...and Life After Apple

07/29/2005 12:00 am EST

Focus:

George Gilder

Founder and President, Gilder Publishing, LLC

Tech guru George Gilder , just back from the Forbes Investment cruise in the Baltic notes, " On the boat, I offered many deep thoughts on unique technologies that should eventually reward investors." He also offered a "best bet" for those with a shorter investment horizon.

"During the Forbes cruise, I pointed to Synaptics (SYNA NASDAQ) as my best bet for early appreciation. The company recently lost 50% of its value on the basis of murky rumors that Apple would replace some Synaptics touchpads on various lines of notebooks and iPods. Not only is Synaptics' technology now appearing on advanced cell phones and other teleputers but it also continues to provide inputs for Apple.

"As background, Synaptics was founded in 1987 by microprocessor pioneer Federico Faggin and Carver Mead to create new microprocessors based on largely analog neural networks. Synaptics was the original host of the Mead camera project that came to fruition as the revolutionary Foveon imager. In the early 1990s, Faggin led the team of mostly Mead students into haptics (touch-based technology) and seized dominant market share in touchpads.

"Now under CEO Francis Lee, Synaptics is supplying haptic controllers to such additional products as Apple iPods and Samsung DVD players while retaining dominance in notebook computers, the fastest growing part of the PC industry. Synaptics owns 16% of Foveon and new Foveon CEO Faggin promises to give the imager pioneer the kind of raptorial strategic leadership he gave to Synaptics as he led it to leadership against Asian rivals in touchpads. We view Synaptics as a way to play a likely blockbuster Foveon IPO.

"SYNA shares were cut in half following rumors that Apple was dropping Synaptics as chief supplier of its famous iPod scroll wheel and also of its notebook touchpads. With over $4 a share in net cash, the profitable company responded by announcing $40m worth of potential share repurchases. But, investors are waiting for proof that all is not lost, that SYNA has many other growing markets like mobile phones, and that even its Apple business is still pretty good. We'll see.

"But we think at a forward p/e of just 17, operating margins of 20%, and very fast growth prospects, combined with its still unaccounted-for ownership of Foveon, Synaptics could double in the next year. Our subscribers had a great run with Synaptics before the rotten Apple story, and they are likely to have another good run when they can buy under 20."

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