Rick Bergman - President and Chief Executive Officer Kathleen Bayless - Senior Vice President, Chief Financial Officer, Secretary, and Treasurer Jennifer Jarman - Investor Relations, The Blueshirt Group.

John Vinh - Pacific Crest Securities Anthony Stoss - Craig-Hallum Rob Stone - Cowen & Co. Charlie Anderson - Dougherty & Company Jeffrey Schreiner - Feltl and Company Rajvindra Gill - Needham & Co. Liwen Zhang - Blaylock Robert Van Mark Strauss - JPMorgan Kevin Cassidy - Stifel Nicolaus.

Ladies and gentlemen, thank you for standing by. Welcome to the Synaptics First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator Instructions) I would now like to turn the conference over to Jennifer Jarman of Blueshirt Group. Please go ahead..

Thank you, operator. Good afternoon and thank you for joining us today on Synaptics’ first quarter fiscal 2014 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the Company’s website at www.synaptics.com.

With me on today’s call are Rick Bergman, President and CEO, and Kathy Bayless, CFO. In addition to the Company’s GAAP results, management will also provide supplementary results on a non-GAAP basis which excludes share-based compensation charges and certain non-cash or non-recurring items.

Please refer to the press release issued after market closed today for a detailed reconciliation of GAAP and non-GAAP results.

Additionally, we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements, including predictions and estimates that involve a number of risks and uncertainties including, but not limited to, statements regarding the Company’s future financial performance and outlook including revenue and related financial guidance for the second quarter of fiscal 2014, the Company's expectation of incremental quarterly expenses upon completion of its acquisition of Validity including its expectation that the acquisition will be accretive by early fiscal 2015, the Company's belief that its product portfolio has never been stronger, the Company's belief that it offers the most advanced technology roadmap providing the broadest choice of design and development options, the Company's expectation that it will ship its first ForcePad to a major OEM this fiscal year, and the Company's expectation of revenue growth during the first half of the fiscal year over the same period last year.

Actual results may differ materially from any future performance suggested in the Company’s forward-looking statements.

We refer you to the Company’s SEC filings, including Form10-K for the fiscal year ended June 30, 2013, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information.

I'll now turn the call over to Rick Bergman.

Rick?.

Thanks, Jennifer, and I'd like to welcome everyone to today’s call. I'm excited to report that we achieved another quarter of strong top line growth with revenue of approximately $223 million, up 75% year-over-year. This was towards the high end of the guidance range we provided last quarter.

Our non-GAAP gross margins were 49.2% based on continued strong performance in the mobile category. We delivered strong non-GAAP net income of $46 million or $1.31 per diluted share, slightly above the top end of our guidance range.

We enjoyed seeing many of you at our analyst and investor meeting in August where we talked about the progress we've made towards our top priority of delivering growth and our goal of expanding our capabilities with next generation technology.

To that end, we are very pleased to announce our recent definitive agreement to acquire Validity Sensors which will allow us to enter the burgeoning fingerprint ID market. Today, I'm going to update you on our core markets as well as provide a brief recap of the acquisition.

I'll then turn the call over to Kathy to review our financial results in more detail and to provide our current outlook before opening up the call to your questions.

But first, I'm pleased to mention, for the seventh year in a row, Synaptics has been named to the Forbes Top Small Companies in America list and has also ranked number seventh among Forbes list of top small tech companies. With that, let me dive into the discussion of our recent progress.

The performance of our industry-leading product portfolio has never been stronger and we continue to expand our footprint across the smartphone, tablet and notebook PC markets.

Starting with mobile, the first quarter continued to be notable on the flagship smartphone front as Motorola selected our industry-leading ClearPad line of capacitive touchscreen solutions for its latest line of Droid devices enabling users to experience a rich dynamic and intuitive interface with high-resolution multi-touch performance.

Technology implementations for this product lineup included on-cell solutions for the Droid Ultra, Droid Maxx and the Moto X, the latter of which was deemed by CNN Money as the best Android smartphone you can buy. In addition, the Droid Mini is the latest phone to use our in-cell solution.

