On Nov. 7, Synaptics (SYNA) reported fiscal first-quarter results that exceeded our expectations. The firm benefited from the consumer Internet of Things segment from Synaptics’ recent acquisitions (Conexant Systems and Marvell Technology’s multimedia solutions business, or MSB). Meanwhile, Synaptics’ lost share for Apple’s display driver chips was partially offset by fingerprint sensors featured in the Samsung Galaxy Note 8. If the firm can execute rolling out its latest optical fingerprint sensors and OLED display driver chips during 2018, we think Synaptics will resume healthy growth beyond fiscal 2018. Shares rose over 8% during after-hours trading, and we continue to see an appropriate margin of safety relative to our unchanged fair value estimate of $64 per share. We believe investors with the patience to deal with the volatile nature of the semiconductor component space may find current levels attractive, though we reiterate our no-moat rating and very high uncertainty rating.
First-quarter sales were $417.4 million, up 8% year over year and down 2% sequentially. We note the increase over last year can be attributed to the inclusion of consumer Internet of Things revenue. With its recent acquisitions, Synaptics now breaks down revenue from mobile, PC, and Internet of Things, which were 70%, 16%, and 14%, respectively. We anticipate the Internet of Things business driving incremental growth in the near term, led by solutions found in the Amazon Echo and Google Home products. GAAP gross margins fell from 29.7% last quarter to 27.4% this quarter, due to the amortization of intangible assets and inventory fair value adjustment.
Management expects second-quarter revenue to be at a midpoint of $430 million, led by Internet of Things (estimated to be 24% of total sales). Going forward, the second quarter is poised to be seasonally strong for Internet of Things, which we attribute to the strong outlook for home Internet of Things products during the holidays.
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