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Cypress Semiconductor Can Still Deliver in the Long Run

August 19, 2014 | About:
rusticnomad

rusticnomad

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Cypress Semiconductor (CY) might not have performed well in 2014, but there is no doubt about the company's potential. Cypress has a number of patents in store, and its results have been gradually improving. For example, the 100th patent received by Cypress in TrueTouch and capacitive sensing technologies has made it one of the leaders in the area. Moreover, with the growing adoption of mobile devices, Cypress can continue improving in the future.

Gaining ground

Cypress has recently entered into a partnership with Fujifilm of Japan which makes among the best in the world very high quality, excellent performance, and rightly priced metal mesh sensors which works with a specialized chip of Cypress in the area, that is an emerging area.

Its CapSense touch-sensing controller is used in the Samsung Galaxy Note smartphone that gives it glove compatibility. Cypress USB 3.0 which is EZ-USB FX3 is in huge demand by the multimedia supplier AVerMedia Technologies for high-definition video capture real-time. It also announced another new product called the high-density video frame buffer used for temporary data storage while capturing HD videos.

Impressive growth

Cypress’ Emerging Tech Division (ETD) grew 24% sequentially last quarter and reached an all-time high with growing new customers and newer designs there. ETD rose 100% in 2013 and is expected to double in 2014, excluding the comparison for Envirosystems.

The Cypress industrial and automotive segments emerged as the largest segments with industrial business up 10% and automotive business with a 62% increase. Its direct sales channel increased by 7% and, with more incoming direct customers, is expected to grow strongly.

Cypress recorded excellent bookings for its new design in Touch area with PSD and DCD up the most at 1.15. It also experienced a robust book-to-bill ratio of 1.08, up 44% sequentially and the highest level since the first quarter of 2012.

The lower factory absorption, new product launches and customer mix led to a non-GAAP margin of 51%. The finished goods inventory reduced by 19% in the quarter and the growing revenue is expected to increase utilization as well.

Strong financials

Cypress’ strong working capital management resulted in increased cash and investments at $104.5 million, up slightly. Onshore cash is around 69% and generated $20.2 million in cash from operations that had a 100% increase from the prior quarter.

Looking ahead, revenue is expected to be in the range of $161 million to $168 million, down 4% but better than the historical seasonality. Non-GAAP EPS is targeted in the range of $0.05 to $0.07, and PSD is expected to be better than normal seasonality. But gross margin is aimed to be flat at 51% on account of poor business mix and low utilization.

Conclusion

Cypress is the cheapest pick when compared to its industry peer group. But the expected 5-year CAGR is the lowest at 4.50% and the profit margin is extremely poor at 6.42% in comparison to an impressive CAGR of 43.50% for Integrated Device Technology and 10.88% for Xilinx, as well as excellent profit margins of 16.30% for Integrated Device Technology and 26.34% for Xilinx. Although Cypress is the cheapest among the lot, it is not the most profitable yet. However, given the company's strong patent portfolio and the growing adoption of its products, it can improve going forward.


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