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Cypress Plans to Lay Off Globally to Focus on Growth Areas

CSCO STX CY SNE

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Cypress Semiconductor Corporation (CY - Free Report) plans to cut 8% of its workforce or about 500 jobs globally.

This layoff is part of the company’s strategy of focusing more on growth areas, including the automotive chip business and the IoT segment.

The restructuring announcement comes a few days after Cypress’ CEO T.J. Rodgers was replaced by Hassane El-Khoury. Notably, El-Khoury had helped during the company’s acquisition of chipmaker Spansion in 2015 and in the more recent purchase of Broadcom’s internet of things operations.

The $550-million Broadcom acquisition makes Cypress the only company in the space to have cutting-edge wireless radios, MCUs, memories and power management ICs for integrated IoT systems in its repertoire. The deal also makes Cypress a key player in the automotive and industrial IoT segments.

The job cuts are expected to result in severance charge of about $40–$50 million in the third and the fourth quarters of 2016. However, cost savings to be achieved by this move were not revealed.

We believe Cypress is well positioned to resolve its internal inefficiencies and setbacks. Further, we believe these streamlining initiatives will bolster the company’s capital position, help Cypress to focus on growth areas, reduce expenses and drive operational efficiencies.

Second-Quarter Results

The company reported a decent second quarter with both the top and the bottom line exceeding the Zacks Consensus Estimate. The company’s revenues of $456.4 million were up 7.4% sequentially, within management’s guided range of $440.0–$470.0 million and slightly above the Zacks Consensus Estimate of $455.3 million.

For the upcoming third quarter, management expects revenues in the range of $510.0–$514.0 million. The Zacks Consensus Estimate is pegged at $524.9 million. Consolidated gross margin is expected to increase to 41.0%, depending on utilization, product and customer mix. The increase is driven by higher utilization, seasonal revenue increase and contribution from the wireless IoT business.

About Cypress

Cypress is a semiconductor company that offers high-performance, mixed signal and programmable solutions. Its important customers include Lucent Technologies Inc., Seagate Technology (STX - Free Report) , Cisco Systems, Inc. (CSCO - Free Report) and Sony Corporation (SNE - Free Report) .

The company expects $180 million synergies associated with the Spansion merger by the end of this year. The integration remains well on track and Cypress is witnessing new opportunities at top-tier customers, particularly in the automotive and industrial markets. These markets now account for 58% of the company’s sales, bringing in more stable revenues and margins.

However, a weak and uncertain macro environment, limited visibility and intensifying competition are nagging concerns.

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