Cypress Semiconductor Takes One Last Bow on the Earnings Stage

Semiconductor designer Cypress Semiconductor (CY) reported third-quarter results on October 24. The company, which specializes in chips for automotive computing and Internet of Things applications, is close to completing a merger with German sector peer Infineon (IFNNY 1.45%) and this report might end up being the last business update we get from Cypress as a stand-alone company.

So let's take a look at exactly what Infineon is buying for $9.0 billion.

Cypress Semiconductor's third-quarter results by the numbers

Data source: Cypress Semiconductor. GAAP = generally accepted accounting principles.

What's new with Cypress Semiconductor?

• Times may be tough but Cypress still delivered somewhat better results than expected. The adjusted bottom-line figure was right in line with Wall Street's expectations while revenues came in slightly above the $572 million analyst consensus.
• Internet of Things products accounted for 43% of Cypress' total sales in the third quarter, up from 38% in the second quarter and 37% in the year-ago period.
• Automotive revenue represented 36% of the grand total, down from 38% in the previous quarter but up significantly from 31% in the third quarter of 2018.
• Legacy revenue in markets such as digital clock circuits, storage solutions outside the automotive sector, and patent licensing operations continued a slow and intentional downtrend. That segment collected 21% of total sales this time, down from 24% in the second quarter and 32% a year ago.

Image source: Getty Images.

What management wanted to say

Cypress did not hold a conference call due to the pending buyout, but CEO Hassane El-Khoury offered some color commentary in the press release.

"Our Cypress 3.0 strategy remains on track as we deliver consistently strong operating margins, even in a soft market environment," he said.

Looking ahead

Thanks to the merger proceedings, this report lacked a financial guidance section. However, management did provide some new detail on how the buyout process is working out.

The European Commission cleared the deal on Oct. 16, free of conditions. The buyout has previously received simple rubber-stamp approvals in key jurisdictions where Cypress runs operations such as the U.S., the Philippines, and South Korea.

The company and its investors are just waiting for clearance from Chinese regulators, which could arrive without warning or drag out amid the Chinese-American trade tensions. International politics can still spoil this deal, but there's no particular reason to believe that the merger will fail at this point.

The stock is now trading roughly 2% below the agreed all-cash buyout price of $23.85 per share, which doesn't leave much of an opportunity for making money off merger arbitrage ideas. The small price gap shows that investors are pretty confident in getting a final approval reasonably soon, and you're probably better off simply selling Cypress today and reinvesting in other ideas with better growth prospects. Infineon isn't likely to raise the buyout price, after all.