Good morning, everybody. My name is John Vinh. I cover [semis] here at KeyBanc Capital Markets. We're pleased to have Synaptics at our conference with us. We've got Rahul Patel, newly appointed CEO, and Ken Rizvi, CFO. Thanks for joining, guys.
Thanks for having us, John.
Thanks, John.
Really excited to be here.
Hey, Rahul, I'd love to start with you. You've been CEO of Synaptics for about three months now. Just wondering if you could take a minute and just share with us what your vision and strategy for Synaptics is now that you've been in the seat for a while.
Yeah, I think I feel very fortunate to be the CEO of Synaptics. It's a company that is at the cusp of becoming a formidable Core IoT player based on the assets it has in its portfolio. Clearly, a company that has been in the business for 40 years, four decades. There are not too many [semis] that have gone through a 40-year cycle. The beauty about the company is it has reinvented itself many times successfully. We are at the place in time where another round of repositioning the company is on the cards, especially in the Core IoT space. I find myself very fortunate to have had the experience that I've had in the industry in the past, bringing into Synaptics the ability to kind of play in the Core IoT space.
Having done what I've done at Qualcomm and prior to that at Broadcom in very similar spaces, it gives me a lot more confidence that Synaptics is going to do well in Core IoT. Early returns, there's no two ways about it. Just about in my 12th week. However, Core IoT definitely is very promising in Synaptics.
Great. It sounds like Core IoT is going to be a focus for you. Being in the industry with Qualcomm and even Broadcom, you probably have great visibility and understanding of all the different computing Wi-Fi technologies across the spectrum. What's your perspective around the Core Synaptics Wi-Fi Bluetooth assets and how it compares against the broader industry out there?
Great question again, John. I think Synaptics, through its licensing arrangement with Broadcom, has the access to industry's best-in-class wireless connectivity portfolio. Having said that, the portfolio, be it Wi-Fi, Bluetooth, UWB, or Thread, is not only positioned at a high-performance end of the spectrum of products, but also with Synaptics' focus into Core IoT, is going to deliver extremely low power, battery life, impressive performance products that are very key to having a scale on a Core IoT's [QMAP], basically, in terms of total solutions that Synaptics is going to deliver along with its processor portfolio.
I think maybe that's something we can highlight is on the processor side with Astra. You know, one of the things that we're super excited about was we talked about it on the last earnings call was the fact that we're going to be sampling kind of this next-gen architecture on the processor side that's been built from the ground up really for the AI or AI at the edge. To be able to run these models natively at a very power-efficient level and significant compute is really something we're excited about. It's just coming out now. We've been investing in this portfolio and product line here for the last 18 months or so, and so that's the excitement. Not only this generation, but we have another platform that's coming out next year that we'll be talking about here over the next several months as well.
Yeah, I think to further expand on that point, Core IoT at Synaptics is the area that the company is going to go deeper into. However, the big differentiation is Edge AI capability embedded in its processors. It's not that it's new to the plan. It has been part of the plan. We are seeing a lot more adoption of our products that are in production right now with Edge AI. The big difference on the new set of products that Ken was indicating is that it has been developed in combination with Google Research. It's broadcasted. Earlier in the year, we publicly talked about this. The accelerators in combination with our neural processors, that IP was co-developed in collaboration with Google Research. What that does is it allows us to very quickly and seamlessly benefit from the transformers that AI models will utilize.
Ultimately, many AI models will readily port on Synaptics' platform. I don't know of any other processor company at the edge that has a partnership that is publicly discussed or announced with the hyperscaler. If we believe, which I think I believe, the world of compute for AI is going to be splitting between the data centers and the edge because hybrid compute brings the benefit of lower power consumption for the inference, helps assure the privacy dimension, helps with the latency equations because now the responsiveness is going to be a lot better. Many other benefits come together with the hybrid compute. Working with a hyperscaler like Google is a huge differentiation for the Synaptics Core IoT platform with a significant differentiation around Core IoT with Edge AI.
Great. Maybe just to follow up on Astra, based on the engagements that you've had so far, what are kind of the initial maybe end markets or applications that you're seeing the most interest from your customers from at this point?
I think the products that are in production right now are seeing a tremendous amount of traction in video processing applications, be it, you know, over-the-top video processing in set-top boxes, OTT set-top boxes, which are operator-class products, to camera vision, audio processing applications. On the earnings call last week, we discussed a marquee brand name, high-fidelity wireless lead distributing audio speaker system solution supplier in the North America region adopting Synaptics' Astra processor as an example. There are many other design wins that are in the portfolio. We are already seeing a wide traction of design wins ranging from consumer to now initially even in the industrial applications with the Astra processor. I think the pipeline is going to get even bigger and grow faster as we kind of launch the products with the IP that we have co-developed with Google.
The beauty about the Google relationship is, and like Google does with many of its product categories from the smartphones to PCs, is, you know, they are more interested in not only developing first-party products, which are Google-branded products, but also enabling an ecosystem of third-party products. Being the hardware platform of choice, the first to be partnering with Google out of the gate on this Edge AI, you know, category, Edge AI solutions for Core IoT category, it gives us, you know, a material tailwind in the design win dimension, not only getting a Google-centric product, but also a third-party product that would adopt Google stack.
