Cypress Semiconductors (CY, Financial) is a semiconductor company that offers mixed-signal programmable solutions, specialized semiconductor memories, and integrated semiconductor solutions globally. Recently, Cypress and Spansion (CODE, Financial) completed an all-stock, tax-free merger transaction valued at approximately $5 billion. This merger creates a $2 billion global leader in MCUs and specialized memories for embedded systems, while being the number 1 in SRAMS and NOR flash and number 3 in MCU’s and memories for the automotive market.
Looking back
After the merger, Cypress will continue reporting results in four business divisions -- Programmable systems, or PSD, Memory Products Division, or MPD, Data Communication Division, or DCD, and Emerging Technology Division, or ETD.
The PSD revenues declined 18% year-over-year due to declines in CapSense and PSoC 1, partially offset by growth in PSoC 3, 4 and 5. After the merger, the management has combined PSoC and the Spansion microcontrollers into this division.
The MPD segment inched up 13% year-over-year and generated 43.8% of revenues. The division focuses on four SRAM businesses, general-purpose programmable clocks and process technology licensing. The new flash business unit will now be included in this division.
The DCD revenues climbed up 19% year-over-year primarily due to strength in USB products. Going forward, this division will focus only on USB controllers, Wireless USB and West Bridge peripheral controllers for handsets, PCs and tablets.
The ETD revenues soared 76% year over year and include Cypress AgigA Tech Inc., Deca Technologies Inc., all majority-owned subsidiaries of Cypress, foundry business and other development-stage activities.
All in all, in the first-quarter 2015, Cypress reported revenues of $209.1 million. This was around 23% more than the year-ago quarter. However, it disappointed the investors as it reported a loss of $0.53 per share against consensus estimates of $0.01 per share.
Growth drivers
Cypress President and CEO T.J. Rodgers, is very excited about the merger and he had following to say:
"We closed this merger even more quickly than originally anticipated, accelerating our strategic and financial roadmap," Rodgers said. "From Day One, the new Cypress will capitalize on its expanded product portfolio and leadership positions in embedded processing and specialized memories to significantly extend its penetration of global markets such as automotive, industrial, consumer, wearable electronics and the Internet of Things."
"Consider the automotive market, where Cypress has a dominant position in capacitive touch-sensing controllers and SRAMs for infotainment systems, and Spansion is the leading supplier of flash memory and microcontrollers for infotainment, body and climate control systems, instrument clusters and advanced driver assistance systems," Rodgers said. "The new Cypress will be the No. 3 chip supplier worldwide of memories and microcontrollers to this business. You can think of the post-merger company truly in terms of the well-known equation: 1 + 1 = 3: No. 1 in SRAMs, No. 1 in NOR flash and No. 3 overall."
Also, Kispert, CEO of Spansion and a member of the Cypress board of directors said:
"Spansion's exceptional team and technology leadership in high-performance memory and MCUs will complement Cypress's strong capabilities. This merger was an important step forward in Spansion's transformation into a global embedded systems leader. Together, we can significantly enhance our value to our customers and deliver a more robust and broader product line to meet their embedded requirements."
The growth in automotive and industrial markets will be the key diver of top and bottom lines of the new Cypress. The synergies associated with the merger will deliver growth going forward.
Looking ahead
Cypress is expecting second-quarter 2015 revenues in the range of $475.0–$500.0 million and this excludes $15–$20 million of revenues through Spansion's distribution channel lost due to the purchase accounting treatment. Consolidated gross margin is expected to be around 41%.
At a forward P/E of 12.4 and an expected CAGR of 16.90% for the next five years, this company looks to be headed towards a good future. Investors should consider buying this stock
