Synaptics Inc (SYNA) 2017 Q2 法說會逐字稿

Good day and welcome to the Synaptics second-quarter 2017 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Jennifer Jarman. Please go ahead, ma'am.

Thank you, Lynne. Good afternoon and thank you for joining us today on Synaptics second-quarter FY17 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the Company's website at synaptics.com. With me on today's call are 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 compensations, acquisition related costs, and certain other noncash or recurring 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 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 25, 2016, 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. 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 solid second-quarter results with revenue of $461 million, in the upper half of our guidance range. We experienced strong year-over-year performance from are TDDI and fingerprint products. On a quarter over quarter basis, TDI revenue increased over 40%. Our DDIC business came in roughly as anticipated, although significantly lower year over year.

We posted GAAP earnings per diluted share of $0.64, while non-GAAP earnings per diluted share was $1.49, including a tax rate change benefit of $0.11. We ended the second half of calendar 2016 on a positive note and kicked off calendar 2017 with two big events. Our analyst and Investor Day in mid-December and our recent participation at CES where we highlighted progress across several strategic fronts.

First, Synaptics continues to benefit as the first-mover and clear technology leader within the rapidly expanding TDDI market. Second, our momentum in fingerprint authentication continues to grow, and we are one step closer to achieving true button-free sensing with the recent expansion of our portfolio into optical fingerprint solutions.

Third, in addition to our TDDI and fingerprint key growth pillars, OLED is expected to become a core growth driver as we remain on track with our technology roadmap and ability to serve our customers, not only with touch and display driver solutions, but also with OLED TDDI. Fourth, we continue to emphasize growth and diversification as we cultivate the next wave of opportunities within consumer IoT realm, including wearables, smart home, access control, automotive, ARVR, and healthcare. We believe Synaptics is uniquely positioned to become the human interface leader in consumer IoT to make these evolving devices easier to use.

Lastly, Synaptics continues to innovate toward the ultimate combination of our technologies. The integration of touch, display, and fingerprint within what we call, an infinity display, enabling customers to maximize every square millimeter of the screen.

Now I would like to touch on recent developments in several of these areas starting with the exciting activity in our Natural ID biometrics business. After 30 years of focus and leadership with capacitive technology, we have now added optical to our portfolio of interface solutions, strengthening our competitive advantage. Optical sensing technology opens the door for broader innovation, about a renovation, and continued integration of our products into our target markets, including the advancement of our OLED roadmap.

Many of you had the opportunity to see a demonstration of our optical Under Glass in bezel solution at CES and also at our analyst day where we conducted fingerprint authentication through the full cover glass, a technology capable of reading through 1mm of glass. This industry-first optical solution is a technology leapfrog in the evolution towards removing the front button on smartphones which will drastically improve the user interface experience.

Our announced partnership with Shanghai based OXi Technology accelerated this goal and enables a significant time-to-market advantage. Teaming with OXi also quickly expands our China presence in our time critical customer support network. We also had the opportunity to demonstrate our organically built in display optical fingerprint sensor solution, where our innovation eliminates the phone bezel all together and enables the smartphone holy grail of edge-to-edge, top-to-bottom, infinity displays. This exciting solution is expected for mass production in the second half of calendar 2017. The initial solution will be in a fixed position in the display.

Optical wasn't the only innovation arising from are biometrics team, as we also introduced our multi-factor fusion engine. Multi-factor biometrics simultaneously enhances user convenience and increases security. It allows our customers to have a more secure, seamless user experience, and our ecosystem partners such as banks to differentiate by enabling multiple biometric mode settings for specific use cases. Our initial build is focused on facial recognition tied to fingerprint, as the hardware for face biometrics is already present on mobile devices. Next-generation software releases plan to include other modes of biometrics.

In regards to new fingerprint design wins in the quarter, we continue to bolster our market position and drive fingerprint solutions further into our product lines. ASUS selected our fingerprint solutions for its innovative ZenFone AR smartphone with Google Tango, and also its flagship ZenPad 3S 10 Tablet. Lenovo selected us for its new flagship Vibe P2 smartphone and Huawei is featuring Synaptics' fingerprint sensors on its new Changxiang 6S. The Huawei 6S phone is also an industry-first triple-play. A fingerprint touch and display from a single provider.

