you everybody for joining us. This is the 2020 Synaptics Virtual Investor Day. My name is Jason Tsai. I'm the Head of Investor Relations. Today's agenda will be as follows.
We'll start off with Michael Hurlston, our President and CEO. He'll give an overview and strategy of the company as well as talk about our PC business. We'll then turn the meeting over to Janice Mori, our Senior VP and General Manager of Mobile Division. We'll pause for a brief set of questions on the mobile business and then we'll move to Saleel Alsarey, our Senior VP and GM of IoT. We'll then again pause for some questions and then we'll move to Dean Butler who'll give us our the financial outlook and targets.
We'll finish off with a broad Q and A session with all 4 of the executives. And as we get started, you'll see on the webcast portal, there's a box there for you to enter your questions. I'll be moderating the questions, so feel free to enter the questions into the portal and I'll be able to read them off to our executives at the right time. Before we get started though, I'd like to point out the Safe Harbor statement here in front of you. We'll be making some forward looking statements, so please refer to our filings with the SEC to a full understanding of the risks and uncertainties in investing in our securities.
Lastly, we'll be also making some non GAAP financial comments, so please refer to the reconciliation at the back of this presentation for a full GAAP to non GAAP reconciliation of the numbers that we've talked about. And with that, I'll pass it over to Michael Hurlson, our President and CEO.
All right. Thank you, Jason. I thought I'd start today and give a little introduction about myself. It's maybe the first time that some of you had had an opportunity to hear from me. So I thought I'd give a little bit personal background.
So bear with me while I go through a short resume. I joined Synaptics about 10 months ago in August of 2019 and it's been a hell of a 10 months since I arrived. But just prior to that, I was CEO of a company called Finisar, which is an optical manufacturing company. There was about 13,000, 14000 employees in that company. And I joined there in January of 2018.
And some people have said to me, I don't know if this is true or not, that it was the fastest, a first time CEO had sold a run rate company. We ended up selling the company in a little over 10 months to a company called II VI. It was a very successful transaction. II VI, I think recently had an earnings call and a lot of their positive news came from the Finisar acquisition. So that was really terrific.
Prior to that, I spent 16 years at Broadcom and that's where a lot of my philosophy and way of thinking was molded. I had a pretty long tenure there. 3 years, I was the Head of Worldwide Sales. But before that and for the really the majority of my career there, I spent running the wireless connectivity group. I had the pleasure of leading a team that grew revenue from 0 when we started.
There was absolutely nothing to over $3,000,000,000 It was one of the great success stories frankly in semiconductor history. It was really, really a fast run up. And the team that we put together was one of the best, I think, in the world, a truly world class team. I really was a product guy. At heart, that's what I'm all about.
I'm very much a product strategist. And at Broadcom in the wireless connectivity area, we were able to grow our business first along a technical axis, kind of a y axis in terms of evolving the technology, bringing new technologies into our product offering and then grow on the market access, grow on call it an X axis, where we're able to move the same technology from market to market. We started in a PC arena. We moved into gaming and fundamental home networking, then into mobile phones and then IoT. So I sort of understand very well how to move technology around different axes.
That's really an important thing. While I was at Broadcom, I actually had the pleasure of working under 3 different CEOs. And each of those CEOs brought a different part of their philosophy to bear on me. The first CEO was very much all about technology. He was a technologist.
He was kind of a crazy guy, but he was somebody who believed that technology is what sells and technology makes a great company. And the Broadcom was really built on those tenants. The 2nd CEO was all about building great teams. He put the best possible team on the field and let them do their jobs, let them run. He was a great team builder.
And the 3rd CEO, the current CEO was all about really focus, bringing focus to a company first through understanding what you do well and focusing on what you do well. And then secondly, in terms of financial discipline, in terms of budgeting and things of that nature. So all three of those CEOs built what I consider my philosophy today. And those are important tenets that we'll go over as we go through the talk here in the next few slides. A question that comes up over and over again is why did you come to Synaptics?
What was it about Synaptics that attracted you? And frankly, as I mentioned just a minute ago, we had sold my previous company Finisar to II VI, so I had no job, okay. So it was very easy. But aside from that, I did have several opportunities. And in weighing those opportunities, I felt Synaptics gave me the best possible platform on which to make change.
It was pretty obvious from the outside looking in that the company had struggled with the gross margin. There were a lot of challenges. For years years, the company had been bouncing between, let's say, 35% 39% gross margin. And I felt like that was something that I could impact. And then the second piece of the equation was the fact that the company was actually trading below its revenue.
The market cap was less than its revenue, which is very, very rare set of circumstances. And I thought this is a great opportunity to sort of make a difference. It can't be this way. It can't be like this. The next question that people ask is, sort of what did you find when you arrived?
What was what were your impressions? And I think I would characterize it in 3 words, opportunity, opportunity, opportunity. The set of low hanging fruit that was there and is here gave us a great platform to make change and to really improve the company. First thing that you could see was there was tremendous there were great technology, but the technology was not defined well. There weren't roadmaps to put a direction around the technology.
The second thing that you found was that the engineering talent was tremendous. The fundamental engineers, the folks that actually make the engine run are among the best I've seen. But those engineers weren't harnessed. They weren't challenged. There was no rigor.
There was no process around what people would work on, whether there were ROIs or things of that nature. There was really no channeling the engineering direction, which I found amazingly fascinating. The third thing that I noticed was that we have great customers. If you look at the Rolodex we're going to go through with Janus and with Salil, we have the best customers in the world. But we really didn't understand those customers well.
And we weren't very far upstream with the customers understanding how we could influence the technology and influence their direction. We tended to take direction from the customers and not impart our own thoughts on what they wanted to do. So in summary, I think the company was somewhat under managed and that led to significant opportunity for myself and the folks that have come in to change the direction of the company and really improve it. And I think you'll see in some of the slides that Dean is going to share, we've been able to put some points on the Board early on. We've actually had some nice successes.
But the bad news is there's still a lot of work to be done. I think that the management team understands the challenge, appreciates the challenge and is ready for the challenge. The good news is there's a lot of work to be done. So we can improve the company from where it sits today. Nobody's happy with where we are.
We think that there's a great ability to improve. And we're trying to bring together a set of people and set of ideas with the company that was there. The underpinning, the foundation of company is a solid foundation, but we think that we can improve and redress the house by making some fundamental changes. As I said, there's some low hanging fruit. We picked some of that fruit.
There's more to go. But generally speaking, I think we're on a good forward path. Okay. So enough about me. Let's get into some of the things.
So the first thing I talked about that I learned was winning with great teams. And I think if you look at the folks on this Board, there are 10. All 10 are new either new to this company or have a significantly changed all 10. So one of the things that I learned very quickly was if you want to change the culture and you want to change the mindset, you have to change the people. And I brought in, I think, some of the best people that I could find.
Many of these folks I have a prior relationship with, I worked with before. The folks that are were from Synaptics, and there's a good handful on this slide, I think, I brought forward and they're doing a terrific job in their new roles and executing. I'm really, really pleased. 2 of the people you're going to meet today were here when I arrived, Janice Mori and Salil Azareh, both of whom I think are doing terrific jobs driving our 2 biggest businesses. But we have a totally new management team, a totally new mindset and a totally new approach with how to deal with the company and how to take the company forward on its journey.
And I really am pleased. The 1st 6 or 8 months I was here, I think I was the Chief Recruiting Officer, but I think we've got the team on the field now and it's a matter of just letting them run. The second part I talked about, second piece of the philosophy is winning with technology. The 1st CEO at Broadcom that I worked for was all about technology. And you can see that we have a tremendous library of technology.
And what we're trying to do is put together those pieces and form different products. So if you look at some examples on the slide, if you think about a very obvious one with capacitive touch and display drivers, we can put those together and we'll talk about later with Saleel and Janice how we are putting those technologies together to deliver some great products, great new innovative products to the market. But some less obvious things are, for example, our AI technology, putting that together with audio and putting AI together even with capacitive sensing. So we can put pieces of our library together to form new and innovative products. Saleel will talk to you a lot about the combination of far field voice with his video access and video products.
So we're actually able to take elements of our portfolio, put those together and form, I think, world class leading products. As you can see from the bottom of the chart, the company is not a new one. It's been around for quite some time. It's been around since 1986. It's a substantive company.
We've got over 1800 patents. We've got lots of employees across the world. And as I say, our task has been to sort of marshal all of those employees and build a future, build a set of products and roadmaps that really take advantage of the blended talent that we have worldwide. Synaptics products are everywhere. As this slide that Jason put together talks to, we're in all sorts of end markets where we've historically been in PC and I'll talk about that later.
We have are well known for being in mobile And Janus' business has really been the talk of the company for probably the last 5 or 6 years. But we're building a lot more here. We're going into automotive and Saleel will talk about that in some of his slides. We're going into what we call consumer IoT. And so this is just the beginning part of the journey.
We have been able consistently to take investment from one business and move into another. If you think about our mobile business, that's really a derivative from what we did in PC. The historic foundation of the company was built on PC products, touchpads, fingerprint sensors and things like that. The mobile business was able to leverage that investment dollars were able to go in and grow the next phase of the company, which was mobile. And now subsequently, we've been able to take money from mobile and invest it in IoT and start growing that, start growing automotive.