[Further] (ph) these approaches eliminate discrete touch sensors, provide cost-effective capacitive multi-touch interfaces, and allow for the development of finished smartphone while delivering advanced touch capabilities and a greater user experience for consumer.

As we announced in September, Samsung selected our on-cell touchscreen solution to drive the user interface for its flagship Galaxy Note 3 device. The Note 3 includes Air View based on Synaptics' proprietary 3D touch technology which made its debut in Samsung's Galaxy S4 smartphone announced in March.

This display integrated solution expands the user interface possibilities with proximity, finger hover and air slide functionality. It's also an example of how Synaptics is capitalizing on the growing demand for multiple input options with support for simultaneous pen and finger touch recognition.

As you can see, on-cell and in-cell solutions are becoming a more prevalent part of our customers' touch implementations as Synaptics offers the most advanced technology roadmap and provides the broadest choice of design and development options for OEMs.

Our latest in-cell technology continues to gain traction with our partners as Japan Display Inc., JDI, a global leader in mobile display technologies, announced mass production of its Pixel Eyes 5.0-inch full-HD display.

The implementation realises high touch sensitivity under various operating environments including stylus pens to ensure touch usability. Now moving to a discussion of China which is now the world's largest smartphone market, opportunities continue to grow exponentially. As such, we are expanding our range of solutions to serve this market.

Our ClearPad 3200 solution is now shipping in the OPPO N1 phone with a 5.9-inch full-HD screen. In addition, we recently launched our new line of single layer touch controller solutions.

These single layer solutions are designed to enable the lowest total cost single layer stack-ups while providing a leading touch performance in today's entry-level smartphones. These solutions are also being offered through our channel partners to expand or wipe up manufacturing presence.

A case in point is the recently shipping JIAYU G4 which is a 4.7-inch Retina-HD IPS screen. Alternatively, by leveraging our industry-leading single layer on-cell solution, OEMs can deliver high-quality experiences specifically tailored for the Chinese market at lower price points.

An example is the recently shipping Yulong 8908 which delivers a full five-finger touch sensing experience in a feature-rich entry-level model. During our Analyst Day, we noted our expectation for meaningful growth in the adoption of our large touchscreen solutions.

Our Q1 results demonstrate that we are starting to gain real traction as evident by significant Tier 1 tablet and touch-enabled notebook design wins. The first product I'll mention is the HP SlateBook x2 Android powered notebook which features both our ClearPad touchscreen and ClickPad solutions.

Our large touchscreen adoption has also been driven by the delivery of our innovative first-to-market offerings such as the recently announced Windows 8.1 certified ClearPad 7500 solution with integrated active pen support. By integrating active pen functionality, we are helping to eliminate multiple discrete components.

This enables us to provide always-on stylus capability at no additional cost to OEMs while delivering performance capable of exceeding stringent Windows 8.1 requirements.

I'm very pleased to announce that Dell will be Synaptics' first-to-market partner for our new ClearPad 7500 large touchscreen solutions through both its flagship series of Venue Pro tablets and its XPS notebook Windows 8.1 enabled devices.

As we continue to broaden our customer base in the large touchscreen area, we also recently announced that our solutions are shipping in the new Amazon Kindle Fire family of tablets, and our leading-edge technology support and features have enabled us to win the touchscreen solution in one of the most popular families of tablets available.

In the PC touchpad market, we are also shipping in the HP Split x2 Convertible, the Dell Inspiron 14-inch and 15-inch 7000 series, the Lenovo ThinkPad T and X series with five-button ClickPad 3.1 solutions, as well as Logitech Ultrathin and Touch Mouse T630. As anticipated, the market remained soft.

However, we are benefiting from the transformation from single and monolithic profile sensing TouchPads to modern image sensing ClickPads. Some key innovations in this area include ClickPad 2.0 where we have designed a low profile and high-quality mechanical activation. ClickPad 2.0 and our new advanced palm rejection technology are now available.

