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

  • Revenue of $456.4 million and earnings per share of $0.13, in line with guidance
  • $137.7 million in realized annualized synergies, remaining ahead of plan
  • $56.5 million common stock repurchase, part of a $450 million repurchase program
  • Dividend payment of $36.9 million ($0.11 per share, equal to a 4.5% annualized yield as of December 31, 2015)

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

Q4 2015

Q3 2015

Q4 2015

Q3 2015

Revenue

$456,378

$470,060

$450,128

$463,810

Gross margin

39.8%

41.2%

32.1%

34.6%

Pretax margin

10.6%

13.2%

(13.8%)

6.9%

Net income (loss)

$45,528

$60,040

$(77,259)

$30,312

Diluted EPS (loss)

$0.13

$0.17

$(0.23)

$0.08

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

(In thousands, except per-share data)

NON-GAAP

GAAP

FY 20151

FY 2014

FY 20151

FY 2014

Revenue

$1,626,603

$725,497

$1,607,853

$725,497

Gross margin

35.3%

52.6%

24.9%

50.1%

Pretax margin

4.8%

12.6%

(23.0%)

2.1%

Net income (loss)

$70,532

$87,291

$(383,796)

$17,936

Diluted EPS (loss)

$0.21

$0.52

$(1.27)

$0.11

1.

2015 includes results of the merger with Spansion as of March 12, 2015.

Fourth-quarter revenue declined 2.9% sequentially in a seasonally soft semiconductor market. This performance was in line with the high end of our guidance. We remained ahead of our three-year merger synergy plan of $160 million in cost synergies, achieving $137.7 million in annualized synergies as of the end of the first year. Gross margin dropped to 39.8% due primarily to our lean inventory initiative, under which we are running our wafer fabs at a rate lower than actual demand capacity to burn off excess inventory.

Cypress remains committed to the task of building on our position as a leading provider of high-performance embedded solutions for the automotive and industrial markets and other promising markets such as Home Appliances and the Internet of Things (IoT). Our revenue in automotive and industrial continues to grow: Revenue from these segments increased to 55% of our total revenues in the fourth quarter, up from 52% in the fourth quarter of 2014. We continue to be a source of technology leadership in these markets. For example, our IoT wireless beacon solution, which is discussed in the new-product section below, was named one of the 10 best technologies at the CES tradeshow earlier this month.

We remain committed to the return of capital to our shareholders through quarterly dividends and stock repurchases. The return of capital this quarter was $93.4 million, with a dividend payout of $36.9 million and a $56.5 million buyback.

BUSINESS REVIEW

  • Our non-GAAP consolidated gross margin for the fourth quarter was 39.8%, consistent with the lower fab utilization inherent in our lean inventory initiative, which will run through the third quarter of 2016. In addition, excluding our Emerging Technologies Division (ETD), our core semiconductor gross margin was 40.3%. Fab utilization was roughly 60% in the fourth quarter. It will drop to approximately 50% in the first quarter of 2016, reducing gross margin.
  • Net inventory at the end of the fourth quarter was $243.6 million, down 12.7% from the third quarter and down 37.4% from the first quarter. This steep inventory reduction is the intended benefit of our lean inventory initiative.
  • 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 December 31, 2015. This dividend was paid on January 21, 2016.

FIRST QUARTER 2016 FINANCIAL OUTLOOK

For the first quarter of 2016, Cypress estimates non-GAAP financial results as follows: net sales in the range of $410 million to $440 million, gross margin of 36%, and diluted EPS in the range of $0.04 to $0.08. 1

1.

These estimates exclude amortization of intangibles of approximately $36 million, equity compensation expense of approximately $27 million, and restructuring charges, depreciation or amortization related to accounting for the Spansion merger of approximately $28 million.

NET SALES SUMMARY

(In thousands, except percentages)

(Unaudited)

THREE MONTHS ENDED

Jan. 3,

Sept. 27,

Sequential

Business Unit

2016

2015

Change

PSD1

$157,763

$178,503

(12%)

MPD1,3

$259,402

$260,897

(1%)

DCD1

$17,522

$17,617

(1%)

ETD2

$21,691

$13,043

66%

Total

$456,378

$470,060

(3%)

Geographic

China and ROW

41%

39%

5%

Americas

16%

14%

14%

Europe

14%

14%

0%

Japan

29%

33%

(12%)

Total

100%

100%

Channel

Distribution

67%

71%

(6%)

Direct

33%

29%

14%

Total

100%

100%

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 third and fourth quarters of 2015 and our estimates for the first quarter of 2016 include $6.25 million of legacy Spansion non-GAAP licensing revenue in MPD, APAC region and direct channel.

TWELVE MONTHS ENDED

Jan. 3,

 Dec. 28,

Sequential

Business Unit

20161

2014

Change

PSD2

$613,884

$283,206

117%

MPD2, 4

$890,390

$347,903

156%

DCD2

$72,791

$70,378

3%

ETD 3

$49,538

$24,010

106%

Total

$1,626,603

$725,497

124%

Geographic

China and ROW

41%

61%

(33%)

Americas

15%

16%

(6%)

Europe

14%

14%

0%

Japan

30%

9%

233%

Total

100%

100%

Channel

Distribution

70%

69%

1%

Direct

30%

31%

(3%)

Total

100%

100%

1.

