Francis Lee - President and Chief Executive Officer Russ Knittel - Chief Financial Officer Alex Wellins - The Blueshirt Group

Jason Pflaum - Thomas Weisel Partners Andrew Neff - Bear Stearns Rob Stone - Cowen Hugh Mai

Good afternoon ladies and gentleman and welcome to the Synaptics First Quarter Fiscal ’07 Conference Call. (Operator Instructions) I would now like to turn the conference over to Alex Wellins of The Blueshirt Group. Please go ahead, sir.

Good afternoon, and thanks for joining us today on Synaptics first quarter conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the company’s website at synaptics.com. With me on today’s call are Francis Lee, President and Chief Executive Officer of Synaptics; and Russ Knittel, the company’s Chief Financial Officer. We would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements including predictions and estimates that involve a number of risks and uncertainties. Actual results may differ materially from any future performance suggested in the company’s forward-looking statements. We refer you to the company’s SEC filings, including Form 10-K for the fiscal year ended June 30, 2006, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. We expressly disclaim any obligation to update this forward-looking information. Now I’d like to turn the call over to Francis Lee.

Thanks, Alex and thanks everyone for joining us on the call today. Following our solid performance in fiscal ’06 we are off to a good start in the new fiscal year. Revenue of $54.8 million grew almost 25% over the preceding quarter and was at the high end of our guidance range. Excluding the impact of non-cash share-based compensation, non-GAAP operating margin was 15.5% and non-GAAP net income was $6.4 million or $0.23 per share. Revenue from PC applications grew approximately 24% sequentially and accounted for 90% of total revenue. Our first quarter results reflect general seasonality in our target markets and in particular, strong demand from the PC market including the rapid adoption of our multimedia controls. As we discussed last quarter, this trend offers opportunities to generate increased revenue content and is the first example of how the shift towards digitalized lifestyle trends plays into Synaptics’ strength. Now I’d like to make a few comments about the progress we have made over the past three months. We continue to benefit from the success of our LightTouch buttons, and other alternative Touchpad solutions within a number of products currently shipping within the market. These solutions provide controls for multimedia features on notebooks as well as PC peripherals and enable our customers to develop products that feature sleek and unique industrial designs. Last quarter, we talked about the HP DV2000 and Compaq V3000 notebook models integrating our LightTouch technology. As an extension of this product, HP has introduced HP3000 Docking Station which also includes LightTouch controls from Synaptics, providing a similar user interface experience whether working from the notebooks or docking station. Our LightTouch buttons and solutions will also soon appear on an LCD monitor being offered by top tier OEM and expected to ship within the November timeframe. This product contains two custom interface modules from Synaptics for controlling both the onscreen display and audio system. As I mentioned last quarter, we have been working with Microsoft on its wireless keyboards. The Wireless Entertainment 7000 and 8000 series desktops features keyboard that incorporate Synaptics’ capacitive NavPoint and LightTouch solutions to provide cursor navigation and quick access to select applications and controls. In addition, the Wireless Entertainment Desktop 8000 employs Synaptics’ capacitive presence detection to enable the keyboard to intelligently adjust its standby and access settings depending on the proximity of the user. These products are expected to be available in the coming month. During the quarter, we announced an exclusive agreement with Validity for the notebook market to promote the fingerprint technology integrated with our TouchPad. Interest level has been high, and we are engaged in specific design activity. We are optimistic that we may see notebooks incorporating this integrated biometric interface solution late next calendar year. Lastly in the PC market, we recently announced availability of one of the first drivers for the Windows Vista operating system. The driver will allow users to adjust the Synaptics Touchpad settings to enhance the user experience. Some of these features include virtual scrolling, sensitivity enhancements, tap setting selections and dragging and a palm check feature