Another key area for advancement is the Microsoft Precision TouchPad initiative. Synaptics and Microsoft co-engineered a high-performance ClickPad that delivers a great uniform experience across OEMs.

Synaptics was first to achieve certification for a Precision TouchPad and we are engaged with platforms from multiple OEMs who will be supporting Precision TouchPad over the course of the fiscal year. We also expect to ship our first ForcePad with a major OEM later in the fiscal year. We touched briefly on our impending acquisition of Validity.

We are incredibly excited to be buying the fingerprint ID provider of choice for leading OEMs globally. Broadening our product portfolio to encompass biometrics solution is a natural strategic fit with our mission to be the number one human interface provider.

The issues these solutions address in both simplifying and enhancing the user experience are extremely relevant to our customer base, and I can tell you that after talking with major OEM customers over the past few weeks, their reaction has been very enthusiastic.

We believe this deal provides a strong path to accelerate our long-term revenue growth and double our addressable market opportunity by increasing the content we can deliver in devices. We therefore view this as a tremendous opportunity we are continuing to invest in over the next few years.

The deal is progressing on schedule and we continue to expect it to close in the current quarter. This concludes my formal remarks. Following our strong first quarter results, the first half of fiscal 2014 is tracking according to plan and we expect to see top line growth in excess of 50% over the same period last year.

While the PC market remains weak as anticipated, we continue to execute in the mobile market with further momentum in flagship smartphones, ongoing traction in China, and growing demand for our display integrated solutions for both the premium and low-end segments in the market.

Our design pipeline remains robust and we are making solid progress in the large touchscreen market as evidenced by wins in key tablet models and in touch-enabled notebooks.

Lastly, we are poised to dramatically expand our game across all of our markets through our entry into the fingerprint ID area which further strengthens our position as the leading touch provider to the world's premier OEMs.

On the whole, we believe that we are taking the right steps and making the right investments to fuel Synaptics growth engine moving forward, and we are incredibly excited about the opportunities ahead as the continuing innovation leader in this space. With that, I'll turn it over to Kathy for a review of our financial results..

Thanks Rick. We are extremely pleased with our September quarter results as revenue of $223 million represents a record first quarter and was towards the high end of our guidance range.

September quarter revenue increased 75% year-over-year and was down about 3% from our record June quarter where we benefited from a steep ramp of the new designs across multiple mobile customers. The revenue mix from mobile and PC products was approximately 73% and 27% respectively.

Revenue from mobile products was up 152% year-over-year and down about 6% from the June quarter, consisting predominantly of revenue from mobile phone applications with continued strong demand across a broadening base of customers.

We achieved strong mobile phone revenue and unit growth over the comparable periods and tablets continue to provide a very solid contribution. Revenue from PC applications was down about 4% from the prior year but up 5% sequentially, slightly above our expectation.

Synaptics continues to lead the market for notebook TouchPads and ClickPads and our design activity continues to be very strong. Non-GAAP gross margin was up 130 basis points year-over-year and down about 90 basis points sequentially at 49.2%, in line with our expectations.

Non-GAAP operating expenses were $53.7 million, down $1.4 million from the prior quarter. The decrease was primarily related to the reduction in variable compensation, partially offset by incremental headcount to support our expanding product portfolio and customer base.

GAAP operating expenses were $62.1 million including $6.8 million of share-based compensation, $1 million of transaction costs related to our pending acquisition of Validity, as well as a non-cash charge of approximately $500,000 for intangible amortization and change to contingent consideration.

A strong year-over-year increase in revenue and gross margin dollars in the September quarter drove a 222% increase in non-GAAP operating profit dollars and increased operating margin to 25.1% from 13.6% last year.

Our non-GAAP tax rate was 18% in the September quarter compared with 19% in the June quarter, primarily reflecting our geographic profit mix. Our GAAP tax rate was 26.6%. First quarter non-GAAP net income was $45.9 million or $1.31 per diluted share. Turning to our balance sheet, we ended the first quarter with $332 million of cash.