2015 includes results of the merger with Spansion as of March 12, 2015

2.

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

3.

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.

4.

Our net sales for twelve months ended 2015 and our estimates for the first quarter of 2016 include $18.75 million and $6.25 million of legacy Spansion non-GAAP licensing revenue in MPD, APAC region and direct channel, respectively.

FOURTH-QUARTER 2015 HIGHLIGHTS

Cypress introduced 12 new products during the quarter, mostly in its targeted automotive and industrial markets:

  • The first Traveo™ automotive microcontrollers in an advanced 40-nm process, expanding Cypress’s market-share-leading portfolio of MCUs for automotive instrument cluster systems.
  • The industry’s most compact, highly integrated automotive power management ICs (PMICs), which regulate the power supply from a car battery, safely managing extreme voltage fluctuations in Advanced Driver Assistance Systems (ADAS), body-control modules and instrument cluster systems.
  • An automotive LED driver that is unique in its ability to drive a single LED at a high 2.1-MHz switching frequency in headlights and other front-lighting systems. High switching frequency reduces component size, enabling the industry’s smallest LED headlight driving solutions.
  • A transceiver for the Clock Extension Peripheral Interface (CXPI), a new standard backed by Toyota that is designed to succeed the ubiquitous Local Interconnect Network (LIN) protocol for internal automotive communications. Cypress is the only supplier to provide a complete CXPI solution, offering a transceiver and automotive CXPI-enabled MCUs.
  • Two new NOR Flash memories with Quad Serial Peripheral Interfaces. Cypress’s Quad SPI memories are used wherever a lot of data is required to boot up embedded automotive systems such as ADAS, instrument cluster and infotainment systems. The new 1.8-V, 64Mb FS-S NOR Flash device features the industry’s highest read bandwidth and fastest program time.
  • A high-performance FM4 (Flexible Microcontroller) based on the 200-MHz ARM® Cortex®-M4 core, targeting motor control, home appliance applications and solutions for Industry 4.0 smart factories.
  • Two new FM0+ energy-efficient MCUs based on the ARM Cortex-M0+ core. The MCUs provide the market’s best combination of power consumption, performance and peripheral integration for wearables and other Internet of Things (IoT) applications.
  • The PSoC® 4 L-Series programmable system-on-chip, the industry’s most flexible single-chip 32-bit ARM-Cortex-M0-based solution. This new PSoC adds a USB controller to the PSoC 4 architecture for robust digital audio, and it features Cypress’s industry-leading CapSense® capacitive sensing technology. The solution addresses a range of industrial and consumer applications.
  • The newest PSoC-based Bluetooth® Low Energy devices, the industry’s first to be qualified for the latest Bluetooth 4.2 security, privacy and data throughput standards.
  • The PSoC-based USB EZ-PD™ CCG4 controller to support the new Type-C USB standard in desktops and notebooks.
  • VentureBeat, a technology publication, named Cypress’s PSoC-based BLE solution for IoT beacons one of the 10 best technologies at the Consumer Electronics Show (CES). The solution is based on Cypress’s EZ-BLE™ PRoC™ Bluetooth Smart module and its Energy-Harvesting PMIC, which eliminate the need for batteries—instead using heat, vibration or light for power. Wireless beacons can be used to send information to smartphones over short ranges, for example, communicating product markdowns to shoppers in a department store every second.
  • Cypress also showcased three new BLE modules with a Bluetooth Smart Mesh demo at CES. Mesh networking, which is critical to many emerging IoT applications, extends Bluetooth’s limited transmission range, enabling transmissions to hop to their destinations on intermediate nodes. For example, a BLE-based on-off switch signal might hop over several BLE-enabled lights before turning on a burglar alarm.
  • Canadian-based Hexoskin selected Cypress’s EZ-BLE PRoC module for use in its “smart shirts,” which collect and transmit vital statistics such as heart and respiratory rates to a user’s smart device, where they can be analyzed and tracked over time. The low-power PRoC module enabled Hexoskin to more than double the battery life of its first-generation shirts. (Original Source)

Shares of Cypress Semiconductor are up nearly 2% to $8.21 in pre-market trading. CY has a 1-year high of $16.25 and a 1-year low of $7.18. The stock’s 50-day moving average is $9.01 and its 200-day moving average is $9.78.

On the ratings front, Cypress Semiconductor has been the subject of a number of recent research reports. In a report issued on January 22, Pacific Crest analyst John Vinh assigned a Buy rating on CY, with a price target of $13, which implies an upside of 61.5% from current levels. Separately, on January 13, Suntrust Robinson Humphrey’s William Stein initiated coverage with a Hold rating on the stock and has a price target of $9.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, John Vinh and William Stein have a total average return of 1.6% and -9.0% respectively. Vinh has a success rate of 38.4% and is ranked #1182 out of 3596 analysts, while Stein has a success rate of 30.0% and is ranked #2796.

Overall, one research analyst has assigned a Hold rating and 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 $15.00 which is 86.3% 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.