Synaptics, a name long synonymous with touchpads and fingerprint sensors, is undergoing a dramatic transformation. Their recent Q3 2024 earnings call, while superficially reflecting a stabilizing business, reveals a potentially explosive growth engine that appears to have flown under the radar of most analysts: the automotive sector.

While the headlines focused on the launch of their new Astra AI processor platform for IoT devices, a closer look at the automotive segment paints a fascinating picture. Synaptics, already holding a dominant position in TDDI (Touch and Display Driver Integration) technology for automotive displays, is experiencing a surge in demand that is outpacing even their own expectations.

Michael Hurlston, Synaptics' CEO, highlighted the ramp-up of design wins with major North American and European OEMs, including Audi, Chevy, Ford, Porsche, and Volkswagen. This is significant because it demonstrates that Synaptics' automotive ambitions are not just aspirational, but are translating into concrete wins with industry giants.

Furthermore, Hurlston noted a surprising trend: several OEMs are extending the lifespan of their current models, providing an unexpected tailwind for Synaptics due to their high market share in those existing designs. This extension strategy, likely driven by supply chain constraints and the ongoing semiconductor shortage, reinforces Synaptics' dominant position and allows them to capture revenue for a longer period.

But the truly intriguing aspect lies in the potential for content expansion per vehicle. While TDDI is driving current growth, Hurlston explicitly mentioned the longer-term opportunity of SmartBridges and WiFi/Bluetooth combo chips. SmartBridges, a cutting-edge technology that simplifies display connectivity, offers both cost savings and improved performance, making it a compelling proposition for automotive manufacturers. Similarly, WiFi/Bluetooth combos enhance in-car connectivity, a key feature for modern vehicles.

Estimating Automotive Revenue Contribution

Let's delve into the numbers. While Synaptics doesn't explicitly break out automotive revenue, we can make some educated estimations based on their disclosures. They stated that their primary legacy DDIC customer, largely believed to be in the mobile sector, contributed to low to mid-single-digit percentage of total revenues in fiscal year 2024. This suggests that even with the decline in DDIC revenue, mobile still holds a significant portion of the company's revenue, likely in the range of 20-25%.

Considering their guidance for Q4 2024, with Mobile expected to decline and the other two segments, Core IoT and Enterprise & Automotive, remaining relatively stable, we can infer that Automotive is likely contributing to a significant portion of the Enterprise & Automotive segment's revenue, potentially approaching or even exceeding the revenue contribution from traditional Enterprise products.

Potential for Explosive Growth

This leads to a fascinating hypothesis: as the adoption of SmartBridges and WiFi/Bluetooth combos accelerates in the coming years, Synaptics could see a doubling or even tripling of their content per vehicle. If combined with their existing TDDI dominance and the trend of model lifespan extensions, this could unlock a dramatic revenue expansion from the automotive sector, potentially propelling it to become Synaptics' largest revenue contributor within the next few years.

Hypothetical Revenue Projection

The following chart illustrates a potential scenario for Synaptics' revenue growth, with automotive emerging as a dominant segment.

While the short-term focus remains on navigating the uncertainties of the PC and enterprise markets, the hidden signal from their Q3 earnings call points to a potentially game-changing future. Synaptics, armed with cutting-edge technology and a rapidly expanding automotive footprint, is poised to shift gears and accelerate into a new era of growth, driven by the unexpected powerhouse of the automotive industry.

"Fun Fact: Synaptics technology isn't just limited to cars and computers. You can find their touch controllers in everything from gaming consoles to smart home appliances, showcasing their pervasive reach in our digitally connected world."