Cypress Posts Decent 3Q - Analyst BlogFriday, October 19, 2012
Cypress Semiconductor Corporation (CY) has reported third-quarter 2012 earnings of 12 cents per share, beating the Zacks Consensus Estimate of 5 cents. The adjusted earnings per share exclude one-time items, but include stock-based compensation expense. The improved gross margins and tight operating expense control contributed to the upside in earnings.
Cypress reported revenue of $203.0 million, up 0.8% sequentially but down 23.3% year over year. The revenue was also at the higher end of management’s guidance range of $197–$205 million. The sequential increase was attributable to slight increase in TrueTouch sales and strength in the MPD segment, which grew 6.4%.
In the reported quarter, book-to-bill ratio was 0.81, down from 1.87 in the second quarter due to weak global macroeconomic environment as well as short lead times.
Revenue by Segment
Starting from the first quarter of 2012, Cypress has realigned its revenue in four business segments — Programmable Systems Division (PSD), Memory Products Division (MPD), Data Communication Division (DCD) and Emerging Technology Division (ETD).
The PSD segment, which generated 46.1% of third quarter revenue, consists of two divisions. The first is basically the old Consumer and Computation Division (CCD) segment, which has the TrueTouch, CapSense, Trackpads and Ovation businesses under its umbrella. The second division comprises the core PSoC business. The segment decreased 2.6% sequentially to $93.6 million due to decrease in the CapSense and auto area, partially offset by a growth in TrueTouch sales.
The MPD segment generated 43.5% of revenue, up 6.4% sequentially owing to certain one-time benefits related to patent sales and increases in Sync business. This existing division will continue to focus on four SRAM business units, general-purpose programmable clocks and process technology licensing.
The DCD segment generated 9.3% of revenue, down 7.8% sequentially due to decline in WestBridge. This division has been realigned to focus solely on USB controllers, WirelessUSB and WestBridge peripheral controllers for handsets, PCs and tablets.
The ETD segment generated the remaining 1.1% of revenue. This start-up segment includes Cypress Envirosystems, AgigA Tech Inc. and Deca Technologies Inc., all majority-owned subsidiaries of Cypress. ETD also includes the foundry business and other development-stage activities. Revenue in this segment was $2.3 million, up 27.8% sequentially.
Reported gross margin for the quarter was 54.2%, up 110 bps sequentially but down 210 basis points (bps) from the year-ago quarter’s 56.3%. The sequential increase was due to favorable product and customer mix, higher utilization rates and solid manufacturing execution.
Operating expenses of $95.0 million decreased 8.0% year over year from $103.3 million in the year-ago quarter. Reported operating margin was 7.4%, down 980 bps year over year. Research and development (R&D) expenses increased as a percentage of sales, as did selling, general and administrative (SG&A) expenses.
The quarter’s GAAP net income was $14.3 million or earnings per share of 9 cents, down from $40.0 million or 22 cents earned in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $18.0 million or earnings per share of 12 cents compared with $41.2 million or 23 cents a share in the year-ago quarter.
Cypress exited the third quarter with cash, cash equivalents and short-term investments of approximately $219.4 million, up from $210.8 million from the prior quarter. Trade receivables were $125.2 million, down from $126.2 million in the prior quarter.
In the third quarter, long-term debt increased by $45 million to $198 million due to the cash payments made for the Ramtron tender offer.
Cash flow from operations was over $58.1 million, up from $43.3 million in the previous quarter. The company bought back 7.3 million shares of common stock for $81.6 million and also paid a quarterly dividend of 11 cents per share. The company still has approximately $120.7 million remaining under the authorized share repurchase program.
Management expects fourth quarter revenue in the range of $186–$192 million (down 5%–8% sequentially). The company expects all divisions to be down sequentially, except TrueTouch, which is expected to grow in the fourth quarter. The gross margin is expected to remain flat at 57%, which will vary with manufacturing product mix. Operating expenses are expected in the range of $78–$80 million. Based on a share count of around 158–160 million, non-GAAP EPS is expected to be 16–18 cents.
Cypress is a semiconductor company, offering high-performance, mixed signal, programmable solutions. The company delivered a decent third quarter, with earnings beating the Zacks consensus.
In the quarter, the company had lower bookings across all geographies and end markets due to low lead times and increasing global macroeconomic concerns, but the solid expense management was quite encouraging. Hence, the company guided lower revenue but expects margins to be reasonable for the upcoming quarter.
The company’s advanced technology, momentum in new products, increased customer wins and growth initiatives make us optimistic. However, a weak and uncertain macro environment and increased pricing pressure remain concerns.
Currently, Cypress has a Zacks #3 Rank, implying a short-term Hold rating.
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