Synaptics' IoT Surge Masks Automotive Woes in Q3 Results

Synaptics Inc (NASDAQ: SYNA) reported its third-quarter fiscal 2025 earnings with a mix of encouraging IoT-driven growth and lingering challenges in legacy sectors. Revenue rose 12% year-over-year to $266.6 million, fueled by a 43% jump in Core IoT product sales, which now account for 25% of total revenue. Yet the report also highlighted vulnerabilities in automotive and mobile markets, underscoring the company’s strategic pivot toward high-margin IoT opportunities.

The IoT Growth Machine
The standout performance came from Synaptics’ Core IoT segment, which includes Wi-Fi 7 solutions, embedded processors, and touch controllers. The 43% revenue surge here reflects strong demand in IoT and enterprise applications. The company’s Veros connectivity portfolio—positioned to capture a $3 billion market in edge computing—appears to be gaining traction.

This IoT momentum is critical. While GAAP net income dipped to a $21.8 million loss due to restructuring costs and share-based compensation, Non-GAAP metrics tell a different story: net income rose to $35.3 million, or $0.90 per share, beating expectations. The Non-GAAP gross margin also expanded to 53.5%, up from 49.8% in Q3 2024, driven by higher-margin IoT products.

The Trade-Offs in the Balance Sheet
Cash flow remained a bright spot, with $74 million generated in the quarter. However, total cash fell to $360.4 million from $876.9 million sequentially, as the company spent $37.9 million on share repurchases and invested in inventory and short-term assets. Inventory grew by 11% sequentially to $132.9 million, signaling confidence in future demand.

The automotive sector, meanwhile, continued to struggle. Revenue there dropped 18% year-over-year, a trend Synaptics attributes to reduced shipments to a major customer. Mobile product revenues also declined, though the company emphasized cost-cutting measures to offset these headwinds.

Guidance and Risks Ahead
For Q4, Synaptics guided to $280 million ± $15 million in revenue and $1.00 ± $0.20 in Non-GAAP EPS, suggesting further momentum. Yet risks loom large. The company warned of macroeconomic uncertainty, trade tensions, and supply chain constraints. Its automotive and mobile divisions remain vulnerable, though IoT’s scale may eventually dominate.

Conclusion: IoT Momentum vs. Legacy Headwinds
Synaptics’ Q3 results paint a company in transition. The 43% IoT growth and 53.5% Non-GAAP gross margin demonstrate that its pivot is working—but the 18% automotive revenue drop and mobile struggles highlight lingering risks.

Investors should focus on two key metrics:
1. Cash flow sustainability: With $74 million generated in Q3, Synaptics has the liquidity to fund IoT expansion.
2. Inventory management: The $13.4 million sequential inventory build suggests confidence, but demand execution will be critical.

The stock’s 12-month performance reflects this tension. While IoT growth justifies optimism, the company must prove it can offset legacy market declines. With Wi-Fi 7 and Veros products targeting a $3 billion market, Synaptics has a clear path—if it can maintain execution discipline.

In short, this report is a win for Synaptics’ IoT strategy, but the road to full profitability remains bumpy. The next quarter will test whether the IoT surge can fully compensate for the old guard’s decline.