Jennifer Jarman - The Blueshirt Group LLC Richard A. Bergman - Synaptics, Inc. Wajid Ali - Synaptics, Inc..

Robert Stone - Cowen & Co. LLC Rajvindra S. Gill - Needham & Co. LLC John J. Donnelly - Stifel, Nicolaus & Co., Inc. Charlie Lowell Anderson - Dougherty & Co. LLC Jagadish K. Iyer - Summit Redstone Partners LLC.

Good day, and welcome to the Synaptics Third Quarter Fiscal Year 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Jarman. Please go ahead, ma'am..

Thank you, Eric. Good afternoon, and thank you for joining us today on Synaptics third quarter fiscal 2017 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 synaptics.com.

With me on today's call are, Rick Bergman, President and CEO; and Wajid Ali, 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, acquisition-related costs, and certain other non-cash or recurring or non-recurring items.

Please refer to the press release issued after market close 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.

Forward-looking statements give our current expectations and projections relating 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 the company's current and periodic reports filed with the SEC, including the Synaptics' Form 10-K for the fiscal year ended June 25, 2016, for important risk factors that could 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. I will now turn the call over to Rick Bergman.

Rick?.

Thanks, Jennifer, and I'd like to welcome everyone to today's call. Before reviewing what was a very strong third quarter, I'll start out by saying that, it seemed like yesterday, that I was calling attention to a significant Synaptics milestone. The fact that we had just shipped the 4 billionth unit of our human interface solutions.

Just 11 months later, we've already reached the next milestone of 5 billion units. It's amazing to think of the billions of people around the world using technology from Synaptics, everyday, a great testament to the work of the Synaptics team, globally.

Turning to a high level summary of our third quarter results, we delivered another solid quarter, with revenue of $444 million in the upper half of our guidance range. We experienced strong year-over-year performance from our TDDI products, and year-over-year growth of our PC products.

On a quarter-over-quarter basis, TDDI revenue again increased by 40%. Our DDIC business came in stronger than anticipated, although lower year-over-year and on a sequential basis. We posted GAAP earnings per diluted share of $0.13, while non-GAAP earnings per diluted share was $1.27.

Growth in fingerprint and biometrics has been a key driver for Synaptics, and we are excited to be on the forefront of making in-display fingerprint authentication solutions a reality within mobile devices.

At our Analyst Day in December, we announced our venture into optical-based and in-display sensors with the launch and demonstration of two new industry-first optical fingerprint sensor solutions for smartphones. Our in-house solution is designed to sense fingerprints in the lit area of OLED display panels.

We are now pleased to announce sampling with select customers as we march towards our goal of mass production within the second half of the calendar year. Our new products will incorporate many of our SentryPoint security features, including our Quantum Matcher and PurePrint anti-spoof.

And we are working closely with leading OEMs to more seamlessly integrate our solution to ensure the best possible user experience. We believe broad adoption of optical fingerprint sensors will tie to the ramp of OLED panel production increases over the next few years.

For the FS9100 solution, we partnered with OXi Technology to target sensing under the full cover glass, and in the bezel of smartphones. We closed on our strategic investment in OXi earlier this month, and are excited about our collaboration on the development of next-generation industry-disruptive optical solutions.

A few key fingerprint design wins that occurred during the quarter, include the launch of the Samsung S8 and S8 Plus smartphones featuring Synaptics Natural ID sensors and the launch of Sharp's AQUOS R smartphones last week, featuring Synaptics Natural ID sensors, as well as our discrete touch controllers.

ZTE, one of the largest smartphone makers also selected our fingerprint sensors for its latest ZMax Pro smartphones. Capacitive fingerprint sensors remain key to our product roadmap, as we continue to innovate and to drive cost optimization.

We announced our new Natural ID FS4600 family that support square, round, pill shaped, and slim rectangular buttons for the front, back and side of devices. The buttons enable OEM their choice of coatings, including polymers, ceramics or glass.