So there's been a lot of movement throughout history along this x axis, growing our product portfolio by going after different end markets, leveraging the technology and expanding it into different new end market areas. We are in we have world class customers as you'll see throughout the talk. And as I say, we're in this our technology appears in almost anything that you can pick up, that you can drive, that you do work on. It's pretty incredible for a $1,000,000,000 $1,000,000,000 plus revenues company to have so many end markets and end market opportunities. Speaking of the opportunity, it's a significant one for Synaptics.
We think about our TAM as being over $11,000,000,000 What we can service is almost half of that, dollars 5,000,000,000 and that serviceable market is growing by 7% compounded. We're excited about it. It's a growth area. We're playing in markets that are growing. We're playing in markets that have great upward potential.
And what we're trying to do is we're trying to invest in products in categories that are truly differentiated to capture that market opportunity. We're trying to expand our addressable markets, go along the, again, the X axis and look at different end market segments, while building product combinations and expanding on the y axis to put different technologies together to make those differentiated products. We'll talk about in one of the later slides, we're really trying to balance the portfolio as we think about it. We're trying to make and move shift more towards IoT, not at the expense of mobile, but to grow that IoT business, to use some of that funding to really grow and develop the IoT market. The last tenant that I talked about was sort of an operational focus, a rigor.
And that was a part of the philosophy that I took really from the current Broadcom CEO. And if you think about it, there was a lot of rigor that was missing at Synaptics and some of those that you can see here in this slide. At the moment, we have 10 different foundry partners. And for a company this size, frankly, that's untenable. It's unmanageable.
It's rather unwieldy. We have 21 package and test sites, again, too many. And then before I arrived, we actually had multiple sales teams. We had sales teams calling on PC customers, sales teams calling on IoT customers, sales teams calling on mobile customers. So in the auspices of trying to simplify our business, trying to make it easier to understand, we definitely intend to reduce the number of foundry partners that we work with, work with a handful and become meaningful to that handful.
And we think by becoming meaningful to that handful, we can get better cost. Today, I think we're definitely been very cost challenged. Some of the gross margin that you've seen has come from just working with our partners and helping them understand the new strategy, and that's been able to deliver improved COGS, improved cost of goods. And then we've been able to rationalize our sales force. We brought in a new leader.
And even prior to that, we were being able to simple we had been able to simplify our sales force, streamlining it, going so we have one salesperson calling on one account, bringing information that might be relevant to mobile, even if the original sales call had to do with IoT. So we've really done a good job, I think, simplifying the operation, focusing on the operation and bringing financial discipline to the operation. Okay. In closing, I think this part of the section, I wanted to make sure that the overall philosophy was well understood. I think of the company as a portfolio company.
I think that there are tremendous there's a basket of technologies that we have, an array of end markets that we have. And our job as a management team is to maximize the value of that portfolio. Our first task is to work on the products that we have and to build great roadmaps and really stretch our engineering teams, challenge them, make sure that they understand that we're trying to do the best, the most innovative products possible within a risk profile that we can tolerate. And I don't think that that had been historically the case. We like the elements of the portfolio that we have.
However, as we showed with the LTTI divestiture, we won't be afraid to divest product lines that don't meet the bar. Our goal is to continually raise the bar of our product portfolio and things that fall below the bar, we'll look at and strategically divest when it makes sense. On the other hand, we will be looking to make acquisitions. We'll be looking to add to the portfolio and trying to find areas, not big transformative things like maybe had been done in the past, but tuck ins that can be accretive on gross margin and can be accretive in terms of contribution margin. We want to find those kinds of companies.
And as I've said on the earnings calls, I think that we've done a good job now sort of lining up a set of companies that might make sense, that might meet those characteristics. And then it will be an opportunity over the coming months to potentially operationalize that and see if we can bring in some of those companies into our portfolio to further improve it. But I think that we have the makings here of a great company. Today, we're still not a great company. We have a lot of room for improvement.
But I feel like the makings are here. We have the team. We have the technology. We have the now the sort of the fundamental underpinnings to really make this into a great company. We're on a journey.
We're very early in that journey. It's a transformative journey, but one that we think that we're we've embarked on. We have the right first couple of steps. And I think that as we work our way through this, you'll continue to see improvements. We've put up some early points.
And I think we have the ability to keep improving and running up the score as we go through the coming years. Okay. With that said, I'm going to talk a little bit about our PC business. Steve Schultes, who runs the PC division, is in Texas and can't travel. So I'm going to pinch hit for him and give a couple of slides on our PC, which to me is one of the great stories of the company.
It's really been the heritage of the company. If you think about it, the company was founded on Synaptics and the human interface with machines and that first interface was around the PC product area. It's been an area that we've had good success with. Although if you think about it, and Jason has talked about this in previous calls, the business is below corporate average in terms of gross margin. But what we've done over the last year is really operationalize it.
So it's actually one of the stars in terms of contribution margin. We took the engineering team that was spread out all over the globe. We had engineering operations in India. We had engineering operations in Armenia. We had engineering operations in the United States.
We've moved almost all of that and centered on Taiwan. And it turns out that's where our customers are. Our big, big customers, HP and Dell in particular, are right next door. They all have development centers in Taiwan. And then Lenovo, who is a very critical customer of ours, is just a hop, skip and away in China.
So we've got our team now situated close to our customers and we've been able to deliver great operating results by virtue of making that move. Our technology is 3 fold. Saleel is going to talk about one area, which is the video interface. That's been a great story for us. It's a smaller part of the portfolio, but one that we've had great success in and one that we continue intend to continue to build upon.
The other two areas are 2 that I'll talk about. 1st is our touch franchise. And there, as a subsequent slide, we'll talk about we have over 50% of the market in touchpads. We're continuing to innovate there. We're bringing in a whole new product line that talks about Force Touch, 3 d Touch, and we're very excited about that.
We've got our first products coming out, coming to market early next year that are really, really innovative on the Force Touch dimension. We also are innovating with NFC rejection. We've NFC antennas typically will go onto the touch pad itself and we're now bringing to bear some excellent rejection technology into our ICs that will mitigate some of the noise that hampers the touch performance when NFC antennas are present. We're also for the first time doing an IC that's very specific to our PC business. And we hope that this IC will actually will certainly will significantly improve the touch performance.
And in so doing, we expect to improve the gross margin of this business and actually further improve our market share. So we really feel good about that. We haven't done that in quite some time. The other area of the business is fingerprints. Fingerprint has had a number of exciting developments over the course of the last year.
The fingerprint sensor has typically been on the deck right next to the touch pad and our customers haven't liked that very much. What we've done is that form factors have moved to thinner and lighter notebooks. We've been able to move that touch sensor to the edge of the PC, right on the edge, very difficult to pull off. You have a little sensor right on the edge of the PC, but we've been starting to introduce products that have that edge sensor, and that's been very well received. The other thing to up the use of the fingerprint sensor is to actually put it on a key.
And we've got keycap sensors now where the fingerprint sensor is mixed in with a key on the keyboard. One of the best keys to use, it turns out, is the power key because everybody needs to touch the power key before enabling the PC. So having that makes it a one stop turn on the PC and register and authenticate using the fingerprint sensor. So we've been pretty excited about that and we've been leading in innovation on that front. If we think about the opportunity in PC, we as I said a minute ago, we have over 50% of the overall market for touchpads.
It's a business that has been a franchise business for Synaptics and one that we expect to grow in the coming years. It's not going to be a fast grower, but we think that with some of these new innovations, we'll be able to grow top line, grow share and expand gross margin. As the slide says, almost all commercial PCs have our fingerprint sensor. We're stronger in our business on the commercial side than on the consumer side. And the commercial side typically is where you have a much closer relationship with the OEMs.
They're much more invested typically in the commercial platform than they are in the consumer platform. And we are the touchpad leader now in the emerging accessory market. We think this is another good opportunity for us where iPads and things of that nature will have aftermarket touchpads and keyboards. We are a leader in that segment of the market, which we should think is a very important part and growing part of the overall market. Finally, why does Synaptics win?
You can see on the right sort of the nameplates of the leading customers. We have all the leading customers. We're engaged with all the leading customers in this market. We win because we're effective, we're efficient. We're able to turn these products, each of these touch pads for each notebook is almost a custom effort.
You have to design it and tailor it from a color, from a form factor, from a performance standpoint to each laptop. And we've become, dare I say, masters of being able to do that. We're industry leaders in being able to tailor our products to each of these laptop opportunities. We're innovating in this market. As the market moves more to thin and light laptops and notebooks, we're developing form factors, whether they be touchpads that combine certain things underneath the touchpad because of space constraints or innovating on the fingerprint sensor by putting it along the edge or on a key cap, we're enabling our customers to go to these thinner, lighter, more portable form factors.
And as I said, this is a highly profitable business. It's one that can generate cash. We think very highly of this business. There's been a lot of questions before my arrival about our PC business. We love this business.
It's a business that for us is important as a foundation. It's important because it generates a tremendous amount of cash where we can either redeploy it into the PC business or as we have done historically redeploy it into other parts of the business. So again, we feel good about this business. We like it. We think that we're a leader.
We're a technical leader. We're an innovator, and we're going to keep that vector alive as we go forward. Okay. With that said, I'm going to turn the floor over to Janice Morey, who as Jason said, she's the Senior Vice President of our Mobile Business. And she took over, I think, early this calendar year, maybe late last year.
She's just done a phenomenal job with that business. We talk about roadmaps. There were no roadmaps for this product area. She's come in, in a short amount of time and really put our engineers to work on some of the most innovative products that she'll talk about here during her pitch. Janice, am I allowed to hand this to you?
Yes. Okay. All right, good.