which eliminates cursor jumping during accidental brushes of the touchpad. Moving on to a discussion of the portable digital entertainment and handheld markets, we have a few new developments to highlight. The new Samsung YPK5 MP3 players features eight LightTouch buttons from Synaptics. The unique capacitive interface switches from a vertical personal user view to a horizontal shared user view suitable for viewing photos or for activating the device speaker. Philips has also introduced the next edition to the GoGear MP3 player line, the SA9100 and SA9200. These devices incorporate Synaptics’ LightTouch solutions to provide intuitive controls with backlit touch-sensitive buttons and scrolling for navigation. We also continue to make progress in the mobile phone market. First is a design win for a platform that includes three models. These phones include ultra thin, three buttons MobileTouch solution to give the user quick access to media on demand functions in a slim design format. These phones are expected to be available in Korea shortly. Second, we are pleased to announce that Motorola began shipping the MS800 for Synaptics custom-designed MobileTouch module with four capacitive buttons that integrated LED lighting. The MS800 is a digital media broadcast clamshell phone and is available in Korea. Finally, Pantech & Curitel expanded their product line with PG2800 which incorporates Synaptics Flexpad, an ultra thin sensor that is integrated into the mechanical keypad. The Synaptics 2D solution enables finger writing across a flush mechanical keypad allowing users to quickly and easily send text messages by writing alphanumeric characters using a finger rather than pressing keys. Flexpad offers an intuitive, efficient way to create text messages, navigate the menu structure and quickly access data such as entries in a directory. The PG2800 is now available in Russia. During the past quarter, we also previewed Onyx, a concept phone platform developed jointly with Pilotfish, an industrial design firm in Germany. Onyx combines our clear capacitive sensing technology and expertise in human factors and in the active design with Pilotfish industrial design and graphical user interface expertise. This concept phone was developed to illustrate how thoughtful design would drive innovation and next generation mobile interfaces, and is meant to foster discussion with existing and prospective customers. Onyx has received a Red Dot Design Award and has generated a great deal of discussion and enthusiasm about improved human interfaces for mobile phone designs, receiving coverage in over 85 publications worldwide including PC Magazine, BusinessWeek and ComputingNews and several broadcast outlets, including ABC’s Nightline. Now let me take a moment to discuss the general business environment. Our backlog entering the December quarter reached an all-time high of approximately $43.9 million, up significantly from $28.7 million last quarter. Our momentum continues in a Q2 based on both seasonal change and expansion of our solution in a variety of multimedia applications. With demand for our solution at unprecedented levels, we expect to generate record revenues in the second quarter with increased demand from all of our target markets in the current quarter, including portable digital entertainment devices. At the same time, competitive pressures within some of these markets, particularly in consumer electronic markets are increasing and we continue to evaluate ways to compete more effectively and to better serve our customers. As I mentioned last quarter, part of this process was our decision to enhance our core competencies and customer care structure through design centers in our offices in Korea and Taiwan. These efforts are underway, and we expect to be actively providing product engineering support to our customers in those regions during this fiscal year. Building on this foundation, we are proactively pursuing other ways to increase our flexibility we offer our customers. To conclude my formal remarks, we are extremely proud of our accomplishments during Q1 and look forward to continuing the momentum generated over the past several months with record revenues in the second quarter. We continue to make solid headway in both PC and non-PC applications. Design activity continues to be robust across all categories. By leveraging the trend of the digital consumer, we continue to work on our revenue diversification strategy in strengthening our competitive position within our target markets. I would now turn the call over to Russ who will review our detailed financial results for the first quarter and provide guidance on our near-term outlook.