The versatile and industry-unique FS4600 family offers value-added features, including support for two 0D soft buttons, as well as force sensing and fast swipe navigation. In addition to customer design and activities, we've seen strong momentum with ecosystem partners in China.

Our fingerprint sensors have been named the industry's first to be fully-certified through the Banking Card Test Center or BCTC in China. The BCTC was assigned by China UnionPay, and other key banks to perform and manage fingerprint sensor certification testing.

Synaptics has also worked with China UnionPay on their official biometrics guideline, that define China UnionPay a secure and trusted technical framework used for identity authentication on intelligent devices. We believe these activities will further strengthen Synaptics' position in the Chinese market.

Within our Smart Display division, we feel very confident in how we are executing across the key milestones we outlined last quarter. We sampled our first OLED DDIC at several OLED panel manufacturers with successful bring-up and light on at each of them.

Synaptics developed OLED display IP is working well, and we continue to work closely with our panel partners to optimize overall performance. As we indicated during our Analyst Day, we will be delivering a portfolio of OLED DDIC devices over the coming quarters to serve the broader growing OLED display market.

We expect to begin sampling these additional OLED DDIC through our panel partners by the end of this calendar year. To complement our OLED DDIC portfolio, we're also expanding our OLED touch controller portfolio to address the growing number of OLED smartphones, supporting both rigid and flexible OLED panels.

As I mentioned earlier, we continue to see strong growth and significant customer traction in our TDDI business. A majority of leading brands are now shipping smartphones that incorporate the latest Synaptics TouchView TDDI solutions, including Samsung, Huawei, OPPO, Xiaomi, LG, LeEco, Gionee and Sony.

Our market-proven TouchView TDDI portfolio is enabling us to gain market share in both global display and touch, as customers continue to adopt our technology, with Synaptics TDDI now shipping at a run rate of over 40 million units per quarter. Jumping to our notebook PC business.

Our market-leading position remains in TouchPads, as well as the growth in adoption of integrated fingerprint sensors on laptops, which we think plays right into the core strength of Synaptics.

The level of security that is required for notebook PCs is far more demanding than you would see in a typical mobile phone, because of the PC's open architecture. In addition to providing hardware-hardened fingerprint sensors, we work closely with ecosystem partners such as Microsoft and Intel, once the data is securely transferred to the host PC.

Look for more on this topic in the near future. As a result, customers such as HP selected our Natural ID fingerprint sensors for their new Elite x360 laptops, and we achieved a double win when Lenovo chose our ClickPad, TouchPads and our fingerprint sensors for their 5th Generation X1 Carbon PCs.

Acer also chose Synaptics ClickPad for its Swift 7, while Dell designed ClickPad into both its Inspiron 3000 and Inspiron 5000 series of notebooks.

We're pleased that our partners PQI and Kensington are now broadly shipping our fingerprint sensors on consumer USB dongles targeting Windows 10 users using Windows Hello, but whose systems lack an integrated fingerprint sensor, a market with the potential for tens of millions of units per year.

In regards to automotive, we are at a tipping point of market momentum, and see evidence of significant market opportunity rapidly emerging for Synaptics.

We recently brought our technology solutions to the Embedded World Conference in Germany, where we received great interest upon showcasing our latest touch, display and fingerprint demonstrations for our key European Tier 1 customers and OEMs.

Demonstration highlights include fingerprint sensors on a steering wheel, and a start button for biometric authentication, personalization, in-car services, and secure mobile payments.

High-performance touchscreens capable of variable force touch sensing, ultra-high resolution displays for use in several locations throughout the cockpit, and the replacing of mirrors enabled by our latest display driver IC. Automotive is an important diversification area, and a growth lever for Synaptics.

And with a strong design-in pipeline already in place, we believe, we can triple today's automotive revenue over the next three to five years. In fact, we now have touchscreen designs in the United States, Europe, Japan and China with many Tier 1s servicing global automotive brands.

Our display driver solutions for automotive have been solid with continuing global design-ins using our legacy DDIC portfolio. We are happy to announce a new design-in, in a major OEM using our latest automotive DDIC.