Thank you, Michael. Good morning, everyone. It's a pleasure to be here. I'd like to start with a question. How do you interact with your phone?
For the most part, you touch it to wake it up and you view content. Here at Synaptics, we're continuing our tradition of developing and delivering winning touch performance in OLED, especially in the growing flexible OLED space. But also the premium display technologies that are really coveted in the gaming communities, they're now making their way to the mainstream. Working from home is now the norm for many companies not just during the pandemic, but for the foreseeable future. And high performance displays are being demanded for things such as 5 gs teleconferencing, video streaming and telehealth, things like telehealth where you can do an online doctor visit via the web.
But visual quality is being is high in demand right now. As you know, a lot of the OEMs have started improving camera technology and 3 cameras, 4 cameras. Now you need high display performance to back up what they deliver to actually show the beauty of these new camera technologies. Some of the recent offerings that have gone to market, these are just some of the examples of our touch and display products in action, including the first 270 Hertz touch report rate in the Black Shark 3. Now a high touch report rate allows the phone to process things like graphics sooner for an overall faster experience.
And, a high display rate that helps moving content look and feel smoother and snappier because nobody likes visual latency. Here at Synaptics, we continue to innovate in the areas that make consumer experiences better. So on the trend side, the flexible OLED market is experiencing solid growth at a 37% CAGR and it's expected that 1 in 4 phones will be flexible OLED by 2023. And in support of this, the display manufacturers are pushing really hard and ramping, improving their manufacturing process, improving their yield. This is all going on, especially in China.
Now flexible OLED also gives the opportunity to the phone manufacturers to kind of rethink their industrial design or form factor. And this can result in a great look with better performance and brighter displays for the consumers, all good. But and while we have been talking about the transition to OLED, it's been a discussion point for quite some time now. LCD is by no means dead. As many of you have seen, earlier this year an LCD phone was launched into the market and it's selling quite well worldwide even during this pandemic.
And so we continue to manage products for LCD, for OLED touch display and now we're headed into the next generation of OLED innovation and technology innovation. But for a second, let's talk about flexible displays. So as I said, flexible displays, big growth, brighter, thinner, flexibility allowing new cool industrial design. But this flexibility comes at a cost. It makes really good touch performance hard to do.
Now why is that? So if you look at the LCD stack up on the far left, it's a 2 millimeter stack up, the touch sensor is down at the bottom pretty far away from the pixels. But what's important to note in LCD is the pixels turn on and off, on and off. This allows you to do touch sensing during the off or quiet period. Now compare and contrast that to today's flexible on cell OLED stack up, that's on the far right, less than 1 millimeter, so 50% thinner than LCD.
And in this stack up, the touch mesh layer is integrated into the encapsulation layer, along with the polarizer only 80 microns away from the pixels. And in OLED, the pixels never turn off. They're always on, 80 microns away and that's a little bit more than human hair. And that is why doing touch, good touch in the flexible on sale OLED stack up is really hard to do. And if you want to do flexible displays where you get that really new cool industrial design, you have to go to a flexible display.
Now flexible outsell that allows you to have some of the curved edges, but if you really want the new foldable or completely wraparound ID, you have to go with the flexible on sell because out sell just simply isn't thin enough. Here at Synaptics, we believe we can win in this challenging environment, because we have great system level knowledge, We have a strong mixed signal team. We have best in class algorithms, deep relationships with customers, both OEMs and the display partners. You really need touch innovation to be able to take advantage and innovate in this challenging environment to have new cool industrial displays. So as I mentioned, we're focusing on the high margin display business, flexible OLED.
We have leadership in flexible on cell touch. We have premium display offerings, a significant IP portfolio and great customer relationships. But for the longer term, we have and a main objective by the way, a major, major objective for the team is to diversify our touch customer base and that's already in motion by the way. We are in over 10 mostly flagship phones were designed in and expected to go to production over the next few quarters. And we'll continue to make inroads into these customers where frankly we just haven't been.
But innovation is at our core. And so now we turn our eye to OLED TDDI, the next generation of touch and display. And so let me tell you a little bit about that. So OLED TDDI, we will leverage our touch leadership to expand our position in the higher ASP display market. We expect OLED TDDI to drive future innovation in the thinnest flexible displays.
Our architecture will enable a faster report rate, true bezel less designs, a reduction in display artifacts, reduce maybe some of the front sensors or remove some of the front sensors, will support a variety of screen sizes and enable a premium foldable experience. Today's foldables, the performance just really isn't that great. And they struggle with charger noise, low signal to noise ratio, have lackluster touch performance in a poor grounding condition. Our architecture will enable us It will make way for better performance in ultra thin displays. And we're going to offer premium features such as active pen, face detect, moisture performance, all alongside our outstanding core touch performance that everyone's come to expect.
OLED TDDI will be also manufacturing friendly. It will have modest improvements for the display partner, manufacturing improvements, maybe some yield improvements. But the main benefit of OLED TDDI is not a cost reduction on the display partner side. It's going to be around performance. And now I think maybe some of you might be thinking, well, we just did the divestiture of the LCD TDDI business.
And so what's different now? We'll go back to the LCD on and off concept. In the LCD TDDI world, touch suppliers can do touch sensing in the off or quiet period. In flexible on cell OLED, that's not going to happen. The pixels are always on, touch metal mesh inside the encapsulation layer super close.
It won't be easy to do. We believe Synaptics is primed to succeed in this area. We'll leverage our touch innovation, pull through display and expand our position in the higher ASP display market all in a single chip solution. So in summary, we're uniquely positioned to lead. We have a long history of touch, long, long history of touch.
As Michael pointed out, starting a PC, long history in touch, OLED touch, leadership recent leadership in the flexible on cell touch. We have premium display offerings. In low power, we've shipped over 200,000,000 units of OLED touch and display products and we created the LCD TDDI market and we believe we can do this again with OLED TDDI, create and lead in this market. On the OLED TDDI competition side, some familiar faces. Broadcom.
Broadcom is a player today in the flexible outsell space. There are strong mixed signal team that can execute really well on a defined spec. ST, ST is a player today in foldable devices. Novatek. Novatek is a familiar face from our LCD TDDI days.
They have also OLED experience in displays, but no OLED touch, no flexible OLED touch. Good X. Good X has no OLED display technology. They haven't done TDDI, but they have been working on flexible on cell touch for several years now and they're rumored to have a sample out now, which is why we consider them a potential competitor in the space. But only Synaptics, we believe has all the critical components to create and lead in this new space.
And so why does Synaptics win? We win because we have continuing leadership in flexible on cell discrete touch solutions. We will continue to drive innovation and further differentiation with OLED TDDI. We continue to enhance our significant IP portfolio and we are maintaining and maybe even building stronger OEM and customer relationships. This is why I believe we'll win.
Thank you for listening. I guess, Jason, am I taking a couple of questions?
Yes. Thank you. Janice, we've got a few questions here. So let me first get started.
Okay.
Can you talk about today on mobile, you're doing touch, you're doing display. Can you talk about how we should think about the revenue and the business going forward in terms of how that splits and where you're focused on, especially with OLED DDIC versus OLED touch and how that transition happens?
Well, as I mentioned, we have a very strong leadership position today in flexible on sale touch and touch is really at the core of what we do, a franchise for us. We continue to also address a lot of OLED DDIC opportunities. We lead in this innovative space for gaming and that is moving more into the mainstream. And so we continue to look for opportunities to expand our OLED DDIC IP into the mainstream. And we as opportunities come up for flexible on cell OLED, we believe we have the advantage, to lead and win in this space.
Great.
The next question here comes from John Vinn over at KeyBanc. Synaptis has historically been able to pioneer new market opportunities such as LCD touch, TDDI and fingerprint. Each of these markets had significant barriers to entry initially, but ultimately your competitors were able to figure out how to close the gap. Can you address what you think the runway is in Flex OLED Touch and OLED TDDI and why your competitors won't be able to close the gap as they have in the past?
Well, I think if you go back to why doing touch in the OLED flexible OLED on sale space is so hard to do. Today we lead in this space. We have the strong mixed signal team, the system level knowledge, the Algo's strong Algo team and the deep customer relationships. I think you need to have a lot of the components to be able to innovate and continue to innovate in this space. We have, as I mentioned on the competitive slide, we have people who have components of some of it.
But today, we don't have strong players who have all the critical components. And so we believe that we have to take advantage of this lead that we have now and continue to innovate.
Great. And then we'll take one more question on the mobile side and then we'll move to IoT. But the next question comes from Tony Stoss at Craig Hallum. Can you talk about with COVID-nineteen and have you seen any delays with some of the projects that you're doing on mobile? And if so, how have you addressed that and to what extent?
Well, we have seen some slight delays in some of the launches. We haven't seen any major cancellations or any big drops in forecast. But as with you've seen in the rest of the market, there have been some areas where factories and the supply chain was shut down for a while. And so we have seen a minor delay maybe around a quarter in some cases and some less than that. And so we at this point, we don't see a major impact for my business due to COVID-nineteen.
Great.
Thank you, Janice. We'll have more questions for mobile later on in the presentation.
Great. I'll turn it over to Salil. Thank you.
Thank you, Janice and Jason. Welcome, everybody. My name is Salil Osterak. I'm the Senior VP, General Manager for the IoT Division at Synaptics. And as I'm Michael mentioned, I'm a part of his new leadership team and I've been running the IoT division for about a year.
