Company Update (NASDAQ:CY): Cypress Semiconductor Corporation Reports Third Quarter 2015 Results


Cypress Semiconductor Corporation (NASDAQ:CY) announced its third quarter 2015 results, which included the remarks below from its president and CEO, T.J. Rodgers. Highlights for the quarter included (financial highlights are based on non-GAAP results, unless otherwise noted):

  • Revenue of $470.1 million
  • Gross margin of 41.2%
  • Earnings per share of $0.17—highest quarterly earnings in four years for the combined pro forma company
  • $120.3 million in annualized synergies realized; synergies are ahead of plan
  • Completed divestiture of mobile touch business, proceeds received of $98.6 million
  • Paid dividend of $36.7 million ($0.11 per share, equivalent to 5.1% annualized yield)

Fellow shareholders:

Our revenue and earnings for the quarter are given below, compared with those of the prior quarter:

(In thousands, except per-share data)

NON-GAAP

GAAP

Q3 2015

Q2 2015

Q3 2015

Q2 2015

Revenue

$470,060

$491,028

$463,810

$484,778

Gross margin

41.2%

41.0%

34.6%

28.5%

Pretax margin

13.2%

11.4%

6.9%

-18.1%

Net income (loss)

$60,040

$52,870

$30,312

$(90,051)

Diluted EPS (loss)

$0.17

$0.15

$0.09

$(0.27)

Third quarter revenue declined 4.3% sequentially in a softening semiconductor market. Our pretax profit increased 10.6% quarter-on-quarter, driven in part by continued integration progress in the wake of our merger with Spansion, which led to a 7.9% reduction in operating expenses. We achieved $120.3 million in annualized synergies from the merger as of the end of the third quarter and are ahead of our three-year plan to achieve$160 million in annualized synergies.

Despite the current semiconductor industry environment, we made progress selling into fast-growing segments of the Automotive, Industrial, Home Appliance and Internet of Things (IoT) markets plus applications using the USB Type-C standard, which provides power and data from a single plug.

Our new $450 million stock buyback program, announced today, underscores our confidence in our business model and our continued commitment to return capital to our shareholders through the combination of stock buybacks and our quarterly dividend. Since 2008, Cypress has returned more than $4.2 billion in capital to shareholders.

BUSINESS REVIEW

  • Our non-GAAP consolidated gross margin for the second quarter was 41.2%, meeting our expectations at this point in the merger. Excluding our systems-based Emerging Technologies Division (ETD), our core semiconductor gross margin was 42.0%.
  • Net inventory at the end of the third quarter was $279.0 million, down $21.9 million from the second quarter, based on our lean inventory initiative, which will run through the third quarter of 2016. This initiative includes running our fab capacity at roughly 60%, which in turn will keep our reported gross margin at around 40% until inventory improves in the second half of 2016.
  • Cypress announced that its Board of Directors approved a quarterly cash dividend of $0.11 per share, payable to holders of record of the company’s common stock as of the close of business on September 24, 2015. This dividend was paid on October 15, 2015.

FOURTH QUARTER 2015 FINANCIAL OUTLOOK

For the fourth quarter of 2015, Cypress estimates non-GAAP financial results as follows: net sales in the range of $430 million to $460 million, gross margin of 41%, and diluted EPS in the range of $0.11 to $0.15. These estimates exclude amortization of intangibles of approximately $32 million, equity compensation expense of approximately $25 million, and restructuring charges, depreciation or amortization related to accounting for the Spansion merger of approximately $37 million.

 

NET SALES SUMMARY

(In thousands, except percentages)

(Unaudited)

THREE MONTHS ENDED

Sept. 27,

   Jun. 28,

Sequential

Business Unit

2015

2015

Change

PSD1

$178,503

$202,806

-12%

MPD1,3

$260,897

$261,407

-0%

DCD1

$17,617

$19,087

-8%

ETD2

$13,043

$7,728

69%

Total

$470,060

$491,028

-4%

Geographic

China and ROW

39%

41%

-5%

Americas

14%

11%

27%

Europe

14%

14%

0%

Japan

33%

34%

-3%

Total

100%

100%

0%

Channel

Distribution

71%

72%

-1%

Direct

29%

28%

4%

Total

100%

100%

0%

1.

PSD, Programmable Systems Division; DCD, Data Communications Division; MPD, Memory Products Division.

2.

ETD, Emerging Technologies Division includes businesses outside our core semiconductor businesses named in Footnote 1. ETD includes subsidiaries AgigA Tech Inc., Deca Technologies Inc., and our foundry business unit.

