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Cypress Semiconductor Rides Internet of Things Growth to Another Great Quarter

By Steve Symington - Feb 1, 2018 at 8:53PM

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As connected devices grow more pervasive, the semiconductor leader's share price is following suit.

Cypress Semiconductor Corporation (CY) announced better-than-expected fourth-quarter 2017 results on Thursday after the market closed, capping a banner year on the continued outperformance of its Internet of Things (IoT) solutions. Shares are hovering near multiyear highs in after-hours trading as of this writing. Let's take a closer look at what drove Cypress' business over the past few months and what investors should watch in the coming quarters.

A Cypress Semiconductor Bluetooth chip sitting on a penny

IMAGE SOURCE: CYPRESS SEMICONDUCTOR

Cypress Semiconductor results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Growth

GAAP revenue

$597.5 million

$530.2 million

12.7%

GAAP net income (loss)

($36.0 million)

($72.3 million)

N/A

GAAP earnings per diluted share

($0.10)

($0.22)

N/A

Data source: Cypress Semiconductor. 

What happened with Cypress this quarter?

  • Adjusted for one-time items, Cypress' non-GAAP net income was $104.7 million, or $0.28 per diluted share, up from $53.8 million, or $0.15 per share in the same year-ago period.
  • These results compare favorably to Cypress' guidance provided last quarter, which called for revenue of $575 million to $610 million and adjusted earnings per share of $0.23 to $0.27.
  • Adjusted gross margin improved 530 basis points year over year, to 45.4%, above guidance for a range of 43% to 44%.
  • Microcontroller and connectivity division (MCD) revenue fell 4% sequentially from last quarter, to $357.2 million.
  • Memory products division (MPD) revenue grew 4% sequentially, to $240.3 million.
  • Recent new products include:
    • Production availability of the industry's first Real Simultaneous Dual Band automotive-grade Wi-Fi and Bluetooth combo solution, allowing multiple users to connect and stream unique content to their devices simultaneously.
    • A new automotive touchscreen controller family with advanced feature sets, including the ability to detect a finger up to 35 mm above the display, as well as accurate pressure measurement applied by multiple fingers.
    • A new low-power, dual-core microcontroller unit with Bluetooth Low Energy wireless connectivity, aimed at various smart-home, wearables, smart-speaker, and other IoT applications.

What management had to say

Cypress CEO Hassane El-Khoury elaborated:

We had a record fiscal 2017 with strong business performance. The Cypress 3.0 strategy we set in 2016 of focusing on the fast-growing automotive, industrial and consumer markets, fueled by the proliferation of IoT, contributed to strong revenue growth and earnings growing more than four times revenue in 2017. We have established Cypress as an embedded solutions leader for the IoT. This success was built on the strength of our unmatched IoT connectivity solutions, along with our broad portfolio of microcontrollers and high-performance memory solutions, in our target end-markets.

Looking forward

For the first quarter of 2018, Cypress expects revenue in the range of $565 million to $595 million, adjusted gross margin of 44.5% to 45.5%, and adjusted earnings per share in the range of $0.22 to $0.26. By comparison -- and though we don't usually pay close attention to Wall Street's demands -- consensus estimates predicted first-quarter earnings near the low end of that range on revenue of $576.8 million.

In the end, this was a straightforward quarterly beat from Cypress, as the company continues effectively targeting markets that are growing faster than the overall semiconductor industry. Even with shares up more than 40% over the past year, it's no surprise to see Cypress stock extending its gains right now.

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