Cypress Semiconductor Corporation (NASDAQ:CY) announced third-quarter 2017 results on Thursday after the market closed, showcasing its ability to continue effectively targeting the fastest-growing embedded-semiconductor markets. Shares of Cypress Semi climbed 2.7% on Friday to a fresh five-year high as investors digested the news.

Let's take a closer look, then, at how Cypress started the second half, as well as what we can expect from the company in the months ahead.

Cypress sign in front of a Cypress Semiconductor office building

Image source: Cypress Semiconductor.

Cypress Semiconductor results: The raw numbers


Q3 2017

Q3 2016

Year-Over-Year Growth

GAAP revenue

$604.6 million

$523.8 million


GAAP net income (loss)

$11.0 million

$9.4 million


GAAP earnings per diluted share




Data source: Cypress Semiconductor. 

What happened with Cypress this quarter?

  • On an adjusted (non-GAAP) basis -- which excludes items like stock-based compensation and acquisition expenses -- net income was $99.0 million, or $0.27 per share, up from $53.5 million, or $0.15 per share in the same year-ago period.
  • Both the top and bottom lines were well above the midpoints of Cypress' respective guidance ranges provided last quarter, which called for revenue of $585 million to $615 million and adjusted earnings per share of $0.21 to $0.25.
  • Adjusted gross margin improved 250 basis points year over year to 43%, above guidance for a range of 41% to 42%, driven by the successful acceleration of gross margin initiatives over the past year. This also means Cypress met its goal for gross margin improvements one quarter earlier than expected.
  • By segment:
    • Microcontroller and connectivity division (MCD) revenue grew 4% sequentially to $373.6 million. Within that, Internet of Things (IoT) wireless connectivity revenue climbed 80% year over year, helped by the ramp-up of USB-C technology, but still only represents less than 5% of total revenue.
    • Memory products division (MPD) revenue fell 1% sequentially to $231 million, as expected, in today's supply constrained environment for high-end embedded flash memory.
  • By geography:
    • The Americas generated 12% of total sales, flat from last quarter.
    • Europe represented 13% of sales, up from 12% last quarter.
    • Japan was 22% of sales, up from 21% last quarter.
    • China and the "rest of world" segment comprised the remaining 53% of sales, down from 55% last quarter.

What management had to say

Cypress CEO Hassane El-Khoury stated:

After a strong second quarter, we continued to deliver record revenue with strength across our key markets. These results demonstrate we are delivering on our Cypress 3.0 strategy of selling embedded solutions into markets growing faster than the overall semiconductor industry. Our customers are relying on us for more bill-of-material coverage, with approximately 80% of our revenue generated by customers buying more than one product family across connectivity, microcontrollers and memory.

Looking forward

For the fourth quarter of 2017, Cypress anticipates revenue in the range of $575 million to $610 million, adjusted gross margin of 43% to 44%, and adjusted earnings per diluted share of $0.23 to $0.27. Here again, Wall Street was looking for adjusted earnings near the low end of that range on roughly the same revenue.

That's not to say Cypress Semiconductor's overall results were jaw-dropping. But with shares already up around 35% year to date heading into this report, investors would have been hard-pressed to ask much more of Cypress than it ultimately delivered.