Really excited about what's coming in our revenue base today with the design wins that we have had in 2023, 2024, and a portion of 2025, and also the new design wins that are going to fill our pipeline in 2026 and 2027 to deliver the continuing growth of Core IoT with Edge AI processing applications in 2028 and beyond.
Great. You're clearly winning in Edge IoT with these new products. Obviously, you're competing against companies including Qualcomm and MediaTek, which have greater scale and ecosystem. How are you able to compete with these larger companies?
Yeah, I think excellent question. I think what is not understood probably well in the marketplace is the likes of Qualcomm with their Snapdragon class of products. I think MediaTek largely follows what Qualcomm does based on what I've seen. If you take them as a category of processing engines that are at the higher end of the spectrum where, for example, the last conference call, Qualcomm discussed their success in the AR category, right? It's largely driving highly immersive applications, a lot more video processing, power consumption being at a different level than what Synaptics' products would be delivering at the Core IoT applications in the Edge AI solutions. It's a different class of products. We don't compete in that category of products.
However, we believe at the edge, 90% of the applications would benefit running Synaptics' class of processing engines versus a Snapdragon class of products if you are going to compare the implementations for the benefits of form factor and power and obviously cost. That's where I think we are very different. I don't believe we compete.
Great. Thanks for the clarification there. Ken, you know, you'd been CEO for a while. I think you were one to kind of talk about Synaptics kind of going through this kind of broader-based kind of recovery that we've been seeing over the last several quarters. Maybe just talk about just from a cycle perspective, you know, what you're seeing in the IoT business from a bookings backlog and inventory perspective.
Sure, happy. Great question. Maybe I'll just take a step back. If you look, right, we just finished our fiscal year 2025. If you look at that, we saw actually great growth year over year for the overall business, about 12% growth on a year- over- year, 25% to fiscal 2024. Within that, I think you just mentioned it, if you look at our Core IoT business, that grew significantly north of 50% growth on a year-over-year basis, whether you look at our 2025 results or you look at our Q4 over Q4 results. We're seeing great momentum in that particular portion of our business. Part of that is driven by the wireless portfolio, but we're seeing great traction on the processor side as well. Those things are continuing as we look into our Q1.
If you take the midpoint of our guidance in Q1, you'll see continued strong growth in that Core IoT portfolio. That's where we are investing as a company. If you look at not only the R&D resources, but if you look at the go-to-market engine, that's where we're making some of these incremental investments to be able to scale that business much further as we think about the next three to five years. If you look at that portfolio relative to the peer set and you look at it from a growth perspective or you look at it from the margin perspective, we feel like we're in a class by ourselves relative to some of the smaller peers out there.
That's the opportunity we have is to really show the spotlight on that business and to be able to showcase not only what we can deliver to customers in terms of solutions and products, but also what it means from a financial perspective. Finally, just going back, if you look at the overall market dynamics, one of the things we talked about on our earnings call was just the overall inventory levels. Now, we don't have all the visibility through the end customer, but as we look at the channel inventories, those are at pre-COVID levels. The channel inventories leaned out, especially as we look out or look back over the last two years or so. That's a good sign in terms of where we are from a channel perspective and then where end demand is.
Now, as we think about the next six months, the next 12 months, it's really about end demand improving as well as our execution on the Core IoT business.
Just to add to what Ken's saying, I think financially, we've thrown a lot of numbers out in terms of how fast we are growing in Core IoT. Year over year, last quarter, exiting the year, the strength, the momentum, and what we can anticipate in Q1, fiscal Q1, the quarter that we are in for Core IoT growth. I think all the numbers point to north of 50% growth. Having said that, I think the obvious question is, what does this do to our earnings per share equation as a result? I'll point back to our fiscal 2025. Our revenues grew 12%. Our earnings per share grew 61%. The difference for Synaptics in its offering to the marketplace is, yes, we're going to focus on Core IoT with not significant deviation from our plans for EPS growth. I think that's where I think we'll be different.
Great. Just to follow up for you, Ken, I think one of your peers has started talking about the recovery, and they're seeing kind of a strong recovery, but they're seeing it very heavy turns based because of the short lead times. They're indicating that because you're not getting that same bookings out in the backlog, it's kind of limiting some of the visibility a little bit further out into the back half of the year. Is that consistent with what you're seeing in terms of just bookings trends versus the short lead times?
We have typically, I would say, very, very good visibility three months out and reasonable visibility six months out. If you look at our September quarter, we had very healthy backlog coming in, requiring very limited turns for the September quarter. As we look at the December quarter, at the same point in time, a quarter ago, we're building that backlog as the starting point, and then the bookings are filling in at a healthy rate. That's the typical visibility we have. I would say fantastic as we think about September and now starting to build into the December quarter.
Okay. Maybe we can pivot to enterprise and auto.
