Cypress in the consumer market
In the previous part of this series, we saw that Cypress (CY) is leveraging its leadership in certain components to tap growth in the industrial and automotive markets. However, this growth would take at least three to four years to materialize into earnings.
The most immediate growth would come in the consumer market, primarily driven by the increasing adoption of the USB Type-C connector.
USB Type-C connection
The advent of IoT (Internet of Things) is increasing the number of devices for different applications. A different wire for each device would make wired connectivity complex. This has created the need for a common connector that can work with all these devices.
Cypress’s new USB Type-C connector is a complete solution to all wired connectivity needs. It can work as a display port, power adapter, Thunderbolt, HDMI (high-definition multimedia interface) cable, USB Type-A, and USB Micro-B on any device, including mobile devices or PCs.
Opportunity presented by USB Type-C
Cypress is a market leader in the USB Type-C space with a 35% market share. The company expects a significant production ramp-up of USB Type-C in 2H17 as more laptops, smartphones, desktops, and tablets adopt this connector.
Apple’s (AAPL) 12-inch MacBook features the Cypress Type-C connector. There are rumors that Apple has selected Cypress’s Type-C chips for its upcoming iPhone 8. Samsung’s (SSNLF) new DeX dock feature in its Galaxy S8 uses Cypress’s USB-C dock solution to connect the smartphone to peripherals and provide laptop functionality.
In the personal computer space, five of the top six PC OEMs (original equipment manufacturers) have adopted USB Type-C connectors. Cypress is now offering these connector solutions to second-tier players such as Fujitsu and LG. Some models of Fujitsu’s LIFEBOOK notebooks and LG’s ultra-lightweight notebooks would feature Cypress’ USB Type-C connector.
Cypress has a $300 million order pipeline for its new connector. The company expects the transition to USB Type-C to drive market growth at a CAGR[1. compound annual growth rate] of 89% between 2016 and 2021. However, the strong growth is not sustainable and would moderate with time as the product is commoditized.
Next, we’ll see how future growth could help Cypress strengthen its balance sheet and cash flows.