3.

Our net sales for the second and third quarters of 2015 and our estimates for the fourth quarter of 2015 include $6.25 million of non-GAAP licensing revenue in MPD, APAC region and direct channel.

THIRD QUARTER 2015 HIGHLIGHTS

  • Cypress introduced a family of single-chip Energy Harvesting Power Management Integrated Circuits (PMICs). When paired with Cypress’s wireless EZ-BLE™ PRoC™ modules, the new PMICs provide a complete solution that enables solar-powered, wireless sensors in smart home, commercial building, factory automation and agriculture applications that are part of the Internet of Things (IoT).
  • Cypress introduced its Automotive TrueTouch® CYAT8168X controller family, a capacitive touchscreen solution that enables infotainment screen sizes up to 15 inches with industry-leading water tolerance and immunity to the electromagnetic interference (EMI) in cars, buses and trucks. The controllers deliver a flawless user experience even with water droplets, condensation or sweat on the touchscreen and provide industry-leading glove touch, which allows drivers to operate the touchscreen even with gloves up to 5-mm thick.
  • Cypress introduced the EZ-BLE PSoC® module, the market’s first Bluetooth Low Energy solution to integrate programmable analog and digital blocks in a fully-certified Bluetooth Smart module. The compact module is pre-certified, simplifying design and accelerating time-to-market for designers of IoT applications such as sports and fitness monitors, medical devices, wearable electronics, home automation and game controllers. Some 61% of all Bluetooth Smart devices introduced in 2014 used BLE Modules, due to their ease of use.
  • Cypress introduced a high-throughput, low-power EZ-USB® GX3™ controller for adapter cables that adds Gigabit Ethernet (GigE) connectivity to USB 3.0 laptops, tablets, docking stations, set-top boxes and smart TVs.
  • Cypress announced that the USB Implementers Forum (USB-IF) has certified its EZ-PD™ CCG1 and EZ-PD CCG2 USB Power Delivery (PD) controllers for a variety of USB Type-C™ applications. EZ-PD controllers address the new wave of USB Type-C notebook computers and their power adapters, monitors, docking stations, cables and cable adapters (dongles).
  • Cypress and Fujitsu Electronics Incorporated (FEI) finalized an agreement that significantly expands FEI’s role as a distribution partner for Cypress. The agreement provides FEI with access to the products covered by prior agreements with Spansion and adds access to Cypress’s entire product line. The agreement is expected to generate $500 million in sales over the next four quarters.
  • Cypress continued to bring innovative new memory products to market, introducing several products during the quarter, including a 256Mb HyperFlash™ NOR Flash memory—an addition to its HyperFlash portfolio of the industry’s fastest Flash memories—a 1Mb nonvolatile static random access memory (nvSRAM) with a Quad Serial Peripheral Interface (QSPI) for fail-safe data retention in industrial automation, computing and networking applications, and a SecureNAND™ Single-Level Cell (SLC) NAND Flash family for set-top boxes, point-of-sale systems, wearable electronics and other applications that require the highest levels of security. Cypress is the industry’s No. 1 seller of SRAMand NOR Flash memories.
  • Cypress completed the divestiture of its TrueTouch mobile touchscreen business to Parade Technologies, a leading supplier of video displays and interface ICs. Under the terms of the deal, Cypress will continue to provide TrueTouch touchscreen solutions to its focus markets: automotive, industrial and home appliance.
  • Cypress announced the debut of a regular blog by its president and chief executive officer, T.J. Rodgers. Once or twice a month, Rodgers will post on business, technology and management topics. (Original Source)

Shares of Cypress Semiconductor closed yesterday at $9.44. CY has a 1-year high of $16.25 and a 1-year low of $8.11. The stock’s 50-day moving average is $9.38 and its 200-day moving average is $11.38.

On the ratings front, CY has been the subject of a number of recent research reports. In a report issued on October 19, Wedbush analyst Betsy Van Hees reiterated a Buy rating on CY, with a price target of $14, which represents a potential upside of 48.3% from where the stock is currently trading. Separately, on October 9, Needham’s Rajvindra Gill maintained a Buy rating on the stock and has a price target of $17.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Betsy Van Hees and Rajvindra Gill have a total average return of 14.8% and 17.2% respectively. Hees has a success rate of 55.2% and is ranked #229 out of 3795 analysts, while Gill has a success rate of 58.8% and is ranked #48.

Overall, 4 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $16.75 which is 77.4% above where the stock closed yesterday.

Cypress Semiconductor Corp with its subsidiaries, designs, develops, manufactures and markets high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and system value.