Sure.
It sounds like it's starting to recover a little bit, maybe not at the same pace as IoT, but how are you thinking about just enterprise and the recovery there over the next several quarters?
Yeah, so when we think about the enterprise auto, maybe I'll bifurcate it into the two markets here. On the automotive side, what we've said, and it's no different than I think what we've communicated the last couple of quarters, is the automotive market for us still remains very sluggish. The enterprise market over the last 12 months actually has continued to grow. Within that enterprise and automotive market, in terms of what we're reporting, I would say automotive has declined over that 12-month period, while the enterprise market has had this recovery at a slow pace, but a reasonable recovery over that period.
I think the one thing that, you know, we have some secular drivers and cyclical drivers, but as I look at some of the cyclical drivers that we have as potential tailwinds to the business, is really around that enterprise space where, you know, we have very strong positions or franchise positions in that PC and enterprise space. We haven't yet seen this PC refresh cycle, right? That's not what we're embedding into our September guide, nor are we necessarily anticipating that as we think about December. If you look at the last refresh, it was really in that 2021 period, and there's something like 400 million PCs out there that need to get refreshed. Whether it's Windows 10, whether it's AI PCs, at some point in time here, we would expect that refresh to occur. That's a net cyclical benefit to Synaptics.
The other piece that is also out there is the RTO, return to office. In the Valley, we're starting to see it with a lot of folks coming back into the office. We're experiencing it at Synaptics as well, where we're starting to upgrade the workstations or upgrade the conference systems. Those things are also net tailwinds as we think about the next 12-plus months.
Great.
Yeah, I think just to add to what Ken is saying, I think you asked about enterprise, right? Our market share in PC in the touch category is growing. As and when the market starts to see a refresh, we'll see a bigger share translated into a higher revenue base, basically. Mobile touch, you didn't bring it up, but that market as well is in a place where it's going to see a pull on foldables. If you all believe that at some point the company in Cupertino is going to launch a foldable phone, the rumor is 2027, the category potentially will see an uptick. Obviously, it's coming off on a very small base, but even 5% of the smartphone marketplace translates into, give or take, some 40 million, 50 million units a year. Synaptics is the touch choice in premium class of products.
In foldables, you have now the opportunity to sell two touch products versus one. All of a sudden, that's a 100 million unit opportunity for Synaptics. I think there are these other factors in our established businesses that will continue to kind of work in our favor as the market turns in those directions that are PC as well as in mobile, right? In near term, despite having not significant contribution on the growth from mobile touch and enterprise and auto, the growth continues sequentially on the total revenue base, courtesy of strong growth in Core IoT. Overall, with the mix that we have, we feel very good. Against some of the headwinds that the market may experience, I'm sure we may be not immune completely to all the headwinds, but the categories that we are in put us in a good place from being different than the marketplace.
Great. Are there any questions? Rahul, how are you thinking about M&A at this point? Your predecessor was pretty active on the M&A front. What's your philosophy in regards to acquisitions?
Yeah, I think the company is, in my opinion, primed to build solutions. Today, if you look at the company, like many other companies, they are arms dealers. If you want a processor, we'll sell a processor. If you want wireless connectivity, we'll sell a wireless connectivity solution. If you want something in analog mixed signal capability, like a touch or fingerprint or security solution, we'll sell that.
The opportunity for us to also venture into the realm of building out solutions that are targeted towards Core IoT marketplaces, for example, a full PCB with processor, wireless connectivity, and an interface to the physical world, that may be an appliance solution to a solution that may be a robotic arm that has the ability to do tactile sensing, process or capture some vision information, process, machine learn with low latency, take an action, and wirelessly connect to the cloud or the server where all this information is going to get stored. You can see the landscape. That is where Synaptics is going to go, become a bigger Core IoT player for some of these marketplaces and for the buck that we, from a buck point of view, that we invest, get a bigger bang in the process, right? The cost of sales goes down.
The stickiness at the end customer goes down. Our opportunity to kind of build on our software that integrates all of these products goes up. Our ability to reduce our customers' engineering costs goes down. If you look at these aspects, they all will support the larger direction of Core IoT. Going back to your question, anything that accelerates our growth in that area is going to be on the table for consideration. We're going to be very strategic. We're going to be focused in doing the right thing and utilize our balance sheet to fuel the growth in Core IoT.
Great. Ken, just a question for you on gross margins.
Sure.
Is 57% still the right kind of long-term target at this point?
As we look out in time, that still is a very reasonable target, John. Part of that, if you look at where we are today, is going to be driven by mix, right? Mix within mix, I think we've talked about in the past. We have a broad range of products in our portfolio, and our ability in terms of the market uptake of that mix can help our margin profile. Longer term, as we think about things like solutions that Rahul just mentioned, I think that provides an avenue to really differentiate with our customer set, not only in terms of the visibility and longevity of those products, but also should equate to a nice or a higher margin profile over a longer period of time.
Great. Looks like we're out of time. Thanks, guys.
All right. Thank you, John.
Thanks, John.