What do Synaptics and TIVO Have in Common?
How about the fact that both companies had their biggest customers/accounts pull the plug in 2005.DirecTV ditches struggling DVR service provider Tivo and the latter's stock goes down the toilet.
Stories like these are not uncommon on Wall Street.
In the case of TIVO, not even first mover advantage could save the company after its biggest customer decided to develop DVRs on its own.
Our advice: stay away from companies who have only a few big fish as customers.
We'd rather see a company with several smaller accounts than see one with just a few.
Smaller but plenty means you're diversified.
You lose Account A, you have your bets hedged with Accounts B, C, and D.
On the other hand, if you opt for a smaller amount of people to buy from you, and then you're biggest customer takes off to greener pastures, your earnings are sure to get pulverized.
Even if the numbers don't look so bad, investors lose faith in the company and a healthy stock can easily turn into a nightmare stock.
That's the situation right now at Synaptics (SYNA).
In February, Apple decided to give its touchpad business (the scrolling wheels on the iPod) to Cypress Semiconductor, a Taiwanese company.
That meant goodbye to the $3 dollar a wheel Synaptics was selling to Apple, who wanted to cut costs.
Apple's purchases accounted for close to 40% of Synaptics' revenues.
Instantly, shareholders punished the stock, sending SYNA from $38 to $18.
But that doesn't mean Synaptics is now eating dirt for breakfast.
Synaptics' laptop business is still robust, with Dell as a big ticket customer.
With integrated products that are easily adopted, we wouldn't count out Synaptics just yet.
There's even talk -- already -- that Apple may be coming back to Synaptics -- the new Cypress touchpad on the nano isn't getting the rave reviews Jobs and Co expected.
That's good news, because SYNA's share price could sure use a touch-up.
<< Home