Jennifer Jarman - The Blueshirt Group, IR Richard Bergman - President and CEO Kathleen Bayless - CFO.

Ambrish Srivastava - BMO Capital Market Vijay Rakesh - Stern Agee Rob Stone - Cowen and Company Osten Bernardez - Cross Research Anthony Stoss - Craig-Hallum Charlie Anderson - Dougherty & Company Paul Coster - JPMorgan Liwen Zhang - Blaylock Van Brett Simpson - Arete Research John Vinh - Pacific Crest Kevin Cassidy - Stifel Rajvindra Gill - Needham & Company.

Good day everyone and welcome to Synaptics Second Quarter 2015 Conference Call. As a reminder today’s presentation is being recorded. At this time, I would like to the conference over to Jennifer Jarman. Please go ahead..

Thank you, operator good afternoon and thank you for joining us today on Synaptics second quarter fiscal 2015 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 non-GAAP and GAAP results. Additionally, we would like to remind you that during the course of this conference call Synaptics will make forward-looking statements.

Forward-looking statements give our current expectations and projections related to our financial condition, results of operations, plans, objectives, future performance, and business.

Although, Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company’s forward-looking statements.

We refer you to company’s current and periodic reports filed with the SEC including the Synaptics Form 10-K for the fiscal year ended June 28, 2014, for important risk factors that cause actual results to differ materially from those contained in any forward-looking statements.

Synaptics expressly disclaims any obligation to update this forward-looking information.

With that, I'll now turn the call over to Rick Bergman, Rick?.

Thanks, Jennifer. And I would like to welcome everyone to today’s call. Revenue for the December quarter, our first quarter of consolidated results following the completion of the RSP acquisition was a record $464 million. This is more than double that of last year and above our upwardly revised guidance for the period.

This kept up a strong finish to calendar 2014 with Synaptics posting back to back years of over 50% calendar year revenue growth. Our second quarter performance was driven by broad based strength across our target markets.

We delivered strong non-GAAP net income of $55.8 million, or $1.46 per diluted share, up more than 70% year-over-year and gross margins were at the high end of our guidance range.

Following up on the key priorities we laid out at the recent Analyst and Investor Day in November we continue to reinforce our position as the number one interface solutions provider.

The expansion of our product portfolio, increased scale, broadening customer base and our execution across multiple facets of our business are setting us up for a strong second half. We continue to lay the foundation to capitalize on our two hyper growth engines with biometrics and touch and display driver integration or TDDI.

Our solutions are rolling out as planned. In addition, the integration with RSP is progressing smoothly and we benefited from a strong contribution from our display driver products during the period. Our present at this year’s Consumer Electronic Show also reinforced the breadth and depth of our platform approach.

In addition to showcasing our latest and greatest offerings in the smartphone, tablet and notebook, PC markets, as well as our display driver capabilities. This year’s booth featured demos in new target markets including auto and gaming.

Highlights of the booth tours included the latest versions of SecurePad and ForcePad; wake up gestures for smartphones and the world’s thinnest smartphone, active and passive pen applications for tablets and demos of our area touch biometric sensors.

Today, I’d like to start with an update on our core markets then Kathy will review our second quarter results in more detail and provide our current outlook before opening up the call to your questions. One of the themes we continue to emphasis at CES is the rapid evolution of the smartphone display market and the trend towards display integration.

Display integration offers OEM significant benefits, thinner and brighter displays, lower overall system cost and a simplified supply chain.

I am pleased to say that Synaptics continues to be the innovation leader, achieving another industry first with our ClearPad 4291 TDDI solution, which is now in mass production and available in several phones including ZTE’s F6 Lux.

This is further evidence that Synaptics is leading the charge at the highest level to create a smart display by integrating and optimizing the touch controller and display driver. This system level solution incorporates our custom processor and is a platform for future innovation.

We are seeing significant traction for TDDI with LCMs and OEMs and expect more phones to follow over the coming months. This includes strong interest and demand in the sweet part of the mid-market as OEMs recognize the benefits of a simplified solution that is cost optimized at the system level.

We expect to further expand the market as we take our industry leading technology and solutions and make them available to the broader market segments.

With RSP now a part of Synaptics, we have added a family of display driver IC to our broad range of products and releveraging the strength of Synaptics sales and customer engineering infrastructure to reach a broader set of customers and markets with these products.

At CES we highlight some key technology including local area automatic contrast optimization or ACO. Local area ACO allows for contrast control by region, making us the first to enable one billion colors. A feature that offers product differentiation for our OEM customers.

Our display driver solutions incorporate this technology and multiple new products went into mass production this quarter, including support for full HD as well as WQ HD the highest resolution available on smartphones and tablet today.

Xiaomi is one of the OEMs taking advantage of these newest features the power displays in many of its latest smartphones. Other OEMs adopting our display drivers include LG, Lenovo and HTC. With the completion of RSP acquisition, Synaptics has furthered our leadership with the industry’s broadest portfolio touch and display products.

The first TDDI product to combine Synaptics touch with RSP display technologies remains on track for later this calendar year. Synaptics continues to expand our position as a premium touch provider to the major Chinese mobile OEMs.

I am excited to mention that the breadth of our ClearPad product portfolio has led to a design win for our in-sell touch solution in Xiaomi’s new flagship smartphone the Mi Note.

Other new phones now shipping in mass production include multiple models in the China market from Huawei, ZTE, Coolpad OPPO, Gionee and Lenovo as well as new phones from a broad range of customers including PPK, Meizu, K-Touch, Tino and Duve.

In addition, LG has launched several models including the G Flex, C-70, Y-70 and Y-90 while BlackBerry began shipping its new passport phone during the December quarter. On the large touchscreen side, recent design wins include the 13 inch Lenovo Yoga Tablet and the Huawei Youth2.

In our PC touchpad business we continue to see strong adoption of our new technology such as TypeGuard, ClickPad, ForcePad and SecurePad. Recently we have seen the launch of our award winning ClickPad with a new Lenovo Flagship, X1 Karbon and the HP OMEN Gaming Notebook. In addition to the well-received Dell XPS 13.

Additionally our ForcePad is designed into the HP EliteBook Folio 1020 and we can confirm that we are into designing phase for SecurePad and Chromebook projects with multiple OEMs, which we’ll ship later this year.

All these designs features our industry leading TypeGuard technology, which virtually eliminates accident occurs to movements in scrolling caused by the palm of the hand. Other notable design shipping this quarter includes the Dell Inspiron 7000 series 15 inch notebook.

One of the key growth segments in the PC market is the two in one category, where our ClickPads are currently shipping in volume with the market leading OEM. Additionally, key designs hitting the market include two Dell Inspiron two-in-one models and the Dell Venue 11 Pro keyboard dock.

We believe these design wins in our investment profile in this area will enable Synaptics become a clear market and technology leader in the two in one category. Our next generation ForcePad was also designed specifically for the two in one market, as ultrathin notebooks such as the fanless clamshells are enabled with today’s lower power CPUs.

This solution will continue to deliver multi figure force detection and stemming from design considerations with the OEM will be down to 1 millimeter thin and also feature optional haptics feedback.

Moving to the biometric authentication space, consumer demand for figure print sensors in smartphones and tablets continues to grow rapidly, fueled by the promise of strong security that is also easily to use as well as the rollout of mobile payments.

An expanding base of mobile OEMs is expected to adopt the technology in the next wave of flagship designs driving increased attach rates. This includes the movement towards entry in mid-range phones, where our swipe sensors offer compelling cost and performance.

One such phone of note that won a CES Innovation Award for design the functionality is the [indiscernible] Squared, which features a swipe based figure print size scanner from Synaptics.

In addition, our new area touch sensor solution is now in mass production and we expect to see phones in the market incorporating these solutions over the next couple of months. As the opportunity for biometric authentication continues to progress, we believe that figure print sensors will do much more than locking and unlocking devices.

As a FIDO Alliance founding member we are pleased to see the FIDO Version 1.0 specifications finalized and published. The Alliance brings industry leaders together ranging from enabler such as Synaptics to online service providers such as Google and Microsoft.

Together, we are working to build the ecosystem that offers simpler and stronger authentication, with the ultimate goal of eliminating password dependence. Synaptics natural ID products were among the first to be certified to the FIDO 1.0 specification.

Now I’d like to provide a brief update on the search for new CFO following the announcement of Kathy’s retirement.

Considering this could be her last earnings conference call with the company I’d like to take the opportunity on behalf of myself and the Board to publicly thank her for her nearly six years of service and the tremendous contribution she has made towards Synaptics transformative growth. We wish her the best in her future endeavors.

On the positive side, since she is leaving the company in such excellent financial health, we have no shortage of highly qualified candidates and are well underway with the executive search process.

As we are now in the new calendar year I’d like to provide a quick update regarding trends in our market where Synaptics is well diversified, giving our breadth of coverage on a platform basis.

The stems not only from the broad and differentiated portfolio of products that we have across notebooks, smartphones and large touch screens, but also the wide range of customers we serve in each of these markets. In calendar ‘15 the notebook market is expected to trend slightly below prior year levels.

We anticipate that the overall growth rate for smartphones will move towards the mid-teens, with continued growth in the low to mid-range phones for emerging markets and further possible redistribution of market share among the various mobile OEMs.

As for large touch screens, while industry projections have come down over the past year, we still see ample opportunity to further penetrate the market with our solutions. Additionally, we expect large display integration will play pivotal role overtime in helping to drive cost efficiencies that will further fuel demand.

To conclude my formal remarks, we are very pleased with our Q2 results and enter the second half with very strong expectations for the current quarter and the fiscal year. As RSP is now fully incorporated into our results we are tracking well within our revised operating model.

We are working through the initial trends additional quarters ahead of plan and expect to see incremental improvements in gross margin and operating profits in the March quarter.

While we are not immune to fluctuating dynamics or speeds bumps in any given part of the business, it’s very important that investors remember that Synaptics is now a much larger and more diversified global company than ever before, with an incredibly deep and broad set of solutions.