The fact that we won all three opportunities in a high profile phone from a top OEM speaks to our unique competitive advantage and our leadership in the market. Huawei also selected Synaptics TouchView TDDI solution for its Mate 9 smartphones, underscoring the solid traction of touch and display driver integration we have seen over the past few quarters. Clearly, 2016 marked the emergence and market acceptance of TDDI. We expect the significant rate of TDDI adoption to continue in smartphones and by 2019, TDDI is expected to be the majority solution for LCD based displays.

Our TDDI roadmap over the next couple of years is broad-based. It encompasses both next-generation solutions at the high end to support infinity display phones in virtual-reality, as well as cost efficient solutions to serve the expanding lower end of the market, which is key to maintaining our significant market share and improving gross margins over time. We have also begun to architect our first OLED TDDI chip for the market, which we expect to debut late in calendar 2018. With around 70% market share today, Synaptics is the number one player in TDDI and we are well poised to maintain that status going forward.

We are also very well pleased during the quarter to announce our first display driver solution for OLED based smartphones. This feature-rich solution includes our best-in-class imaging processing and new state-of-the-art display technology, specifically designed to enhance OLED displays. This includes flexible digital gamma control for smooth dimming, local-area ACL for high-contrast text, high-accuracy color enhancement and support for high dynamic or HDR. These features combine a superior display and virtual reality experience on OLED smartphones.

We now have engineering samples of this solution and are working with our strategic partner display manufacturers to bring up their panels over the coming months. We are planning to be ready for production by the end of this calendar year in time for when we expect the broader industries OLED display capacity to meaningfully ramp starting in 2018.

With regards to touch, one of our major wins during the quarter was with Google, where our latest flagship discreet touch controllers are featured in the new Google Pixel and Google Pixel XL smartphones. As for a notebook PC business, we remain the market share leader and achieved strong growth in the quarter as a result of increased attach rates of our SecurePad and fingerprint sensor technologies.

New this quarter, Toshiba launched its Dynabook featuring our SecurePad and HP launched its Elite Slice featuring our fingerprint solution. We also partnered with two leading peripheral companies, Kensington and PQI to add fingerprint sensors to USB dongles. This allows any Windows 10 PC to add one-touch biometric security. In addition, Synaptics unique TouchPad features such as moisture resistance and gloved operation are enabling PC adoption in new vertical markets such as medical, military, and industrial. We expect continued momentum in our notebook PC business.

Lastly, let's touch on auto, where our demos at CES garnered a significant amount of interest. We expect to see a growing number of opportunities in this area leveraging our touch display and fingerprint solutions. Today, automotive revenue makes up about 2% to 3% of total revenue, and while the design cycle is long, we have a solid pipeline of design wins for upcoming model years, and expect this revenue stream to grow nicely over time. Ultimately, we believe that auto is an important diversification and growth lever for Synaptics.

As we enter the second half of our fiscal year, we are pleased with the way our forecast is tracking and with the revenue range that Wajid will outline for the fiscal third quarter, which encompasses the natural seasonality of our display driver business. Based on this outlook, it is reasonable to project that FY17 revenue will likely be up slightly, as opposed to our prior projections of flat versus the prior year.

In summary, the investments we have made in strong growth areas including TDDI and fingerprint are paying off, and we should continue to gain momentum moving forward, strengthening our market-leading position and helping to offset the expected year-over-year decline in DDIC revenue. Our recent design and momentum has broadened our global customer base particularly in China and reduced our dependency on a narrow set of customers. We are making bold moves as demonstrated by our partnership with OXi to ensure that we stay ahead of industry inflection points while also further strengthening our position in important growth regions such as China. We are on track to become a formidable player within the expanding OLED display market and are well on path to achieving the ultimate integration of our touch display and fingerprint technologies. With that, I'll now hand it over to Wajid.

Thanks, Rick. Revenue for the December quarter was $461.3 million, above the midpoint of our guidance range and up 19% sequentially. Year over year, December quarter revenue declined 2%, primarily reflecting lower demand for our display driver solutions, largely offset by increased demand for TDDI products. During the quarter, we had five customers at or above the 10% revenue threshold ranging from 10% to 21%.

