Should You Expect a Turnaround From Cypress Semiconductor?

Silicon Valley-headquartered Cypress Semiconductor (Nasdaq: CY  ) has suffered a 25% drop in stock price over the past 52 weeks. Although the stock has rallied somewhat from last month's lows, shareholders haven't had much to celebrate. Do this small-cap company's woes mean that it's the time to add Cypress to your portfolio, or should you stay away from this tech pick?

Mixed signals
Amid small- to mid-cap semiconductor providers, Cypress competes with Integrated Device Technology (Nasdaq: IDTI  ) in the memory chips space and Atmel (Nasdaq: ATML  ) and Synaptics (Nasdaq: SYNA  ) for touchscreen and mobile revenues.

Company

P/E

Net Margin

Research & Development / Revenue

Return on Investment

Cypress 33.7 6.4% 23.8% 25.7%
Atmel 15.6 10.7% 18% 17.2%
IDT 15.5 9.7% 31.9% 11.3%
Synaptics 19.4 9.9% 22.3% 13.8%

Sources: Yahoo! Finance, Motley Fool CAPS, and author's calculations.

Cypress' valuation should set off warning lights, especially in light of its significantly lower net margin -- although the company's return should help its case. Its R&D commitment further boosts Cypress' appeal given its place in a fast-paced industry driven by innovation and evolving products.

Cypress' 3.7% dividend yield is far more concerning, especially given that none of those aforementioned rivals offers a dividend at all. Cypress isn't a quintessential dividend stock by any means, and growth investors could get far more value out of the company injecting cash into strengthening its financial foundation. Given that the company holds considerable debt -- it sports a debt-to-equity ratio of more than 61 -- the high dividend seems to me an unwise throwaway of capital better utilized elsewhere.

Staying ahead of the trends
The company smartly targets growing markets and adapts to new technologies. Cypress' Programmable System-on Chip product line has spearheaded its drive into innovative technologies. Development of these chips has opened up a potential $15 billion market in that space alone.

Clearly, Cypress has its finger on the pulse of future technology, reaching out to programmable systems and mobile devices alike. The company's touchscreen products populate smartphones, tablets, and more, giving Cypress a lucrative stake in the growing mobile market. Cypress also partners with NVIDIA (Nasdaq: NVDA  ) to provide touchscreen designs for Android devices, which command a 68% share of smartphone sales.

All in all, Cypress still trades well below its six-month highs and could entice optimistic growth investors if the company builds upon its innovative track record. If you're looking for stability, however, keep an eye on Cypress -- but hold off on jumping in.

If Cypress and the tech industry pique your interest, you won't want to miss out on this fast-paced sector's next boom. The Motley Fool has prepared a special free report to keep you ahead of the game, "The Next Trillion Dollar Revolution." Don't get caught watching as this pick soars; get your free copy today.

Fool contributor Dan Carroll holds no positions in the stocks mentioned in this article. Motley Fool newsletter services have recommended buying shares of NVIDIA and Cypress Semiconductor and writing puts on NVIDIA. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Related Tickers

4/17/2014 4:00 PM
CY $9.91 Up +0.17 +1.75%
Cypress Semiconduc… CAPS Rating: ****
ATML $7.96 Up +0.13 +1.66%
Atmel Corp CAPS Rating: ****
IDTI $11.46 Up +0.14 +1.24%
Integrated Device… CAPS Rating: **
NVDA $18.56 Up +0.07 +0.38%
Nvidia CAPS Rating: ****
SYNA $62.16 Up +3.15 +5.34%
Synaptics, Inc. CAPS Rating: ****

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