With display drivers now in the mix combined with a continued uptick of our Fingerprint ID products, growing demand for TDDI products and continued progress in the China market, we expect our fiscal 2015 revenues to increase by more than 75% over the prior year. With that I’ll turn it over to Kathy for review of our financial results. .

Thanks, Rick. We are extremely pleased with our December quarter results, as revenue of $464 million represents record revenue for Synaptics and was above the high end of our revised guidance range.

December quarter revenue increased 125% year-over-year and 64% from the September quarter, the December quarter includes the results of RSP post the close of the acquisition on October 1 with the resulting change in our product mix we also expanded our customer base and had four customers above the 10% threshold during the period.

The revenue mix from mobile and PC products was approximately 86% and 14% respectively in the December quarter. Revenue from mobile products was up 198% year-over-year and 99% from the September quarter, and consists predominantly of revenue from mobile phone applications comprised of touch, fingerprint and DIC solutions.

Our strong mobile revenue growth year-over-year was driven primarily by fingerprint and DDI solutions from the acquisition of RSP. DDIC solutions represented slightly over 50% of mobile revenue in the December quarter. Further we achieved solid contributions from China based mobile customers.

Revenue from PC applications was down about 9% from the prior year and 21% sequentially, due to the strong sell-in during the September quarter. Non-GAAP gross margin of 35.9% was at the high end of our guidance range, benefiting from slightly lower product cost across our product portfolio.

GAAP gross margin of 27.4% reflects approximately $39 million of intangible amortization, $33 million of which is associated with the RSP acquisition including supplier arrangement, backlog, developed technology and intangible assets.

The supplier arrangements, intangible associated with the required inventory purchase and the backlog intangible have very short lives since they relate to products to be sold. Non-GAAP operating expenses were $98.4 million up $22.8 million from the prior quarter.

The 30% increase in non-GAAP operating expenses was primarily driven by an increase in personnel related expense in connection with the acquisition of RSP.

GAAP operating expenses were $98.4 million, including $10.4 million of share based compensation, non-cash charges of approximately $6.2 million for intangible amortization primarily related to RSP customer relationship intangibles, and $6 million of non-recurring closing integration and retention cost related to the RSP acquisition.

Offset by $15.4 million of net currency measurement and transaction gains related to the holdback liabilities and transition of the RSP business and a $7.1 million reduction of contingent consideration.

The strong year-over-year increase in revenue and gross margin dollars in the December quarter drove an 86% increase in non-GAAP operating profit dollars. This newly acquired business contributed significantly to a substantial increase in operating results.

In addition, we achieved 15% non-GAAP operating results moving into our mid-teens target operating range earlier than anticipated. Our non-GAAP tax rate was 17% unchanged from the September quarter, reflecting our anticipated long-term cash tax rate.

Our GAAP tax rate was 28% and reflected the benefit of the retroactive re-instatement of the federal research credit. Second quarter non-GAAP net income was $55.8 million or $1.46 per diluted share. In addition, RSP was accretive to non-GAAP net income and EPS as expected.

Before we dive into the balance sheet, I’d like to take a moment to review some additional details of the RSP acquisition.

We determine the purchase consideration value for GAAP accounting to be approximately $474 million, consisting of the initial cash paid of $349 million and approximately $125 million of holdback liabilities payable to the sellers as of the close date.

Identified intangible assets were valued at $251 million and goodwill was determined to be $153 million. Turning to our balance sheet, we ended the second quarter with $327 million of cash. The cash balance decreased to $122 million from the prior quarter due primarily to the RSP acquisition related cash activity.

The cash balanced includes $245 million of net proceeds from the issuance of bank debt. Cash paid at the date of the acquisition net of $55 million of cash on RSP’s balance sheet was $294 million.

In addition, cash flow from operations this quarter was a negative $16.5 million resulting primarily from post-acquisition inventory purchases of $115 million from Renaissance, which owned most of the RSP inventory prior to our system cutover at the end of October.

In addition, we use $41 million for share repurchases during the December quarter, bringing our year-to-date stock repurchases to approximately $90 million for 1.3 million shares or 3.5% of our shares outstanding. The remaining share repurchase authorization is $109 million available through July 2016.

Capital expenditures for the quarter were $14.7 million, depreciation was $6.3 million, receivables at the end of December were $335 million reflecting 65 days of sales outstanding and inventories were $145 million while inventory turns were eight. I will now make a few comments regarding our quarterly outlook.

Based on our backlog of approximately $245 million entering the March quarter customer forecast and expected product mix, we expect to have another very strong quarter. We anticipate revenue to be in the range $450 million to $490 million.

Taking into account our overall product revenue mix we expect non-GAAP gross margin in the March quarter to be 37% to 39%, moving into our target range.

We expect non-GAAP operating expenses in the March quarter to increase from the prior quarter, reflecting our ongoing investment in engineering and infield customer support, primarily related to our high growth opportunities in fingerprint and to accelerate our TDDI solutions further into the market.

We anticipate the FAS 123R charge to be in the range of $10.9 million to $11.3 million. GAAP expenses will also include non-cash charges of approximately $26 million related to intangibles amortization of which approximately $19 million will be reflected in cost of sales.

