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Cypress Posts Loss as Expected

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Cypress Semiconductor Corporation (CY - Free Report) has reported first-quarter 2012 loss of 5 cents per share, in line with the Zacks Consensus Estimate on lower Touch sales. The adjusted loss per share excludes one-time items, but includes stock-based compensation expense.


Cypress reported revenue of $185.1 million, down 23.6% sequentially and 20.6% year over year but within management’s revised guidance range of $180–$190 million. The sequential decrease was due to the weakness in the handsets market, specifically the TrueTouch revenue stream, which in turn, was due to the late introduction of the newest Gen4 product.

In the reported quarter, the book-to-bill ratio was over 1.33, the highest in two years, reflecting strong signs of recovery in 2012.

Revenue by Segment

Starting from the first quarter of 2012, Cypresshas realigned its revenue in four business segments — Programmable Systems Division (PSD), Memory Products Division (MPD), Data Communication Division (DCD) and Emerging Technology Division (ETD).    

The PSD segment, which generated 44% of first quarter revenue, consists of two divisions. The first is basically the old Consumer and Computation Division (CCD) segment, which has the TrueTouch, CapSense, Trackpads and Ovation businesses under its umbrella. The second division comprises the core PSoC business. The segment declined 38.4% sequentially due to lower demand for handsets and seasonality.

The MPD segment generated 44.3% of revenue, decreasing 9.1% sequentially due to inventory adjustments and lower demand from the major SRAM wireless customers. This existing division will continue to focus on four static random access memory (SRAM) business units, general-purpose programmable clocks and process technology licensing.

The DCD segment generated 10.8% of revenue, which was up 6.4% sequentially on increases in WestBridge, partially offset by normal seasonal declines in USB. This division has been realigned to focus solely on USB controllers, WirelessUSB and WestBridgeperipheral controllers for handsets, PCs and tablets.

The ETD segment generated the remaining 0.9% of revenue. This start-up segment includes Cypress Envirosystems, AgigA Tech Inc. and Deca Technologies Inc., all majority-owned subsidiaries of Cypress. ETD also includes foundry business and other development-stage activities. Revenue in this segment was $1.7 million, up 54.4% sequentially.

Operating Results

Reported gross margin for the quarter was 53.4%, down 20 bps sequentially and 230 basis points (bps) from the year-ago quarter’s 55.7% due to unfavorable mix and lower factory utilization rates.

Operating expenses of $109.4 million rose 5.6% sequentially and 48.6% year over year. Reported operating margin was (5.7%), down 1,650 bps sequentially and 2,930 bps year over year. R&D expenses increased as a percentage of sales, as did SG&A expenses. Moreover, lower gross margins led to the decline in the quarters operating margin.

The quarter’s GAAP net income was ($12.4) million or loss per share of 8 cents, down from $55.4 million or 28 cents earned in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net loss was $8.2 million or loss per share of 5 cents compared with a non-GAAP net income of $27.6 million or 14 cents a share in the year-ago quarter.

Balance Sheet

Cypressexited the first quarter with cash, cash equivalents and short-term investments of approximately $108.7 million, a decrease of $57.6 million from the prior quarter. Trade receivables were $102.1 million, down from $103.5 million in the prior quarter.

Cash flow from operations was over $16.3 million, down from $65.5 million in the previous quarter. The company bought back 6.1 million shares of common stock (3.9% of total outstanding shares) for $98.0 million and also approved a quarterly dividend of 11 cents per share, up 22% sequentially.


Management provided guidance for the second quarter. Accordingly, revenue is expected to lie in the $200–$207 million range (up 8–12% sequentially). The gross margin is expected in the range of 56–57%, which will vary with manufacturing product mix. Operating expenses are expected in the range of $83–$84 million. Based on a share count of around 169 million to 170 million, the non-GAAP EPS is expected to be 17–28 cents. Management also expects capex at 8–10% of revenue and depreciation at 11% of revenue.

Our Take

Cypressis a semiconductor company, offering high-performance, mixed signal, programmable solutions. The first quarter lacked luster, with both revenue and earnings lagging prior-year figures. However, the revenue and earnings numbers were in line with the Zacks Consensus estimates.

Though the TrueTouch family of products could not generate enough revenue in this quarter, we believe that the company’s new hover technology, which anticipates the touch of a finger before it makes contact with the screen and vast product roadmap should generate healthy revenue this year. The company’s advanced technology, momentum in new products, increased customer wins and growth initiatives make us optimistic. However, a weak and uncertain macro environment and increased pricing pressure remain causes for concern.

Cypressoperates in a highly competitive market. In the touch-screen market, the company competes with Atmel Corporation and Synaptics (SYNA - Free Report) .

Currently, Cypresshas a Zacks #3 Rank, implying a short-term Hold recommendation.

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