Fingerprint sensors for automotive applications have also generated significant interest across our global Tier 1 and OEM customer base. You will see our fingerprint solutions in cars from a major OEM beginning in 2020. Lastly, a brief corporate update. I'm very pleased to announce that Mark Wadlington has joined Synaptics as Worldwide SVP of Sales.

Mark brings to us a plethora of experience in the semiconductor industry, most recently as Corporate Vice President and General Manager of the Mobile and Consumer Division at Lattice Semiconductor. We're excited to welcome Mark to the Synaptics team, and look forward to working with him.

With nine months of fiscal 2017 now under our belts, we are executing well, and are on track with a roadmap we've laid out for investors in terms of our key growth drivers; TDDI, fingerprint and OLED.

Based on the midpoint of our guidance for fiscal Q4, we are now on our trajectory to post modest top line growth for the year with revenue on the order of $1.7 billion. This reflects continued strength in TDDI and fingerprint, that is more than offsetting the downward trend we have experienced in our display driver business over the period.

While we anticipate revenue to be down sequentially in the June quarter due to declines in the DDIC business, as well as the widely-reported slowness in the China market, we expect seasonality, along with strength in our new products to support our growth in the second half of the calendar year.

We've made tremendous progress as a company over the years, but we believe we're just scratching the surface of what we can achieve.

Our history of innovation, our strong culture and our relentless commitment to enhancing the user experience will enable us to continue to capitalize our core growth pillars, as well as additional emerging opportunities. With that, I'll now turn it over to, Wajid..

Thanks, Rick. Revenue for the March quarter was $444.2 million, above the midpoint of our guidance range, and up 10% year-over-year. Sequentially, March quarter revenue declined 4%, primarily reflecting lower demand for our PC products, and display driver solutions, largely offset by increased demand for TDDI products.

During the quarter, we had four customers at or above the 10% revenue threshold ranging from 10% to 27%. Specifically, those customers were at 10%, 13%, 17%, and 27%. Revenue mix from mobile and PC products was approximately 88% and 12% respectively. Revenue from mobile products was down 2% sequentially, and up 10% compared with the year-ago quarter.

Revenue from PC products was down 17% sequentially, and up 10% year-over-year. I will now provide a high-level review of certain of our March quarter GAAP results, and will follow with the corresponding non-GAAP results.

For the March quarter, our GAAP gross margin was 30.3%, which includes $11.7 million of intangible asset amortizations and $600,000 of share-based compensation costs.

GAAP operating expenses in the March quarter were $122.4 million, which includes share-based compensation of $15.5 million, a litigation settlement accrual of $10 million, restructuring costs of $300,000, consisting primarily of severance-related costs, and acquisition-related cost of $2.4 million, consisting of intangibles amortization, resulting in GAAP operating profit of 2.8% of revenue for the quarter.

The litigation settlement accrual relates to the settlement of an intellectual property litigation that arose from activities at Validity Sensors, prior to our acquisition of the company. We have filed an indemnification claim against the former Validity equity holders for a portion of the settlement amounts.

In the March quarter, we had GAAP net income of $4.5 million or $0.13 per diluted share. Now, turning to certain of our March quarter non-GAAP results. Our March quarter non-GAAP gross margin of 33.1% primarily reflects our overall product mix.

March quarter non-GAAP operating expenses came in above the high-end of our guidance at $94.2 million, up $3.4 million from the preceding quarter, but down $8.8 million from the same quarter last year. Non-GAAP operating profit was 11.9% of revenue.

Non-GAAP net income for the March quarter was $44.9 million or $1.27 per diluted share, representing a 5% year-over-year increase, but down 15%, sequentially. Turning to our balance sheet. We ended the quarter with $329 million of cash, a decline of $18 million from the preceding quarter.

The decline in cash during the quarter was primarily related to our repurchase of 1.1 million shares for approximately $63 million, partially offset by cash flow from operations of $52 million.