We anticipate our non-GAAP cash based tax rate for the March quarter and for the remainder of the year to be in the range of 16% to 18%. Non-GAAP net income per diluted share for the March quarter is anticipated to be in the range of $1.40 to $1.70 per share.

In closing we are extremely pleased with our financial results for the first half of fiscal 2015. We are on track for another year of record revenue and earnings per share in the fiscal year, driven by the expanded breadth of our platform solutions fueling our continued growth.

With that we’ll now turn it over -- turn the call over to the operator to start the Q&A.

Operator?.

Thank you. [Operator Instructions]. And we’ll go first to Ambrish Srivastava with BMO Capital Market..

Hi, thank you.

Just trying to understand the guidance really in terms of seasonality, based on the full year numbers that you gave out that implies June should be flattish is that right and is that against what normal seasonality would be for you?.

Well, we expect to have a strong second half for the year, so from a seasonality standpoint we have many different products now that are ramping at different points in time into the marketplace. I think as Rick mentioned, I mean we expect for the year for revenue to be up over 75%.

So really what we’re looking out for next couple of quarters is we’ve got some new ramps as we mentioned the fingerprint area solutions ramping into the marketplace. Typically we see ramps within smartphones ahead of moving in later into the year, otherwise March is always a little bit seasonal for PC products for the TouchPad business but….

So Ambrish, this is Rick. To jump in for a second, I think the story here is we’re not declining this quarter based in the midpoint of our guidance, which typically has been a tough seasonal quarter and as you can imagine there is a couple of big ramps that we may have enjoyed in the last quarter.

So we’re kind of powering through with a lot of new products coming on board and we’re excited about it. It’s tough to now call the next-next quarter as you could imagine. So we’re just giving you a rough idea of where we see the year, but things can be a little better or a little worse of course..

Okay that’s fair Rick, thank you. And just a quick follow-up on the margin front, on the overall operational front, good to see you guys pull in a couple of quarters ahead of what you guys had been telling us. So just help us understand what are some of the dynamics behind that? Thank you..

From a gross margin standpoint as we mentioned, we do expect to see March quarter uptick in gross margin and December quarter was better than anticipated. So there was a little bit better cost mix across the product portfolio in the December quarter. In the March quarter we actually finished the transition arrangements that we had with Renaissance.

So really some of those transition costs we won’t have those going into the March quarter. And again we’ve got different mix of products, good factors basically supporting the improved gross margin mix going into March quarter. .

Okay, thank you. .

Our next question comes from Vijay Rakesh with Sterne Agee. .

Just on the same gross margin question here, if we look at 2015 where do you see gross margins trend? And does the gross margins operate much incorporate all your pricing for the year now?.

Well the gross margin trend for the year again we talked about we’re just kind of going through the quarters, as I mentioned I mean we’re ahead of expectations are at the high-end for the December quarter as I mentioned based upon your little bit better cost.

As we go into the March quarter we incorporated the new DDI the former RSP business into our supply chain, we finished all other transition activity or the transition services that we incurred and if you’ll recall at the Analyst Day we said our gross margin target model is now 37% to 40%.

So we’re operating well within that target model now and feel that that’s a good range for us..

Got it.

And just going back to the TDDI, what percent of revenues do you think as TDDI ramps where do you see that mix going through the year or exiting this year, exiting calendar 2015?.

Where do we see the mix in what regards?.

For TDDI?.

You mean from a percentage of our shipment or?.

Yeah on the mobile phone. .

Still be a relatively small part, it’s going to be rapidly growing there’s no doubt about it, we’ve introduced one device that’s now in mass production in a pretty interesting ZTE phone as you heard in the prepared remarks.

We will add another family remember to that in a couple of months, and then we’ll really start to rollout a broad set of products in the later part of the year as we get the former RSP team and our team Synaptics team working together on a brand new set of products.

So expect very high growth rates this year, not a huge impact on a percentage of our units, but certainly setting us up in calendar ‘16 for a nice chunk at the mid part of the marketplace..

Got it. And the last question on RSP, having gone to the second quarter RSP do you feel pretty comfortable on how the trends there look? Thanks..

I will talk to call out the product and strategic trends, so real happy with the integration in some ways it went really better than we expected. As I mentioned we are working great together two engineering team on future products, everybody knows what their role is, who their manager is and it’s just a great team that we are able to bring on online.

So we are thrilled about that and thrilled about the investment obviously see from the financial results that we talked about today for last quarter and then the current quarter that’s panning out pretty well there as well, but I will let Kathy talk about any additional trends. .

Yeah, from a financial trend standpoint I think as Rick mentioned and we said on the call we had a very, very strong contribution from RSP in the December quarter as I mentioned earlier I mean we’ve really completed the system cut over to the Synaptics systems during the December quarter.

So the product and everything are under our supply chain base, so it’s really part of the business now so we are looking at it as fully combined business on a go forward basis really starting in the March quarter..

And our next question comes from Rob Stone with Cowen and Company..

Hi, Rick and Kathy.