Revenue mix from mobile and PC products was approximately 86% and 14%, respectively. Revenue for mobile products was up 20% sequentially and down 3% compared with the year-ago quarter. Revenue from PC products was up 16%, sequentially, and 2% year over year.

I will now provide a high level review of certain of our December quarter GAAP results and will follow with the corresponding non-GAAP results. For the December quarter, our GAAP gross margin was 30.1%, which includes $12 million of intangible asset amortization and $600,000 of share-based compensation costs. GAAP operating expenses in the December quarter were $109.9 million, which includes share-based compensation of $15 million, restructuring costs of $1.7 million, consisting primarily of office space consolidation charges, and acquisition-related costs of $2.4 million, consisting of intangibles amortization. This resulted in GAAP operating profit of 6.2% of revenue for the quarter. In the December quarter, we had GAAP net income of $22.8 million or $0.64 per diluted share.

Now, turning to certain of our December quarter non-GAAP results. Our December quarter non-GAAP gross margin of 32.8% primarily reflects our overall product mix. December quarter non-GAAP operating expenses came in at $90.8 million, down $3.1 million from the preceding quarter. The decline primarily reflects cost-savings actions initiated in the prior and current quarter, and further resulted in non-GAAP operating profit of 13.1% of revenue.

Our non-GAAP tax rate was approximately 10.3% for the quarter and 13% for the first half of the fiscal year. The impact of reducing the year-to-date non-GAAP tax rate resulted in an $0.11 improvement in non-GAAP net income per share for the quarter. Non-GAAP net income for the December quarter was $53.4 million or $1.49 per diluted share, representing a 55% sequential increase but down 7% year over year.

Turning to our balance sheet, we ended the quarter with $347 million of cash, an increase of $46 million from the preceding quarter. The increase in cash during the quarter was primarily related to cash flow from operations of $52 million. Receivables at the end of December were $260 million and DSOs were 51 days. Reflecting a front-end loaded quarter, while inventories were $160 million and inventory turns were $7.8 million. Capital expenditures for the quarter where $14.6 million and depreciation was $8 million.

Now, I will make a few comments regarding our quarterly outlook. Based on our backlog of approximately $264 million entering the March quarter, subsequent bookings, customer forecasts, product sell-in and sell-through timing patterns, as well as expected product mix, we anticipate revenue for the March quarter to be in the range of $410 million to $450 million. We expect the revenue mix for mobile and PC products in the March quarter to be approximately 87% and 13%, respectively. I will now provide GAAP outlook data for our March quarter, and will follow with non-GAAP outlook data.

We anticipate the stock-based compensation charge in the third quarter to be in the range of $15.5 million to $16 million. GAAP expenses in the March quarter are expected to include additional restructuring costs in the range of $200,000 to $300,000, consisting primarily of severance costs. In addition, March quarter GAAP expenses are expected to include non cash charges of approximately $14 million for intangibles amortization, of which approximately $12 million will be reflected in cost of sales.

I will now provide non-GAAP outlook data for our March quarter. Taking into account our overall revenue mix, we expect non-GAAP gross margin in the March quarter to be between 32% to 34%. We expect non-GAAP operating expenses in the March quarter to be in the range of approximately $90 million to $93 million. Using the midpoint of our Q3 guidance, non-GAAP operating profit would be approximately 11.7% of revenue. We anticipate our non-GAAP long-term liability based tax rate for Q3 to be in the range of 12% to 14%. Non-GAAP net income per diluted share for the March quarter is anticipated to be in the range of $1.05 to $1.35 per share.

In closing, based on our solid first half results and current outlook for the third quarter, we are pleased with the way the first nine months of the year are shaping up, as we continue to capitalize on the positive trends within our business. With that, we will now turn the call over to the operator to start the Q&A session. Operator?

Thank you.

(Operator Instructions)

We will take our first question from Paul Coster, JPMorgan. Go ahead. Your line is open.

Yes, thank you. I think probably mostly people are focused on the gross margins, at least those who are kind of a little bit skeptical here and clearly the trajectory is going to be into the recovery is going to be slow if there is a recovery at all. Perhaps you can just talk us through maybe a little longer term if you like, how you see the gross margin shaping up with mix, with cost [outs], and with volume on the TDDI side? Thank you.

