Synaptics Snaps Up AVGO Wireless IoT Rights; Analyst Upgrades Stock

Synaptics Inc (SYNA) has now signed definitive agreements to acquire certain assets and manufacturing rights for Broadcom’s (AVGO) wireless IoT business for about $250 million in an all-cash transaction. The deal is expected to close in Synaptics’ first quarter of fiscal year 2021.

Under the terms of the agreements, Synaptics will acquire certain rights to Broadcom’s existing Wi-Fi, Bluetooth and GPS/GNSS products and business in the IoT market as well as future roadmap devices designed in advanced process nodes.

According to Synaptics, the deal strengthens and accelerates its position in the fast-growing consumer IoT market. It expects the transaction to add $65 million in current annualized sales and provide significant revenue growth potential.

“Expanding our offering in the high growth IoT market has been one of the major focus areas for Synaptics and the addition of best-in-class wireless connectivity technology to our portfolio significantly enhances our overall position,” said Michael Hurlston, CEO of Synaptics.

“This acquisition complements Synaptics’ ability to sell into a broad range of devices such as IP cameras, smart displays, speakers, home automation, and gaming consoles – all of which require cutting-edge technologies including Wi-Fi 6 and 6E, Bluetooth 5.2 and GPS L5.”

The transaction is expected to be immediately accretive to Synaptics’ non-GAAP gross margins and non-GAAP earnings post-close, and the company plans to finance the transaction from existing on-hand cash balance.

Following the news, Rosenblatt Securities analyst Kevin Cassidy upgraded Synaptics from hold to buy with a price target of $73 (22% upside potential).

He called Broadcom’s wireless connectivity products ‘best-in-class’ and told investors: “We are upgrading SYNA to Buy from Neutral based on our estimated $0.45 – $0.55 accretion to our FY21 non-GAAP EPS estimates that the Broadcom wireless IoT connectivity business can provide. We believe that with Synaptics management’s focus on IoT, the acquired $65mn/year revenue can grow roughly 5% – 10% annually.”

Plus Cassidy believes that the deal helps lower the company’s dependence on the mobile display business, which faces low competitive barriers.

Shares in SYNA rose 2% in Tuesday’s trading, taking the stock’s year-to-date loss to 9%. Overall analysts have a cautiously optimistic Moderate Buy consensus on Synaptics with a $80 price target (32% upside potential).(See Synaptics stock analysis on TipRanks).

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