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Cypress Semiconductor Corporation Message Board

  • patient_engineer patient_engineer Apr 21, 2006 4:55 PM Flag

    Not So Good Quarter

    I finally got a chance to analyze the numbers. That was an ugly quarter. Taking Sunpower out of the mix, the top line shrank by a million or so. In spite of the upbeat conference call, this company (minus SPWR) is shrinking. Operating expenses are out of control. If not for the cash horde, CY would still be losing money. In the December quarter, the core of CY would have been profitable without the Sunpower loses. This quarter, the non-SPWR core swung from a $2M profit to a $2+M loss. So the core company is shrinking and losing money at an accelerating rate. Sunpower has kept control over expenses (just $2M in R&D last quarter), but CY is out of control ($63M in R&D up from $56M the previous quarter). If CY could have just held the line on R&D for a quarter, the company would have actually made an operating profit. The same is true of the SG&A line - up $4M over last quarter. At this stage of the recovery, why is CY expanding opex so much before they achieve profitability? TJ seems pretty hard nosed, but he can't seem to restrain himself from spending even when they are not yet profitable (set aside the $12M they make in interest, from an operating basis all their efforts end up losing money quarter after quarter).

    I am long because I like SPWR and thought that CY was the smart way to get a piece of SPWR, but a company that never makes money (even though they are running at 90+ percent of capacity) is worth less than nothing. The street is valuing the non-SPWR parts of CY at just under $1B. This seems generous. The way to turn it around is pretty obvious - cut R&D and SG+A by a third or half.

    Sorry to be so grumpy. The good news is that selling $17.5 calls on my position lets me earn around 5% per month for just hanging around. The open interest seems to point at June for a break up to $20, but not if the core of CY keeps losing money hand over fist.

    Good luck longs.

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    • That's why Warren Buffet is a successful investor and the analysts look like clown acts in P.T. Barnum's circus. Caveat emptor, and remember, the Romans could not conquer the Celts.

      >The less-than-intelligent analysts look at non-GAAP.

      Then you are pointing finger to majority of them. end of conversation, don't intend to waste time with you.

    • >The less-than-intelligent analysts look at non-GAAP.

      Then you are pointing finger to majority of them. end of conversation, don't intend to waste time with you.

    • Floppy_6,

      The less-than-intelligent analysts look at non-GAAP.

      The smart money looks at quality of earnings. CY's earnings from operations is negative, if I have my addition, subtraction, multiplication, and division correct. If this is correct (and I leave it for those of you with better math skills than I have to confirm) CY's quality of earnings from its core businesses is in need of steroids.

      SPWR's operational losses dropped by 50% - I was very pleased by this, particularily when overhead went up by less than 5%. Until SPWR retrofits its two existing lines with thinner wafers, it will not be profitable. This is its Achilles' heel. That said, I actually have "faith" in the SPWR management to do this, as long as the fiscal management techniques from the rest of CY do not spill over into SPWR's business.

      If the rest of Cypress were to keep its R&D and SG&A expenses versus revenue in line with Sunpower percentages, CY would be a mighty healthy company, overall. It will be interesting to see how long it will take for CY management figures this out, and how long it will take for CY's management to actually do something about it.

      Da Boss

    • Cyboardlurker,

      You are spewing blather that comes from attending an university in Utah, or else believing blather from a dean from an Utah university.

      An employee stock option is compensation that is worth the equivalent of a call option "for free." It can therefore be arbitraged, and anything arbitraged is worth sometime, even if it is an out-of-the-money stock option. Hence, the "s" in EPS does not take out-of-money calls into account, and therefore underestimates the compensation to the employees who have said options. Therefore, your statements are indeed blather.

      I won't get into second order differential equations or martingales, because they never taught me that stuff in kindergarten. Ito was not my kindergatern teacher. If they did teach you higher level math in your kindergarten, then you should have spent more time listening to the teacher. The teacher would have informed you that the outside shareholders are are the short end of that arbitrage stick.

      So, stop the schtik about claiming understanding of how stock options should be accounted for and go back to your device physics and circuit design, where other shareholders hope you have subjet-matter expertise. That would really help the "E" in CY's EPS and make the outside shareholders, such as myself, feel much better about their investment and your out-of-the-money stock options in CY.

      Da Boss

    • Re. selling covered calls

      I expect, or hope, CY will bounce back next week. Let's say back to $18. Now what will you do? I mean, sell May $17.50, or May $20?

      I also consider Jun/Sept/Jan $17.50 or $20.
      Perhaps some combination?

      (Of course if CY sliding down to $17, I'll choose $17.50.)


    • Furthermore, CY sold NSE in this quarter. So did CY shrink? count again?

    • Patient_engineer,

      You call losing one million "shrinking"? I am kinda of curious where you get your alias name from?

      >If not for the cash horde, CY would still be losing money.

      Exactly which cash horde you are pointing to? CY made 5 cents GAAP (beat 1 cent), 7 cents on adjusted basis (beat 2 cents). Sunpower only contributed 2 cents, how core-CY could lose money? I know you having another way to contest CY losing money, but your GAAP way of losing "money" does contain lots of items not qualified as "money", such as stock compensation and amortization.

      The critical positive change in this quarter is improving predictability IMHO.

      By the way, 5% per quarter selling cover call would annualize at 60%. Not bad if T.J. isn't able to hold the front for you.

      • 2 Replies to floppy_6
      • I figured I would get dinged for saying something critical of the company, I just hope the dinging can be thoughtful so that we might all learn something and make more money.

        CY beat the estimates, but only because they made $12M in interest. On an operating basis, they lost money - around $3M. They spent almost $100M on R&D and SG&A and couldn't figure out how to avoid losing money. What is frustrating to me is that, minus SPWR's contribution, they made money on an operating basis in the December quarter. So we're moon walking backwards. At this rate of change, the core of CY will lose around $8M in Q2 which should just about be covered by SPWR's earnings, so CY will again be stationary. Based on that analysis, I bought SPWR to go along with my CY because I fear that CY is just going to suck down all the profits SPWR is about to generate. All they need to do is flatten spending and they would be profitable with or without SPWR. The conference call didn't indicate that expense control is even a consideration. They refer to this product or that product being profitable, but I question the basis for saying that as in aggregate the entire product line loses money (earnings would have been almost 10 cents a share if they were a bank living on interest and had no pesky products to sell ;-)

        I was hopeful that this earnings report would help CY break out from the $17.50 trading range that the NYSE specialists have dictated for the company, but no such luck. The specialists seem to be looking to June for a modest breakout to $20. I guess I'll have to wait until then.

        It will probably bounce up the $18.5 where I'll sell May $17.50 calls or perhaps $20 calls if I am lazy and don't want to worry about missing on some kind of event driven breakout (like they announce layoffs). SPWR puts a floor under the stock, but it would be nice to see it take off. To do that, TJ just needs to start saying "no" when his managers ask him to spend incremental money on products that don't make profits.

        Sorry to sound so negative. If anyone can offer analysis that shows the core business being worth more than $500M, then I would love to see it.

      • Probably T. J. should lay you off, then we have saved your salary as money expense, your stock compensation as non-money expense.

    • great post!!!!!!!!!
      thanks ffor your smart insight.

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