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Cypress Posts Decent 2Q

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Cypress Semiconductor Corporation (CY) has reported second-quarter 2012 earnings of 5 cents per share, beating the Zacks Consensus Estimate of 3 cents. The adjusted earnings per share exclude one-time items, but include stock-based compensation expense. The higher touch sales, improved gross margins and tight operating expense control contributed to the upside in earnings.


Cypress reported revenue of $201.3 million, up 8.8% sequentially, down 21.1% year over year, and was on the lower end of the management’s guidance range of $200–$207 million. However, the sequential increase was attributable to strength in all revenue segments, particularly Programmable Systems, which grew 18%.

In the reported quarter, the book-to-bill ratio was 0.87, down from 1.33 in the first quarter due to a weak global macroeconomic environment as well as short lead times.

Revenue by Segment

Starting from the first quarter of 2012, Cypress has realigned its revenue in four business segments — Programmable Systems Division (:PSD), Memory Products Division (MPD), Data Communication Division (:DCD) and Emerging Technology Division (:ETD).

The PSD segment, which generated 47.8% of second quarter revenue, consists of two divisions. The first is basically the old Consumer and Computation Division (:CCD) segment, which has the TrueTouch, CapSense, Trackpads and Ovation businesses under its umbrella.

The second division comprises the core PSoC business. The segment increased 18.0% sequentially to $96.1 million driven by increase in TrueTouch sales which were up 21% sequentially on increased market share for TSG4 product.

The MPD segment generated 41.2% of revenue, up 1.3% sequentially due to strong demand in static random access memory (:SRAM) business. This existing division will continue to focus on four SRAM business units, general-purpose programmable clocks and process technology licensing.

The DCD segment generated 10.1% of revenue, which was up 2.0% sequentially on increases in USB products led by 3.0, partially offset by a decline in West Bridge. This division has been realigned to focus solely on USB controllers, WirelessUSB and West Bridge peripheral controllers for handsets, PCs and tablets.

The ETD segment generated the remaining 0.9% of revenue. This start-up segment includes Cypress Envirosystems, AgigA Tech Inc. and Deca Technologies Inc., all majority-owned subsidiaries of Cypress. ETD also includes the foundry business and other development-stage activities. Revenue in this segment was $1.8 million, up 5.9% sequentially.

Operating Results

Reported gross margin for the quarter was 53.0%, up 350 bps sequentially but down 150 basis points (bps) from the year-ago quarter’s 54.5%. The sequential increase was due to favorable product and customer mix, solid manufacturing execution and cost-cutting initiatives taken by management.

Operating expenses of $101.6 million decreased 9.5% year over year. Reported operating margin was 2.5%, down 800 bps year over year. R&D expenses increased as a percentage of sales, as did SG&A expenses. Moreover, lower gross margins led to the decline in the operating margin.

The quarter’s GAAP net income was $5.0 million or earnings per share of 3 cents, down from $40.8 million or 21 cents earned in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $8.4 million or earnings per share of 5 cents compared with $44.7 million or 23 cents a share in the year-ago quarter.

Balance Sheet

Cypress exited the second quarter with cash, cash equivalents and short-term investments of approximately $210.8 million, up $102.1 million from the prior quarter. Trade receivables were $126.2 million, up from $102.1 million in the prior quarter.

Cash flow from operations was over $43.3 million, up from $16.3 million in the previous quarter. The company bought back 1.5 million shares of common stock for $19.9 million and also paid a quarterly dividend of 11 cents per share. The company still has approximately $202.3 million remaining under the authorized repurchase program.


Management expects third quarter revenue in the range of $197–$205 million (flat to plus or minus 2% sequentially). The gross margin is expected in the range of 57–57.5%, which will vary with manufacturing product mix.

Operating expenses are expected in the range of $82–$83 million. Based on a share count of around 165 million, the non-GAAP EPS is expected to be 18–21 cents.

Our Take

Cypress is a semiconductor company, offering high-performance, mixed signal, programmable solutions. The company delivered a decent second quarter, with both revenue and earnings above the prior-quarter figures.

The TrueTouch family of products generated strong revenue this quarter and we believe that the company’s new hover technology, which anticipates the touch of a finger before it makes contact with the screen and vast product roadmap should further generate healthy revenue this year.

The company’s advanced technology, momentum in new products, increased customer wins and growth initiatives make us optimistic. However, a weak and uncertain macro environment and increased pricing pressure remain causes for concern.

Cypress operates in a highly competitive market. In the touchscreen market, the company competes with Atmel Corporation (ATML) and Synaptics (SYNA).

Currently, Cypress has a Zacks #3 Rank, implying a short-term Hold recommendation.

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