As we know, as he mentioned, Michael mentioned earlier, we have a portfolio business and the IoT business has a few portfolio product lines in there. Today, I'm going to focus on 3 specific ones. While we have other businesses like our printer fax and our digital audio business, which continue to contribute, today my focus is going to be with our SSD with AI, our high speed video interface business and lastly, our automotive business. As you can see, the SAM is $1,600,000,000 that we address today and it's growing at 11% CAGR through 2023. So it's very exciting for us as we think about this moving forward with Synaptics.
Let me dig a bit deeper into the Edge SoC business. We've been talking a lot about this for the last year or so, and you're going to see some of the trends in the market and how we as a company think about. The market sham for our Edge SoC business is close to $1,000,000,000 today, growing 12% and the market trends are extremely well aligned with where Synaptics is at today with its roadmap, the products that we have introduced and how we think about this market. Voice interface, which is near and dear to me, I came from Connexion as some of you guys know, is proliferating beyond phones, which is where it was first, then it went to smart speakers, which is a franchise for Synaptics, now evolving into set top boxes, smart displays and even consumer video and camera. So we've talked about creating and announced at CES, a extensible platform based on the VS600 product family that addresses all of these markets and you're going to see a little bit more detail as I walk through it.
In addition, we have been very focused to ensure that the users' privacy and content security is also addressed in our product line. And lastly, with some of the noise around the trade issues, having a U. S.-based supplier is very important to lot of our customers and we really do offer a meaningful differentiated vendor to these customers. So what do we mean by Edge AI? You've heard a lot of people talk about AI and cloud AI and the data center folks have their own version.
But today, the way you communicate with a device, it could be a phone, it could be a speaker, it could be a multiunit devices like a set top box. You talk to it, it goes to your device, it goes to the Internet and off to the cloud, causing a really a long latency issues with privacy, security and lastly, which is more important, energy efficiency. I'm going to go into each one of these a little bit more detail. Now if you think about how Synaptics has approached this, we've approached it saying that the environment and the device are coupled. And our edge AI products sit on the device, which will therefore give you better privacy and security, faster response and energy efficiency.
Let me spend a few minutes to talk about each one of them, why that's important. Privacy, I really don't want my voice pattern or my facial data being sent over the cloud could get hacked. What I would like to do is keep it on the edge, do it locally. Security is also very important. I alluded to the business top boxes.
Synaptics' VS600 family that we announced at CES earlier this year is pre certified with companies like Netflix's Hailstorm platform and even other ones like Amazon Prime, where we ensure content security. So both privacy and security is addressed by our device. Faster response time, the earlier you saw there's 4 steps as you get to finding out whether it's me speaking or saying, hey, Alexa or hey, Google. By having it done locally, it allows you to really get your device to respond to you faster and latency is reduced. And lastly, the energy efficiency, this became a big surprise to me.
As most of you know, Google is a very important customer of ours and we've been with them for the last many years. And they told us, hey, by doing more stuff locally and they announced it in their last product late last year, is that they have to spend less on data centers. And the number Sundar Pichai actually mentioned it in his talk last year, close to $70,000,000,000 was going to have to be spent to create more data centers to capture not only just the voice data, but in the future, facial data and things like that. So when you do it locally, you can also be green and it helps the environment. So what I've talked a lot about at a high level, what does AI mean?
What is Synaptics is offering? Now I'm going to go into a little bit more detail on the Synaptics specific products that we offer. Michael has mentioned this and so has Dean in lot of the investor calls that we have created an extensible platform. And why is that important? This allows us to do scaling.
And the extensible platform, as you can see on the left hand side of your screen, multiple applications. We've got smart speakers, you've got set top boxes, you've got smart displays and now industrial and camera applications. We have provided a platform that allows you not only to put it all together with obviously high end CPUs, graphics supporting a bunch of different OSs. Our secret sauce has been our voice video vision secure AI processor. And we've created a complete platform that our users can use.
And I was talking to some of my engineering leads, I'm happy to hear that some of the keys one of the key set top box vendors is actually using the platform that we've given them to create their own AI models. So if you think about how powerful this is, not only is models that we can create, but third parties can create. So I'm happy to hear some early success that we've got in that space. Now I've talked about the applications, I've talked about a platform. Why should care about this?
Why should you as a user care about the platform? I'm going to walk you through a couple use cases. They are very interesting use cases and 2 all three of these use cases are AI algorithms that our team internally has created. So starting at the bottom, this is called Super Res. What does Super Res means?
It means taking 1 ks content and upscaling it to 4 ks. As you know, most of us have bought TVs, adult is probably $600,000 $700 at Costco and Best Buy that do 4 ks. Most of the content that you get is 1 ks. So you've got this beautiful TV, you're ready to see all the pixels very carefully, but it doesn't work so well. Our AI algorithms running on the edge on our chip allows you to upscale that to 4 ks.
Why is that helpful? A, obviously you get a better user experience. But more importantly, the content providers don't have to put in the pipes into your house or the data that's required to get to 4 ks. So that's one great example that we are excited and you will probably see that with a big service provider first half of calendar twenty twenty one. 2nd one that we are also working on and we'll have some early successes around is See in the Dark.
As you know, a lot of cameras require us to see in the dark and the data and the images are quite poor. Using our AI technology running on our NPU, we can improve the image to actually discern and tell what's in that image. That's another piece of algorithm that everybody understands what we want to do with and can be used really moving forward. And lastly, one is object detection or facial detection. As you know, most of us use a lot of smart displays.
I walk in front of a display, instead of me having to say who I'm at or call my mom, it knows, hey, every morning, 10 o'clock, I call my mom and because I'm a good son, it turns on and it responds directly to that by looking at my face. Again, all done on the edge. Most of the data is saved on the device locally. So these are 3 very different use cases and the ones that my team is working on, Synaptics' team is working on. So we are focused on really a secure voice, video, vision, edge AI SoCs.
So how did we get here? As most of you know, we've been in the voice space a long time. We led that market and late last year with our biggest customer in the voice smart speaker space, we introduced the first AS product family that has a 1 teraOp Neural Network Accelerator. As we worked with them in last year and now working with our service providers, we will be announcing, as I said earlier, a platform of VS600 chips that go anywhere from 3 tera to 4 teraops for the video application to 5 teraops to 6 teraops for the Vision application, really allowing you a lot more intelligence and lot more data that you can do locally. So as you can see, we've taken it from voice now to video and to vision.
So our platform is really scaling nicely with this. Showing you the competitive landscape, we do compete with some great companies and I'm happy to be competing with good companies because this shows you that this is an important and exciting market. We've got about it a little different than the ones that I've shown on the screen here. We've got tools, as I said, some of our customers are starting to use those tools. We've integrated voice, video and vision as single chip solutions in a platform.
Putting all that software together is extremely important and we've done that. And lastly, we do believe content security is extremely important and we've defined that can really support that market. So this is how I think about the competition and how we are competing now at a 12 nanometer node, so it's leading edge. It's a platform that we've developed really tightly coupled with our software, our firmware and our tools, allowing us to scale in this market and really grow as this market grows, not only from voice, but into video and vision. And we've done a lot of customization of this software, so it really scales with you in your platform.
So that's really why Synaptics wins. This is why I'm extremely excited about this Edge business. It's really putting together the human interface taking it a step forward. The next business I'm going to talk about is our high speed video interface business. Michael talked to you a lot about this, not a lot, a little about it, he talked about the PC space.
This has been a diamond in the rough at Synaptics. And I've been, as I said earlier, running this business for about a year. I feel this business is extremely exciting because it's very differentiated and really shows how Synaptics can really bring about different parts of the portfolio together and I'll walk you through a little bit about that. So the SAM in the market is about $200,000,000 not as big as my previous $1,000,000,000 but it's still a great SAM and it's growing 10%. My excitement around this business is primarily driven by the market is really converging on a USB Type C connector.
Most of you know on your PCs, they're going away with connectors, they're having Type C. On your phones, a lot of phones have gone to Type C connectors. And it's the connector is not only for video, but it's a video, data and audio all in a single connector. With this increase in Type C connectors and increase in adoption of larger high definition 4 ks, 8 ks monitors requires a lot of bandwidth. And we believe with our solutions, we can really address the need in that space.
Additionally, as you can as I mentioned earlier, it's not only video, but audio and we've got assets in that area that we can put together in the market. So traditionally, Synaptics has done extremely well with the 3 largest PC OEMs. It's our heritage. It's our DNA. And we are the largest supplier of video interface chips into the docking market.
After they bought Conexent, we also now got the audio assets. So now if dock has a audio jack, we provide that solution in addition to do with the video side. But within the last year, we have also put in a robust roadmap working with Michael, looking at where this market goes with dongles. Dongles is an upcoming area where we are all traveling, we are all working from home, we're all bringing our own devices. My IT guy says, you know what, just bring your own products.
We've got a lot of new people, as Michael said, they all like to use Macs. They don't use the traditional docs that are offered by our team. So they need to bring their own devices. So those dongles really are a up and coming big market. We introduced our first product at CES this year as sampling.
Now we are getting into production probably June, July, August timeframe. First to market and is with HDMI 2.1. So that's the dongle market. So that is really Type C to HDMI, DisplayPort, even audio jack. So docks very, very strong, dongles great product ready in the market, first to market with 2.1.
Lastly, adapters, right extension of where we are at. These adapters are primarily HDMI, 1 into 1 out, we call it, Type C on one side, something else on the other side. We've got a roadmap and we've got products in development that we'll be announcing later this year that really allows us to play in this market. By putting all these three things, the market SAM for Synaptics goes from $200,000,000 today to $400,000,000 just in a matter of 24 months. And our products are extremely well suited for this market.
I've spent the last year learning about this business here and it's really very differentiated and you're going to see why.
As you
can see, I like our moniker here, ahead of the pack in high speed video interface. The applications, 20 to 40, docks, dongles, adapters, very clear to understand, 3 different form factors. You've got a Synaptics platform here. Again, there's a docking platform, a similar kind of products can go into adapters and even dongles. You can see the different kind of connectivity that you need to support.
You need to support DisplayPort, you need to support HDMI, you need to support the old USB. We can do it all. Why can we do it all? Because we've got a fully integrated high speed video interface IC solution. And the secret sauce in here is obviously meeting all the standards, but it's our high speed analog SERDES technology.
The team here has really made this a art. They've done a great job and I'm really happy to report we can go up to 40 gigahertz if we need to as this market moves forward. And lastly, having the audio asset, we've put that in there. So we've put a video and audio solution together. So really our focus is on ultra low power for all form factors and exceptional video and audio quality.
We are the innovators in this space, we are leading in this space and we are first to market, we put it all together. As you can see the competitive landscape, we've got some great companies like DisplayLink and few others as you can see on the list who compete with us. But we believe we are well suited because we are not only very strong with the protocol converters, universal docks and enterprise docks, but also now dongles, video and data. Again, as I said, I'm very proud of my team that they were able to get the HDMI 2.1 first to market. And then for the dongles, 10 gig.
So really a great story. And as I call it, it's the franchise. We're building a franchise at Synaptics around high speed video connectivity. Our ICs are used in all the Thunderbird enterprise docs that you see here. We are leading the market by putting audio, video and data.
And last and very importantly, lowest power per bandwidth. And that is because of a platform decision we made, a technology decision that we made, allowing us to differentiate ourselves against our competitors and support a lot of different form factors. So that's our video interface business and it's a franchise for us and we keep on growing in that space. Lastly, the automotive business. This is a nascent business of Synaptics, but it really the opportunity is really it's Synaptics' DNA.
What Janice talked about earlier, we've been doing touch and display for a long time. And as you can see, the market today is about a $200,000,000 SAM, but growing about 10%. What did we do here? There's been a lot of companies out there doing discrete touch, discrete display. Synaptics was the first to market.
This is what we do. We are first to market. We are first to market with automotive TDDI enabling much larger and better performing displays. We have won more than 70% of the designs for TDDI over the last 24 months. This is very exciting.
8 automotive display manufacturers have got multiple, in this case, 35 platforms using our TDDI. So as you think about our TDDI solution, we are phenomenally great up to 17 inches Some of these new cars coming are going to have something called pillar to pillar. So we are investing in something called TDI, again, in our DNA, it's our large touch and display equation for pillar to pillar, really allowing us to grow with the market. The theme throughout the IoT section and even the mobile section has been how do we grow as the market progresses and we are investing in the right areas moving forward. So discrete touch, we've been in that space.
Most of us have some of that in our cars. Some of us who've gotten newer cars might know that we've got much larger panels. So having a TDDI solution up to 17 inches is very, very important. And we will be seeing 1st cars with Synaptics TDDI in the market by end of this calendar year and probably fiscal 2022 year. Fiscal 2022, you'll see a lot more.
And lastly, as the graphic shows, LGDi, which is this large panel with our solution and you're going to see why our differentiated architecture works, we're able to play in it in a meaningful way. So there's a bit of a eye chart here, but what I wanted to show you is, lot of companies are thinking about TDDI, we are first to market, but we can support up to 17 inches and 4 ks with 3 of our TDDI solutions. It really enables the transition from discrete touch to integrated. And we have enabled it. As I said, we're going to see cars running this year with our technology.
But what happens in the future? Companies want and companies like GM and Mercedes want much bigger panels. So they want to go from 20 inches to 55 inches So we've come up with a new architecture that allows you to have a 12 front ends, analog front ends, again, our analog technology that Janice talked about a bit earlier and a touch and display controller that kind of controls all of them. So you can see this is a scalable architecture. So if you want 20 inches you need fewer front ends, if you want 55 inches you use all 12 of them.
And lastly, I wanted to make sure this came through. We are ISO 262262 compliant. Why is that important? This means we provide the secure block in the instrument cluster, which is very important for all the large car manufacturers and we've done that, we will be providing them that. So therefore, I feel very strongly when I say, we are the leader in TDDI, we are going to lead into the large touch and display change that happens in the industry.
So that's we say it's under the hood. So next is the competitive landscape. As you can see, 4 ks support, we are ones to do that. Integrated touch, it's in our DNA of Synaptics. EMC compliant, Suneel, who runs this business, was also talking to me earlier saying, hey, this is very important and the work that Synaptics has put into this allows us to really differentiate.
And lastly, this global technical support, the chain, the supply chain for this is the OEM, the car maker, the display maker, the chip maker, we know how to cover it in all the continents in the So we've done that and we put in the right people to support it as this market grows for us. So why we win? We win because we're leading the industry from discrete to integrated. It really matters because it provides a significant cost savings per display. That's the key point.
The pillar to pillar is going to happen in the future. We are going to enable that. And lastly and more importantly, we've got one of the largest portfolio of integrated touch display solutions. So in summation, I talked to you guys about our Edge business. I talked about our high speed video interface and automotive.
Synaptics is investing. We've got robust roadmaps. We're taking this to the next level and I feel really, really good and I'm excited to be kind of sharing this with all of you virtually. So thank you. And I guess I'll take a few questions, Jason.
Great. Thank you, Suhil. First question comes from Charlie Anderson over at Dougherty. Can you talk about your market share here in the interface side? You guys do well in the enterprise docs, but how do you expect that to evolve as you move into the other segments?
And then also talk more about the gross margins in the IoT overall. How do you expect to improve that over time?
So let me
take the gross margin question for IoT. It is about corporate averages, and I'll let Dean decide if he wants to much about corporate averages, and Dean can give more details a bit later as we talk about it. My DNA, our CEO's DNA is very focused on gross margins. We ask a lot of hard questions of ourselves and our teams, why this product should be done and why they're going to pay us for it. So that is a pervasive thought in the organization.
As Michael said over the last 10 months that he's been here, we've been driving that and you can see that in our actual results. As for the high speed video interface business, we have said in the past over 80% market share in the commercial docks that the 3 big PC OEMs manufacture. As we go into the dongles and adapters, we will continue to grow in that space. We are new, but our technology is differentiated and our solutions on the platform with the lowest power allow us to win. Great.
Thank you. Next question comes from Tony Stoss at Craig Hallum.
Could you talk about the software and firmware capabilities you have that you're bringing to the table for edge AI, the customization and really how does that set you apart from your competitors?
Excellent question. We have in the last year or so revamped the software team. We brought in new software leadership, just happens to be from Broadcom. But again, thinking from the big picture of how to scale, they have scaled this business in a meaningful way. So we have worked with obviously, everybody knows we worked with Google, but as we go into a meaningful vendor for the set top box market, how do we scale our technology with all these different companies like in Korea and Europe.
So our software and our firmware is a scalable SDK platforms that we are providing that the customers can use and we can add customization. One great example of how we did this is getting us certified with Netflix Hailstorm. We were one of the first ones to get it done because we had a scalable approach to it.
Great. Thank you. Next question comes from Chris Rolland over at Susquehanna. Can you talk more about your set top box opportunity in OTT streamers? Can you discuss more about how that's going to grow and what initiatives you've made there and kind of the progress you're making there?
Excellent question. Our set top box opportunity came a little bit too synaptics when Marvell was acquired and Connection was acquired, But it needed a lot of TLC. In the last year, we've given it a lot of TLC. We've fed it. We've got a brand new 12 nanometer product coming out in the market.
And how we have differentiated it is 2, 3 tenants, voice in the set top boxes have become important. We are the only ones to provide that right now with the IP that came to us from Connexent with the IP that came from Marpal. And the second thing is getting a scalable platform, which we have created. And lastly, NPU. The NPU is going to differentiate.
That is where a lot of the intelligence is going to go. I talked to you guys about Super Res. I'm excited about Super Res. These are the kind of applications we are going to put in the market.
Great. Last question for this section for now is coming from Raja Gill over at Needham and Company. Can you talk about more about your digital audio products and your initiatives in TWS?
So our digital audio products, as I told you guys, we continue to do well in the space around wired connectivity. We are leading market share around ANC algorithms. I believe Synaptics has some great technology that we are offering to the market. And you'll see a few products with end customer products using our ANC for pretty much over the year kind of headsets late this year, early next year. So I'm quite happy with the progress there.
Great. Thank you, Saleel. And we'll take more IoT questions at the end.
Okay, great. Thanks, Saleel. Happy to be speaking to everybody today and give you an update on our financial model for the company going forward. First, let me start off with the 3 key financial pillars for the company. 1st, stabilize the revenue and return to growth.
2nd, focus on margin expansion 3rd, capital allocation priorities going forward with an overall tenet of rightsizing the business and focusing on expanding our cash flow generation longer term. Let me give you an update on the progress that we've made in the last 12 months. It's a significant piece of progress that we've made. 1st, on the revenue side, in Q4 'nineteen we had revenue of $295,000,000 The midpoint of our Q4 'twenty guidance, which we gave on May 7, 2020 was $2.75 What you need to keep in mind is, prior to Q4 2020, the company included the LCD TDDI business in its results. If you were to adjust for that divestiture, the company is actually growing on a year on year basis, Q4 to Q4.
