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This Will Likely Drive Cypress’s Revenue in Fiscal 4Q16

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Cypress’s current revenue status

While Cypress Semiconductor’s (CY) business transition toward automotive, industrial, and IoT (Internet of Things) won’t come into effect until the start of fiscal 2017, the company has already increased its exposure in automotive and industrial from 31% in fiscal 3Q12 to 53% in fiscal 3Q16.

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Cypress’s revenue trend

Fiscal 3Q16 was an important quarter for Cypress because the quarter included the results of Broadcom’s (AVGO) wireless IoT business. During the quarter, the company’s revenues grew 16.2% sequentially to $530.1 million, beating its own high-end guidance of $514 million as well as analysts’ estimates of $525.1 million.

This $530.1 million in revenues represented a 12.8% YoY (year-over-year) growth, which was higher than Xilinx’s (XLNX) and Integrated Device Technology’s (IDTI) YoY revenue growth of 10% and 8.6%, respectively, during the same quarter.

But this strong growth was a result of the addition of $62.6 million revenue generated by Broadcom’s wireless IoT business. This was higher than the company’s guidance of $55 million–$60 million in additional revenue. If we remove this additional revenue, Cypress’s revenue from its pre-acquisition business fell 1% YoY.

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Revenue by end market

Cypress’s revenue growth in fiscal 3Q16 was mainly driven by strong demand in the automotive space. The Spansion merger and wireless IoT merger helped Cypress increase its exposure in the automotive and industrial spaces.

On the product front, the company reported 9% sequential growth in its Programmable Solutions Division. But this growth was more than offset by the 2% sequential decline in both Memory and Emerging Technology Divisions.

That said, the Data Center Division grew almost threefold with the addition of the IoT business. The company expects the IoT business to report revenue in the range of $60 million–$65 million in fiscal 4Q16.

Revenue guidance

For fiscal 4Q16, the company expects to report revenues of $525 million at the midpoint, representing a 15% YoY growth but a sequential decline of 1%, which again would come from its pre-acquisition business. This decline is lower than the normal seasonal fall of 3%–4% the company witnessed in fiscal 4Q15.

On the geographical front, Cypress earns more than 55% of its revenue from China (FXI), and if US President-elect Donald Trump restricts trade with China, Cypress’s earnings will be impacted significantly.

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