During the quarter, cash flow from operations was very strong at $29 million and we used $50 million to repurchase 1.2 million shares of our stock or approximately 3.5% of our outstanding shares at an average price of $41. The current share repurchase authorization is $110 million and is available through October of 2015.

Employee participation in our equity incentive programs provided net cash of $6 million. Capital expenditures for the quarter were $10 million and included the remaining renovation cost for our new headquarters campus in San Jose, California which we moved into in late June. Depreciation was $3.2 million for the quarter.

Receivables at the end of September were $153.9 million, reflecting 62 days of sales outstanding. Inventories were $57.3 million and inventory turns were eight. Before I move into a discussion about guidance, I'd like to take a moment to recap some of the details regarding the acquisition of Validity.

As we indicated on our recent conference call, validity is generating revenue of approximately $15 million to $20 million on an annual basis. Based on a recent review of its design pipeline, we see some incremental opportunities developing later in this fiscal year related to the PC market as well as additional traction in the mobile market.

From an expense standpoint, Validity is already been steadily increasing its investment to capitalize on the tremendous opportunity in mobile. When we look at the run rate of that investment right now, it's around $7 million per quarter.

We would expect to continue at least at that investment level once the acquisition is completed and we continue to expect this to be accretive by early fiscal 2015. Now I will make a few comments regarding our quarterly outlook. Please note that any projections given on the call today exclude the impending closure of the Validity acquisition.

The September quarter benefited from greater strength in mobile than anticipated due to the timing of customer channel sales ahead of the holiday season.

Based upon our backlog of approximately $117 million entering the typically front-end loaded December quarter, customer forecast and expected product mix, we anticipate revenue to be in the range of $192 million to $208 million. We expect revenue from PC products to be up slightly from the preceding quarter while revenue from mobile to be down.

Notwithstanding some of the shifts in the timing of revenue over the first and second quarters of the fiscal year, we are on track to deliver a very, very strong first half of the fiscal year, as anticipated. Taking into account our overall revenue mix, we expect non-GAAP gross margin for the December quarter will be in the range of 47% to 48%.

We expect non-GAAP operating expenses in the December quarter to increase from the September quarter, primarily related to ongoing investments in engineering and infield customer support personnel as we continue to expand our product portfolio and customer base.

We anticipate the FAS 123R charge in the second quarter to be in the range of $7.4 million to $7.6 million.

GAAP expenses will also include a non-cash charge of approximately $500,000 related to intangible amortization and change to contingent consideration, and also approximately $1.5 million of transaction related expenses for the acquisition of Validity.

We anticipate our non-GAAP cash-based tax rate for the December quarter and for the year to remain in the range of 17% to 19%. Diluted shares outstanding for the quarter are expected to be around 35.5 million. Non-GAAP net income per diluted share for the December quarter is anticipated to be in the range of $0.84 to $1 per share.

In closing, we are very pleased with our financial results for the first fiscal quarter of fiscal 2014. We are geared up for a strong performance in the first half of the fiscal year and a completion of the Validity acquisition, adding an exciting new product category and growth opportunity to our business.

With that, we'll now turn the call over to the operator to start the Q&A.

Operator?.

(Operator Instructions) Our first question comes from the line of John Vinh with Pacific Crest Securities. Please go ahead..

I was wondering if you could talk about what you're seeing with your largest customer in terms of their typical year-end inventory corrections.

Are you seeing some of that correction kind of lead into the fourth calendar quarter or can you really talk about what the puts and takes are or what's driving the mobile downtick in Q4?.

John, I mean whether – what we talked about basically is there is a timing element going on here relative to the ramp of certain programs filling the channel. And so what we are really seeing is some timing difference between when the channel gets filled and in advance of the holiday season..

