Today, November 10, I’m adding Synaptics (SYNA) to my Jubak Picks portfolio.
The immediate news behind this decision is a Digitimes report last week that Synaptics has won orders from Apple (AAPL) that will put its LCD driver chips into 2016 iPhones. This is quite a reversal of fortunes since Apple has been working on its own integrated touch controller/display driver chips that would include integrated fingerprint sensors.
But for Synaptics that report of a design win at Apple is just the tip of the iceberg. Along with Synaptics design wins for this type of chip (called TDDI for Touch and Display Drive Integration) with big Android phone makers, I think this announcement cements Synaptics’ position near the center of one of the two big trends for the next generation of smart phones.
What are those two trends? I’ll summarize them here. For a more complete exposition of what I’m calling the next battle for smart phone supremacy, check out my post from Saturday November 7 on my paid subscription site JubakAM.com on where the next wave of growth will come from in the sector and the challenge to Apple’s huge share (92% in 2014) of profits in the sector.
Apple, and Alphabet, (once Google but still GOOG) and Facebook (FB) and Microsoft (MSFT) have all decided that the next wave of innovation in smart phones will require that phones do more local processing using artificial intelligence, for example, to identify images on your phone without requiring your phone to query a big centralized non-local data base. That will speed up applications and let them tackle bigger problems fast enough to work in the mobile world. This emphasis on artificial intelligence also extends into natural language processing so that voice interfaces such Apple’s Siri or Facebook’s Messenger can take on more of the interface load. At the same time smartphone markers are continuing to push ahead with adding touch interfaces with more sensitivity to features such as pressure of touch to create more powerful but not overwhelmingly complex navigation.
This is where Synaptics (SYNA) comes in. The chip company, for which I posted an initial alert on JubakAM.com on Thursday, looks like one of the leaders in building integrated chips that combine display, touch, and fingerprint recognition. For sure, Synaptics isn’t alone in this market—called TDDI for Touch and Display Driver Integration–but the acquisitions of Validity (for fingerprint recognition technology) and Renesas SP (for display driver technology) gives the company a wider product line than most competitors. And I especially like it that recent design wins will put Synaptics into both Android and Apple phones. (Competitors include Atmel (ATML) and Himax Technologies (HIMX).)
The design wins that Synaptics has achieved in 2014 and 2015 should start showing up big time in 2016, which is why I’m adding this stock to my portfolio now. Synaptics closed at $92.96 on November 9. My target price for October 2016 is $118.
(A subscription to my paid JubakAM.com site costs $199 a year. Once you sign up you’ll have 7 days to get a full refund if you decide you don’t like the site or whatever. Recent posts besides the one on smartphones that you might find useful include one on why U.S. stocks shrugged off Friday’s huge job gains and the increased chance (up to 76%) that the Fed will raise interest rates in December and another on why on Monday worries about how that same schedule for a Fed interest rate increase hit emerging market stocks, bonds and currencies so hard that it drove asset prices down around the world.)