Cypress and other semiconductor earnings
In January, several semiconductor companies reported YoY revenue declines for the December 2018 quarter and above-average seasonal declines for the March 2019 quarter. These declines came as the US-China (FXI) trade war reduced demand for smartphones, data center, and graphics in China.
However, there were a few exceptions like Xilinx (XLNX) and most recently, Cypress Semiconductor (CY), which beat revenue and earnings estimates for the fourth quarter of 2018. The earnings beat sent Cypress stock up 6.6% on February 1, a day after the earnings release.
Cypress’s fourth-quarter 2018 revenue rose 1.1% YoY to $604.5 million as weakness in consumer and enterprise was more than offset by strength in industrial and automotive. Cypress is not immune to the US-China trade war, but its last two years of transition to differentiated products helped it mitigate the impact of the slowdown.
Progress report of Cypress 3.0
Back in 2016, Cypress adopted a new business model, Cypress 3.0, wherein it leveraged its memory, microcontroller, and connectivity solutions to increase its exposure in the fast-growing, higher-margin markets of industrial, automotive, and IoT (Internet-of-Things). At that time, the company expected its revenue to grow at an average annual rate of 7%–9% from 2016 to 2021.
Cypress’s annual revenue rose 19.7% and 21% in 2016 and 2017. However, its growth rate slowed to 6.7% in 2018 as the company felt the pinch of weakening demand from China. Despite the semiconductor slowdown, the company maintained its annual revenue growth rate near its targeted rate of 7%.
Next, we’ll look at Cypress’s growth drivers and growth deterrents in 2018.
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