Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Cypress Semiconductor Falling Prey to the Competition?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Chipmaker Cypress Semiconductor (NASDAQ: CY  ) has flattered to deceive this year. Whenever it looks like Cypress' business is back on track, the company drops a bomb. That's what it did in late September by reducing its third-quarter guidance as demand for its touchscreen controllers weakened. Cypress supplies its touchscreen controllers to the likes of Samsung and Amazon (NASDAQ: AMZN  ) , but it looks like competition from peers, such as Synaptics (NASDAQ: SYNA  )  has hurt the company.

Under pressure
Cypress had to cut down its guidance due to weakness in its mobile business, particularly in Asia. The company also suffered as a result of reduction in orders by some of its customers in China. But, at the same time, peer Synaptics has been riding smartphone growth in China quite successfully. Synaptics posted better-than-expected fourth-quarter results in August, and its outlook was also decent.  

Synaptics' net income grew almost four times from the year-ago quarter to $45 million in the reported quarter, as the company successfully transitioned its business to mobile from PCs. Revenue growth was also impressive at 67% on a year-over-year basis. Synaptics' impressive product development moves are probably the reason why it has been doing well. Its ClearPad display integration solution powers Samsung's latest phones, allowing for features such as Air View. 

According to Needham, Synaptics is also supplying its touch controllers to Amazon for the Kindle tablets, taking business away from Atmel.  Its programmable systems division, which accounted for 41% of revenue in the recently reported third quarter, declined 14% from the year-ago period. 

The drop in this segment was a result of a decrease in orders from a particular customer for its CapSense touch screen controller. The contribution from Cypress' only "disclosable" customer -- probably Samsung -- was 10% of revenue, down from 15% in the previous quarter.  The reason behind this drop was, apparently, Samsung's decision to cut production of its flagship phone. 

Reading between the lines
Investors would have expected that Amazon's latest Kindle Fire tablets -- the 7-inch and 8.9-inch Kindle Fire HDX -- would lead to better revenue for Cypress, as it had previously supplied the controller for the Kindle Fire HD. Amazon's latest Kindle Fire HDX comes with impressive features and the 7-inch model is expected to retail at $229, still cheaper than the older iPad mini that now sells for $299.

The 7-inch model of the HDX started shipping on Oct. 18, while the 8.9-inch version is expected to start shipping next month. But, Cypress' weak book-to-bill ratio of 0.75 indicates that it probably won't benefit much from these new tablets. 

A book-to-bill ratio above 1 is considered good, since it indicates that a company received more orders than it could satisfy. The ratio stood at an impressive 1.05 in the second quarter, but weakness in end markets has led to a massive drop in this metric in the third quarter. Looking forward, Cypress expects the weakness in its business to continue, which is why it guided below consensus estimates for the fourth quarter as well.

More downside ahead
Management expects revenue between $163 million-$170 million in the ongoing quarter, while analysts had originally expected revenue of $207 million. Hence, Cypress' guidance is way off the mark and the company might continue to suffer as lower lead times limit revenue visibility.

Analysts, according to Yahoo! Finance, aren't expecting much from Cypress in the next five years either, as the bottom line is expected to grow at a rate of just 4.5% annually. In comparison, Synaptics' earnings are expected to grow at a rate of 11.70% over a similar time frame. Moreover, Cypress isn't profitable on a GAAP basis either, while Synaptics is, and Cypress trades at an expensive 17 times forward earnings, compared to Synaptics' 13.5.

The bottom line
It is clear that Cypress' business is under pressure and the company continues to perform inconsistently. In fact, the stock has lost 2% in the last four years and, considering the current situation, might not be able to break out of its mediocrity anytime soon.

One of these companies will help you retire rich
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "
3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 26, 2013, at 7:21 AM, rsinj wrote:

    You need to go listen to the conference call for the earnings report.

    You invest for the future, not today. However, Cypress is going to pay you a hefty dividend to be patient while they execute to get their products into the market. There aren't any other tech companies that are paying the type of dividend Cypress is paying, with the product line and growth potential It has. The company reiterated that the dividend is solid/stable and will not be touched.

    At this time, there are not many (if any) comparable investments that can provide the growth potential and income which Cypress can. Smart investors will look to build their positions on the current share price weakness as self-proclaimed investment experts flood the media with trash about how terrible everything is for the company. Investors with just a bit of a short-term memory may remember when the same was done a year ago with Netflix.

    Harsh - what's in your portfolio today?

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2695163, ~/Articles/ArticleHandler.aspx, 9/24/2016 7:04:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 21 hours ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
AMZN $805.75 Up +1.05 +0.13% CAPS Rating: ****
CY $11.78 Down -0.11 -0.93%
Cypress Semiconduc… CAPS Rating: ***
SYNA $56.67 Down -1.28 -2.21%
Synaptics CAPS Rating: ****