Cypress Semiconductor (NASDAQ:CY) released solid first-quarter 2019 results on Thursday after the market closed, delivering revenue and earnings well above the midpoints of its own guidance provided in February. The semiconductor manufacturing and design company continues to work toward capturing the industry's most promising opportunities for outsize incremental growth, scoring notable design wins in support of the budding automotive and Internet of Things (IoT) verticals. Cypress also recently completed a key divestiture to help hone its focus to those ends.

Let's put Cypress' quarterly report under the microscope to better understand how it kicked off 2019.

Computer chip surrounded by circuits

Image source: Getty Images.

Cypress Semiconductor results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

GAAP revenue

$539.0 million

$582.2 million

(7.4%)

GAAP net income

$19.7 million

$9.1 million

117.2%

GAAP earnings per diluted share

$0.05

$0.02

150%

Data source: Cypress Semiconductor quarterly filings. 

What happened with Cypress this quarter?

  • On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and restructuring costs, net income climbed slightly year over year to $102.1 million, and remained flat on a per-share basis at $0.27.
  • These results compared favorably to Cypress' latest outlook for quarterly revenue ranging from $520 million to $550 million, and adjusted earnings per share of $0.22 to $0.26.
  • Adjusted gross margin expanded 1.5 percentage points year over year to 47.4%, also above guidance for a range of 46% to 46.5%.
  • By business segment:
    • Memory products division (MPD) revenue declined 6.9% year over year to $228.6 million.
    • Microcontroller and connectivity division (MCD) revenue fell 7.8% to $310.4 million.
  • Shortly after the end of the quarter, on April 1, 2019, Cypress closed the planned divestiture of its NAND flash business to a five-year joint venture with SK Hynix System IC. Per the terms of the original deal announced last October, Cypress owns 40% of this joint venture.
    • It's worth noting Cypress says revenue would have arrived at $507.9 million excluding $31.1 million of revenue from the divested business.

What management had to say

CEO Hassane El-Khoury called it a "solid" quarter, adding:

Despite uncertain market conditions, Cypress' world-class connect and compute solutions continue to gain strong momentum. Overall design activity increased 15%, led by Automotive and IoT, and in particular we saw strength in automotive platform wins for our new Traveo-II MCU during the quarter. With our focus on these high-growth markets, we remain committed to our Cypress 3.0 strategy while continuing to execute to our long-term financial model.

Looking forward

For the second quarter of 2019, Cypress is targeting revenue of $515 million to $545 million, down from $574.6 million in the same year-ago period excluding $49.5 million of revenue from the divested NAND business. Cypress also sees adjusted gross margin of 47% to 47.5%, and adjusted earnings per share ranging from $0.22 to $0.26. The midpoints of both Cypress' top- and bottom-line guidance ranges are roughly in line with Wall Street's expectations.

In the end, there was little not to like about this solid report as Cypress keeps moving its strategic initiatives forward. So even with shares up 25% year to date leading up to this release, I suspect Cypress stock will continue rising given the promise of its design-win activity ultimately translating into renewed growth.