Receivables at the end of March were $247 million and DSOs were 50 days, reflecting a front-end loaded quarter, while inventories were $157 million, an inventory turns were 7.6x. Capital expenditures for the quarter were $5.8 million, and depreciation was $8.4 million.

Before I jump into our quarterly outlook, I want to provide some color on the recent amendment to our credit agreement. In early April, we upsized the revolver under our credit facility by $200 million, increasing the size of the revolver to $450 million.

The increase is designed to provide us with additional liquidity and flexibility for acquisitions and general corporate purposes. At this time, $100 million is drawn, and $350 million is available. Now, I will make a few comments regarding our quarterly outlook.

Based on our backlog of approximately $291 million entering the June quarter, subsequent bookings, customer forecasts, product sell-in and sell-through timing patterns as well as expected product mix, we anticipate revenue for the June quarter to be in the range of $410 million to $450 million.

We expect the revenue mix from mobile and PC products in the June quarter to be approximately 87% and 13%, respectively. I will now provide GAAP outlook data for our June quarter, and will follow with non-GAAP outlook data. We anticipate the stock-based compensation charge in the third quarter to be in the range of $15.8 million to $16.3 million.

Restructuring activities associated with our previously-announced June 2016 restructuring plan are complete, and therefore, we do not expect any additional restructuring charges in our fourth quarter related to this plan.

In addition, June quarter GAAP expenses are expected to include non-cash charges of approximately $14 million for intangibles amortization, of which, we expect approximately $12 million will be reflected in cost of sales. I will now provide non-GAAP outlook data for our June quarter.

Taking into account our overall revenue mix, we expect non-GAAP gross margin in the June quarter to be between 32% to 34%. We expect non-GAAP operating expenses in the June quarter to be in the range of approximately $90 million to $94 million. Using the midpoint of our Q4 guidance, non-GAAP operating profit would be approximately 11.6% of revenue.

Non-GAAP net income per diluted share for the June quarter is anticipated to be in the range of $1.05 to $1.35 per share. In closing, based on our year-to-date results and current outlook for the fourth quarter, we are pleased with the way the year is shaping up, as we continue to capitalize on the positive trends within our business.

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

Operator?.

Thank you. And we'll take our first question from Rob Stone with Cowen & Company..

Hi, guys. I wanted to start with optical and in-display fingerprint sensing. Rick, you reviewed the two different solutions that you have available. You're sampling the in-display – in-OLED display version now, and I think you said second half of calendar year for mass production.

I believe, the other, under the bezel glass solution was meant to be ready this quarter, can you provide any more color on those two products?.

Sure. Thanks, Rob. Good afternoon. So as mentioned in the prepared remarks, on the in-display, it's going quite well, and we are out there sampling a number of customers, and I think they and we are excited.

One big trend in the industry is now actually called Infinity Display, officially by Samsung, but if you recall, we were using that term last year as well ourselves, which really means it's a full edge-to-edge display, which of course, prominently featured in the S8 and S8 Plus, but now quite the rage around the world and pretty much every smartphone manufacturer wanting to head that direction.

So at least for OLED panels, as you could imagine then, there's a great deal of interest in the in-display solution, because your only real choice is to move to the back of the phone, and there's a certain level of awkwardness on the user experience to have it on the back of the phone.

And so, the demand there is good, and our product is marching along on the schedule we articulated at the end of December. And so we're putting a lot of focus on that particular solution. On the bezel type of solution, our work with OXi, we initially intended to be in production towards the middle of this calendar year.

We are sampling that product as well. However, it now appears that production will be more towards the end of the year with that particular solution as well, at least in smartphones. It is being used in other application, has entered in production in other applications as well.

That has promise for a different reason, it hits a different cost point, and for example, you might see smartphone manufacturers use that type of solution on the back of the phone, if they don't want a button structure, but want a clean sheet of glass on the back, like you see many of the mid and high-end phones have today. I hope that helps..

