 will be very exciting.

And then second question. We've been talking about ForceTouch on smartphones. On the notebook side, do you think that could breathe life into your PC business? What are you seeing there?

We have multiple plays in the PC business. It's always tough, as you can imagine, Anthony, when the market shrinks 10% year-over-year to develop a great way to grow your business. And for us specifically, of course, it's client notebooks.

And is force an opportunity? Yes. Keep in mind that force for notebooks tends to be a little more expensive solution, because you tend to want to use glass on the touchpad as well as the actual implementation. If you have haptics, it can tend to be a little more expensive. So there are obviously our few force pad solutions in the marketplace, but they all had to be higher end, which then of course tends to be limited volume, given the competitive nature of the notebook market.

But where we see some real interesting opportunities in the PC market is a couple of areas. One is SecurePad. You will see solutions launched in the first half of calendar 2016 with SecurePad, which for those that don't know, that's where you have fingerprint actually built right into the touchpad. A lot of interest in that solution. And then, we've talked previously, not so much in the prepared remarks this time, about some of the solutions that we're bringing for the desktop marketplace.

Again a fingerprint solution in a mouse or a keyboard or something we call SmartBar to help in gaming, which is a strong part of the PC marketplace. But all of those are in the desktop area.

Thanks, Rick.

Next question, Kevin Cassidy. Please go ahead.

Thanks for taking my question. I'll ask maybe the question that I think a lot of people are thinking about. A lot of consolidation in the semiconductor industry and offers for acquisitions, how does Synaptics feel about acquisitions? Being acquired? I should put it that way.

Okay, thanks, Kevin.

First, I should talk more -- somewhat similar to the question I had earlier about where's Synaptics going in terms of capital allocation and so on. As you can see from the last few years, since I have been on board here at Synaptics, our plan has been growth. We have done a number of acquisitions during that time period, including very sizable ones for, at the time, the size of our company. We continue to aggressively look at that path, and really that's the priority.

When I'm thinking about where this company wants to go, we're going to continue to drive the company on a growth path, continue to be aggressive out there, look for opportunities, but they really, really have to be the right opportunities. I think we've demonstrated that we have been particular, while aggressive, to land the right opportunities that can turn accretive pretty quickly, be strategic to the company, and ultimately to hit our first priority: allow that growth that we seek on both a short-term and a long-term basis.

Okay, and then I guess I interpret that you think you can grow faster as an independent company than being acquired by somebody and being vertically integrated?

Well, as I said, I think about every day on how we can get can grow as an independent company. Obviously we are a public company, and at some level you always have to be open to other ideas out there, but again, my mission is to grow.

Okay, great. Thank you.

Next, Rajvindra Gill.

Thanks for taking my question. Just a follow-up on a previous one. With respect to your OpEx guidance. So the OpEx is coming down sequentially to hit the earnings target in the December quarter. So the OpEx is around 22.6% of sales, down from 23.2% of sales in the September quarter. As the revenue ramps in the second half, in order to achieve the annual guidance, the percentage of sales by OpEx is going to start to drop, even if you increase the OpEx sequentially.

And so I just wanted to get a sense, is there opportunities to go above the [15]% in the March and June quarter as the revenue ramps? Or is that going to be put back into the business, in terms of OpEx? Because you clearly manage the OpEx in December, the December guidance, to bring it down on a percentage of sales basis.

Okay, hi. It's Wajid.

Just as a backdrop, we're continuously looking at opportunities to manage our global footprint as best we can. Rick talked earlier about the fact that we've got a large and growing operation in India. We've also got a large and growing operation in China as well.

And so, as far as we're concerned, we're continuing to invest. If you take a look at our head count sequentially, even coming into this quarter, it has grown. We have grown as a company. And sequentially into next quarter, we expect to grow as well.

The guide down into December. Part of that had to do with the restructuring that took place related to our RSP acquisitions. So we called out the restructuring that we had completed, and we're going to start the benefits of that restructuring right away. We're going to continue to invest where we feel it's necessary, and we're also going to follow our operating model. So we're going to continue to do both. Obviously, we're taking a look at all types of discretionary expenses.

As Rick talked about earlier, the market has softened a little bit, and so our entire global workforce is looking at discretionary expenses as well and seeing where we can save, and so we will continue to tweak that and to take a look at that. And if we can find a few basis points to add to the bottom line, we will. We continue to be focused on investing in the right places, and actually continuing to increase our headcount. But with our global footprint in mind, rather than just our domestic footprint.

Thanks for that. And just my last question is around the revenue guidance and the commentary that, Rick, you talked about. Can you elaborate a little bit further in terms of when you say market conditions, they are a little bit uncertain, is it China headsets? Obviously, we know PC has been weak, if you just maybe elaborate further. Are those risks built into the annual guidance?

Yes, thanks for the question. If you just look at the quarter we just completed, to put it mildly, there's a little bit of churn in the marketplace. And whether it was China or some of the other aspects of there, and then at the end of the day, we've knocked it bang on, right exactly on our midpoint on almost everything, gross margin, OpEx, and revenue and so on, despite all the churn out there, and one thing that's really hard to control as a company, of course, is what the markets do.

That's kind of why we have that disclaimer of there: well, we've got a plan, we feel really good about our roadmap, but as I said, I feel much better about our roadmap than any time in the history of the company, given just the number of cool solutions that we have ready to roll out there. But, we can be surprised.

China is an example. I think it's valid that you brought up. It's softer than we expected back in July, when we initially gave the annual guidance. We were expecting the China smartphone market continue to grow, obviously, at much moderate pace than in the past, but that's clearly -- Now, as we look forward over the course of the fiscal year, it's probably flat in terms of growth. So the smartphone market overall, the expectations are somewhere in the high single digits as we look calendar 2016 over calendar 2015. Obviously the PC or notebook marketshare numbers have come down.

So we've compiled all of those things over the last couple of weeks, just like we did back in July, stared into our crystal ball, and listened to our customers. One thing -- advantage we have now that we didn't have in July: we're three months smarter. We understand a few designs that we now have, but there is still a lot of work to be done here at the company.

So fairly long answer there just to say, yes, we're doing our best jobs looking at a fairly turbulent market and making a call based on the best information we have today.

Great. Thank you, congratulations.

There are no further questions at this time. Please continue.

Okay. Thanks for all the great questions. It's always good to hear what's on everyone's mind.

One thing I just want to again remind you, that we do have our analyst day here in a few weeks, and at that time we typically give a competitive update, our market shares, all those different additional color on a number of the questions that we got today. I hope everybody can make it, and I look forward to spending the day with you.

Thank you very much.

Ladies and gentlemen, this concludes the conference call for today.

We thank you for your participation. You may now disconnect your line and have a great day.