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Cypress' (CY) Earnings and Revenues Beat Estimates in Q1

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Cypress Semiconductor Corporation CY reported first-quarter 2018 non-GAAP earnings of 27 cents, which surged 107.7% on a year-over-year basis but declined 3.6% sequentially. The figure surpassed the Zacks Consensus Estimate by 3 cents.

Revenues came in $582.2 million, which were up 9.4% from the year-ago quarter but down 2.5% on a sequential basis. The figure also came ahead of Zacks Consensus Estimate of $580 million.

The year-over-year growth was driven by proper execution of Cypress’ 3.0 strategy which is focused on delivering embedded solutions for consumer, automotive and industrial customers of all sizes. Thus, an expanding product portfolio helped Cypress to perform well in all the end markets, especially in automotive market, and this drove the top-line in the quarter.

In order to expand footprint in the market, Cypress introduced in-vehicle wireless solution with real time simultaneous dual band capability, which is available in A8 from Audi. This helps in connection of a particular content and stream to the devices of multiple users simultaneously.

Further, the company introduced Excelon F-RAM family which helps in solving high speed data logging problems for applications in autonomous cars.

Additionally, the company rolled out ModusToolbox software in the reported quarter. This is a major update in its wireless connectivity solutions which helps the developers to create IoT products efficiently via a platform.

Also, Cypress launched a new PSoC 4700S series of microcontrollers, which expanded the portfolio of sensing solutions.

Coming to the price performance, shares of Cypress have returned 13.8% over e year underperforming the industry’s rally of 23.3%.



Top-line in Detail

By Business Unit: Cypress reports in two organised segments — Microcontroller and Connectivity Division (MCD) and Memory Products Division (MPD).

MCD: This segment generated $336.7 million revenues (57.8% of total revenues), which surged 5.9% year over year but declined 5.7 from the previous quarter. The year-over-year growth was driven by robust performance of MCU products which was attributed to strengthening automotive microcontrollers. However, the quarter-over-quarter decline was due to seasonal declining demand for wireless connectivity. Further, weak performance of USB-C due to softness in consumer market was also a factor.

MPD: Cypress generated $245.5 million revenues (42.2% of revenues) from this segment, which was up 2.2 % sequentially and 14.8% on a year-over-year basis. The top-line growth in this segment was driven by improving demand for the company’s Flash and SRAM products which performed well. Moreover, Cypress’ efforts to execute its long term supply agreements were positive.

By End-Market: The company operates in four high growth markets — Industrial, Automotive, Consumer and Enterprise end markets.

Industrial: The company generated 18% of its revenues from this market, which expanded 100 basis points (bps) sequentially but contracted 200 bps year over year. The sequential improvement was mainly attributed to the partnership with Raspberry in which Cypress offers its bluetooth and Wi-Fi connectivity products for Raspberry Pi. Recently, Cypress was chosen by Raspberry to provide 802.11ac connectivity, which also benefited the top line.

Automotive: This market generated 34% of total revenues, which expanded 400 bps sequentially and 100 bps from the prior-year quarter. This was driven by strong and stable customer relationships, which can be primarily attributed to robust performance product and solutions portfolio which includes NOR Flash memory and Traveo family of MCU. NOR Flash gained momentum in ADAS systems which led to sequential growth in this market. Additionally, improving content growth remained positive for the increasing demand for sensors.

Consumer: Cypress generated 31% of revenues from this market, which contracted 400 bps sequentially and 300 bps year over year. This decline was due to softness in the smartphone market. However, the company sustained momentum in this market with the help of its wireless connectivity business which benefited from the growing need for IoT by some tech giants. Cypress witnessed robust shipments of its 802.11ac Wi-Fi products which exceeded that of 802.11n in the first quarter. Further, strong performance of USB-C aided the top-line.

Enterprise: Cypress generated 17% of revenues from this market, which contracted 100 bps sequentially but expanded 400 bps on a year-over-year basis.

Cypress Semiconductor Corporation Price, Consensus and EPS Surprise

Cypress Semiconductor Corporation Price, Consensus and EPS Surprise | Cypress Semiconductor Corporation Quote

Operating Details

For the first quarter, Cypress’ gross margin was 45.9%, which expanded 50 bps sequentially and 660 bps on a year-over-year basis.

Operating margin came in 19.5%, expanded 730 bps from the year-ago quarter but contracted 70 bps on a sequential basis.

Per the company, operating expenses were $176.6 million, which were up 3.5% year over year but down 2.3% from the previous quarter. The year-over-year increase was due to higher research and development activities.

Balance Sheet and Cash Flows

As of Apr 1, 2018, cash, cash equivalents and short-term investments totalled $106.7 million compared with $151.6 million as of Dec 31, 2017. Accounts receivables were nearly $393.3 million, increased from $295.9 million in the previous quarter.
Inventory grew to $275.4 million, increasing from $272.1 million in the last reported quarter.

Cypress generated $31.7 million cash from operations and capex was $17 million in the reported quarter. The company also paid quarterly dividend of $38.7 million or 11 cents per share which was up 5.5% sequentially and 9% year over year.

Guidance

For second-quarter of 2018, Cypress expects revenues in the range of $605-$630 million. The Zacks Consensus Estimate for revenues is pegged at $617.9 million.

The company anticipates non-GAAP gross margin between 45.5% and 46.5%.

Also, non-GAAP earnings for the next quarter are anticipated in a range of 27-31 cents. The Zacks Consensus Estimate is projected at 29 cents.

Zacks Rank and Other Stocks to Consider

Cypress sports a Zacks Rank #1 (Strong Buy).

A few other  top-ranked stocks in the broader technology sector are Micron Technology MU, Nice NICE and Match Group MTCH. All the three stocks flaunt a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Micron Technology, Nice and Match Group is projected at 10%, 12.5% and 12.5%, respectively.

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