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Stock Analyst Update

Will Dialog Semiconductor Scoop Up Synaptics?

An offer in the realm of our fair value estimate would represent a sufficient premium for current shareholders of no-moat Synaptics.

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On June 19,  Synaptics (SYNA) confirmed it is in discussions to be acquired by Dialog Semiconductor. We note that reports surfaced on June 8 of the two engaging on a possible combination, after Synaptics previously rejected an all-cash offer of $59 per share from Dialog back in March, a price that implies a 40% premium to Synaptics' opening price on June 8. Although both firms are heavily exposed to the smartphone space (Dialog supplies power management chips for Apple's iPhone and Synaptics provides touch, display, and fingerprint solutions to a bevy of major smartphone players, including Apple and Samsung), we don't see any obvious synergies between the product portfolios. Consequently, we believe a potential merger would be primarily to create a better diversified business with superior scale. Apple's inventory management has had a negative impact on each firm, with Synaptics' shares falling considerably in 2017 when its display driver chips weren't used in the OLED-display iPhone X and Dialog shares dropping more recently after Apple noted it would slash orders for power-management chips by 30% this year as Apple begins dual-sourcing efforts for Dialog's product. Shares of Synaptics jolted roughly 11% during after-hours trading and continue to trade at a discount relative to our unchanged fair value estimate of $64 per share. We remain positive on Synaptics' prospects to diversify into the "Internet of Things," with recent acquisitions of its own (Conexant and Marvell's multimedia solutions business) driving growth with chips sold into products such as the Amazon Echo. We believe an offer in the realm of our fair value estimate would represent a sufficient premium for current shareholders of no-moat Synaptics.

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Abhinav Davuluri does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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