By Tiernan Ray
Shares of Cypress Semiconductor (CY) today closed up $1.06, or 9%, at $12.91, after the company yesterday afternoon beat Q4 revenue and profit expectations, and forecast this quarter’s results higher as well.
Revenue in the three months ended in December was flat with the prior-year period, at $530 million, with EPS of 15 cents, topping the average analyst estimate for $526 million and 14 cents. This quarter’s outlook for $495 million to $525 million in revenue, and 9 cents to 13 cents of EPS, was above consensus for $496 million and 10 cents.
The bulls today had tons of stuff they liked. For example, Craig Hallum’s Anthony Stoss, who has a Buy rating, raised his target a buck to $15, and reiterated his speculation the company’s chip for USB-c connections is going to show up in Samsung Electronics’s (005930KS) “Galaxy S8” phone. That could be part of a big USB-c business the year. “We believe there is $15 million upside for USB type C,” he writes.
Cypress chief executive Hassane El-Khoury was kind enough to take a few minutes to talk with me by phone following the results.
His over-arching message was focus. “Cypress 3.0,” as he refers to his firm, “is focusing and targeting markets that are growing faster than the industry.”
“We will win where we focus,” he says.
I asked about inventories, and El-Khoury responded that “inventories ticked up a little this quarter, but that’s because of strong demand that we have, which is a good thing.”
El-Khoury was upbeat about things such as Internet of Things. Cypress is the only one to provide things like a “combo” chip that includes WiFi circuitry, Bluetooth wireless circuitry, so-called Bluetooth Low-Energy, and Zigbee, the short-distance connection.
He sees such connectivity boosted by the fact that in IoT, “a lot of devices don’t have a keyboard or screen, you control them through a phone [app.]” As a result, “WiFi is the center of IoT,” because it’s all about setting up a connection between the phone and the device, via Bluetooth, then shuttling data via WiFi between the two during operation.
The combo is a result of last year’s acquisition of that division from Broadcom (AVGO). “We are the only one in the market with that, and we are capitalizing on that,” says El-Khoury.
He noted breakthrough products that only Cypress offers, such as a chip for “HDMI type C,” for media transfers.
What about the automotive market, where Cypress has market share of only 2%, according to Gartner data, below the 14% of industry titan NXP Semiconductors (NXPI) (which is in the process of getting bought by Qualcomm (QCOM).)
El-Khoury points out NXP dominates by having a vast catalog, but market share itself is less important than being in market segments that matter — another instance of focus:
I don’t look at it as a market in auto. I’ve always been very specific. For example, the instrument cluster, we are number one, with 40% [market share] in that market. Body electronics is another. Body electronics is anything in the cabin, including the HVAC system, the gateway module, or, router, or anything having to do with comfort. For example, Daimler in past had a knob to control the info center; today, it’s a trackpad, and we enable that. We are number one in touch [control] in cars today. There’s a lot of growth coming from new content within a car that didn’t have electronics of this kind a just a few years ago. We are gaining share in the broad market in areas where we are strong.
Is he shopping around for more assets like the Broadcom combo unit? Yes, he says, “we are always looking to see if there assets that are complimentary.”
The Broadcom deal was a perfect example of how we go about things. We had already been doing micro-controllers, and we saw that connectivity was next. What we have said is, as we can add more value for our customers, we will do something. But we’re not going after a bolt-on [acquisition] that’s in a foreign market from where we play. If you look at the market, within M&A, but there are companies that are getting together with assets that are no longer strategic to the combined company. And they will get rid of those assets. I want to be ready in case something comes up that I like. We don’t over-pay, you saw us be very diligent. We know what the valuation is for Cypress.
Cypress’s next big day for investors will be the Embedded World conference in Nuremberg, Germany, on March 14th, followed by its analyst day on March 28th.