My first question is speaking to the nicely about seasonal trend in March you just said that TDDI is ramping, but it’s still relatively small so is the above seasonal trend mostly coming from new finger print design wins or are you also seeing design win pick-up in the base touch controller business?.

Well, there are several trends ongoing in the March quarter, so again I mean the PC products obviously are smaller as a portion of the total business and there is a little bit of seasonality there, but otherwise beyond that I mean we are ramping the new area sensor so we are seeing strong growth with the fingerprint business picking up and also even if we look within the DDIC business we’ve mentioned one of the thing we thought was a great opportunity would be to take the RSP product out to a wider range of customers.

So we actually are already starting to see benefit for that. So again we’ve a lot of strong trend within the different component of the business..

Great, can you say Cathy about how much fingerprint sensors have contributed to total revenue?.

Well, the trend for this quarter is, we haven’t broken that out for a while, so the trend for the December quarter was really it was similar to the September quarter. And so as I said it’s with new ramps and the area sensors picking up from there..

And our next question comes from Osten Bernardez with Cross Research..

Hi, thank you for taking my questions.

I guess to begin, I was wondering if you’d be able to provide some color into what you are expecting for your PC related business you commented that you are expecting or that the market is expecting PC sales to slow down it will be slightly lower than it were a year ago for calendar ‘15, but do you think that Synaptics can grow its PC related business in this calendar year?.

Sure, I’ll take a crack at that.

Again we are not going to give giving specific guidance for any one of our segments, but in terms of the overall market and our relative position we are very well aligned with the footprint that we have in PCs of course now its expanded beyond our traditional touchpad area to fingerprint sensors as well as large touch screen solutions as well.

So can we grow in that space, well certainly from overall product perspective absolutely as we incorporate more of the solution as we showed at CES we had some systems that had all three of our different solutions and there is actually even one that had display driver as well.

In terms of specifically of the touchpad business we are adding more higher value solutions like ForcePad and SecurePad which certainly gives us a chance for higher ASPs in a relatively flat market.

And then the one area of the traditional PC marketplace is a two in ones that I highlighted in my remarks and we think we are seeing actually very strong growth in that particular segment and given that we are premium supplier that tends to be more premium solution so that benefits Synaptics.

So there is certainly opportunity for us to grow within the PC marketplace..

Got it. And then just last for me for now, I was wondering if you’d be able to comment on your ability to find talent regionally for RSP to ramp up at the pace that you would like to serve the customers out of China.

Are you able to find the people that you need in order to service timely and efficient manner?.

Sure, great question. As the innovator and technology leader we are always struggling adding the best talent and that certainly driving factor behind some of the acquisitions that we do that’s the first thing we look are the great people in that team and obviously RSP gave us a great running start there.

We have also been staffing up substantially in Taiwan as well now that helps to support our Taiwanese customers as well as in China, but as we showed on our Analyst Day we are dramatically staffing up in China. But what really helps us frankly is the reputation of Synaptics.

A few years ago we weren’t a well-known semiconductor company, now we are clearly one of the fastest growing companies out there. If you think about the footprint that we have in the marketplace now it’s pretty impressive. We now play in iOS market, the Windows market and clearly the Android market.

There is only a couple of companies that type of footprint in the marketplace. So we are able to go out and get the best of the best now, whether that’s China here in San Jose or other sites around the world..

And we will go next to Anthony Stoss with Craig-Hallum..

Hi, guys, great job on the execution.

A couple of questions here, Rick on, if you can give a little bit detail on maybe the linearity or quantify the number of fingerprint wins you have and how you think to rollout over the rest of this calendar year? Also why do you think you are winning in the fingerprint side? And lastly Kathy could you tell us if you expect your China based revenue would be up sequentially in March? Thanks..

Okay, sure. Can’t quite give you a linear equation on our design wins but expect the pace to pick up over the course of the year and we pointed to you Mobile World Congress is an event where you will some solutions come out and we expect those to continue to ramp over the year.

As we indicated in our last quarter call we are a little bit behind on the area touch sensors, but we had a couple of solutions that we are working on. At this point both of those are in mass production and we feel real good about our overall competitiveness of our product line at this juncture.

So any ground that we needed to make up we have now made up at this juncture and as people expect from Synaptics in that particular product segment we will quickly move ahead as well and be the leader and innovator there from a market share and technology prospective..

And our next question comes from Charlie Anderson with Dougherty & Company..

Yeah. Thanks for taking my questions and congrats on quarter and guide. I wanted to ask about maybe fingerprint sensor ASPs both touch and swipe what do you see the trends there? And then maybe on the margin side too I know remember you started kind of a low base gross margin fingerprint where is that trending? And I have got a follow-up..

Okay, I guess I will tackle the ASP question and will let Kathy take the margin question. So thanks for the question.

As we talked about the ASPs you know a swipe is around $2 and the area sensors is around $4 and given the growth in the market and the volumes we expect to those ASPs to come down overtime over the course of calendar ‘15 and forward year.

So we are certainly seeing competition in the marketplace and we are starting to of course see the ASP degradation as well and as [indiscernible] as we kind of position it around 15%, 20% per year I think that’s a reasonable accurate statement in a given segment or with a given solution, obviously as a technology company what we try to do is add more features and have next generation and so on.