Hi, Paul, it's Wajid. I'll start off and I'll let Rick add in a couple of comments. At the Analyst Day we presented our near-term model for gross margins and operating margins, and I think we were pretty transparent about the fact that given our product mix and the way our product roadmap was looking, that it would take a few quarters for us to move the needle up on both gross margins and on operating margins as our revenue is expected to increase over time. And so nothing has really changed between then and now in terms of our thesis of around how gross margins will improve.

It will really be based on product, product roadmap, and things like cost savings and manufacturing savings. The teams are continuously working on those and in a business like ours, there is a number of pluses and minuses that happen that will kind of get you to the range, the target range that we have talked about. (Multiple speakers).

I think Wajid kind of hit on the key points. As we said we are committed to be a full range supplier. That might be a little different than what we did with Discrete Touch where we were willing to exit certain parts of the low end of the market. But with the phone market specifically, so much of the volume now is in the low to mid range. We are architecting solutions for that particular market, getting the volume and driving that top line as we go further for several reasons, as you can imagine, ultimately, it is margin dollars or operating profit and EPS that should drive the company.

And then secondly, we don't want to give a whole lot of room for our competitors to operate. And so, in this fashion whether it is TDDI or Fingerprint, as I said, we are committed to being a full line supplier.

Then on the TDDI for now, basically committing to being the game for OLED as well. Can you kind of give us some sense of the timeline there and also what the margin outlook would be for that business? Would it be much different from the incumbent TDDI business?

Sure, great question, Paul. I think if you looked back and asked me that question a year ago, I would have answered, well, we're not quite sure how we will add value with TDDI on OLED, but we will find a way. And over the last 12 months our researchers and architects have found a way that we think can make TDDI compelling. And so, now, we are out there beginning the architecture and development of those parts and working with our panel partners to realize that vision.

As we said in the prepared remarks, however, we see that more towards being in mass production towards the end of calendar 2018. In terms of the gross margin profile, of course, one affect specifically on display drivers, is today 2017 we are not going to be in mass production with OLED drivers until the end of the year. That effectively means we are not playing in a big chunk of the high end market.

Whether with us or [RSP] previously in terms of the DDIC business, that's where the higher margin business tends to reside. As we look forward, certainly it's our hope with OLED and TDDI -- OLED that will be by definition the higher end of the market and that should enable the opportunity too enjoy a little higher margins there.

Okay, thank you very much.

Thank you. We'll take our next question from Rob Stone, Cowen and Company. Please go ahead. Your line is open.

Hi. You mentioned in the prepared remarks you are now thinking the full fiscal year up slightly versus flattish in your prior guidance. I think at the Analyst Day you also suggested that you thought, although, the March quarter would be down with the normal seasonality that the June quarter directionally is likely to be up from there. Is that still the case on sort of direction for the June quarter?

Well, thanks for the question, Rob. If you remember, the beginning of our fiscal year, we were quite reluctant to give a whole lot of forward-looking guidance and the scars from a year ago haven't totally healed because the nature -- we can do our best job but at the end of the day it ultimately comes down to the sell through of some of our customers.

We continue to diversify that customer base and the very skews we are in and so on. But there are still some big hitters that we have. In terms of giving a lot of clarity for the quarter plus one or beyond, we aren't really going to provide a lot of that, other than to make you just go with the remarks in what other patterns that we have made either today or in the past.

Okay, I wanted to drill into the TDDI a little bit more in my follow-up question. You have a range of chips already released that span different resolutions and, in general, the higher resolution DDIC or TDDI should command a higher ASP and presumably maybe a little bit better margin. Can you say of the chips you've announced, sort of how many are in chipping design wins by now or proportionally is much or all of the volume still coming from the lowest end of resolution on TDDI?

I guess I don't want to break down our percent per device but still, the majority of our shipments today are in the HD segment, which is lower end. The 4100 part, I think, I mentioned that maybe at one of the meetings we've had in the past. Now, if we look at the market trends clearly full HD is coming on very quickly as well. And we certainly have expectation a lot of that volume will shift.

From a broader context, that is one of the things that we haven't really seen is a lot of the high-resolution LCD panels end up. I think that's partly to the OLED trends that I was mentioning. If you compare to maybe a year-ago or a year and a half ago when we defined these parts, particularly, 4302 is our WQHD, the volumes in that particular part have been disappointing.

