Cypress Semiconductor CorporationCY delivered third-quarter 2018 non-GAAP earnings of 40 cents beating the Zacks Consensus Estimate by 2 cents. The figure surged 48.1% on a year-over-year basis and 21.2% sequentially.
Revenues of $673.03 million surpassed the Zacks Consensus Estimate of $670 million. The figure also reflected year-over-year growth of 11.3% and sequential improvement of 7.8%.
The company's robust microcontrollers, wired connectivity, wireless IoT, NOR and RAM products aided the top line in the third quarter. The company's innovative products for instrument cluster platforms and body electronics also performed well.
Quarter in Detail
The company witnessed year-over-year growth of 23% in new design wins in the reported quarter. This remains a positive.
Moreover, proper execution of Cypress' 3.0 strategy which is focused on delivering embedded solutions for consumer, automotive and industrial customers of all sizes drove the results.
Coming to the price performance, shares of Cypress have lost 18.8% on a year-to-date basis, compared with the industry 's decline of 23.5%.
The company faced sluggishness in the demand environment in key markets like Asia/Pacific region owing to the ongoing U.S.-China Trade war during the third quarter. This remains a macro headwind.
However, the company remains optimistic about its strengthening momentum across automotive market. Further, the company's strong IoT applications are likely to drive its growth in the near term as well as in the long haul.
Top-line in Detail
By Business Unit: Cypress reports in two organized segments - Microcontroller and Connectivity Division ("MCD") and Memory Products Division ("MPD").
MCD: This segment generated $413.41 million revenues (61.4% of total revenues), improved 10.7% year over year and 12.2% from the previous quarter. The figure comfortably surpassed the Zacks Consensus Estimate of $406 million. The company's strong pipelines of microcontrollers and wireless IoT products aided revenue growth within this division. Both the products exhibited sequential growth of 9% and 14% during the quarter under review. Further, PSoC MCU continued to aid the Cypress' momentum in the microcontroller market. Further, well-performing USB-C, shipments of which quadrupled during the third quarter, drove the results. Further, design wins in this division were up 42% and 12% from the year-ago quarter and previous quarter, respectively.
MPD: Cypress generated $259.62 million revenues (38.6% of revenues) from this segment, up 1.6% sequentially and 12.4% on a year-over-year basis. However, the figure came below the Zacks Consensus Estimate of $263 million. The company suffered from weak performance of its NAND business owing to pricing pressure. Nevertheless, NOR and RAM products continued to perform well which aided the top-line growth within this division.
By End-Market: The company operates in four high growth markets - Industrial, Automotive, Consumer and Enterprise end markets.
Industrial: The company generated 19.6% of its revenues from this market, expanding 60 basis points (bps) sequentially and 190 bps year over year.
Automotive: This market generated 31% of total revenues, expanding 20 bps from the last reported quarter and 40 bps from the year-ago quarter.
Consumer: Cypress generated 32% of revenues from this market, expanding 70 bps sequentially but contracting 280 bps year over year.
Enterprise: Cypress generated 17.4% of revenues from this market, contracting 150 bps sequentially but expanding 50 bps on a year-over-year basis.
Cypress Semiconductor Corporation Price, Consensus and EPS Surprise
For the third quarter, Cypress' gross margin was 47%, expanding 70 bps sequentially and 400 bps from the prior-year quarter. The impressive gross margin improvement can be attributed to strong segmental performance and declining manufacturing cost.
Further, the company's growing Fab 25 loadings that led to an improvement of 83% in utilization, which is in line with the last quarter's figure also contributed well.
Per the company, operating expenses were $184.6 million, up 9.5% year over year. The figure also rose 0.7% from the previous quarter. However, the figure contracted 200 bps sequentially and 50 bps year over year as a percentage of revenues.
Operating margin came in 24.7%, expanded 570 bps from the year-ago quarter and 240 bps on a sequential basis.
Balance Sheet and Cash Flow
As of Sep 30, 2018, cash, cash equivalents and short-term investments totaled $204.8 million compared with $112.7 million as of Jul 1, 2018. Accounts receivables were nearly $404.6 million, increased from $404.5 million in the previous quarter.
Inventory grew to $289.4 million, increasing from $286.8 million in the last reported quarter.
Cypress generated $187.1 million cash from operations improved from $110.7 million in the last reported quarter. Further, the company generated free cash flow of $171.6 million during the third quarter.
CapEx was $16 million in the quarter under review.
The company bought back shares worth $10 million and paid dividend worth $39.4 million (11 cents per share) during the quarter under review.
For fourth-quarter 2018, Cypress expects revenues in the range of $585-$615 million. The Zacks Consensus Estimate for revenues is pegged at $644.7 million.
Further, non-GAAP earnings for the next quarter are anticipated in a range of 31-35 cents. The Zacks Consensus Estimate is projected at 35 cents.
The company anticipates non-GAAP gross margin between 47% and 48%.
Zacks Rank & Stocks to Consider
Cypress carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader technology sector are Upland Software UPLD , Ringcentral RNG and AMETEK AME . While Upland Software and Ringcentral sport a Zacks Rank #1 (Strong Buy), AMETEK carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Long-term earnings growth rate for Upland Software, Ringcentral and AMETEK is currently pegged at 20%, 28.83% and 10.97%, respectively.
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