Cypress Semiconductor (CY) reported strong results for the second quarter thanks to broad-based growth across different businesses such as automotive, the Internet of Things (IoT), and USB-C.
But shares of the embedded-semiconductor specialist are down about 6% since that late July report that actually showed strong quarterly numbers and good guidance. The chipmaker failed to excite investors, but it doesn't look like the company is going to run out of momentum anytime soon, given its latest outlook. Savvy investors should consider taking advantage of the lull in Cypress' stock price to buy shares.
Image Source: Cypress Semiconductor.
USB-C will be a big catalyst
Cypress is one of the leading players in the fast-emerging USB-C technology that's witnessing rapid adoption by smartphone companies given its many benefits. For instance, Samsung is already using Cypress' USB-C to power accessories for the Galaxy S8, and it is being touted that the chipmaker could also supply this technology for the next iPhone series.
In fact, Cupertino is using Cypress' USB-C solution in the iPad Pro to slash the charging time in half, setting the stage for another design win in the next iPhones.
As it turns out, Cypress has witnessed an impressive growth of 50% in USB-C adoption by its customers over the past year. The company believes that this is just the beginning of a multiyear transition to USB-C technology, and Cypress has done quite well already thanks to a spate of design wins. For instance, 75 PC models using its USB-C technology will go into production by the end of the year, along with mobile devices and other accessories.
More importantly, USB-C will help Cypress attain growth in the long run as the company currently commands 35% of this market. This is great news for investors as the total addressable market for USB-C solutions is forecast to grow at an annual pace of 89% until 2021, according to Strategy Analytics and Cypress' own estimates.
Automotive growth is on track
Cypress' automotive business delivered stable revenue growth of 7% during the latest quarter, thanks to the company's relationships with major automakers and component suppliers. In fact, Cypress' Wi-Fi and Bluetooth connectivity chips have been approved by the top eight automotive OEMs (original equipment manufacturers), with Audi becoming its latest high-profile customer.
The German luxury car giant is using Cypress' 802.11ac connectivity module in the latest A8 sedan that was revealed in July to enable hot spot connectivity and other entertainment services. More importantly, the chipmaker has struck deals with big automotive component suppliers such as Bosch, Continental AG, and Denso that have elected to use its Traveo series of microcontrollers to control various body electronics functions in mass market cars such as the Toyota Camry.
Looking ahead, the company plans to witness an increase in the semiconductor content per vehicle. This is where Cypress' shrewd strategy of partnering with major players in the automotive space should reap rich dividends as the market gets bigger.
Price-to-sales
Cypress Semiconductor isn't profitable yet, though the company is fast moving toward this goal. Last quarter, the company's GAAP net loss fell to $0.07 per share as compared to the prior-year loss of $1.65 per share. For the third quarter, Cypress' GAAP earnings could range between breakeven to a loss of $0.05 per share, according to the company.
Analysts expect Cypress to grow earnings 45% per year over the next five years. The company seems quite capable of hitting this mark given its pursuit of fast-growing opportunities as outlined above.
MRVL PS Ratio (TTM) data by YCharts
Cypress has the lowest price-to-sales ratio among its peers, indicating investors will have to pay a lower price for each dollar of the company's fast-growing sales. In fact, the chipmaker is already outperforming its peers as far as sales growth is concerned:
MRVL Revenue (TTM) data by YCharts
This all makes Cypress worth watching and perhaps buying.
