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What Happened to Cypress?

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Oh, the dangers of the guidance game.

Sometimes it doesn't matter how well your company is doing if you dare to dampen the mood with anything less than a tremendously optimistic outlook for the next quarter. That's what happened to Cypress Semiconductor (Nasdaq: CY  ) last week: With $0.32 of non-GAAP earnings per share on $255 million in revenue, the maker of touchscreen-control chips and high-speed computer memory beat analyst estimates on both counts. And share prices climbed as much as 6% on the raw results.

But then the conference call started and management issued next-quarter guidance numbers. Again, the outlook was right in line with current analyst estimates. And the stock lost all of the goodwill from the second-quarter report, ending the day just about where it had started.

With a good night's sleep under their belts, investors then bid Cypress back up to a 6% gain on Friday, but on low volume. It's a bizarre little glimpse into the volatility of the market, amplified by the high-profile nature of Cypress' business. In head-knocking competition chiefly with Atmel (Nasdaq: ATML  ) and Texas Instruments (NYSE: TXN  ) , Cypress chips vie for controlling the touch inputs of every smartphone and tablet computer today.

The company is sitting pretty with a record order backlog and strong book-to-bill ratio of 1.09. The third quarter is almost fully booked already and orders are spilling into the fourth quarter. In other words, the only reason to keep guidance on the low side is to avoid stumbling on unexpected macroeconomic issues. It shouldn't surprise you that Cypress exceeded each consensus earnings estimate since 2009, given the tendency to set the bar low.

Looking further ahead, Cypress also just announced a couple of significant deals with smartphone leader Samsung and mobile processor expert NVIDIA (Nasdaq: NVDA  ) , in both cases related to Android products. So Cypress continues riding that mobile computing wave with as much gusto as audio specialist Cirrus Logic (Nasdaq: CRUS  ) or core processor technologist ARM Holdings (Nasdaq: ARMH  ) .

A thumbs-up rating of this five-star CAPS stock is helping me beat the market in our cash-free market simulation, cementing my All-Star status. Cypress can do the same for you, or you could simply add the stock to your watchlist and wait for a better entry point. Just be careful -- that hoped-for discount may never come.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of Cirrus Logic and Texas Instruments. Motley Fool newsletter services have recommended buying shares of NVIDIA and Cypress Semiconductor. Motley Fool newsletter services have recommended writing puts in NVIDIA. 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. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.

Read/Post Comments (4) | Recommend This Article (5)

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 July 25, 2011, at 2:36 PM, Ironbob wrote:

    Well it makes me sad they're doing well as their CEO is batcrap crazy and treats people like animals.

  • Report this Comment On July 25, 2011, at 10:54 PM, TMFEdyboom223 wrote:

    or not

  • Report this Comment On July 26, 2011, at 8:51 AM, techsleuth wrote:

    I've read that Atmel is in 8 out of 10 of the top selling smartphones. I own both CY and ATML, but much more of the latter.

  • Report this Comment On August 02, 2011, at 8:21 PM, ahemhmm wrote:

    ironbob, generalisations like that aren't helpful. if you have a specific experience then feel free but to throw out a statement like that is not inspiring in the least.

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