Gross margins, which has been a significant focus for the company, has had a significant improvement, 7 points in the last 12 months. Significant effort has been done here. Michael talked about it, Saleel and Janice both talked about differentiated technology and this is how we see you're continuing to expand our gross margin going forward. Operating margin has also seen a significant improvement. Our Q4 2020 midpoint of our guidance implied approximately a 15% non GAAP operating margin, a significant improvement from 1 year ago at roughly 5%.
The key metrics that we look at on improving profitability along with cash flow has been improving and will continue to improve going forward. Now let me turn to non GAAP gross margins. We've expanded this considerably in the last 12 months, as I mentioned. FY 2019 actual results were 39%, Q4 'twenty midpoint guidance at 46% has had a significant uptick. How did we do this?
One, we've exited our lower margin businesses, LCD TDI as one example. 2, we focused on higher margin mobile OLED touch controller technologies, which has improved the mix in our product sales. 3rd, we've improved significantly the supply chain management and operations, which improved the overall cost structure of the company going forward. Our new target, which we're happy to announce today, is 50% or greater going forward. How will we get there?
We'll achieve this target through growth in our IoT businesses and automotive businesses, as Saleel talked about. Our OLED touch controllers and OLED TDDI technologies, which Janice talked about and further improvements in our supplier consolidations and operational excellence as Michael Hurlston talked about. We're very confident and be able to achieve this 50% gross margin target organically ourselves over the coming years. Let me give you an update on our operating expenses. In August of 2019, the company announced a restructuring plan of $40,000,000 I'm happy to announce that the company achieved the $40,000,000 restructuring plan within 6 months.
I'm also pleased to announce that at the midpoint of our Q4 2020 guidance, on an annualized basis, we've now overachieved this $40,000,000 operating restructuring goal, up to $75,000,000 We've incrementally saved roughly $35,000,000 over and above our previously committed. This includes our TDI divestment that we've made. And I would also say, as an overall tenant, our cash flow generation implies that we should continue to increase the efficiency of our company going forward from an operating expenses to maximize the cash flow that we can operate out of the company going forward. We have a growing market opportunity. As you heard from Michael Hurlson and the General Managers, we're roughly a $5,000,000,000 SAM going to just shy of $7,000,000,000 over the next coming years.
This is a 7% growth. Let me give some color on how I see the markets and how we grow going forward. 1st, in our mobile business, our touch technology continues to gain share and I expect us to be able to grow with the overall market. Secondly, our display technology sets the foundation of our OLED TDI investments, but display technologies as a standalone is likely to see some headwinds as we transition from LCD technology to OLED technologies, where eventually OLED TDDI becomes the long term opportunity for the company, and we feel very confident in this technology shift. Secondly, in our PC business, I expect us to continue to maintain high market share and continue to grow with the overall market.
The opportunity going forward is innovation around our touch pads and the industrial design that we offer to our customers. 3rd, in IoT, I expect us to continue to gain share in many of the great applications that Saleel talked about and grow faster than the overall market in this business. We have additional opportunity, I would say, to expand the addressable market going forward beyond what we show here today. We continue to drive diversification in our end markets. First, let me talk a little bit about the past and the present of the company.
The company in the past has been highly mobile concentrated. Our intention is to change that and index our resource deployment more toward the IoT businesses than it had been in the past. So we are moving from roughly 60% mobile concentration in FY 2019 to the midpoint of our Q4 guidance, which we gave on May 7, implied roughly 45% mobile concentration today. Going forward, our long term model is to expect our mobile to business to comprise roughly 35% of our revenue base. We intend to deploy more resources into our IoT businesses going forward and expect that business to grow substantially.
Our long term target is 40% mix into the IoT business, while the PC business will remain relatively constant at about 25% of the overall company's revenue. Capital allocation priorities. As I see it, the top four priorities for the company in its capital allocation is 1, organic growth through smarter investments and spend focusing on high ROI technologies 2nd, accelerate our growth opportunities through acquisitions and be comfortable flexing our leverage ratios up to 4 times to include technologies that are helpful for our businesses going forward, largely in our ever expanding SAM in our IoT businesses. 3rd, debt management. We have a long term target now to target net leverage at 1.5 times to 2 times our adjusted EBITDA.
We also expect to manage our debt maturities as they approach. 4th and final would be share repurchases. We intend to use our capital around share repurchases only opportunistically and only after the first three priorities are exhausted. Share repurchases are important, but we believe that the long term growth of the company is has higher ranking and our ability to deploy capital to grow the company longer term and generate longer term cash flow returns for shareholders. Now before I talk about our long term overall business model, let me give you an update on the macro environment relative to Synaptics.
First is COVID-nineteen. This is a significant impact across many industries. For Synaptics, what it means is work from home has actually been a positive benefit for the company in both its PC business and its video docking business. On the other side, a negative impact on demand has been in our consumer IoT businesses and our automotive businesses as consumer demand has fallen in these areas. 3rd, not yet clear to us is smartphone demand.
We believe that Synaptics has a unique area where we have some obfuscation on understanding what the overall demand of smartphones is, given that the number of design wins that we've recently won, changes our demand, which makes it unclear on whether demand is increasing, same or falling. Supply chain management, we've had a minimal impact. We continue to be able to supply to our customers and have been able to manage our supply chain with minimal impact from the COVID-nineteen environment. And finally, on the workforce, we're a global workforce. We're very accustomed to working globally and remotely, and we've had very minimal impact to our workforce and our ability to deliver on the technology.
Let me turn to U. S. And China trade war. We have lower exposure into China OEMs post our divestment of our TDDI business. TDDI was largely focused on serving large Chinese customers.
With that divestment now completed in April of 2020, that exposure has dropped considerably. We also continue to ship into China and into Chinese customer OEMs as our products are largely non EAR rated products for export control purposes. There have been also recent changes from the U. S. Department of Commerce from Huawei and HiSilicon.
First, let me say, we don't believe there's any direct impact of Synaptics on these recent new regulations. However, there may be potential indirect impacts if Huawei were unable to acquire the full bill of materials to build their smartphones. This would impact Synaptics and others that have design wins in Huawei smartphone applications. Huawei continues to be an important customer of ours and we continue to support Huawei to the extent we can as allowed under U. S.
Law. Now let me turn to our new long term financial model. I'm very pleased to announce that we expect our long term revenue to grow between 4% 6%. This is a combination of all three of our business and market dynamics as we see them. We also expect our long term gross margin to be 50% or greater going forward, a significant improvement from what the company had previously committed to investors.
We also expect our non GAAP operating margin to be approximately 20%, which is significant improvement on historical profitability that the company has had. I'm very pleased to announce that we have line of sight to these goals and we'll be working toward them over the coming months years as we drive toward a long term model, which is only just a few years out. In summary, let me highlight just a few items that we've covered today. 1, Synaptics is a leader in our human interface technologies, and we continue to do so going forward. We have a strong portfolio of differentiated technologies, and we're increasing the mix of our high margin, high technology products going forward.
We have a strong position in large and growing markets. We have deep relationships with a diverse set of customers in leading markets. We have a new management team that has diverse backgrounds and we've begun driving a significant transformation of the company. And finally, we feel we have a scalable, efficient new operating model that we intend to execute toward. With that, thank you.
This concludes our prepared slides. We'll now move into a management Q and A.
Thank you, Dean. Please give us a moment to transition to the full Q and A.
Look at that magic transformation. How about that? Talk about transformation. It all worked.
Thank you all. So when
we start off the question here to Michael and the team. Can you talk about your M and A strategy? You talked about in your opening comments about what having the capital at hand for M and A. Can you talk to us a little bit more about what holes you look to fill within the company? What additional opportunities you look to pursue?
And along the same lines, what would you look to divest? This is a question from Chris Rowland over at Susquehanna.
Let me start with sort of the overall philosophy. I think that we want
to
by instead of in the past, I think that we the company had a history of going after big TAMs and big acquisitions that led to new markets and new market areas. I think that we want to depart from that and get pieces that are going to fit within our existing portfolio, not go after width, but go after depth. And I think we can do that. There's a number of different areas that we think about. We've got obviously a pretty wide portfolio as it is.
We think we can strengthen that through acquisitions. We want to do acquisitions that are going to be accretive, as I said, both in terms of gross margin and in terms of operating margin. And we want to create strength in the places that we play. On the divestiture side, I think that the idea is very similar where we have a bar, we're trying to raise that bar As products fall below that bar, we'll look at things like divestiture. And certainly, the bar as Dean came in and started stressing this theory of gross margin, the bar started to move up and something that fell below that bar was our LCD TDDI business that Janice talked about.
And we made a quick move and I think had a very successful divestiture. So as we move the bar up, there are going to be things I think that naturally fall below that and we'll be looking to divest.
Great. Thank you. The next question comes from Jon Vinn over at KeyBanc. Can you talk about your gross margin, your 50% target that you're targeting organically? Can you get there on your current or what's a revenue growth rate that you need to get to that level?
And can you talk about how we get there?
Yes, I'll take that one. So what I would say is today if you look at our gross margin midpoint of our Q4 'twenty guidance at 46 percent, it implies roughly a 15% non GAAP operating margin. If you just apply go from 46 to 50, that's 4 points. So on today's Q4 2020 revenue base, we're really close actually if you were just to move the gross margin lever, up 4 points that would put you at 19%. So I'd say from where we are today, you don't have to go that much farther to deliver to the full 20% operating margin.
