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Cypress' Q4 Loss Widens, Revs Beat

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Cypress Semiconductor Corporation (CY - Free Report) reported fourth-quarter 2013 loss of 4 cents per share, worse than the Zacks Consensus Estimate of loss of 1 cent per share. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.


Cypress reported revenues of $167.8 million, down 11.1% sequentially and 6.9% year over year. The soft revenues were due to normal seasonal declines in all divisions. However, revenues were slightly above the Zacks Consensus Estimate of $167 million and at the higher end of management’s guidance range of $163.0 million–$170.0 million.

In the quarter, the company reported book-to-bill ratio of 1.08 versus 0.75 in the prior quarter.

Revenues by Segment

The Programmable Systems Division (PSD) segment, which generated 40.4% of fourth-quarter revenues, consists of two divisions. The first is the old Consumer and Computation Division (CCD) comprising TrueTouch, CapSense and Ovation businesses,while the second division includesthe core PSoC business. The segment decreased 13.0% sequentially to $67.7 million due to softness in year-end inventory adjustments in TrueTouch and CapSense business.

The Memory Products Division (MPD) generated 47.6% of revenues, down 10.0% sequentially to $79.9 million. This division continues to focus on four SRAM business units, general-purpose programmable clocks and process technology licensing.

The Data Communication Division (DCD) generated 9.8% of revenues, down 13.0% sequentially to $16.5 million due to USB weakness owing to a declining PC market. This division has been realigned to focus solely on USB controllers, Wireless USB and West Bridge peripheral controllers for handsets, PCs and tablets.

The Emerging Technology Division (ETD) generated the remaining 2.2% of revenues amounting to $3.7 million, up 24.0% sequentially. The increase was due to rise in new customers and design wins. This start-up segment includes Cypress AgigA Tech Inc., Deca Technologies Inc. and all majority-owned subsidiaries of Cypress. The ETD division also includes the foundry business and other development-stage activities.

Operating Results

Reported gross margin for the quarter was 45.6%, down 300 basis points (bps) sequentially and 110 bps from the year-ago quarter’s 46.7%. The sequential decrease was mainly due to unfavorable mix and lower volumes.

Operating expenses of $87.3 million decreased 17.3% year over year from $105.7 million in the year-ago quarter. Reported operating margin was (6.5%), narrower than the year-ago quarter margin of (11.9%). Both research and development and selling, general and administrative expenses decreased as a percentage of sales.

The quarter’s GAAP net loss was $13.6 million or 9 cents per share versus $8.4 million or 6 cents per share in the last quarter and $22.2 million or 15 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP loss was $6.1 million or 4 cents loss per share compared to earnings of $4.2 million or 3 cents per share in the last quarter.

Balance Sheet

Cypress exited the fourth quarter with cash, cash equivalents and short-term investments of approximately $104.5 million versus $101.4 million in the prior quarter. Trade receivables were $81.1 million, down from $108.2 million in the prior quarter.

During the quarter, Cypress’ cash flow from operations was approximately $20.2 million, spending $8.8 million on capex. The company also paid quarterly dividend worth $16.6 million.


Management expects first-quarter 2014 revenues in the range of $161.0 million–$168.0 million (flat to down 4% sequentially at the mid-point). Management expects PSD to perform slightly better than normal seasonality in the first quarter.

Gross margin is expected to be flat, approximately 51%, which will vary with manufacturing product mix. Operating expenses are expected to be $71.5 million, tax expense of 7%, while non-GAAP earnings per share are likely to be in the range of 5 cents–7 cents.

Our Take

Cypress is a semiconductor company, offering high-performance, mixed signal and programmable solutions. Though the top-line results surpassed the Zacks Consensus Estimate, the bottom-line figures failed to do so.

In the quarter, the company saw weakness in all the end markets, including handsets, computation and communication markets. Additionally, customer lead time continues to be low, further reducing revenue visibility.

Though we remain optimistic about the company’s advanced technology, improving book-to-bill ratio, and momentum in new products, weak macro environment and poor visibility related to demand patterns remain causes of concern.

Cypress has a Zacks Rank #4 (Sell). Other stocks that are performing well at current levels include M/A-Com Technology Solutions Holdings, Inc. (MTSI - Free Report) , Supertex Inc and Fairchild Semiconductor . All these stocks carry a Zacks Rank #1 (Strong Buy).

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