So our ASP stayed more flattish but with a particular solution yes it’s going to face that type of curve..

And Charlie on the -- as far as the gross margin goes I think if we go back we’ve said originally when we had the swipe based solutions we had they were a little bit higher cost there were some we put them into the supply chain we did some updated versions but as far as getting those the newer version down in the marketplace it took a little longer than expected because of basically the unit volumes took a little longer to get the unit volumes out.

But if we look at the solutions today, whether it's a slight based solutions or the newer area solutions I mean we are seeing some very some nice margins in the product group right now..

Perfect. And then my follow up was just as it relates to seasonality with Android you've usually had a much larger sort of June than March.

And I wonder are you seeing a change in your mix I mean obviously there is a little bit different with DDI, but maybe on the Android side specifically as you're sort of changing the composition of your customer base and that's reflected in the seasonality..

Well I guess to a certain degree we'll see how after the year kind of plays out. So you're correct we kind of had a booming fiscal Q4 of the last couple of years fueled by smartphones and then specifically at least like last year and the prior year in China.

Now we're starting to see kind of a little bit different seasonal pattern coming out of China much more sustained growth we've heard a lot about the Chinese New Year opportunity coming up here where people are using them as gifts and so on and I think we're seeing that as another seasonality.

But again as I mentioned, if you think about where we are especially in the higher end of the marketplaces and notebooks and phones and tablets to a certain degree we're getting pretty closed to have in our fingers and having a product in almost every high end solutions shipped out there.

So we're going to kind of go with the global market and it's up to us to increase our relative share our footprint in these various platforms. So maybe some of the bigger swings that we've had from a seasonality perspective aren't going to be as present so with Synaptics going forward..

Yeah I would just add to that I mean we are seeing different with the broader selection of solutions and products out there I mean we do have different ramp schedules that are going on within different parts of the customer base right now and the product base so I mean I think as everybody seen I mean we talked about Q2 and the new DDI business as far as it being about 50% of revenue I mean it's there is a different pattern that we've seen there already relative to some of the other traditional patterns that we have seen.

So again I think as Rick said I mean we have so many different products and different ramps going on now we could see different patterns overall and have more of a stable trend..

And with JPMorgan we'll go next to Paul Coster..

Yeah thanks very much for taking my questions. On customer concentration, can you just talk to us a little bit about the customer concentration within the RSP segment specifically? And then on a go forward basis, do you see the concentration changing materially over the next quarter in the next quarter..

Well as I mentioned on the call I mean we did now that we have the new business typically in Synaptics we've had maybe one customer that's been an over 10%.

As I mentioned on the call we actually had four over 10% and that's a result of the fact that now we do have our new business into the mix also the fact that typically what's as normal with Synaptics we sell into the supply chain and those can so the customers are typically ODMs and LCM providers in the supply chain.

As far as concentration goes, we do expect to have similar spread of solutions whether it's four or three or how that works out in the future we'll see, but we do have -- we've broaden our customer mix significantly have as Rick said I mean we're serving basically a very broad set of the operating systems as well as the customer base out in the marketplace..

Okay my follow up question maybe looking out a little bit further than in the next couple of quarters Rick is as you start to bring TDDI and fingerprint and basic touch together and to integrate the solutions.

Do you anticipate that it will be more difficult for your clients to sort of pickup single solutions and that will be sort of funneled into taking the whole package..

There is two angles to that Paul. One is that from a customer relationship perspective and support and then actually from technology perspective. So I’ll address both of those.

On the first one, certainly our ability to have a worldwide sales and application and technical support structure is not easy to replicate, that’s taken us several years as following as building up a team in Korea, and then China, Taiwan and so on and training them and getting the best people.

So we think we just got fantastic team aligned around the very smart device suppliers in the world. So that’s kind of that aspect. Now from a technical or integration aspect absolutely it’s going to raise the bar. It comes out over the next just 12 months or 24 months with TDDI right in front of us.

It’s not about just delivering a touch device it’s now you have to do a display driver interface product and those things are going to have for example 3,000 IOs and fairly leading edge process technology and there’s only a handful of companies that can deliver that combined solution and as you heard in my prepared remarks we are the first ones out of the gate to do that again as Synaptics.

So I think week ago you probably heard one other vendor out in the marketplace that was delivering touch solutions though in the white because if you don’t have a display integration strategy you will not have a close relationship with your OEM partners out there because they want to touch suppliers or TDDI suppliers that can provide the whole range of solutions and at this juncture we’re uniquely capable of doing that..

And we’ll go next to Liwen Zhang with Blaylock Van..

Thank you for taking my question and congratulations on strong performances.

So I have a question related to your area of fingerprint, there are some opticals reason today mention in that you guys have to use a Taiwanese company called Aegis Technology Software Solutions is that true? And if yes and how does that impact your area in the end of ASP and down the road should I expect you to solve the issues or what’s your strategy for that?.

So in terms of the particular issue that was raised I don’t want to go into too much detail because frankly I’ve heard a lot of misinformation out there about what we have and what we don’t have.

