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Cypress Semiconductor (CY) Q3 Earnings: What to Expect?

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Cypress Semiconductor Corporation is slated to release third-quarter 2018 results on Oct 25.

Notably, the company surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 13.9%.

In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate and recorded year-over-year improvement on both counts.

Buoyed by the performance, the company provided an encouraging guidance for the third quarter.

For the third quarter, Cypress anticipates revenues in the range of $655-$685 million. The Zacks Consensus Estimate for revenues is pegged at $669.6 million, indicating a year-over-year increase of 10.8%.

Further, non-GAAP earnings for the quarter are anticipated in a range of 36-40 cents. The Zacks Consensus Estimate is projected at 38 cents, which is 40.7% higher than the figure reported in the year-ago quarter.

The company anticipates non-GAAP gross margin between 46.5% and 47.5%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Cypress’ strength in the industrial and automotive segment and expanding presence in the IoT market, driven by acquisitions, product launches and consistent execution are boosting the top line.

Strong performance in its wireless IoT business, which is primarily driven by robust Bluetooth Wi-Fi combo solution, is a key driver. Further, growth in microcontroller business and strong demand for PSoC products are expected to remain tailwinds for the Microcontroller and Connectivity Division (MCD) business.

The company’s USB-C product continues to witness rapid penetration, which is evident from robust growth in its customer base. The Zacks Consensus Estimate for MCD revenues is currently pegged at $406 million.

Moreover, improving demand from industrial and Internet infrastructure, especially 4.5G and 5G customers for the company’s flash memory product is likely to keep up the momentum in Memory Products Division (MPD). The Zacks Consensus Estimate for MPD revenues stands at $263 million.

However, intensifying competition in the semiconductor industry is a major concern as this might compel the company to lower its prices, which will hurt its profitability. 

Also, Cypress is exposed to fluctuations in foreign currency rates as international revenues account for a significant portion of its total revenues. The company generates a significant portion of its sales internationally and is also reliant upon international suppliers, manufacturing partners and distributors.

Therefore, while its hedging strategies have proved effective thus far, Cypress remains susceptible to adverse U.S. and international economic and market conditions.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cypress has an Earnings ESP of +0.33% but carries a Zacks Rank #4.

Stocks That Warrant a Look

Here are few stocks worth considering as our model shows that these have the right combination of elements to deliver earnings beat in their upcoming releases.

Vishay Intertechnology (VSH - Free Report) has an Earnings ESP of +0.62% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advanced Energy Industries (AEIS - Free Report) has an Earnings ESP of +2.70% and a Zacks Rank #2.

AMETEK (AME - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank #2.

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