Of course, that would be the higher resolution for the higher end LCD market.

Okay, thank you very much.

Thank you. We will take our next question from Kevin Cassidy, Stifel. Go ahead. Your line is open.

Hi. This is John Donnelly on for Kevin. Thanks for taking my question. I was wondering, could you give us an update on what you are seeing in China and what kind of revenue contribution you are getting from them?

Sorry, can you repeat the question?

The trends in China, kind of more broadly from a market perspective. The market pretty much played out (technical difficulty) and our fiscal Q2 is as expected. The PC market might have been able a little stronger. I think the China smartphone market might have been a hair stronger than we initially thought when all things rolled out.

The great news is a couple of the OEMs there are doing really well, and we've had long-term historic relationships with them when they were much smaller companies. So, in some ways we are pleased with those trends. There's a bit of consolidation going on.

Synaptics has tended to favor the larger OEMs just in terms of our support structure and strategic relationships and with that consolidation some of the white box phones are clearly losing share. That trend is certainly positive for us. Now, I will let Wajid talk about the percent of revenue in China for this past quarter.

It's been growing over the quarters. Last year at this time we were doing just a little north of 20% of revenue being in China. Last quarter we were over 35% of our revenue was based in China and that had actually trended up nicely from our fiscal Q1.

Okay, great. Do you guys expect any change in the Fingerprint sensor margins as those ramp up in the second half of the year? And does the optical sensors impact that?

Sure, John, just a couple of broad comments on that. As I had mentioned to Paul, we do plan to play in the full spectrum of the market place now. Up to now, for the most part, we have been in Samsung phones and those have been high-end Samsung phone.

The Galaxy and then prior to that the Note series of phones and a few other high-end phones. As an example, the Huawei the phone that I mentioned, the success. That's more of a mainstream phone. The selling price is roughly $200. That's very high volume.

I don't know if you call low end. It is more mid-range type of phone but the price points and some of the gross margin pressure comes with that volume there. There is -- call that pressure and as we look into optical, we see that more as a higher end solution and that could help us the other direction in terms of gross margin percentage. But for the latter case, the optical solutions, think of that more second half of the calendar year.

Great, thank you very much.

Thank you. We will take our next question from John Vinh with Pacific Crest. Go ahead, your line is open.

Thanks for taking my question. My first question is, can you talk a little more about your go-to-market strategy with the optical in display Fingerprint sensor? Are you anticipating that you will bring the product to market with multiple customers or similar to how you brought Fingerprint sensing to market?

Are you planning on coming to market with one of your key flagship customers first? And if that's the case, you anticipating that you could have any sort of exclusivity arrangements with any of your customers?

John, this is Rick. We have a range of optical solutions now. Call it -- each of them have their own paths to market. Now, historically, independent of what products we had done, whether it's Touch, TDDI or whatever. We just naturally, I think we and any supplier you will tend to zero in on a smaller set of customers because, invariably, you're working out the kinks out of the product and your support organization is only so big.

Then you bring out to a broader set. That's what we do kind of across all of our products. We kind of have an alpha customer.

Then what we do is what we call are platform release, which means we have the supports, tools, and infrastructure in place for a broader set of customers. That will be our plan on the optical. In terms of any special arrangements with any customers, I can't comment at this time.

Great. And then my follow-up is for Wajid. You, at the Analyst Day, had talked about that you were considering taking on maybe some lower margin Fingerprint sensing business in China that you thought was accretive to your earnings and operating profit. Can you talk about whether that's reflected in your March quarter guidance or not?

John, it was more of a longer term statement, longer than actually Q3. So, no, none that of the business that we were talking about is actually reflected in our Q3 guidance.

Okay. Thank you.

Thank you. And we will take our next question from Charlie Anderson, Dougherty & Company. Please go ahead, your line is open.

Thanks for taking my questions. I guess just considering you were talking, Rick, how you were burned last year. I think there was sort of an overbuy situation. Just snapshot in time how you are feeling about things right now in terms of inventories out at the customers.

How do things look? Are they healthy in your perspective, in your mind?

Again, great question, Charlie, and, yes, our radar is high as it can be in terms of monitoring our customers inventory in terms of what they have in our part and what we hear in the channels. Now, that being said, we don't have great visibility on what phone inventory may or may not be out there.