Thank you, Francis. In addition to our GAAP results, I will also provide supplementary results on a non-GAAP basis which excludes non-cash share-based compensation expense and tax effects associated with FAS 123 R. Revenue for our first fiscal quarter of 2007 was $54.8 million, reflecting a 6% increase over the comparable period last year as demand for our PC solutions more than offset reduced revenue from our MP3 applications. Sequentially, our PC-based revenue was responsible for 22% of our 25% revenue growth as we benefited from stronger than normal seasonality and the rapid adoption of our multimedia controls in notebook computers. Within the notebook market, consumer demand continues to outpace corporate demand as dual pointing applications grew at a slower pace and represented approximately 15% of total revenue. As anticipated, gross margins declined compared with the June quarter. GAAP gross margin, which includes non-cash share-based compensation charges was 40.9% in the September quarter compared with 43% in the June quarter. Non-GAAP gross margin was 41.1% compared with 43.4% in the June quarter. Based on our product mix, which included the substantial increase in multimedia-oriented products that contain a greater percentage of third-party content, gross margins were at the low end of our guidance. Total operating expenses for the quarter were below our expectations at approximately $17 million, essentially unchanged from the preceding quarter and included non-cash share-based compensation charges of $3 million versus $3.1 million in the June quarter. Excluding the impact of non-cash share-based compensation charges in the September quarter, non-GAAP operating expenses were approximately $14 million. The timing of our recruiting efforts and less than expected project expenses related to our product development activities were primarily responsible for our lower than anticipated spending levels. Total employee headcount at the end of September was 267, up from 254 in the June quarter. Based on our planned staffing initiatives, we expect our headcount to continue to grow as we fill positions required by our increased operating levels and add skill sets necessary to meet our business objectives. Net interest income was $2.1 million compared with $1.9 million in the prior quarter, primarily reflecting the impact of higher average interest rates. Our GAAP and non-GAAP tax rates for the quarter were 44.7% and 38.9% respectively. As we pointed out in prior conference calls and our SEC filings, we expect to continue to see substantial volatility in our GAAP effective tax rates, primarily due to the timing of when we recognize share-based compensation charges associated with our qualified stock options and when we recognize the related tax benefit, if any. Net income for the quarter was $4.1 million or $0.15 per diluted share compared with $1.8 million or $0.07 per diluted share in the June quarter. Non-GAAP net income, which excludes $3.1 million of non-cash share-based compensation charges and the associated tax benefits of $781,000 was $6.4 million or $0.23 per diluted share compared with $4.2 million or $0.15 per diluted share in the June quarter. Now a few comments on our balance sheet. We ended the September quarter with total cash and short-term investments of $245.7 million compared with $245.2 million at the end of the June quarter. Cash flow from operations during the quarter was approximately $3.7 million. Stock option exercises contributed approximately $1.5 million. During the quarter, we used $4.6 million to buyback 215,000 shares, which leaves us with $35.4 million remaining under our board authorized stock repurchase plan. Capital expenditures in the quarter were $515,000 and capital depreciation was $454,000. Receivables at the end of the September were $41.8 million compared to $34 million at the end of June reflecting the higher revenue levels. DSOs at the end of the quarter were 69 days compared with 70 days at the end of the prior quarter. Our DSOs are still above our historical norms, reflecting continued back end loading in the quarters. Inventories at the end of the September were $9 million compared to $10 million in the June quarter. Inventory turns for the quarter were 14 times compared with 10 times in the June quarter, as our inventory reflects more normal levels after working through the impact of some spot wafer purchases in the March 2006 quarter. I would like to make a few comments regarding our near-term business outlook. But first, I would like to point out that the second fiscal quarter will span a period of 14 weeks rather than 13 weeks as fiscal 2007 will be a 53-week year. As Francis alluded to earlier, our backlog increased by 53% during the quarter to $43.9 million as our customers enter into what is typically the seasonally strongest quarter of the calendar year. Considering our backlog level and other current visibility, we are raising our outlook for the December quarter to sequential revenue growth of 25% to 35%. This outlook is predicated on the production ramp of new design wins and continued strong seasonal trends, with the increased demand coming from both PC and non-PC applications, including an expected increase in demand from the portable music player market. Looking beyond the December quarter, we expect revenue in the March quarter to approach September quarter levels. However, it will be largely dependent on sell-through in the holiday season and consumer demand relative to historical seasonal trends in the March quarter, as we continue to have limited visibility regarding sustainable strong demand from the portable music player market. Taking into consideration our current design activities, the pipeline of identified opportunities and the higher than expected revenue for the first six months of the fiscal year, we are upwardly revising our outlook for the year. We now expect fiscal 2007 to exceed fiscal 2006 revenues by 25% to 30%, up from the 20% growth we indicated on the last quarter’s call. We expect gross margins for the second quarter to again decline slightly, reflecting our anticipated product mix including strong demand for our multimedia control solutions in notebooks and portable music players. Based on this, we are forecasting non-GAAP gross margins to be in the range of 40% to 41%. We expect non-GAAP operating expenses in December to be up sequentially, primarily the result of anticipated increase in headcount from our ongoing recruiting efforts, higher expected product development-related costs, as well as the impact of the extra week in the quarter. For the December quarter, we expect the impact of FAS 123 R on our operating margins to be approximately $3.4 million compared to $3.1 million in the September quarter. For the year, we anticipate our GAAP tax rate to be approximately 38% to 40%. Non-GAAP net income per diluted share for the December quarter is expected to be in the range of $0.30 to $0.35. In closing, we are on track to deliver a strong first half which positions us very well for the year and has prompted us to raise our revenue outlook for fiscal 2007. Design activity has never been higher as our customers recognized the value of our technology in creating user-friendly experiences supporting the growing consumer digital lifestyle. We expect this trend to continue into the foreseeable future and look forward to updating you regarding our progress on our next quarterly call. That concludes our formal remarks and we’ll now turn the call over to the operator to start the question-and-answer session.

(Operator Instructions) And our first question comes from Jason Pflaum -Thomas Weisel Partners. Jason Pflaum - Thomas Weisel Partners: Hi guys. Nice job.

Hi Jason. Jason Pflaum - Thomas Weisel Partners: A couple of quick questions, maybe I’ll start out on the outlook. Clearly bumped up the range pretty substantially. I was hoping you could flush it out a little bit more and talk about where you are seeing more of the upside revisions? That's the first question.

Jason, we are seeing increased demand across all of the verticals that we are serving today. Jason Pflaum - Thomas Weisel Partners: Okay. Maybe another angle on that, if you look at current mix today between PC and non-PC, where would you expect that to trend next quarter?

Well, if we look at the backlog going into the quarter, again there is increased backlog from all the vertical segments we serve. It's still weighted towards the PC marketplace, but generally I think I would expect non-PC applications to grow as a percent of total revenue for the December quarter. Jason Pflaum - Thomas Weisel Partners: Okay. Maybe can you help us understand the opportunity on some of the multimedia control areas? What portion of your mix today are you seeing on the attach rate of this type of technology and maybe you can give us sense for where that goes if you look out six to 12 months?

Okay. Well, not all of our multimedia control solutions are attached to notebooks so we do sell into peripherals; we also have multimedia controls in MP3 players, as you know. But within the notebook market itself, I would say the attached rate today is somewhere around 10%. Based on current demand, I would expect that to trend up but it's hard to say what level it could reach. Jason Pflaum - Thomas Weisel Partners: Okay. Based on your current visibility you have mentioned HP, are there other top tier vendors that have signed on? And if so, what type of timing should we expect there? Is that an early '07 event?

We do have other OEMs that have adopted the solution and some of those will be shipping in the December quarter. Jason Pflaum - Thomas Weisel Partners: Okay. Great. Thanks guys.

Thank you.

Thank you. Your next question comes from Andrew Neff – Bear Stearns. Andrew Neff - Bear Stearns: Two questions. One if you could just talk about if you look at the non-PC side of market, is some of the growth coming from new customers to you, customers you haven’t had before, or is it coming from existing customers?

Well, Andy just like Russ said, our growth comes from all of the verticals. So in both the handheld and also in the PD, portable digital entertainment market, we continue to see a proliferation of our technologies into a number of existing, as well as not new OEMs and that product strategy has not changed. I think a big part of it comes from the seasonality of the December quarter. So you would expect us to see it from both current and new customers as well. Andrew Neff - Bear Stearns: Second question is just, as you look at what’s going on in the digital entertainment area, are there any typical customers that are driving the growth there?

The December quarter is the largest consumer sales quarter. So you can surmise the older OEM customers that we are providing product with are having increased revenue and unit sales on an individual basis, Andy. Andrew Neff - Bear Stearns: Okay. And then lastly just as you look at the -- in the past you’ve had major OEMs account for a larger percentage of your sales. Maybe you can talk about what’s going on with any of your large OEMs at this point?

Well, Andy as you know typically we don’t comment on an individual basis and certainly we will not do so at this time. Andrew Neff - Bear Stearns: Okay. Thank you.

Thanks. Your next question comes from Rob Stone – Cowen & Co. Rob Stone - Cowen: Congratulations guys. It sounds like you are going to have a busy holiday season.

Thank you, Rob. Rob Stone - Cowen: I wonder Francis, if you can elaborate a little bit more on your comments about seeing increased competitive pressures in your markets? In particular, is that coming from new competitors? Is it coming from greater demand for price concessions from your customers? Or are they asking for something else from you? More service, something else that you have to respond to?

