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Cypress Reports First Quarter 2016 Results

SAN JOSE, Calif., April 28, 2016 /PRNewswire/ -- Cypress Semiconductor Corp. CY, +1.80% today announced its first quarter 2016 results, which included the remarks below from its president and CEO, T.J. Rodgers. Highlights for the quarter included (all financial comments are based on non-GAAP results, unless otherwise noted):

  • Revenue of $425.2 million, in line with guidance
  • 36.9% gross margin and $0.07 earnings per share, above the midpoint of guidance
  • $150.4 million in realized annualized synergies, remaining ahead of our plan
  • $182.5 million common stock repurchase, part of a $450 million repurchase program
  • Dividend payment of $36.6 million ($0.11 per share, equal to a 5.0% annualized yield as of April 1, 2016)

Fellow shareholders:

Our revenue and earnings for the quarter are given below, compared with those of the prior quarter:

(In thousands, except per-share data)



NON-GAAP


GAAP




Q1 2016


Q4 2015


Q1 2016


Q4 2015


Revenue


$425,214


$456,378


$418,964


$450,128












Gross margin


36.9%


39.8%


30.0%


31.8%












Pretax margin


6.2%


10.6%


(24.0%)


(12.7%)












Net income (loss)


$22,985


$45,528


$(104,022)


$(72,330)












Diluted EPS (loss)


$0.07


$0.13


$(0.32)


$(0.22)












First quarter revenue declined 6.8% sequentially consistent with normal seasonality and with our guidance. Our gross margin was 36.9%, above guidance but below our long-term goal, primarily because we continue to run our wafer fabs at a rate lower than actual demand to burn off excess inventory, and because of inefficiencies in ex-Fujitsu manufacturing, which is being integrated now. We achieved $150.4 million in annualized synergies related to the Spansion integration—ahead of our accelerated plan to achieve $180 million by the end of this year. Due to our strong performance on synergies, our operating expenses decreased to $124.9 million, the lowest level in six years for the combined company or the pro forma company, prior to the merger. This resulted in earnings per share of $0.07, a penny above the midpoint of our guidance, and will represent the bottom for 2016, both in revenue and EPS, barring some unforeseen event.

Design activity for our PSoC and MCU portfolios remained strong during the quarter. Key customer engagement was driven in part by the introduction of our first two families of 40-nm, ARM-based microcontrollers, one for automotive-grade applications, the other for high-volume consumer applications. Since the merger, Cypress has introduced 2,472 new products, which are automotive and commercial derivatives of 44 new chips.

We returned $219.1 million of capital to our shareholders in the first quarter, in line with our strategy and commitment, delivering a dividend payout of $36.6 million and repurchasing $182.5 million of common stock. By quarter's end, we had completed $239 million, or 53.1%, of the $450 million stock buy-back program we announced in the fourth quarter.

BUSINESS REVIEW

+ Our non-GAAP consolidated gross margin for the first quarter was 36.9%, consistent with the lower fab utilization inherent in our lean inventory initiative, which will run through the third quarter of 2016. Excluding our Emerging Technologies Division (ETD), our core semiconductor gross margin was 37.0%. Fab utilization was 52% in the first quarter.

+ Net inventory at the end of the first quarter was $226 million, down 7.3% from the fourth quarter and down 42.0% from the first quarter of 2015. This steep inventory reduction is the intended benefit of our lean inventory initiative.

+ Cypress announced that its Board of Directors approved a quarterly cash dividend of $0.11 per share, payable to holders of record of the company's common stock as of the close of business on March 31, 2016. This dividend was paid on April 21, 2016.

SECOND QUARTER 2016 FINANCIAL OUTLOOK

For the second quarter of 2016, Cypress estimates non-GAAP financial results as follows: net sales in the range of $440 million to $470 million, gross margin of 38%, and diluted EPS in the range of $0.10 to $0.14 vs. the street consensus of $0.11. [*]


NET SALES SUMMARY

(In thousands, except percentages)

(Unaudited)




THREE MONTHS ENDED






Apr. 3,


Jan. 3,


Sequential


Business Unit


2016


2016


Change


PSD1


$163,985


$157,763


4%


MPD1,3


$215,113


$259,402


(17%)


DCD1


$20,128


$17,522


15%


ETD2


$25,988


$21,691


20%


Total


$425,214


$456,378


(7%)










Geographic








China and ROW


44%


41%


7%


Americas


14%


16%


(13%)


Europe


15%


14%


7%


Japan


27%


29%


(7%)


Total


100%


100%


0%










Channel








Distribution


68%


67%


1%


Direct


32%


33%


(3%)


Total


100%


100%


0%












1.

PSD, Programmable Systems Division; DCD, Data Communications Division; MPD, Memory Products Division.

2.

ETD, Emerging Technologies Division includes businesses outside our core semiconductor businesses named in Footnote 1. ETD includes subsidiaries AgigA Tech Inc., Deca Technologies Inc., and our foundry business unit.

3.

Our net sales for the first quarter of 2016 and the fourth quarter of 2015 and our estimates for the second quarter of 2016 include $6.25 million of legacy Spansion non-GAAP licensing revenue in MPD, APAC region and direct channel.



*

Non-GAAP EPS

FIRST QUARTER 2016 HIGHLIGHTS

+ Design activity for Cypress's PSoC [®] and microcontroller portfolios remained strong during the quarter. In the four full quarters since its merger with Spansion in March 2015, Cypress has introduced 180 new PSoC 4 (Programmable System-on-Chip) devices, 150 new FM4 and FM0+ (Flexible Microcontroller) microcontrollers and a new family of Traveo™ automotive microcontrollers.

+ Cypress introduced its first two families of 40-nm, ARM-based microcontrollers, one for automotive-grade products, and the other optimized for high-volume consumer applications. These families, based on Cypress's proprietary embedded charge trap (eCT) technology, move Cypress into the next generation of programmable solutions, which are made on the 180nm and 65nm nodes today. Cypress's 40-nm eCT-based MCU families are targeted at high-volume growth opportunities.

+ Cypress expanded its portfolio of USB products for the emerging USB Type-C connectivity standard with its new, PSoC-based EZ-PD™ CCG3 controller. The new controller streamlines the design of adapter dongles, power adapters and power banks, replacing multiple discrete components with a single-chip solution. The USB Type-C standard replaces today's multiple USB connectors with a single connector that transfers not only USB data, but also display data and smart power.

+ Cypress introduced its EZ-BLE™ PSoC XT/XR Bluetooth Low Energy module, which extends Bluetooth's range to 400 meters, eight times that of current solutions. The module extends Bluetooth connectivity to home automation, industrial and smart city applications. For example, it enables a parking meter to receive payments via smartphones, while reporting in to a central hub that covers a city block.

+ Cypress presented its growing portfolio of solutions for the Internet of Things—including its PSoC, microcontroller (MCU) and Bluetooth [®] Low Energy solutions—to 50 customers at the Embedded World 2016 trade show in Nuremberg, Germany. Cypress also demonstrated the latest version of its PSoC Creator™ Integrated Design Environment, which now supports its FM0+ standard MCUs. PSoC Creator enables concurrent hardware and firmware design, simplifying system design and accelerating...


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