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Synaptics Investors Will Be Looking at Catalysts in Earnings Report

2017 has been a difficult year for Synaptics (NASDAQ: SYNA) investors as the stock has underperformed the broader market by a wide margin. Shares of the company that helps people interact with technology have remained flat so far this year, which is surprising, since the company had easily beaten expectations during the last reported quarter.

However, Synaptics has been held back by the possibility of having Apple in-source its display chips, cutting it out. Rumors suggest that Cupertino has decided to skip Synaptics for integrating the fingerprint sensor within the touchscreen in favor of developing a solution of its own.

Image source: Synaptics 

As a result, Synaptics investors will be looking for more evidence of how the company is trying to diversify into new markets and find more catalysts when it releases  its fourth-quarter results for fiscal 2017 on Aug 3. Here's what Synaptics' results and outlook could look like.

The expectations

Analysts expect Synaptics' revenue to rise almost 32% year over year during the quarter to $426.5 million. The company's earnings could also show a tremendous jump, from $0.46 per share in the prior-year period to $1.16, according to Wall Street's estimates.

Synaptics shouldn't have any difficulty meeting these estimates, since they're in line with the company's own expectations. The chipmaker's original forecast called for $1.05 to $1.35 in earnings per share on revenue of $410 million to $450 million in the fourth quarter; the midpoint of these estimates is higher than consensus estimates.

Therefore, Synaptics looks set to deliver better-than-expected results once again, though investors will be more concerned with the outlook.

The outlook

Analysts expect Synaptics' growth to slow down in the first quarter of fiscal year 2018. Revenue is expected to grow just 15% year over year during the quarter that ends in September, though earnings per share growth could turn out to be more attractive, with an estimated jump of almost 38%.

The suggests that analysts have already baked in an Apple loss. But revenue growth would compare well to a net revenue decline of 18% in the first quarter of FY 2017. This turnaround in the chipmaker's fortunes can be attributed to the growing adoption of its touch and display driver integration (TDDI) products.

Synaptics saw a 40% sequential jump in the adoption of its TDDI products during the third quarter, thanks mainly to design wins in Samsung's latest flagship Galaxy S8 smartphones. Looking ahead, TDDI adoption will continue driving the company's business, as it is working with several influential smartphone original equipment manufacturers, including Huawei, OPPO, and Xiaomi.

In fact, Synaptics shipped more than 40 million TDDI chips last quarter. But the number could grow tremendously: Demand for TDDI chips could jump to an annual 654 million units in 2022, against projected shipments of 100 million units for 2017. The good news for Synaptics investors is that it's the only one out of just three companies in this space to have licensed its TDDI chips to panel makers.

Moreover, Synaptics' outlook will get a shot in the arm with clients such as OPPO busy boosting their production capacity. The Chinese smartphone company could expand its smartphone shipments to 160 million units this year, compared with 99 million units in 2016, says IDC.

More conservative estimates expect OPPO's smartphone shipments to jump around 20% this year, but in any case, Synaptics will be a beneficiary, since it will have the opportunity to sell more TDDI chips. Furthermore, Synaptics plans to complete the acquisition of Conexant Systems in the current quarter. This deal is expected to be immediately accretive to its margins, while opening up a big long-term opportunity in the field of smart home audio solutions.

Therefore, it won't be surprising if Synaptics' outlook turns out to be better than expected, given the many catalysts the company is riding on. That could give the stock a much-needed boost after a flat performance so far this year.

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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.