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How Cypress’s Go-Broad Strategy Could Impact Its IoT Earnings

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Cypress Go-Broad strategy

Cypress Semiconductor (CY) is looking to become a market leader in the IoT (Internet of Things) space by adopting what it refers to as its “Go-Broad” strategy, wherein it provides connectivity solutions for a wide range of IoT applications.

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How does Cypress balance its R&D spending in IoT?

Cypress plans to increase its R&D (research and development) efforts by 30% in fiscal 2017 as it looks to develop connectivity and software solutions for a broad range of IoT applications.

The acquisition of Broadcom’s (AVGO) IoT business brought with it 500 employees, of which around 430 were from R&D. Cypress could leverage this manpower to develop products for various IoT applications, balancing these efforts between hardware and software, because it can’t remain a leader in IoT through silicon offerings alone.

However, conducting R&D across a broad portfolio will likely add to operating expenses. Cypress thus plans to increase its R&D efforts while maintaining operating expenses by partnering with other companies and adopting the community approach it has used for its WICED (wireless Internet connectivity for embedded devices) platform.

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Community approach

Cypress is leveraging its dominant position, strong channels, and its scale to develop community-supported customer design. This already increased its community user base by 85% to around 51,000 users in 2016.

Partnership approach

Cypress is also partnering with several automotive and IoT companies to expand its outreach and increase its revenue significantly in the long run. In March 2017, it partnered with Arrow Electronics (ARW) to supply analytics and security solutions for the latter’s IoT products.

Arrow Electronics supplies electronic components to over 125,000 manufacturers in the data center and the cloud markets.

Cypress’s outlook for its IoT business 

Cypress expects its IoT business to grow at a CAGR (compound annual growth rate) of 17% over the next five years. The company’s IoT business consists of Broadcom’s wireless IoT business and its own wireless connectivity solutions.

In fiscal 4Q16, Cypress earned $72.3 million revenue from Broadcom’s wireless IoT business. Cypress’ IoT revenue is expected to grow 23%–27% YoY (year-over-year) in fiscal 2017.

Next, we’ll look at the opportunity for Cypress’s USB-C port.

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