Just to add a little, when I hear the word 'correction', that implies that there was something happening that was wrong. At least from our view, Q1 and Q2 kind of played out as we expected and I think a lot of our OEMs would say the same thing.

That's because of the more consumer nature of the businesses that we are in, that they are going to buy more products in the calendar Q3 but becoming a much more bigger consumer boom in Q4. So again, it's kind of playing out as we expected, John..

Okay.

Maybe just framing it another way, I think your large customers are pretty well documented from an inventory correction in some of their high-end flagship phones last quarter, just my question is, are you seeing that continue on into your Q4 kind of guidance here or has that started to stabilize for you?.

I'll try to answer that a little bit different way in that we've gotten forecast from our customers and we haven't seen any call it major changes from what we forecasted from an annual perspective way back in July and August. So they are kind of across the board.

Certainly there is give-and-takes everywhere but the pattern is kind of falling out where we expected..

Okay, great.

And then just my follow-up is, you talked about kind of the first half kind of tracking in line with your original kind of expectations, how should we think about kind of the flow for next fiscal year? Are you still thinking that the full fiscal year is going to be tracking similar to last year in terms of overall growth rates ex-Validity?.

Yes, that's our expectation. So we do see it playing out as we talked about before, relatively similar growth rates to what we achieved in 2013, very strong annual growth rate..

Great, thank you..

Our next question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead..

Specific to the Chinese market, Rick and Kathy, I'd love to hear your view if you expect China and the mobile side to be up or down sequentially in December? Also Rick, on your single layer product, would you expect that to be accretive to your gross margin profile or how should we think about that? Thanks..

First in terms of the China smartphone growth, if we step back and talk calendar quarters, Q2 was obviously a very big quarter for China and then as we moved into Q3, it clearly stabilized, I guess is the best way to put it. In the China market now it's their holiday season.

Of course it lags North America and European holiday season quite a bit with the Chinese New Year in the late January. So I guess we would expect Q4 to be similar to calendar Q3 in terms of the sales and so on. Now we are gaining some momentum there. So it might be up a little bit.

And then in terms of call it gross margin for the single layer solution, it's geared more to the lower end of the market in general. So we would expect the margins there to be a little bit lower than some of our high-end solutions..

Okay, great. Thank you..

Our next question comes from the line of Rob Stone with Cowen & Co. Please go ahead..

I wonder if you could talk a little bit about what things provide your visibility on the second half of your fiscal year. Revenues have been trending down sequentially this quarter, you are guiding down sequentially a bit more for the December quarter. And related to that, Intel recently talked about seeing signs of the PC market bottoming out.

So any comments you might have on sort of the sequential outlook just in general direction, I know you are not giving specific guidance for March and June yet?.

From a market standpoint, I mean we did see in our particular portfolio, our PC numbers are tracking good with the market. We've seen an uptick in the September quarter and also we expect to see another one in the December quarter.

As far as the mobile market goes, we are still seeing a strong growth market overall, but as we've all talked about, the biggest growth area in the mobile market is in the lower end of the market.

So we are excited about our product offering and the fact that we are really broadening our solutions to address more and more of the total market opportunities out there in where we play..

And Rob, I talked a little bit about this I think in the last call or during the Analyst Meeting, there's kind of a pattern in that that we see is, decisions for the big phone launches at Mobile World Congress go down in late fall, which is about the period we're in, and of course when they get announced at Mobile World Congress, volumes start to happen in Q3, it gets real nice and big – Q2, excuse me, then Q3, and then we get to do it all over again.

So we are seeing that pattern and those decisions are being made as we speak and we are confident that we are well-positioned to participate in a healthy way in those announcements and we'll be able to give some more color in January where we landed..

Okay. My follow-up question is on gross margins. You indicated I think Kathy that the PC segment is going to be up sequentially, mobile down, so is the downtick in gross margins you're guiding to for the December quarter driven mainly by the segment mix or is anything else there going on? Thanks..

