Cypress Reports Narrower Q1 Loss; Revs Beat - Analyst Blog

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Cypress Semiconductor Corporation CY reported first-quarter 2014 loss of 1 cent per share, narrower than the Zacks Consensus Estimate of loss of 4 cents per share.

Revenues

Cypress reported revenues of $170.3 million, up 1.5% sequentially but down 1.4% year over year. Additionally, revenues were above the higher end of management's guidance range of $161.0–$168.0 million on the back of improvement in all divisions, especially continued higher demand for TrueTouch products.

In the quarter, the company reported book-to-bill ratio of 1.08, flat sequentially.  

Revenues by Segment

The Programmable Systems Division (PSD), which generated 40.7% of first-quarter revenues, consists of two segments. 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 increased 2.0% sequentially and 6% year over year to $69.3 million due to strong growth in TrueTouch and CapSense businesses.

The Memory Products Division (MPD) generated 47.8% of revenues, up 2.0% sequentially but down 1.0% year over year to $81.3 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 9.2% of revenues, down 5.0% sequentially to $15.6 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 2.3% of revenues amounting to $4.0 million, up 10.0% sequentially. The increase was due to increase 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%, flat sequentially but down 20 bps from the year-ago quarter's 46.8%. The year-over-year decrease was mainly due to unfavorable product and customer mix.

Operating expenses of $88.8 million decreased 18.0% year over year from $108.2 million in the year-ago quarter. Reported operating margin was (6.5%), narrower than the year-ago quarter margin of (16.9%). Both research and development and selling, general and administrative expenses decreased as a percentage of sales.

The quarter's GAAP net loss was $7.9 million or 5 cents per share versus $13.6 million or 9 cents per share in the last quarter and $28.2 million or 19 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP loss was 1 cent per share which compared unfavorably to earnings of 3 cents in the last quarter.

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Balance Sheet

Cypress exited the first quarter with cash, cash equivalents and short-term investments of approximately $111.5 million versus $104.5 million in the prior quarter. Trade receivables were $118.2 million, up from $81.1 million in the prior quarter.

During the quarter, Cypress' cash flow from operations was approximately $25.2 million, spending $5.6 million on capex. The company also paid quarterly dividend worth $16.9 million.

Guidance

Management expects second-quarter 2014 revenues in the range of $181.0–$186.0 million, representing an increase of 6–9% sequentially at the mid-point. Management expects all divisions to grow sequentially in the second quarter, especially PSD.

Gross margin is expected to be flat, approximately 51%, which will vary with manufacturing product mix. Operating expenses are expected to be $71.0 million, tax expense of about $1.5 million, depreciation of around $9.5 million, while non-GAAP earnings per share are likely to be in the range of 11–13 cents.

Our Take

Cypress is a semiconductor company, offering high-performance, mixed signal and programmable solutions. The top-line results surpassed the Zacks Consensus Estimate driven by solid expense management.

In the quarter, the company introduced many new products which are expected to drive revenue growth in the near future. Also, management provided a strong forward guidance, indicating robust demand trends.

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 #3 (Hold). Other stocks that are performing well at current levels include Westlake Chemical Corp. WLK, Helmerich & Payne, Inc. HP and Lincoln Electric Holdings LECO. All these stocks sport a Zacks Rank #1 (Strong Buy).



CYPRESS SEMICON CY: Free Stock Analysis Report

HELMERICH&PAYNE HP: Free Stock Analysis Report

LINCOLN ELECTRC LECO: Free Stock Analysis Report

WESTLAKE CHEM WLK: Free Stock Analysis Report

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