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.
Revenue
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.
Operating Results
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.
Balance Sheet
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.
Guidance
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.
Our Take
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.
Cypress operates in a highly competitive market. In the
touchscreen market, the company competes with
Atmel Corporation
(
ATML
) and
Synaptics
(
SYNA
).
Currently, Cypress has a Zacks #3 Rank, implying a short-term
Hold rating.
ATMEL CORP (ATML): Free Stock Analysis Report
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