But I think kind of across the board, as I've talked to our OEM customers, they feel reasonably good that it's normal channel inventory. There's certainly things got may be a little lean at some point towards the tail end of last year due to some component shortages from various folks. And then, of course, last year was the other way as you cited, but now it feels if there is ever such a thing in the phone market, normal.

Great and then for my follow-up you mentioned having the OLED display driver kind of very late this year and then OLED TDDI maybe kind of late 2018. So, I wonder if you could walk us through the progression there. Are these both for the flagship line or are they targeted different portions of the markets?

How do you see that playing out for you guys?

Well, in general, OLED tends to be a more expensive solution, even when you look through 2018, just due to the inherent costs and yields involved with the OLED screen. We see our OLED solutions being mid-range to high-end, especially, initially.

And then, of course, as we look into 2019 where the supply becomes much more plentiful for many players. We will adopt our architectures to be competitive for mid-range devices.

Great. Thanks so much.

Thank you. We'll take our next question from Vijay Rakesh, Mizuho. Please go ahead. Your line is open.

Hi guys. Thanks. Good quarter and [guidance]. Just wondering if you look at your margins and sorry to beat on that. It is fair to assume that this trust and as you look at second half the Fingerprint sensing and some of the other ramps margins should start to improve?

Vijay, it's Wajid. We have given out a margin model for the near term and the mid term. We think that the next couple of quarters are going to fall into the near-term margin model of 31% to 35%.

Everything you see in front of us from a product mix standpoint and from a customer engagement standpoint point to that. They continue too point to that. That's kind of where we are seeing it right now.

On the OLED driver, I see and the TDI side, can you give us some extent of how the SPs or the OLED driver and DDIC trend versus OLED driver [I see trend] versus your DDIC today? And how does the TDDI look too and how do the margins compare? And when you see [the renew] OLED, is that for the September quarter time frame? Thanks.

Okay, I'll give it a shot and, please, let me know if I missed parts of your question. Start at the end first. In terms of revenue, we said -- think of more toward the end of the calendar year as opposed to the September quarter.

And as we talked about previously, we are some gated by the display manufacturers as well. Our devices are now sampling and we feel highly confident that we can meet that schedule but that means they have to be able too ramp up their OLED lines and incorporate our solutions and test them out. That can be a longer process.

In terms of margin, I think one of the prior questions, I mentioned that we do have an expectation that our OLED driver should be a little on the higher side for display drivers because it's naturally over the next couple of years they will be higher end or at lowest to mid-range solutions. And margins just naturally kind of go that way with DDIC family. In terms of TDDI, you were asking our gross margin there.

It's a little bit below corporate averages at this juncture. But again, that's a factor of, as I mentioned, a lot of our shipments now are in the HD resolution segment, which is, clearly, in the lower part of the market, and margins just as I mentioned on the OLED side, it's kind of the flip side of that. That will be a little tougher there.

Okay, great. Thanks a lot.

Thank you. We will take our next question from Rajvindra Gill, Needham & Co. Go ahead. Your line is open.

Thank you and congrats on good results. Rick, just a technical question. So the product roadmap for your OLED TDDI solution, I wanted to get a sense -- are there going to be any difficulties doing an OLED TDDI versus the LCD TDDI? It does seem like OLED has the same TFT transistor backplane. So it would not necessarily would lend itself to some problems but maybe you could talk a little bit about some of the technical challenges of doing maybe an on-cell OLED TDDI versus an out-cell OLED solution.

Raj, it kind of goes back to my earlier comments on, we would find a way to have a compelling architecture for TDDI, because our really smart guys here have figured it out. I obviously don't want to explain what that is on the phone now. It has taken us a year.

I will just leave it that there's certain parts of the market and segment in technology where we think our unique knowledge of touch and display drivers will enable us to deliver a [varied] performance, as well as cost-effective solution. Kind of more generally, one of the challenges is we had with LCDs was the changing of the manufacturing process that was required to support in-cell.

The industry is much more open to our ideas this time around with touch. Assuming we can get a few of the manufacturers on board, I would expect adoption rate to actually be pretty good. Although, we're still two years or three years away from that kind of turning point that we just saw last year in LCDs.

Great. Understood. My formal question is around your OLED display driver contraction. Obviously, you are tied to the hip with the other OLED panel makers or the other panel makers who are ramping OLED capacity outside of Samsung display.