Now to get to the 50% gross margin, I think there's 2 main levers. 1, we're going to be investing into the product technologies that have high differentiation that we can extract a reasonable margin. And 2, I think there's still efficiencies to be had from our COGS line from our supply base and just improving the overall efficiency of running the supply chain.
Great. Thank you. The next question comes from Ambrish over at BMO. Could you talk about the impact that we're seeing with the Huawei on the mobile business? And then also what else are we which other customers are we focused on the mobile to help alleviate some of those the pressures with those large customer exposures?
And then where are mobile gross margins relative to corporate and is there more movement there?
So we as Dean mentioned, we continue to have several design wins at Huawei. And so far, as long as we're within the law, we have no trouble actually shipping still to Huawei for our touch products. We're also engaged with they're kind of a leader in innovation. And so we're it kind of pushes the other OEMs to do the same things. We're engaged with additional China OEMs that some that we haven't seen for a while.
But frankly, growth for us is going to be also in the large Korean OEM that we simply haven't been at for a while. We're continuing to meet the challenge that Dean and Michael have set on gross margin. And this is why we're focusing on areas of differentiation and higher margin markets like flexible OLED.
Yes, let me make a comment, Jason. Janice, I think hit on all the right points. I would say to add to that, generally speaking, our mobile business is at corporate average in terms of gross margin. But our opportunity, our touch the touch business that she's built is actually above. And so our opportunity is that part of the business grows, we think that we'll be able to expand gross margin.
And then if you think about the further out opportunity that she talked about, which is the OLED TDDI, again, our expectation is that's going to be meaningfully above corporate average gross margin. So we've got a roadmap even within the mobile business to expand and grow gross margin. And we're well on the way to doing that as we tip the balance more toward touch products.
Great. Thank you. The next question comes from Vijay Rakesh over at Mizuho. This is for the IoT. What do you see as the long term growth for IoT market?
Which areas are you most excited about in terms of what's growing faster and what is missing in your portfolio that you think would be additive?
So as we showed earlier, the IoT business is growing at about 11%. The Edge specifically is going to be growing around 12%. So that's a big sand that we're addressing and I'm very excited about that. I'm also excited about the high speed video interface and automotive. So as I said, all the businesses that I talked about today are showing better than market growth rates and we've got differentiated products, not only on silicon, software and platforms that we're going to that.
As for the M and A, again, the theme that Michael has brought in is it's nothing transformative, anything that moves this ball forward, moves products, improving the bomb in the areas that we are at is what we would be looking at.
Just to maybe add a little bit to that. I think the obvious one that everybody keeps asking us about is wireless connectivity. I think Saleel has done a super job finding partnership opportunities to defend the franchise by working with other companies on wireless connectivity. So although that would appear to be a hole in the portfolio, the partnering arrangements that he's engendered have helped us, I think, significantly defend our position, particularly in the Edge SoC area. So we continue to look at that.
I think all the various wireless franchises are off the market, at least as we know, we're going to have to depend a lot on partnering, I think, to be successful. And Saleel has done just that.
Great. Thank you. The next question comes from Paul Chung over at JPMorgan. This is on the mobile side. What's the timeline for the OLED TDDI to go mainstream?
What are the challenges that you still need to overcome? And along those lines, how do you avoid the same kind of commoditization you saw with LCD TDDI in this market?
Well, we're in early definition in architecture now and it's a very complex system. And so there's going to be some challenges, of course, just because of the technology. I think it's going to be really hard to do. But as I mentioned earlier, I think we have all the critical components in order to be successful there. From a schedule point of view, as I mentioned, we're in architecture today.
We're engaged with some of the major display partners in order to partner up with this massive program. We're expecting to be in mass production at the end of 2021, maybe early 2022.
Great, thank you. The next question comes from Charlie Anderson over at Dougherty. This is for the PC business. Can you talk about what you're doing to increase your dollar content and drive better gross margins in this business?
Yes, let me talk about a couple of different vectors. I think one, obviously, and if we focus on the fingerprint side for a minute, the fact that we've got this higher degree of difficulty around these edge sensors and around the keycap, those have improved our gross margins. It's much more difficult to execute. You've got a high degree of material complexity in both of those areas. And that's helped our gross margins, helped our dollar content.
On the touch side, as I said, what we're looking to do is introduce force touch, which is a much more complicated pad. And again, that should help us both on the gross margin side, even on top line. If you look at the last couple of quarters, we've had a great run-in the PC business. It started really with a shift to commercial laptops away from consumer, which is our strength. And then the whole work from home has given us a second tailwind.
So our PC business has been a great news story for us in the last couple of quarters. And our goal right now is to continue to grow share and grow margin in that product area.
Next question comes from Charlie Anderson at Dougherty. Can you talk more about the VS600 and specifically the service provider engagements that you've been working towards and can you give us an update there?
Great. So we announced our first VS600 product at CES and I'm happy to report that you will see products end products in Korea with 2 out of the top 3 service providers in the first half calendar of twenty twenty one. So that's just on the Korea side. As for Europe, we are working very closely with few of our existing customers and some new customers. So I believe in the second half of calendar twenty twenty one, you will see early products using our VS600 family.
Again, as I said, it's because of our CPU, which is ARM core, but our NPU that differentiates it and our software scalable platform that we put together.
Yes. I mean, I think just to add, I talked about sort of expanding on X and Y axes. And I think what Salil and his team have done is really expand along an X market axis. They've gone from a consumer strength where we've historically played, now moving into set top box and then ultimately moving into visual AI. So you think about the evolution of this product, it's technology investment and then moving it along into adjacent markets and expanding the TAM for the company.
So what he and the team have done is brilliant. It's a platform play that can move us from market to market. And as you go from a consumer market to a set top box market and then ultimately to a visual AI market, you're expanding gross margin is expanding ASPs along the way. So I think it's been a great strategy. We're again in the early innings.
We've got some nice tailwinds there because we've got pressure from a North American supplier that's had some regulatory troubles in the market and then an Asian supplier who may or may not be able to ship. So we think we've got some great opportunity, particularly in the set top box area.
Great. Thank you. The next question comes from Tony Stoss over at Craig Hallum. This is for the mobile side. Can you talk about the differentiator?
There's certainly been a lot of confusion around, with certain customers of ours, our ability to win new sockets there on the touch side. Really the differentiation there, how sustainable is that design win and you know, do we believe that we've got a strong defendable position here?
Well, I think if you go back to the flexible on sale OLED stack up, it's really quite hard to do. We today are leading in this space. We have, as I mentioned, over 10 design wins in this flexible on sale touch space. I think we have I believe we feel confident that we have the advantage. If someone's going to launch a phone with flexible ontell, we have a very good opportunity to secure that win.
Some of our competition, they do flexible outsell, which is a very viable stack up as well. But as I mentioned, as you start to move to more interesting phone industrial design, you need to be in the flexible on cell touch space. It's just very hard to do. You need the critical components of the system level knowledge, the really strong mixed signal team, also a strong algorithm team and the deep customer relationships, not just OEM, but also on the display partner side. Synaptics has all of that.
Great. Thank you. The next question comes from Vijay Rakesh over at Mizuho. Again on the mobile side, can you talk about your mix today with how big is OLED touch as a percentage of your business? And how should we expect that to scale over the next 12 to 18 months?
And then as well as the headwinds in LCD, how long do you expect that to last?
I think on the touch side, it is one of our franchise businesses, especially in my division. And we expect it to continue to be a significant revenue generator for us. We do a lot of innovation in touch. But display for us is also as Dean pointed out as I mentioned earlier a foundation for our future innovation as you look at display integrated products. We continue to look at display opportunities as they come up.
We're a very strong player in the gaming segment where you really need this premium display technology. And LCD, everyone as everyone knows, the transition to OLED has been happening for some time, but we still anticipate having LCD opportunities for the foreseeable future.
Yes. I think Jason, it's a matter of a bunch of moving pieces in the mobile business. I think Janice characterized it extremely well. There's no doubt that our LCD DDIC business is going to come down through time. We've actually been pleasantly surprised how well it's held on.
There was a recent launch that has given us renewed vigor in that area. So we've actually held the LCD, DDIC longer than anybody expected and it's been a great team developed. And our hope is that all of that kind of comes together and gives us some runway while we build toward this OLED TDDI story that she articulated. And I think, as she correctly said, I think we expect to see products in the market at the end of calendar 2021. And assuming all that can happen, we've got a great story overall in the mobile space.
Great. Thank you. Next question comes from Raji Gill over in Needham along the same lines of gross margins. Can you just talk about the gross margins across each of the three businesses, Dean? And what are you looking at for opportunities to drive those gross margins better as well as the overall corporate margins better?
Yes. So on the gross margin side, let me just characterize the 3 sort of main business markets. First is PC, which is below the corporate average. 2nd is IoT, which is above the corporate average. And third is mobile, which is sort of about corporate average.
What I would see from my vantage point, so there's the overall cost structure that we're improving and that benefits all 3 simultaneously. But the areas that we're you're actually deploying our resources is the higher ROI products, which actually gross margin is a fundamental decision that we do look at when we decide what we're going to invest in. 1, I would say on the mobile side, the OLED TDDI devices, the existing touch controllers, those are gross margin accretive relative to where our mobile business had been historically. Also on the IoT side, automotive is a growing area. IoT as you go sort of more away from the pure consumer IoT to some of the more service providers set top box OTT, IoT applications, those are also gross margin accretive.