So with respect to the cost point, should I interpret your comment as the OXi solution is going to be a lower cost than the in-display? Or I assume another way to think of that is, in-display adds a lot of value to the design, and therefore it should be worth some kind of a premium price?.

Yeah, we haven't talked about our in-display solution in terms of its stack up and so on, because we do feel it's quite valuable for the company, and we'd rather keep it behind the curtains as long as possible.

Conversely, with the OXi Technology, their whole, call it selling or advantage is, it is a lower cost, of course it uses TFT glass or glass that is typically made in a display manufacturers' fab where you have very large sheets measured in meters, which as you could imagine for a fingerprint sensor, the cost per sensor is quite low.

So you can build quite sizable sensors, and still keep the cost low. So long-winded answer to you, yes, there is a lower cost point for the OXi-style sensor..

And for the cost of the in-display solution, but the value – based on feedback from customers, if they're eager to get that, I assume that it can command a better price than conventional sensors?.

Yes. We would expect the in-display optical solution to be at a higher ASP. Keep in mind, it also can only be used with OLED panels, and at least for the next 18 months, 24 months, if you're using a OLED panel, it's probably going to be upper mainstream to flagship type of phone..

And our next question is from Rajvindra Gill with Needham & Company..

Yeah. Thanks for taking my questions, and congrats as well on solid execution on all those new products. A question on the TDDI ramp, and forgive me if you might have mentioned it in between calls, but you had mentioned that TDDI grew 40%, sequentially.

I was wondering if you could, maybe just give what that is as a percentage of revenue as we stand today? And more broadly, Rick, if we look at the attach rate in the smartphone market for TDDI, can you maybe provide some color there in terms of what you're seeing in terms of the design funnel, the design pipeline to include TDDI?.

Okay, I'll start with the question, and then, let Wajid give color on the percentage of revenue. Adoption on TDDI remains very, very strong in one regard, stronger than actually we anticipated.

If you look at our Analyst Day numbers that we gave back in December, I don't know, was around, I think, 400 million TDDI panels, and I mentioned, 40 million that we shipped alone in Q1.

I don't see us giving up too much ground on market share right now, but as the year moves through, competition will come in, and there will be a variety of different solutions. And think about 1 billion LCD panels for the calendar year, and you get the idea that, at least over the course of the year, about 40% TDDI.

And now for the first time, we've had a couple of display manufacturers. And I was just in China last week, start to talk about, well, why would we have discrete DDICs or touch, and thinking that, their entire product lineup could move over time with certain technologies like LTPS versus a morphic (26:08) silicon to 100% TDDI.

Now, of course counterbalancing that, at least over the next couple of years is, on the OLED side, it is a discrete solution. And we talked about how we would have our TDDI solution for OLED later in 2018. So you kind of have this continuity at play there as well. So I'll let, Wajid talk a bit about the percentage of revenue..

So Rajvi, we've been calling out the TDDI sequential growth for a couple of quarters now, primarily because we view it as a product that's got a secular growth curve, despite the fact that China has been a little bit weaker than we expected.

So if you just kind of go through the math that we provide over the last couple of quarters, you'll see that TDDI is just in and around 20% of company revenues.

We probably won't be providing that level of disclosure moving forward as TDDI now becomes just part of our normal product lineup, but you'll be able to find that level of detail just through the transcript. So think about it as just about 20% of company revenue right now..

Okay, great. And then, I think, on TDDI, in terms of your portfolio, so at the Analyst Day, you did a great job of kind of outlining the portfolio.

And I just want to get a sense that, most of the TDDI solutions that are being shipped today, and maybe for the calendar year are the TD4300 with the Full HD resolution or the Full HD resolution with integrated RAM.

And if that's so, when do we think we're going to see kind of maybe an upgrade to the TD4302, which is a WQHD resolution with an integrated RAM.

And would you see a higher ASP potential as these companies start adopting higher resolution displays with TDDI? Would there be a positive impact on price, ASP?.

Sure, Raj. A couple of thoughts on your point there.