So for example today it's a master [ph] technology, we by far at least for a third party suppliers for fingerprint sensorship much higher volume by 10x than anybody else and this is master [ph] technology that we own and we develop and shipping obviously with phones like Samsung.

So we move to the area, some of that technology can be leveraged, some of it we want to take other pass, we license IP of all different kinds all the time. And so we’ve announced one agreement with precise biometrics partly to help us to address the plethora of different solutions that we see out there.

So we can address every solution and we do the same thing on the hardware side as well. So at the end of the day we’re going to deliver a complete solution that our customers can count on that will be the best in the industry..

Thank you and my next one is regarding your entry into automotive end market. Can you give us some updates on your any progress or the strategies on that I understand it will be a long-term one as well..

Yeah and so as you hit on it it’s a longer term strategy you’re not going to certainly see a car next year configured with a bunch of Synaptics products in it, so we started the process we already have qualified parts for automotive applications and we’re going to continue to build that core capability.

The one thing we do have to do is go out of our sales and support infrastructure much like I talked like we had to do for the smart devices market out there. We simply don’t add people in Detroit or certain parts of Japan or Europe where we need them located.

So we've been in that process staffing up and we’re winning designs now for platforms that will come out in calendar ’17, and ’18.

Our strategy is simply the same as it’s been in our other three target markets we’re going to have the best team in interface solutions in the marketplace, we’re going to partner closely with the leading OEMs that are out there and at the end of the day delight end users by delivering just a great experience..

And we’ll go next to Brett Simpson with Arete Research..

Yeah, thank you very much. First question for Kathy, Kathy can you take us through the FX impact of RSP so you’ve seen big moves between the dollar and the yen can you maybe just walk us through whether its cogs or OpEx how does your cost basis RSP sit between yen and dollar and to what extend has the yen benefited results here,. Thank you..

Sure, one other things that I pointed out in the conference call is that we actually had one of the big differences actually between the non-GAAP and the GAAP results was the fact that in the GAAP results we had ticked up $14.5 million gain associated with the yen to dollar relationship.

So the biggest thing impact that we saw related to currency really in the quarter had to do with the acquisition in and of itself so the move when we close the acquisition the yen was about 1.09 by the end of the December quarter for us it was trading up at 1.20 so to hold back liabilities that we are associated with the repurchase basically and we had favorable gain associated with that and some of the other balance sheet impact.

So again we removed all of that activity out of the non-GAAP results.

So for non-GAAP purposes if you look at the business today as it's incorporated into Synaptics really the only thing that’s yen based going forward is really just local spending like personnel and facilities related so all of the again the business is incorporated into a worldwide structure so revenue was in dollars, cogs is in dollars, so again it would be we don't expect really the movement basically in currency to have a very significant impact on the actual results of operations some yes but not material because of the fact that revenue and cogs are all in US dollars..

And the inventory you've bought from Renaissance the parent company is that in yen or is that in dollars just to understand?.

Yeah, the onetime purchase from Renaissance that was a yen purchase so there was also it's based upon the timing of the purchase and the payment. There was also some gain on that and again that was all part of the delta between the non-GAAP and the GAAP results so we did not include that in the non-GAAP results..

And with Pacific Crest we next go to John Vinh..

Hi, thanks for taking my question just had a follow-up question regarding kind of the moving parts into your better than seasonal guidance for the March quarter you talked a little bit about ramps and fingerprints sensors in DDIC but just also wanted to clarify directionally are you expecting the touch business to be up in the March quarter as well and if you can clarify what’s driving that?.

Hey, John are we expecting the touch business to be up I think the touch business overall we are seeing some good progress in the touch base business we do have a lot of the newer ramps going on for phones starting up in the March quarter and in the June quarter I think just in general I mean again from a trend standpoint we do have broader set of customers and businesses going on so more of the effect that we're seeing going into March quarter is from the DDIC business broader base of customers there and also new ramps and fingerprints..

Great and then my follow up is just related to some of the industry consolidation you talked about I think Maxim announced that they were looking to exit the touch market I think one of your other competitors has talked about the possibility of maybe taking exiting the touch business as well.

Are you starting to see any sort of pricing stability in the touch market you have talked about 15% to 20% declines in most of your businesses is that little bit better in touch or are you still seeing those types of ASP trends there?.

John it continues to be a tough market out there so, it’s a nature of the best when you're in the client market so, that’s what we prepared for, that’s what we plan on and we develop products that can handle that type of cost or price curve make sure our cost curves are aligned with that as well.

So, when I say it substantially changed there is certainly consolidations going on or our vendors dropping out of the businesses as they look forward and see diminishing opportunities specifically if they don’t have a good display integration strategy so, I would expect the consolidation to continue.

And I believe that should add some stability overtime at the 2015 note but as we move out to over ’16, ’17 certainly I hope that’s the case..

I think the other thing is really good is to go back take another step back as to if you look at the size of Synaptics now I mean the good news is with again the broader products portfolio the size of the business and the scale and I mean we have always run a very tight supply chain but now we are in a position basically where we can continue to drive good strong supply chain benefit for the larger side of the business to be a very strong competitor as we continue to go forward..