That's some of the effects, and the other piece of it is, again we are just – we have a much broader product set of solutions out there in the market encompassing our high-end solutions in mobile as well as our entry-level solutions in mobile to address the emerging markets, also adding a strong slate into the tablet and notebook large touchscreen market, so again a much broader product offering.

Yes, PC will be a higher percentage, so that does have some impact on it as well..

Great, thank you..

Our next question comes from the line of Charlie Anderson with Dougherty & Company. Please go ahead..

Just sort of a follow-on to that last one and to really gross margin profile, I understand why mix is the largest factor but I wonder, on sort of like-for-like products, where we're seeing ASP compression going, is it purely a mix thing or are we seeing some ASP degradation as well anywhere?.

I don't think there's anything that's unusual than normal pattern. So just on a product by product line, ASPs always start out high and they come down a little bit every quarter, and we are always bringing out new exciting products basically to offset some of that. So we don't see anything new or abnormal as far as any particular pattern..

Perfect.

And then I wondered, you guys talked about some of the success you're having now in large screen, I wonder if you can give us any color around what percent of revenue that is at this point, either on the tablet side in terms of mobile and then on the PC side?.

So we wrapped around – as we talked about before, we wrap large touchscreen tablet as well as notebook PCs, we kind of put it all under large touchscreen as a category.

And for fiscal 2013, what we ended up saying is that, category of products was, it ended up somewhere around 5% of total revenue last year, and I would say it's tracking up a little bit from that right now and we do see some nice increases continuing to go forward.

And as we said at Analyst Day, we see this as a real growth area for the business for this year..

Right. Thanks so much..

Our next question comes from the line of Jeff Schreiner with Feltl and Company. Please go ahead..

Rick, I'd like to ask you a little bit on Validity here. [indiscernible] a few years back, the real advantage for the company when they were primary in mobile was the chip on flick, so you don't shrink the sensor, you just shrink the chip.

But I think as you move into mobile, there's going to need to be a little bit of the shrinking of the sensor, and how is that going to potentially impact the read accuracy of the Validity product?.

Jeff, let me kind of try to address that question. Now we still think the Validity approach overall is the right approach, having that silicon as the sensor.

Certainly the goal is to eventually move fingerprint sensing under glass, and if you ever put the silicon there by definition, it will create a problem from an optical perspective because you won't be able to see around that piece of silicon.

So, one of the key areas why we went with Validity, now there is called – there is button based solutions and then more recently with like the HTC designed from Validity, you can see that the sensor is on the back of the phone. Those today depend on whether you have a swipe or a touch based solution.

So swipe solution that you see in the notebooks could be very well used on phones. I know that actually from a footprint perspective, they are very small if you look at what you have on a ThinkPad or a Dell or HP solution. And so that could very well work in a mobile form factor.

As you move to more of a touch based solution which for example you see on the recent iPhone product, there you do need a certain amount of area to be able to get enough of the fingerprint to create a match or not. And there, that's a little independent of Validity's solution. We could continue to have a very small sensor there as well..

Okay.

And then, Kathy, could you just help us here again with the sequential step-down in gross margin, is there going to be a material change in the allocation between PC and non-PC in the December quarter?.

Jeff, there will be some change as we mentioned. So I mean we do – if we looked at the June quarter, the mobile side of the business was about 75% of revenue. It ticked down to about 73% this quarter. And so we'll see it move down a little bit again..

Could you help us that in terms of, if you move from 75% to 73% and your gross margins stayed roughly flat, and now you are ticking down at the midpoint almost 150 basis points, what's driving that down I'm assuming within mobile, if you are getting a favorable step-up within PCs?.

So, I mean if you go back and you look at the base of business, I mean the PC side of the business, that's the lower end of the gross margin model. I mean it has a lower gross margin model than the mobile side of the business.

So what I said was, you had a combination of factors, so PC will be a higher percentage of the total mix within the December quarter. Also we have a broader base of product solutions overall that we're shipping.