And then the last one around PCs, when we're innovating for some of the industrial design that allowing the new lighter thinner PCs for, we think we're adding tremendous value to those OEMs as well, bringing some of the fingerprint sensors for that attach rate as well. So I would say all 3 sort of have upward momentum going forward.
Great. Thank you. The next The next question comes from Harrison Barrett over at Arete Research. This is for the IoT business. Within the IoT of the Edge, AI, the auto, the video interface, can you talk about the growth opportunities?
What are you most excited about from a market opportunity standpoint as well as from a profitability standpoint? Where do they stack up? Yes.
As I mentioned earlier, the IoT business, what Michael said earlier, Synaptics is a portfolio company. The IoT business is a portfolio business within Synaptics, right. So we've got some areas that I specifically highlighted today. The Edge business, which is growing at 12% and obviously, we address a very large SAM and TAM in the market. So I feel really good about that.
Our high speed video smaller market, it's really differentiated with very good margins, gross margins and profitability margins for the company. And automotive though it's nascent, it's going to grow and it uses Synaptics' DNA in there. So we really do differentiate ourselves. Theme being differentiated technology, have a platform and grow faster, like Dean said, than what the market is growing right
now.
Great. Next question comes from Kevin Cassidy at Rosenblatt. You mentioned on the mobile side, you mentioned 10 design wins and flagship or near flagship phones for your OLED touch. Can you give us an idea what that ramp looks like over the next few quarters? Is pretty spread out or can you talk more about those wins and the customer base for those wins?
The majority of the wins should come in this calendar year, but there will be a few of them sprinkled into Q1 of early next year. Those are at the OEMs where we have most recently penetrated and so just were recently designed in. A lot of those, as I mentioned, are follow ons to the Huawei leadership. So there's a lot of with for a while.
Great. Next question comes from Raji Gill again on the mobile side. Obviously, you guys have a strong technology lead on flexible on cell OLED. What is your expectation in terms of how quickly do handset OEMs adopt this relative to more legacy outsell OLED? Do we expect this to be kind of a light switch effect on taking a big chunk of their volume overnight or is this more of a gradual process?
Well, flexible on sale OLED is actually growing pretty quickly as I mentioned earlier. I think in order to have these really new and cool industrial displays, you have to go flexible on sale. The outsell stack up just isn't thin enough in order to have these really great new designs. I think we anticipate more and more OEMs moving into the flexible on sale space, not just for the regular devices, but also for foldables, larger display sizes. And this is the areas that we can support with our OLED TDDI.
Yes. I mean, I think, I'd say 2 things. 1, it probably isn't a light switch. I think it's going to be rolling, but it's happening pretty quickly. We definitely see OEMs in putting in flexible on sell into their mix across every single OEM and probably more importantly down into the SKU stack.
So it's not just the flagships. I think we're starting to see it move down into the premium and even semi premium segments. So it's a big move, but it's going to be a rolling move and it depends on which OEM it is. It depends on how they think about their mix and how they manage their portfolio. But I think that there's a lot of runway ahead of us now on flexible on
sell. Next question comes from Tony Stoss over at Craig Hallum. Can you talk about on the for Dean, can you talk about from an operating margin target standpoint that you laid out, what's the revenue level we would you would need to get to achieve those operating margin targets?
Yes. So to achieve the operating margin target, which is roughly 20%, you need to be sort of at Q4 2020 levels or sort of slightly above. If you just think about what is the gross margin, OpEx and then finally operating margin that we expect, we're sort of roughly midpoint of our Q4 2020 guide, which we announced on May 7, 2020 was implied roughly about 15% operating margin and that was on a bid point 46 percent gross margin. So to the extent that we can drive faster toward our 50% gross margin target, That's adding 4 points on the gross margin target. All else being equal 15 plus 4 you're at roughly 19.
So in sort of today's realm, you don't need to go a whole lot further to get there. So what I would say is, it's not a huge stretch target. I think it's something that we have line of sight and we're very comfortable sort of executing toward.
Great. Thank you. The next question comes from Raji Gill at Needham. Can you talk about the 4% to 6% long term revenue growth rate. Can you describe which segments will be the fastest and account for the largest percentage of that growth?
What are you most excited about?
Yes, I mean clearly our resource deployment is going to be indexed higher toward our IoT side of the business. I think that's where we see the highest growth rate potential and therefore we're sort of allocating our organic capital toward the IoT side of the business. I think I mentioned in my prepared slides, we expect to gain share and actually go faster than the market in the IoT business, while our mobile business will go through a transition, call it over the next 24 months. That business is not shrinking by any means. I would say it has a display driver touch controller transition that it will go through.
But we think about that one as sort of roughly flat and sort of growing at smartphone market run rate going forward. But clearly IoT is going to be the growth engine. And PC relatively stable. I mean that market is not growing significantly. I mean you're talking a couple of points up or down every year on the PC market.
So that's sort of the mix as I would see it, which would drive toward our new diversified revenue goal going forward.
Great. Thank you. The next question is surrounding COVID-nineteen. What have we seen in terms of for both Janus and Salil as well as the overall business in terms of whether it's push outs in terms of delaying introduction of new products, whether it's product cancellations or even just a lower level of orders on the mobile side or on the IoT side. Can you guys give a little more color on each of your businesses and specific impact you're seeing there?
So I'll start, Saleel. As I mentioned earlier, for the mobile business, we haven't seen a major impact. There has been a slight delay that we've seen in some launches. Everybody knows that there were some supply chains in Asia that were affected earlier in the year. And so we've had a slight delay, but nothing significant.
We've seen no cancellations. But as Dean mentioned, it's a little bit unclear longer term if there is a big effect. But so far, it hasn't been very noticeable.
On the IoT side, as Dean has been mentioning, we've seen softness in our consumer IoT and specifically some of the automotive businesses as the best buys have been shut down and things like that have happened. But we also have this high speed video interface business that's got the tailwinds of work from home and BYOD, so that's done well. So moving forward, some of these will eventually start to come back, but there has been some softness in the consumer IoT business specifically, and we've talked about that as we've talked in the investor calls. I'm also going to talk a little bit more because of the future. I see a future beyond COVID for us.
And there where the teams have really executed, we were actually able to tape out a chip during COVID. I know Janus also taped out a chip during COVID, which is quite exciting. And secondly, our customers still are extremely engaged with us. We've driven by their houses, dropped off demos, they've done things like that. So but that for the customers to ask for that, that means we've given them something that they really want.
So the teams are continuing to work really hard and I am preparing for next year when there is normalcy back and the business starts to grow again.
The next question comes from Charlie Anderson over at Dougherty. Would the idea be that any M and A you do creates upside to the long term model And would be or is it would it be more to enable you to achieve your long term model?
Yes. So I would say from my vantage point, M and A accelerates the ability to get to the long term model faster. Certainly the long term model is built around what can we do sort of organically ourselves. Any extent that we do an M and A activity is enable us to get there quicker.
Yes, I agree with that. I think that we are trying to be selective in M and A opportunities that we pursue. And those M and A opportunities that we pursue should lead to higher gross margin and higher operating margin. Now the model that Dean has put forth assumes none of that. It assumes that we're going to run our business, operate our business as normal course.
So to Dean's point, anything that we do in that vector will just accelerate us toward that long term model. Great.
And then the last question here we have is
for Saleel.
On your presentation, you talked about vision AI solutions you also talked about- you know on the automotive side the TDDI when do you see you know the first applications using Vision AI? And then on the automotive side, are there any additional opportunities you see there for other products that sell?
So on the automotive, let me take the automotive one first. The TDDI, as I said, will have first cars available end of this year, much more momentum into next year. In the automotive space, we are very, really focused with our touch into space solutions, because we believe it's differentiated and we've got a great customer base and great interaction with them. So we're going to focus on that area. Michael said earlier, we look at this as a portfolio company and see whether there's cross pollination.
We're not quite doing that with the automotive space right now, but we're focused on what we are really good at. As for the Vision AI, I talked about in my slides some of the algorithms we are doing around night vision. I expect to see some initial design work. There's good opportunities. We've got some design work going with couple of lead customers as we speak today.
By the time we get to market, it's going to be in 2021, probably the second half of twenty twenty one that you'll see products in
the market.
Actually one more question. This is for Dean from Ambrish over at BMO. You talked about cash flow and wondering what do you think the business is capable of generating in terms of free cash flow and is there a target that you have as a percentage of sales?
Yes. So we haven't outlined a specific cash flow target, but what I will say is, cash flow generation is a high priority for us, although we haven't established sort of an internal target that we're sort of ready to share. What I would say is, if you look back over the last couple of years, the revenue was sort of substantially higher than it is sort of today. But the cash flow was substantially lower. And if you look in the last 12 months on some of the emphasis we've put around higher efficiency in the business model, it's actually led to a higher cash flow generation.
And I would say going forward, we continue to focus on efficiency of the overall operating model, which will drop the cash flow down to the bottom line. Just as a reminder, Synaptics is a fabulous company. We're fairly CapEx light. So to the extent that we can generate a highly efficient operating income, that should ultimately flow down to cash flow flow very extensively. Great.
And I think that's about it. So thank you everybody for joining us. If you guys have any closing comments?
No, Jason, thanks for this and thanks for everybody who attended. We appreciate it. I think as I said in my closing remarks, Synaptics best days are to come and it's this team really that has done a great job setting the course for the new Synaptics. Thank you. Thank you.