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Cypress Semiconductor Corporation (CY)

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Cypress Semiconductor Corp. (CY)

Q1 2018 Earnings Call

April 26, 2018 4:30 pm ET

Executives

Colin Born - Cypress Semiconductor Corp.

Hassane El-Khoury - Cypress Semiconductor Corp.

Thad Trent - Cypress Semiconductor Corp.

Michael Balow - Cypress Semiconductor Corp.

Analysts

Anthony Joseph Stoss - Craig-Hallum Capital Group LLC

Christopher Rolland - Susquehanna Financial Group LLLP

Charles Kazarian - Credit Suisse Securities (USA) LLC

Harsh V. Kumar - Piper Jaffray & Co.

Charlie Lowell Anderson - Dougherty & Co. LLC

Suji Desilva - ROTH Capital Partners LLC

Thomas O'Malley - Barclays Capital, Inc.

Rajvindra S. Gill - Needham & Co. LLC

Craig M. Hettenbach - Morgan Stanley & Co. LLC

Vijay Raghavan Rakesh - Mizuho Securities USA LLC

William Stein - SunTrust Robinson Humphrey, Inc.

John Vinh - KeyBanc Capital Markets, Inc.

Adam Gonzalez - Bank of America Merrill Lynch

Presentation

Operator

Good afternoon, and welcome to Cypress Semiconductor First Quarter 2018 Earnings Release Conference Call. Today's conference is being recorded. If you have any objections, to please disconnect at this time. I would now like to turn the call over to Mr. Colin Born, Vice President of Corporate Development and Investor Relations. Sir, you may begin.

Colin Born - Cypress Semiconductor Corp.

Thank you. Good afternoon and thank you for joining our Q1 2018 earnings conference call. With me today are Hassane El-Khoury, our CEO; Thad Trent, our CFO; and Mike Balow, our Executive Vice President of Sales and Applications. Hassane will make some introductory remarks and Thad will provide a financial overview, and then we will take your questions.

All information discussed in our press release and on this call is based on preliminary, unaudited results and we encourage you to review our 10-Q when filed. During the call, management will be making statements that should be considered forward-looking and, as such, they are subject to many risks and uncertainties that could cause actual results to differ materially from results anticipated by the forward-looking statements.

Please refer to our earnings release, the risk factors in our 10-K filed with the SEC and our other SEC filings for a more detailed discussion of these risks and uncertainties. All forward-looking statements are based on the information available to us as of today, and individuals are cautioned not to place undue reliance on our forward-looking statements.

In addition, we undertake no obligation to update these statements. Please note that the financial measures to be discussed by management today are non-GAAP measures unless they are specifically identified as GAAP measures. Reconciliations of non-GAAP measures to their most comparable GAAP measures and certain limitations of using non-GAAP financial measures are included in the earnings press release issued today.

I'll now turn the call over to Hassane.

Hassane El-Khoury - Cypress Semiconductor Corp.

Thank you, Colin, and thank you all for joining us today. Q1 was another solid quarter for Cypress. We're off to a great start in 2018 with excellent revenue, margin and profit momentum. In the first quarter, revenues grew 9% year-over-year to $582 million, gross margin increased 660 basis points year-over-year to 45.9%, and EPS more than doubled year-over-year to $0.27.

Our Cypress 3.0 strategy of focusing on high growth consumer, automotive and industrial markets continues to pay off as we leverage our core capability and strong ecosystem to deliver embedded solutions for many exciting IoT products and services.

From connected cars to smart homes to Industry 4.0, a broad and growing base of customers trust Cypress for the power to win, because we are capable, committed and proven in their markets.

Because of the focused investments in our target markets, we are firing on all cylinders with new products and business wins. In fact, Cypress design wins were up 23% year-over year-year this quarter with particular strength in wireless connectivity, MCUs, USB-C and Flash memory.

In wireless, we recently brought to market the industry's first ultra-low-power 11 AC Wi-Fi with Bluetooth combo SoC designed specifically for IoT applications with RTOS and Linux environments. In some products like connected cameras, our new combo SoC can make battery life last three times longer. We also recently introduced our industry-leading ultra-low-power PSoC 6, a flexible dual-core MCU with integrated Bluetooth Low Energy wireless connectivity and embedded security.

Cypress's 3.0 strategy is built on our core capability and commitment to deliver embedded solutions for consumer, automotive and industrial customers of all sizes. Cypress is not only trusted by iconic brands and established market leaders, but we also engage, serve, and win with an incredible number of smaller companies racing to innovate and grow.

In Q1, our total customer count for wireless connectivity was up 36% year-over-year. In February, we announced ModusToolbox, an important software platform, to further scale our go-to-market support for developers. With ModusToolbox, customers of any size now have access to a single environment and ecosystem for creating IoT products with a great connectivity, flexible computing, smart storage and security they need to win.

Our popular Software Development Kits, or SDKs, for the IoT live on this new intuitive platform, so developers can get to market quickly by tapping into the rich design resources of our WICED connectivity suite and our PSoC MCU libraries for flexible, low-power, and secure computing.

Our customers are now able to solve their IoT edge problems from processing to connectivity within a single development environment to create winning products in record time. Moreover, with combined SDKs, ModusToolbox creates an organic cross-selling platform within our customers' development flow as we push to expand awareness and sales of our overall portfolio to existing customers.

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