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Tuesday, July 25, 2006, 07:30 am PT (10:30 am ET)

Synaptics may play role in next-gen iPods

Apple Computer may once again tap Synaptics, Inc. to help supply touch interface components for its next-generation iPod digital music players, one analyst says.

The longtime supplier of Apple TrackPad and Click-Wheel technology has had its share of ups and downs in recent years due to inconsistent streaks of business from the iPod maker, historically one of its largest customers.

"Based on recent channel checks, we believe it is probable for Synaptics to resume material volumes as a second source supplier for iPod interfaces in [its first fiscal quarter of 2007]," Cowen and Company analyst Robert Stone told his clients on Monday.

The analyst guesstimates such a deal could add $15M to Synaptics' top line in the second half of 2006 and as much as $24M in 2007.

"Given the importance of iPod for Apple, we have always believed a qualified second source of touch interfaces would lessen the risk of potential production glitches and add upside flexibility," he said.

Although Stone anticipates Apple's next round of iPod updates will be priced lower than existing models, he does not expect a heated price war between the players' component suppliers. Instead, the analyst believes Synaptics will be the beneficiary of a "relatively stable" share of touch interface component orders after Apple begins to ramp production of the players.

"We believe the resumption of iPod business [at Synaptics] will be reflected in guidance, and our best guess at the potential revenue impact suggests 30 percent [or more] upside in the shares relative to the market over the next 12 months," he added.

In an effort to regain tighter control of its intellectual property and component supply, Apple last year turned away from Synaptics as an interface solution designer for the TrackPad technology used in its Mac notebook product lines. Shortly thereafter, Apple attempted a similar move with its sourcing of iPod Click-Wheel components but ultimately recalled Synaptics to help supply parts during the thick of the 2005 holiday shopping season.