I wanted to get a sense of, how are they tracking in terms of building out OLED panels? You talked about kind of an inflection heading into calendar 2018. Any thoughts around the whole -- OLED ecosystem developing?

And how do you see the competitive landscape in OLED driver going forward? Thank you.

Okay, the first part of that question I would urge you to go look at our slides from December 13. I think we outlined the trends there in terms of adoption of OLED in the industry from a number of panels perspective, probably better than I can do verbally over the phone here. Since that time, things are tracking ahead.

I'm sure everybody's noted tremendous investment in R&D and capital and into making the OLED transition [arc]. That's counter balanced with it. It is just something very difficult too manufacture.

I'm confident there will be a number of suppliers out there ramping in the 2018 time frame. In terms of the competitive landscape, we are seeing -- call it the usual suspects out there in terms of who we would expect to see. And we will bring the same value that we have brought to the LCD markets innovation and some key technology advantage that we think we can uniquely provide. Too a certain degree, that's why we are able to be embraced by the display manufacturers as we go out there with our OLED TDDI and DDI plans.

Good. Thank you.

Thank you. Take our next question from Jagadish Iyer with Summit Redstone Partners. Your line is open.

Yes. Thanks so much for taking my question. Two questions, Rick.

First, you talked about being a single supplier to Huawei. I was wondering -- I wanted to get your thoughts on how some of the other Chinese handset makers are thinking about converging to a single supplier solution here? Then I have a follow-up.

I presume you are talking about Fingerprint sensors, just to make it clear. I didn't say we are the only supplier at Huawei.

No, no, but I mean being providing all the three products -- (technical difficulties). Just like the Huawei.

Sorry, I misunderstood your question. So, certainly, we bring that value proposition to all of our customers based out there. Unfortunately, we are seeing more and more TDDI adoption. That being said, it typically is different decisions at this point.

You will have the decision made around the display, which, of course, is touch in DDIC or TDDI, and then another decision around what Fingerprint solution to be made. Now, of course, we strategically get more aligned with the customer base. Over time as we keep hinting in our prepared remarks, we see opportunities where there will be architectural benefits as well, but we are not prepared to talk about that at this time.

As a follow-up, you talked about the strength in TDDI in terms of how you were able to ramp sequentially. I was just wondering, is there any as we look out over the next four to eight quarters? Do you think is there any seasonality with regard to TDDI? Thank you.

Right now we are enjoying the ramp and adoption, or call it attach rate curb on TDDIs that somewhat washes out the natural seasonality. In a few quarters from now TDDI will have a very significant chunk of the overall LCD display market. At that point of course seasonality will begin to kick in just like with any display technology.

Congrats on the good results.

Thank you.

Thank you. We will take our next question from Martin [Latif] with Arete Research. Please go ahead. Your line is open.

Good afternoon. My first question is, can you give us an indication of RSP revenues in the quarter excluding TDDI? And how do you expect this trend over the next few quarters?

Martin, that's something that we don't break out anymore.

Okay. My second question is on TDDI gross margin. You just mentioned that you are a little bit below corporate average. I was just wondering if there's any scope for cost reductions?

And what geometry are you using for the TDDI manufacturing process?

Just to add a hair or a little bit on your additional -- your first comment or question. The one thing we did mention in our prepared remarks is our DDI revenue was down quite a bit year-over-year. So, just, I guess, reinforce that for a minute. Fortunately, other parts of our business such as the TDDI and Fingerprint have filled that lower revenue.

In terms of nodes and so on that we are using for our TDDI, our highest volume is in the 90-nanometer geometry. We also have solutions in 55-nanometer, and then some older product in the 130-nanometer as well.

As we look forward, I don't want to kind of show our hands but we will move into more advanced geometries going forward. But continue to elaborate some of the older geometries due to just lower system cost.

Okay, thank you.

Thank you. And we have no further questions. I would like to turn the conference back over to the Management team for any additional or closing remarks.

Okay, thank you everybody for participating. We tended to have a shorter call. I guess because we saw a lot of you a couple of times over the last two months and hopefully things were straight forward.

Thank you, very much. We look forward to talking to everybody in the April time frame.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect your line at any time and have a wonderful day.