Well Rob, as we always talk about, I think as there are additional functionalities being integrated into a whole host of electronic devices and a trend towards digital lifestyles and moving content anywhere and transferring information everywhere, you are going to see a proliferation of the touch requirement everywhere. And in many cases, you’re actually moving into devices, I would take cell phone as an example in that category and also portable digital entertainment, as they evolve to different applications in that category. So as you may surmise, as opportunity comes up, you can expect to see increased competition. So, to answer your question about, if from existing players or new players, well first of all, we are seeing a lot of noises and activities from sometimes places that we’ve not seen before. That doesn’t mean they are real or they are serious, it's just the fact that when there are opportunities you hear more noises. So my comments were reflecting (a) that the market is continuing to serve as well in the sense that is expanding in both volume, size as well as in terms of opportunity to innovate. At a same time, we are company that is less than 300 people. We have to focus on certain particular areas and the way how we deal with that is making sure that we are localized. We respond to customer activities and also making our technology easier to innovate. So one can expect that as the markets continue to grow competition can really heat up and I don’t think that is necessarily bad as long as we execute better than anybody else out there. Rob Stone - Cowen: On that note, can you talk about things that you might do for the balance of the year that would influence either the value-add or the mix or the costs in such a way that you could reverse the recent trend in gross margin as you are now flirting with the absolute bottom end of your 40% to 45% target range?

Okay. First of all Rob, we are one company out there that has millions and millions of proven track record shipping user interface solutions using capacitive technology. Nobody else can claim to do that. A lot of people would claim to know – they know how to do that, and I hope that the trend and the track record will speak a lot in terms of our execution and capabilities and have demonstrated consistency over the years. Where we excel is innovation and, like I said, the market is far from being a standardized commodity market, which means you have to continue to learn how to develop new solutions and new ways of letting users interact with their appliances, with a good experience. What you will find is while we continue to pioneer things like the Light Touch button solutions, the dual mode, products like these that you have seen that we are leading the parade. But you can also expect in the mainstream, there will be individuals who are going to like to play the second fiddle and try to copy and in some case in what they do is, they drop the prices as the way to enter into the market. We have had that experience, certainly in the notebook arena for the years, and this is no different. There is a reason why we keep our gross margin model to be 40% to 45% because we believe that is really the sweet spot in terms of how we run our businesses. And as Russ eluded to you, a number of these products do use third party content like LEDs for example, which drives the margin percent lower. I will remind you, several years ago, when there was a rapid adoption of dual pointing, we also see a rapid decline of the gross margins. So I think this is just part of the market dynamics and we are still operating within the model. We believe in the model and when there are opportunities to upgrade it or change it or modified it, we will be signaling that to you. Rob Stone - Cowen: So going back to the dual point experience, one of the things that you did do was respin the design after a certain level of volume was achieved and that brought the margins back up based on the way the LightTouch and multimedia interface type products are made, do you see opportunities to do that in the multimedia controls as well?

Well, I mean cost reduction is always a very big part of our business, and certainly we are working very hard to improve efficiency in every aspect of it. Now, I would say that difference between this case and the other case that I eluded to before there is, I think, there is a lot more competitive pressure in the marketplace. The market now is lot bigger than what it used to be. So clearly you can surmise the market dynamic is not the same as before and we are cognizant of that, Rob. So there will be a continuous and significant cost reduction effort in our side of the company, as well as continue to increase our value contributions to the marketplace. One of the reasons, for example, why we do products like the SecurePad in concert with Validity is trying to offer products to the marketplace that will be just different, multimedia buttons and controls, and another example of that is dual mode products. Rob Stone - Cowen: Okay, thank you.

Thank you. Our next question comes from Hugh Mai.

I just have a quick question regarding the market share within notebook. Did you feel that you guys gained market share at this first quarter? Russ Knittel: Well, it's always hard to really measure market share on a quarter-to-quarter basis because there is a lag between when we ship product and when a final assembled notebook is actually in distribution. We do look at it quarterly and just on that basis, we did grow units around 30% this quarter. But if you look at it on a rolling four-quarter basis which is probably more representative, I think we have continued to pick up one or two points of share over the last 12 months.

And another question, in terms of the competitive dynamics as well as the attach rate of your multimedia solutions, did your ASP increase or decline? Directionally, I mean how should we think about that for the notebook segment?

Well, clearly when we are selling multiple functionality into the same box, generally the content, the revenue content will increase but then you have to look at the overall expansion within that segment on a relative basis. I would say the pricing probably didn’t change a whole lot on an average basis for this quarter. If it's there, it would probably move down slightly.

Okay. Thank you very much.

Thank you, management. There are no further questions. I’ll turn the conference back to you for any closing comments you may have.

Well, thank you for being on the call with us today. We look forward to updating you again next quarter. Bye-bye.

Thank you. Ladies and gentleman that does conclude today’s teleconference.