Please ensure Javascript is enabled for purposes of website accessibility

Cypress Continues to Outgrow the Semiconductor Industry

By Steve Symington - Oct 28, 2017 at 11:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The embedded-semiconductor specialist easily beat expectations yet again in the third quarter. Here's what investors need to know.

Cypress Semiconductor Corporation (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

Metric

Q3 2017

Q3 2016

Year-Over-Year Growth

GAAP revenue

$604.6 million

$523.8 million

15.4%

GAAP net income (loss)

$11.0 million

$9.4 million

17%

GAAP earnings per diluted share

$0.03

$0.03

0%

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. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cypress Semiconductor Corporation Stock Quote
Cypress Semiconductor Corporation
CY

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.