So as we said for the last couple of quarters, we have been highly weighted into the high end premium solutions in the mobile market, we have a much broader product set, we're continuing to penetrate into the midrange and the lower end of the mobile market.

So, a much broader product set, penetrating a wider range of the markets we are serving, and also some mix shift into a little more PC..

Okay, thank you for your time..

Our next question comes from the line of Rajvindra Gill with Needham & Co. Please go ahead..

Kathy, you had mentioned that with respect to Validity, after your recent review, you are seeing some incremental opportunities that could occur in this fiscal year, so the fiscal 2014 year.

Could you elaborate on that a little bit more and does that mean that there could be additional revenue opportunities that are greater than your $15 million to $20 million from Validity?.

I think there is – again the $15 million to $20 million is their historical run rate. And so we are seeing the mobile design pipeline building, there are some opportunities there as well as there are some additional PC opportunities as I mentioned.

So there is opportunity even as we go through this fiscal year to start seeing some uptick in the revenue..

And so the guidance excluded the Validity.

So for modeling purposes, when should we start to include Validity?.

We do expect the transaction to close this quarter, but for this particular quarter, I mean we view it as minimal for this particular quarter, and then next quarter we'll have a full quarter..

Okay, got it. And just last question for me, as you kind of look at the fingerprint sensor opportunity, how do you kind of quantify it in terms of the potential [TAM] (ph)? I know you talked about doubling your [TAM] (ph), but I was wondering if you could provide a little more detail.

Do you expect this type of technology to be a big percentage of the handset market over time and why do you think that will be the case?.

Sure. Great question. So initially we expect this to be primarily a high-end feature, but certainly over time it could work its way down into the mid-range, and even eventually into the low-end phones.

Actually if you look at some of the markets out there that have historically been on the lower-end side, like a China or an India, they actually use biometrics, specifically fingerprint sensing, much more than we see in North America, whether it's for medical benefits, for gas, or other things like that, it's actually a requirement to have that capability.

In the banking industry, it's used more frequently. So there that population is much more conditioned. And so, to make sure – the technology at this point costs something, so it's an additional feature, which means a little cost. So of course it will start in the higher end.

But you actually have seen what Apple is doing, they are going to use it for transactions as well initially, and we expect that to be over time to become more prevalent. So yes, we have great hopes that eventually it could be used widely..

Fantastic. Thank you..

Our next question comes from the line of Lena Zhang with Blaylock Robert Van LLC. Please go ahead..

Given your PC business, it seems to me as better than overall market, was this mainly driven by the ASP increase or business increase?.

It's a little bit of both. So I mean we do see pretty stable ASP environment, and as Rick talked about on the call, we have got a lot of newer applications continuing to see more of the ClickPad type solutions going forward. So, nice ASP and also some units are up a little bit as well..

Okay thanks. And then [indiscernible] internal inventory, it seems like up 15% sequentially while your guidance is kind of down 10% at the midpoint.

So how should I read that inventory increase during the quarter?.

It's all primarily dye and ASIC, and so based upon the opportunities that we have out there and the supply chain and we basically carefully look at our capacity from our foundries and putting on our balance sheet what we think is required to make sure we have good supply..

Okay, thank you. That's all I have..

Our next question comes from Paul Coster with JPMorgan. Please go ahead..

This is Mark Strauss on for Paul. Just had a question about the buyback activity during the quarter. Looks like it stepped up pretty significantly from the June quarter.

Should we take that as an indication as to how you are going to pay for the Validity deal or is there any other comments that you can provide there?.

We have a strong stock buyback program and we don't necessarily do the same level every quarter, we can see and look at stock buybacks opportunistically. And so, this quarter we did look at it, thought it was a good price for the stock and took out another 3.5% of our shares outstanding.

But looking at it, related at the same time, Validity, we were closing the Validity transaction. So if you do want to look at it on a net basis, we did take out quite a bit of the stock dilution from the Validity transaction..

Got it, okay.

And can you just quickly remind us how much is left under the current buyback plan?.