In answering Rob's question a few minutes ago, what is going to sweep in through the industry now, as it goes by a lot of different names, edge-to-edge display, Infinity Display, 18:9 aspect ratio or XL, again typified by what you see with the recently-announced Samsung phones and what's expected from another large smartphone manufacturer, think of it as the long and thin phones.

A couple of our TDDI devices already support that format. But a few others, we need to incorporate that feature. So we're hurriedly getting out those solutions as quick as possible. And then balanced against that also is, as I mentioned, it's a more competitive market.

So we're working on lower cost solutions, as well, moving it into different process, technologies, different foundries, and so on, so very robust roadmap. In terms of higher-end devices, keep in mind, the general trend in the industry is higher-end devices now means OLED.

So I don't think, you'll see a big rush to WQHD for example with LTPS or LCD panels. So there's not a lot of opportunity for big uplift on ASP, that will come as our OLED display drivers go into production later this year, early next year..

And just last one on that, and I'll hop back in the queue.

So is it fair to assume though that, the success in the OLED market for you guys is going to be contingent on the panel makers outside of Samsung ramping OLED panel capacity?.

Not necessarily. So we're going to fight for opportunities wherever they exist, even if it's, call it, uphill, at one large OLED manufacturer on the display driver. On the touch side, of course, we do quite well there, with panels that are shipped into China at least.

And then, we've been working closely with non-Korean, our specific non-Korean supplier there. And as mentioned in the prepared remarks, very successfully have lit up a couple of beautiful OLED panels from some other suppliers, so we're quite excited by their progress. Now, they still have work to go.

And again, as we've said for a couple of years now, alternative suppliers really won't kick-in until later in 2018, and more so in 2019..

The next question is from Kevin Cassidy with Stifel..

Hi, this is John Donnelly on for Kevin. Thanks for taking my question. You mentioned, obviously some challenges that you're seeing in China.

Could you touch on maybe any market share gains you guys maybe making there or how your revenue is shifting in China?.

In terms of market share gains, in some regard, that's kind of paced by our TDDI at this point on the display side of things. And I do feel like we've made some nice incremental gains there, and that's what's driving our revenue up. We obviously are facing headwinds due to seasonality for one of our large DDIC customers.

So TDDI is kind of helping us move along there. On the fingerprints also we're gaining share in China.

From a absolute perspective, not as big a dollars as TDDI, but Huawei is a large customer there of ours, and they're using our fingerprint solution in a multitude of phones, and then, you'll continue to see additional large players there pick-up our fingerprint solution.

You can imagine also that there's opportunity for some of our optical solutions there likewise in the second half of the calendar year..

Great.

And then in the long-term handset market, how do you see the balance working out between OLED and LCD in terms of, I guess, the share, once you're not – don't have the supply constraints so much on the OLED?.

Sure. As I mentioned earlier, I happened to be in China last week, and met with most of the large players there. And at first, I'd say there's a lot of enthusiasm around the markets with OLED; kind of gives an opportunity for a refresh with the various end users out there.

I don't want to keep referring to our Analyst Day, but we actually had a pretty good graph of our view on the delta between OLED and the LCD displays. And I'd say, has our view changed in the past three or four months – maybe we see the OLED guys coming on a little bit faster than we anticipated.

But again, as I mentioned on a prior question, OLED displays are not easy to do. So I think, you'll see some of the manufacturers struggle a little bit as they get to mass production. But overall the trend is clear, and please refer to that particular diagram that will show you the exact numbers..

Great. Thank you very much and congrats on the quarter..

Thank you..

And we'll go next to Charlie Anderson with Dougherty & Company..

Yeah, thanks for taking my questions. Rick, you mentioned solid progress on the OLED DDIC, sampling at the end of the year. I wonder, if you could speak to the segment of the market the first products are going to be targeted to? And then, I have a follow-up..

Yeah, sure. So OLED typically is going to be the upper mainstream to high-end of the marketplace. Our initial devices were Full HD devices, and so that would be more in that kind of mainstream, upper mainstream part of the marketplace. But as I mentioned in prepared remarks, we have a full family of products coming.

