2016 is set out to be a frustrating year. There are so many macro uncertainties - China, oil, interest rates and currencies. I think good investment will be those stocks with simple stories. If one thinks that USD will depreciate, then invest in gold. If one believes a recession is upon us, then invest in utilities and consumer staples. In technology sector, I will look for simple growth stories, because growth is such a precious thing during a recession.
SYNA used to be a simple growth story on touch interface. Today, it has three distinct segments: touch (PC and mobile), display driver, fingerprint, each with very different drivers and risks.
Touch is very mature business. SYNA has majority share in notebook touchpad but the market is going to decline in the foreseeable future.
- Mobile touch is a even tougher. low-end mobile is commodity, rife with low-cost contenders from China and Taiwan who are willing to survive on razor thin margins and have lower operating structure (engineers in Silicon Valley are easily 3x-4x more expensive than in China).
- High-end mobile touch is not growing when overall smartphone market is expected to grow in low single-digit. SYNA's marquee customer, Samsung, ditched SYNA for STMicro in last year's flagship S6, presumably for a cheaper price. Indeed, why pay more if you can get the same function - there has been almost no innovation in high-end touch. Pressure sensing is one, but Android-based implementation of pressure sensing does not even qualify as a joke.
- TDDI is one last resort for growth. A more compelling proposition than plain touch or touch+pressure sensing. But initial ramp should be small in 2016, and that small TDDI business is unlikely to move the needle anytime soon.
Speaking of TDDI, it is kind of unfair to call it a growth driver, because TDDI can cannibalize both touch and display driver business. Isn't that the whole point? When you have a TDDI chip, you don't need one touch chip and one display driver chip. The hope is that customers are willing to pay a little more for the integration - supposedly clean design and savings on flex PCB and assembly. Again, when you introduce new design changes, adoption tends to be slower. So, not much hope there.
Display driver is an Apple-driven business. Sharp is a key customer of SYNA's driver ICs, but given its financial shit show ($3.1B in contingent liability disclosed last minute, seriously?!), there is only headwinds ahead. Also, it will be difficult to present a compelling case for both TDDI and DDIC to new customers in display at the same time. Obviously, TDDI will take higher priority. So, no hope for DDIC market expansion any time soon.
Everyone knows that fingerprint will explode in 2016. Investors have been expecting SYNA to fly high on the explosion since two years ago. It dominated Samsung, which is not bad, but it lost everyone else to FPC. Based on this years early announcement from China, it is not winning any territory any time soon. The incompetency of Ritu Favre (GM of biometrics) is appalling, no execution. Plus, Egis, Goodix, and maybe 10 more companies will enter competition this year.
