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Cypress Semiconductor and Its Cypress 3.0 Model: Earnings Driver?

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Part 3
Cypress Semiconductor and Its Cypress 3.0 Model: Earnings Driver? PART 3 OF 16

This Might Drive Cypress Semiconductor’s Revenue in the Long Term

Long-term revenue estimate

Cypress Semiconductor (CY) expanded its product portfolio with the acquisition of Spansion and Broadcom’s (AVGO) wireless IoT (Internet of Things) business. Cypress aims to leverage this portfolio in the high-growth automotive, industrial, and consumer markets in order to grow faster than the semiconductor industry (SMH).

The company aims to increase its revenue by 7.0%–9.0% annually over the next five years, while the semiconductor industry grows 3.0%–4.0%. It already outperformed the market in 2016. When the semiconductor industry’s revenue rose 1.0%, Cypress’s revenue rose 19.0%, driven by rises of 32.0% and 5.0% YoY (year-over-year) in automotive and industrial, respectively.

This Might Drive Cypress Semiconductor&#8217;s Revenue in the Long Term

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Cypress aims to boost revenue by cross-selling products to its existing customer base and using design wins to secure new customers. It offers MCU (microcontroller unit), memory, and PMIC (power management integrated circuits). With the addition of Broadcom’s radio, Cypress can sell this product along with its MCUs.

Key growth drivers

At the company’s 2017 analyst day, Cypress’s chief executive officer Hassane El-Khoury talked about the key growth drivers that would help the company outperform the semiconductor market. Let’s take a look at them.

Connectivity

El-Khoury said the connectivity market, which includes Wi-Fi, Bluetooth, and USB-C (Universal Serial Bus Type C) are expected to rise at a CAGR (compound annual growth rate) of 16.0%–18.0% over the next five years. The USB-C market is expected to rise at a CAGR of 89.0% during the same period, driven by the increasing adoption of USB-C in laptops, handsets, and peripherals.

The wireless connectivity market is expected to be driven by the proliferation of IoT across various end markets, especially automotive and consumer.

MCU and PSoC

El-Khoury also said that the MCU market is expected to grow at a CAGR of 5.0%–7.0% between 2016 and 2021, driven by a strong demand in the automotive and industrial markets. The industrial market is expected to grow 5.0%.

Although vehicle production is expected to rise 3.0% annually during the same period, Cypress’s automotive revenue is expected to rise 8.0%–12.0% due to increasing semiconductor content per vehicle.

Memory: A growth deterrent

However, the memory market is expected to fall 2.0%–5.0% between 2016 and 2021. Cypress isn’t selling memory in the open commoditized market like Micron (MU) and Samsung (SSNLF) are. It only sells specialized memory for embedded systems such as automotive and industrial where customers are sticky and not price-sensitive. This has reduced the contribution of its memory business to its revenue from 54.5% in fiscal 2015 to 48.0% in fiscal 2016.

Cypress Semiconductor restructured its business to focus on the above growth drivers. Next, let’s see what the company’s new business segments might look like after that restructuring.

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