Sure. The authorization post that buyback in the September quarter, we still have $110 million available under the current authorization and that's through October of 2015..

Got it. Thanks Kathy..

Our next question comes from the line of Kevin Cassidy with Stifel Nicolaus. Please go ahead..

I have another ASP question. It was all your new product that seemed is getting more content per PC and per handset.

Can you say if you look out to next year, how much as a percentage would you expect your ASPs to be up per system?.

Wow. I don't know if we've got that sophisticated yet, Kevin, because that depends on a lot of things coming together and a lot of assumptions on what device we win where and so on.

So yes, if we take an extreme case of what you are suggesting is, we could have a keyboard, a ForcePad, a touchscreen device for a notebook or a convertible type device, and a fingerprint reader all in one system. So hopefully we'll see a few like that, that would be great.

But I guess the best way to talk about it is, when we did the Validity announcement, we said it looks in general that the ASPs was a little bit higher than we'd normally see in a handset.

Of course it depends back to the question from Jeff around whether it's swipe or touch and so on, but nevertheless, it certainly allows our overall call it system ASPs to go up quite a bit..

Okay. Maybe a simpler question.

Can you give us an update on ThinTouch?.

Sure we can. As we discussed, we got an idea 15 months ago and we are going through the product development and we have moved into call it the manufacturability phase of it now, and things continue to progress, its exciting.

I think given the value proposition of pen and what's actually happening in tablets, we're kind of seeing that as the big opportunity for us. But we circled CES to where we're going to show a lot of new stuff at that show.

So hopefully you and a number of the other folks on the phone will be able to come by either our booth or this little party we have before CES to get a demo of ThinTouch..

Okay, look forward to it. Thank you..

(Operator Instructions) Our next question comes from the line of Jeff Schreiner with Feltl and Company. Please go ahead..

Can you disclose what your largest customer was during the quarter?.

Actually we had two customers that were over 10% this quarter, one customer was around 20% and the other customer was around 10%, and typically we don't necessarily disclose who it is, but that's the information that we have for this quarter..

And then Rick, I wanted to know about what Synaptics plans were for TDDI product offering in the Chinese market, and it seems that other competitors in the Chinese market, such as the market leader Focal Tech, is already going to have a TDDI product.

If competitors can offer similar display integration as Synaptics, how does the decision now start to then turn to pricing versus functionality?.

In any kind of market we enter, there is always the [indiscernible] just comes down to price.

I've only been in the touch controller business for a couple of years, and that was actually a bit – when I started a couple of years ago, that was by far the most common question was, but when is this thing, why doesn't it commoditize immediately? Once we move to a TDDI type of solution, actually the technical barriers get higher because you'd have two different components that have their own pace of innovation and the opportunities there to innovate and offer new features and so on is actually greater.

So I actually believe that TDDI will offer an opportunity to offer greater value for our customers..

Thank you..

Our next question comes from the line of Rob Stone with Cowen & Co. Please go ahead..

I know you are not guiding towards much for Validity this quarter, you expect it to close, what factors might influence the timing or any hurdles you still have to clear?.

Rob, we don't need any major government approvals or anything like that. So from a closing perspective, it's pretty straightforward and we are kind of grinding through the process. As you can imagine, there is a number of employees involved and so on and we got to get them signed up and so forth and get through some of the stock and SEC aspects of it.

But again, we are right on schedule and we are very confident that we will certainly close this thing within this fiscal quarter..

So no big hurdles, just the usual paperwork?.

Yes, no real hurdles in front of us now..

Great, thank you..

There are no further questions at this time. Please continue..

Okay. Once again, thank you for joining us and we feel real good about with the progress we have made in this current fiscal quarter and certainly look forward to hopefully seeing most of everyone at CES in January, or if not, talking with you later in January about our fiscal Q2 results. Thank you..

Ladies and gentlemen, this does conclude the Synaptics first quarter 2014 earnings conference call. We like to thank you for your participation and you may now disconnect..