Our next question comes from Kevin Cassidy, Stifel..

Thanks for taking my question.

As you go to the area of fingerprint, can you tell me a little more about the FIDO Alliance and its role there? Is area of fingerprint qualified with FIDO? And I guess could you just say what the influence FIDO has on the market?.

Sure just to answer you’re really specific question our area touch sensors are not qualified yet with FIDO we expect to see market really before we would do take that step.

There is really and then kind of correlate to that question there is really not anything new that you have to do with the area versus the swipe sensors that you follow the same type of process to go through it.

But the real promise about FIDO is standardizing mobile e-commerce it really opens the doors so you don’t have all these independent relationships going on between banks and credit card companies and either retail or mobile stores out there around the world.

This is to have a unified standard that everybody can support and if you look at the roster of FIDO members now you can kind of you will see people in all these different types of categories, or companies in all those different type of categories Microsoft, Google and Visa and so forth.

And so the big step there is and again it's not something that’s a light switch event it will be one two years but gradually people get more comfortable with making all the transactions with their smartphones and they will start leaving their wallets behind..

Okay, great. Thanks for that definition.

And Kathy just on the backlog coming into the quarter you know relative to your guidance it seems lower than past quarters am I wrong on that or is there something different happening with your model or you having more trends within the quarter?.

No, I think it’s very strong backlog basically for the new combined business so, it’s -- we think it’s been a very, very supportive, I don’t think there is anything that's changed too much as far as when we get sometimes there is a little bit of timing difference in backlog just because if it's front loaded back loaded quarter March quarter if you look at the March quarter sometimes it tends to be a little more back end loaded but in general we think it's a very strong backlog and supporting the revenue range that we put out there so we're very comfortable with that..

And we'll go next to Rajvindra Gill with Needham & Company..

A question on the OpEx. Implicit in the guide, if I kind of take the midpoint of everything and add the interest expense, it seems like the OpEx will be up about 8% sequentially to something in the 106 to 107 per quarter range.

So just want to make sure if that’s kind of right number? And should we be looking at OpEx kind of going up at that rate and then kind of stopping as you start to optimize the model or how do we look at the OpEx trajectory?.

Well I think the OpEx I mean it could it be twice that I mean I think that’s the OpEx in a range relative to the gross margin as well so kind of you have to kind of look at all other costs plus or minus a little bit I would say in general they could be up that much or a little bit lower. The main thing is going forward again.

We're continuing to invest in the high growth portions of the business. So right now I mean we are making progress already with broadening the customer set driving more penetration with the DDI business in China and other places but we do need to add some support.

And as we said we're really trying to drive the TDDI option so we are doing some increases associated with that in OpEx. But we're continuing to trying to make sure that we're focusing very tightly on that to get target the increases.

We also do have to the one thing that's happening this quarter as we do we are moving the whole RSP team they're basically kind of still embedded in the old Renaissance building.

So they're moving to a new facility in Japan so there is probably a little more infrastructure cost associated with moving them to a new building outside of the Renaissance place. But otherwise on a go forward basis we wouldn't expect to see percentage increases in that range..

So you would not expect to see..

We would not, no..

And then and Rick on the TDDI is there a way that you can maybe quantify your technological lead on with TDDI. You have TDDI phones in production, the commentary is very positive going in to the second half.

It seems like the -- there is competition either from the main display driver companies like Novatek and Hymax that are trying to do the reverse with the test controller or maybe can talk a little bit about how you see that segment of the competition and then the touch controller competitors in Asia trying to integrate the display driver maybe you can talk their traction..

Sure Raj probably maybe as an example I used the part that I just disclosed in my script which is a DDI device 4291. It's a HD so high definition device.

So that's currently the mid-range part of the marketplace and of course it has touch integrated and one makes it appealing to the smartphone OEMs out there right now is actually the great touch capabilities so it's an in-cell type of implementation so they get the benefits of display integration certainly so that allows into a thinner lighter phone and without compromising touch and as we've demonstrated touch isn't easy to do when you do it as a separate chip and now you combine it with the display driver and put it right on the actual LCD display.

It's not an easy thing to do. So that's clearly our differentiation now as you move to high resolution this is where the RSP strength comes into play because display drivers aren't easy to do either when you're talking about millions and millions of pixels.

And certainly a very discriminating audience in terms of the quality of what do you see and I mention one of the capabilities around the contrast control that's a very big deal everybody wants the best looking display on their phones whether it's inside, outside and so forth.

From a touch controller perspective if they try to home grow that technology, good luck. Yes it's taken us four to five years and we actually acquired assets four -- five years ago now or six years ago. That helped get the ball rolling and it's taking us today basically to have a part in production.

So again these are starting to be fairly substantial technology barriers that I think we're really winning down the number of competitors in the touch marketplace and also the DDI marketplace..

And that concludes today's question-and-answer session. I'll turn the call back to management for any closing or additional remarks..

All right. Well, thank you everyone. We used the full hour today. Appreciated all the great questions and I certainly look forward to updating you again next quarter..

And ladies and gentlemen that does conclude today's conference. We thank you for your participation..