Can Cypress Escape Synaptics' Shadow?

Cypress' current-quarter outlook disappointed as its competition is getting better.

Jul 22, 2014 at 10:00AM

Cypress Semiconductor (NASDAQ:CY) sprung a surprise when it reported its second-quarter results. The chipmaker's revenue came in line with consensus estimates, while its bottom line beat expectations significantly. But, Cypress' outlook wasn't up to the mark, and this doesn't come as a surprise. The company has struggled in the high-end mobile device market due to Synaptics' (NASDAQ:SYNA) growing clout, and the same seems to be happening in the lower-end of the market.

Taking hits
Cypress' overall book-to-bill ratio at the end of the second quarter fell below 1. This is in stark contrast to book-to-bill ratios of 1.08 posted in the preceding two quarters. As Fool contributor Adam Levy pointed out, Synaptics is landing design wins at several low-end Chinese smartphone manufacturers such as ZTE, which is a Cypress customer as well. Already, Cypress looks set to lose the lucrative touchscreen controller slot in Samsung's (NASDAQOTH:SSNLF) upcoming Note 4 phablet, and stiff competition in mid-range and budget smartphones will hurt its prospects further.

Synaptics now counts the likes of Lenovo, Huawei, Gionee, and Coolpad, apart from ZTE, as clients. Recently, the company announced that its ClearPad touchscreen controller has once again been selected by Huawei to power its flagship smartphone, the Ascend P7. Powered by Synaptics, the P7 boasts of features such as glove input, passive pen, and moisture-proofing support. In the press release, Synaptics laid stress on the fact that it has "strong relationship with leading Chinese OEMs, like Huawei, who have a global market presence and growing customer base." 

For Cypress, Synaptics' moves into the high-volume Chinese smartphone market is concerning. Last year, Synaptics displaced Cypress in Amazon's Kindle Fire, and a similar story is expected this year with the Galaxy Note 4. It is rumored that Synaptics will supply Samsung with an area-type fingerprint sensor. On the last earnings call, Synaptics CEO Richard Bergman stated that the company expects to see area sensors in the market in the second half of the year, which coincides with the Galaxy Note's expected release date. 

Smartwatch competition
As such, Cypress seems to be fighting a losing battle against Synaptics. However, the company does offer a few positives. For instance, its controllers are being used by Samsung in the Galaxy Gear Live smartwatch. This is not Cypress' first win in the smartwatch segment, as its TrueTouch capacitive touchscreen controller was also used by Qualcomm in the Toq, which was released last year. Cypress has been building its expertise in smartwatches for some time now, and this might help it come out of its slump.

The smartwatch market is expected to be worth $9.2 billion by 2018, according to Business Insider. However, Cypress will need to stay ahead on the innovation curve as Synaptics is expected to make its move in this market soon. Last month, it was reported that Samsung might launch a smartwatch with a fingerprint sensor in 2015. Now, Synaptics is the one supplying fingerprint tech to the South Korean giant for the Galaxy S5, so it is quite possible that it might carry its design win into Samsung's smartwatch next year. 

What next?
Cypress won a number of designs at Chinese smartphone manufacturers. At Huawei, it saw five design wins, while it landed ZTE's flagship, the Nubia X6. Additionally, the company racked up enough bookings during the first three weeks of the quarter to meet 53% of its guidance. Now, it has 10 weeks to secure the remaining 47% to satisfy its guidance.

As such, there is a probability that Cypress might beat on revenue once again when it reports results next time, but this depends on the traction that it might see in the second half of the year.

Cypress shares rose 4% after the company came out with earnings, probably in anticipation of a solid performance in the next quarter. But, from a long-term perspective, Synaptics looks like the better buy in this industry. While it is true that Synaptics doesn't carry a 4% dividend yield like Cypress, innovation is on its side. It is displacing Cypress from key mobile devices, and might even snatch its smartwatch spot next year. The bottom line is that Cypress might be eclipsed by Synaptics further going forward.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends and Cypress Semiconductor. The Motley Fool owns shares of 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers