Cypress Semiconductor Corporation (NASDAQ: CY) is a leader in advanced embedded system solutions for the world’s most innovative automotive, industrial, home automation and appliances, consumer electronics and medical products. In the recent past, Cypress has reinvented itself into Cypress 3.0, a shift from commodity memory production to a company providing integrated solutions.
The company announced its earnings reports on Jul 27th.Their semiconductor business posted $0.21 earnings per share for the period, exceeding forecast of $0.16 by $0.05. The company’s end of quarter revenue went up 11.6% on a YOY basis for the same period in the previous fiscal year; company reported $0.13 earnings per share.
With these results, Cypress has set another revenue record in the second quarter, supported by record revenue in each of its three key growth vectors: automotive, IoT wireless connectivity and USB-C.
Cypress’s business risk profile is on a rapid growth trajectory and is well positioned for a very planned momentum. In fact, the company proved itself in Q1, 2017 and then did even better in its Q2, 2017. Not just that it exceeded expectations on both top and bottom lines, it also raised parts of its guidance. The business is performing beyond seasonal fluctuations and therefore expectations for Q3 are extremely strong for the company. For Q3, it’s guiding to revenues of $585M-$615M, with a margin of 41-42%.
The management continues its stance of being focused on driving revenue and earnings growth by investing in high-growth end-markets, expanding gross margins and broadening overall customer base. As per management, the company is in the Top 3 in each of its key target markets with a clear path to No. 1. Cypress is reallocating capital resources to its growth and core businesses. More than half of its revenue comes from businesses growing faster than the semiconductor industry.
Cypress is a dividend yielding mid-sized semiconductor entity. It recently declared quarterly cash distribution of $0.11 per share payable to holders of record of the Company’s common stock at the close of business on September 28, 2017. As such, it is an attractive investment candidate for many investors.
With the recent developments, analysts have revised their outlook on the stock: The stock currently has an average rating of “BUY” and a consensus price target of $16.30. Considering present valuation, the company is at a favorable risk reward position.
About the Company: Cypress is a leader in advanced embedded system solutions for the world’s most innovative automotive, industrial, home automation and appliances, consumer electronics and medical products. TJ Rodgers founded Cypress Semiconductor in 1982. He is an archetypal Silicon Valley pioneer and legend.
Key products: Cypress’ programmable systems-on-chip, general-purpose microcontrollers, analog ICs, wireless and USB-based connectivity solutions and reliable, high-performance memories help engineers design differentiated products and get them to market first.
Cypress is committed to providing customers with support and engineering resources that enable innovators and out-of-the-box thinkers to disrupt markets and create new product categories.
Cypress 3.0 strategy:
It’s now been a year since Cypress embarked upon its Cypress 3.0 strategy, focused on selling embedded solutions into markets that are growing faster than the overall semiconductor industry.
The company’s core team has continued its strong execution of this strategy. It has been well received by the company’s customers, partners and employees, and it has begun to generate consistent growth in top and bottom lines.
Cypress announced an updated version of its turnkey development platform for the IoT that simplifies the integration of wireless connectivity into smart home applications. The Wireless Internet Connectivity for Embedded Devices (WICED®) Studio platform now adds iCloud remote access support for Wi-Fi-based accessories that support Apple® HomeKit™.
Using Cypress’ WICED development platform and ultra-low power CYW20719 Bluetooth/BLE MCU, developers can integrate HomeKit support into products such as smart lighting devices, leverage Siri voice control and connect to the Apple Home app seamlessly.
At the Computex trade show in Taipei, Cypress announced additions to its USB-C and Internet of Things (IoT) wireless connectivity portfolios. Cypress’ new, highly integrated EZ-PD™ CCG3PA USB-C controller is optimized to streamline the design of power adapters, mobile chargers, car chargers and power banks. Cypress also demonstrated EZ-PD CCG5, the industry’s first two-port USB-C controller that supports designs with Intel’s Thunderbolt™ 3, earmarked to support the ramp of USB-C in notebook and desktop PCs, as well as docking stations.
Cypress introduced the new CYW4373 combo solution that delivers advanced wireless coexistence combining 802.11ac high-performance Wi-Fi®, Bluetooth® and Bluetooth Low Energy (BLE), and it incorporates a USB 2.0 hub. The solution is ideal for smart home products and network peripherals such as home appliances and printers, and it is supported in Cypress’ easy-to-use WICED® Studio IoT development platform.
Other key news – Board dispute (now resolved): The Company has just passed through a dispute with its largest individual shareholder and founder, TJ Rodgers. Mr. Rodgers disputed against Ray Bingham, Cypress’ non-executive chairman, for conflicts of interest. He sought to replace Bingham and another director with his own pair of directors. As a result, Bingham resigned from the board in early June, following which both of Rodgers’ nominees, Dan McCranie and Camillo Martino, won the 2017 election.
Near to medium term growth drivers for the company:
In the Automotive market, Cypress has multiple segments growing faster than the semiconductor industry. Compared with overall semiconductor growth of approximately 3%, and about 5% growth for automotive semis, Advanced Driver Assistance Systems (ADAS) is growing at 18.8%, Connected Cars at 14.1%, Infotainment at 8.7% and Clusters at 8.2%. In the wake of the Broadcom IoT acquisition, its addressable automotive content has expanded because of the proliferation of electronics in this market and the expanded range of Cypress’ solutions, including wireless connectivity products.
IoT and Industrial: The biggest opportunity for the company probably lies in the IoT and industrial sphere. IoT is the next growth market poised for exponential take-off. IoT—including Connected Home and the rapidly expanding universe of connected consumer products—is a key Cypress market. Customers demand a range of capabilities from their IoT suppliers. Two of the most important are low power and the ease of use of wireless products. These are two areas in which Cypress excels.
Cypress’ WICED (Wireless Internet Connectivity for Embedded Devices) software, the foundation of a community of more than 11,000 users, plugs into the cloud automatically, making designers’ lives much easier and accelerating their time to market. In addition, the programmability of its products enables faster design iteration in response to changing market requirements and continuously evolving connectivity standards and specifications.
Cypress’ industrial business—including connectivity solutions for factory automation and Industry 4.0 —and USB Type-C, next-generation USB connectivity with smaller plugs and power delivery, represent additional growth opportunities for Cypress. Each aligns with the overall Cypress 3.0 blueprint, enabling it to design multiple Cypress devices into end products in fast-growing markets.
2nd Quarter 2017 Financial Results:
- Revenue of $593.8 million was up 11.6% sequentially and exceeded guidance
- GAAP and non-GAAP margin were 39.8% and 40.9%, respectively
- GAAP and non-GAAP diluted EPS increased 50% and 62% sequentially, respectively
- Achieved record revenue for automotive, IoT wireless connectivity and USB-C solutions
Detailed break-down of financial performance:
In thousands, except per-share data
Key risk factors and potential stock drivers:
The company’s ability to ramp-up profitability while sustaining its revenue growth would be one of the key stock driver over the near to medium term.
Though the boardroom fight is out of the way, the company is still vulnerable to such adverse developments.
Cypress 3.0 is the program to shift from the near-commodity businesses towards providing integrated solutions for IoT (internet of things) applications with a special emphasis on industrial and automotive solutions. Therefore, positive outcome of the ongoing and future program would continue to be a business sensitivity factor for the company.
Any positive development in relation to better working capital management including Inventory reduction, reduction of debt & buyback announcement could be a near term trigger for the company.
On Friday, August 25th, 2017, CY is trading at $13.50 (up 0.60%) on an above average volume of 5.81 million shares exchanging hands. Market capitalization is $4.48 billion. The current RSI is 46.39
In the past 52 weeks, shares of CY have traded as low as $9.63 and as high as $15.11
At $13.50, shares of CY are trading below its 50-day moving average (MA) at $13.81 and above its 200-day MA at $12.83
The present support and resistance levels for the stock are at $13.30 & $13.71 respectively.
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