We are very encouraged by our first results. As I said, just saw some absolutely beautiful OLED panels, right out of the chute, with our very first silicon zero spins (34:28). And in fact, at this juncture, for our first drivers, we don't have any planned silicon spins (34:34) at this juncture.

But we do have that full family of products coming towards the end of this calendar year..

Great. And I thought I heard you guys say in the script, looking forward to growth in the second half of the calendar year, that's understandable. I wondered if you think there's going to be any seasonality changes.

I know some of the other suppliers are kind of looking at the back half, and maybe see the calendar line up a little bit differently than yours, perhaps. I wondered if you have any thoughts on that? Thanks..

Sure, Charlie. Actually, Wajid and myself spent a good chunk of yesterday talking about what is seasonality for Synaptics, call it as opposed to the world. And we haven't been much of a seasonality customer. Part of it is of course, Samsung is a key customer for us, specifically in the flagship part of the marketplace.

And they kind of counter seasonality, typically do launches this time of the year. And that has bolstered us over the past three or four years. And we've also had a interesting PC business, which is a little different cycle than the smartphone businesses.

But more and more as TDDI becomes a big part of our portfolio and our fingerprint, we may have a seasonal pattern more consistent with the rest of the smartphone marketplace, which tends to be a stronger second half of the calendar year, and then of course, a weaker first half of the year.

So that's what we're anticipating, but we have some great products in our portfolio coming out as well, and that can, as we just saw in the quarter we just finished kind of erase the effects of seasonality and lead to nice overall annual growth..

And our next question is from Jagadish Iyer with Summit Redstone..

Yeah. Thanks for taking my question, two questions. First, now that your engagement with customers has grown on TDDI, how should we be thinking about TDDI margins on a standalone basis as we progress through calendar 2017 and beyond? And then I have a follow-up..

Hi, Jagadish, it's Wajid. So Rick mentioned earlier that we're working on new products for TDDI that capture both the high-end of the market as well as the low-end of the market. And actually, we're beginning to sample some of the lower cost products this quarter.

And so, as those new products come out, both from a cost perspective, as well as from a product stack perspective for the 18:9 products, we should see some margin improvement on TDDI.

It was pretty well outlined in the mid-term margin model, gross margin model that we have provided at the Analyst Day, and it looks like we're tracking quite well to that.

So having said that though, in terms of relative to our corporate averages, it will probably still stay below our corporate average until we see the higher product mix, TDDI product take a bigger percentage of the revenue. But at least for the near to midterm, we see it staying below our corporate margins..

Okay, that's fair enough. Then Rick, there's a question for you. There's been some news obviously on facial recognition as a choice of authentication.

So I wanted to see how much of that is a risk to your biometric business?.

So in terms of additional modalities, first, we actually have announced a product earlier this year where we actually support facial as well. So we have begun to demo and sample to OEMs. But we see it more as a multi-model. We think that's where the market is heading. Facial is certainly from a convenience perspective, is strong.

But in terms of from a security perspective, it's much easier to spoof, and at times it's also not the most convenient environments.

I think, one of the best examples is kind of the, call to meeting mode or you have your smartphone on your lap, and you want to take a peek down to see what text or e-mail you just received, but you don't want to move the phone up to get the full view of your face. That just doesn't work.

And so, the great part about fingerprint now is, it's so convenient, so easy to use at least when we are – OEM's interested in facial, it's in addition to fingerprint. The Samsung S8 product is a perfect example of that, that just came out with facial, iris and fingerprint solutions..

Okay. Fair enough. Thank you, then..

And with no questions remaining in the queue, I'd like to turn the call back to Mr. Bergman and Mr. Ali for any additional remarks..

Okay. Thank you, everyone for joining us. And we look forward to talking with you, if not seeing you on the road at some point next quarter. Thank you very much..

This concludes today's call. Thank you for your participation. You may now disconnect..