Is it Time to Buy Cypress Semiconductor After a Sluggish 2013?

Cypress' fourth-quarter earnings results and 2014 outlook should encourage investors.

Jan 27, 2014 at 10:45AM

Cypress Semiconductor (NASDAQ:CY) reported better-than-expected earnings on Thursday, beating on both the top and bottom lines. The company's non-GAAP EPS came in at $0.09 on revenue of $167.8 million. Investors rewarded the company, which makes capacitive touchscreen chips for Samsung (NASDAQOTH:SSNLF), with a 6% increase in its stock price. Its competitor in the touchscreen business, Synaptics (NASDAQ:SYNA), posted underwhelming earnings results after the bell.

It's been a tough ride for Cypress investors over the last three years, but this most recent earnings report is encouraging and indicates that the company has reached its trough.

CY Chart

CY data by YCharts

Improved operational efficiency
Operating expenses at Cypress reached a 14-year low in the fourth quarter. The company reported non-GAAP operating expenses of just $68.3 million for the quarter, which led to better operating profits in the fourth quarter, despite a decline in revenue. Although some of these expense cuts are temporary, the company has focused on improving its operational efficiency to drive down costs.

Cypress nearly doubled its non-GAAP operating margin year-over-year to 10.3%, but still trails Synaptics, which posted a 17.8% operating margin last quarter. The company's ability to keep costs low will be crucial going forward as it ramps up revenue.

Utilization has been very low, according to CFO Brad Buss. The company doesn't keep inventory through down periods, either, so as it ramps up, margins should get better. Buss expects revenue for the current quarter to come in between $161 million-$168 million, down slightly from the year-ago period's $172.7 million.With improved operational efficiency, however, earnings ought to improve.

What will drive revenue growth?
Cypress operates four main divisions: programmable systems, data communications, memory products, and emerging technology.

Although management expects its emerging technology division to double revenue in 2014, it won't meaningfully drive revenue growth going forward. Instead, Cypress will focus on stabilizing its exposure to the PC market, while getting its touchscreen business back to the levels it saw in 2011.

Synaptics is ahead of Cypress in regard to recovering from the decline in PC sales. The company grew its PC division sales sequentially in the last two quarters, and it was up 20% quarter-over-quarter in its most recent earnings report.

Meanwhile, Cypress' data communications division hopes that it can improve its position in the PC market, which primarily consists of USB and trackpads, through a couple of initiatives. First, it's creating new products around USB 3.0 and expects demand for the high-speed transfer platform to pick up steam with things like 4K video. Second, it has a monopoly on trackpads in Chromebooks, and while that market is small, indications are that it's growing well.

Moreover, Cypress is relying less on Samsung than previously. In fact, the company didn't contribute enough revenue in the fourth quarter to qualify for disclosure. (A customer must contribute 10% or more of total revenue for disclosure.)

Samsung faced some pressure last quarter from Apple's new iPhones, as well as low-end Chinese manufacturers, but Cypress expects the Korean electronics maker to return to 10% or more of revenue this quarter. Nonetheless, Cypress is finding more design wins with Chinese manufacturers and diversifying away from Samsung. Last quarter, the company won four designs for Huawei's mid-tier line of phones.

The company is also making progress in the wearable technology market, with design wins at Qualcomm and Sony for their smartwatches. Cypress' low-power touch technology and waterproof designs are extremely valuable in the market for smartwatches. If the market takes off, Cypress could benefit greatly.

Down, but not out
Cypress pays a whopping 4.4% dividend. Of course, it got to that high dividend the hard way, as shares tanked over the last three years. After a first-quarter beat on both the top and bottom, and overhauling its operational structure to improve costs, Cypress looks poised to start rebounding.

Getting in on the ground floor
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multi-billion dollar industry. Our analysts have done it before with the likes of Amazon and Netflix. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Cypress Semiconductor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers