The Cypress Semiconductor Corporation (NASDAQ:CY) adjusted its product mix with a focus on Internet of Things (IOT) and automotive technology markets to continue rewarding its shareholders with long term capital gains and robust dividend income distributions.
Some of Cypress Semiconductor’s larger and more prominent competitors — such as Western Digital Corporation (NASDAQ:WDC) — are suffering significant revenue declines because prices of certain lines of chips are dropping significantly. For instance, Western Digital expects an almost 20% year-over-year revenue drop because its extensive exposure to the flash memory market. WDC committed a large share of its production to NAND flash memory chips when demand for these circuits and prices expanded rapidly driven by high demand, which was partially driven by the needs of the expanding cryptocurrency mining sector.
Unlike its competitors that failed to anticipate the drop in this demand, Cypress Semiconductor completely divested its NAND flash business to focus on different segments. These other segments — such as NOR flash technology — are not in widespread commodity memory, but specialized application chips. Therefore, sales of these specialized chips are far less volatile and offer more stable profitability.
Cypress Semiconductor expects a decline of total revenues for fiscal 2019 as a result of missing sales from the divested business segment. While the direct year-over-year comparison will show a reduction in total revenues, comparable sales should still show solid growth numbers. However, the company expects a year-over-year growth of more than 5% in 2020 once the impact of the recent divestiture no longer relevant.
The company reported its 2018 year-end financial results on January 31, 2019. Fourth-quarter revenues of $604.5 million marked a 1.2% improvement over the same period in the previous year. Improved cost of revenue increased the growth margin from 45.4% in the last quarter of 2017 to 47.8% for the most recent period. Operational cost reduction resulted in a 25% adjusted earnings improvement from $104.7 million last year, or $0.28 per share, to the current $131 million, or 35 cents per share. This adjusted earnings per share (EPS) figure beat analysts’ expectation of $0.33 per share by more than 6%.
Full-year results were even better, with a 6.7% total revenue increase to $2.48 billion, 35% increase of the operational margin and 57% earnings increase to $509 million, or $1.36 per share. This full-year EPS was nearly 53% higher than the previous year and 9.7% above analysts’ expectations.
Headquartered in San Jose, California, and founded in 1982, the Cypress Semiconductor Corporation designs, develops, manufactures, markets and sells embedded system solutions. The company’s Microcontroller and Connectivity Division provides microcontroller units (MCUs) and connectivity solutions, including Traveo automotive MCUs, analog power management integrated circuits, capacitive-sensing controllers and TrueTouch touchscreens. Additionally, this division produces Wi-Fi and Bluetooth connectivity solutions, Universal Serial Bus (USB) controllers and wireless Internet of Things (IoT) connectivity solutions. The company’s Memory Products Division provides flash memory solutions and devices, static random-access memory products, ferroelectric memory devices and other specialty memory solutions. After going public in 1986 and trading on the NASDAQ exchange for two years, the company switched to the New York Stock Exchange. However, the company has switched back and has been trading again on the NASDAQ exchange since 2009. The company serves a variety of industries and applications, including automotive, industrial, consumer, PC peripherals, mobile devices, networking, telecommunications, video, data communications and medical markets.
The company has been distributing an $0.11 quarterly dividend since the second quarter of 2012. This quarterly payout amount is equivalent to a $0.44 annual dividend and currently yields nearly 3%. Because the flat dividend distribution and a long-term rising share price, this current yield is 10% lower than the company’s own 3.3% five-year average yield.
While trailing its own five-year average yield, Cypress Semiconductor’s current yield is nearly triple the 1% average yield of the entire Technology sector and almost 50% higher than the simple average yield of the company’s peers in the Broad Line Semiconductors industry segment. Furthermore, Cypress Semiconductor’s current yield even outperformed the 2.52% average yield of only dividend-paying companies in the segment. While close to the upper limit, the company’s current 46% dividend payout ratio is still in the 30% to 50% range considered by most investors as the sustainable range.
After entering the trailing 12-months, the share price fluctuated several times before reaching its 52-week high of $18.08 on July 27, 2018. However, after peaking in late July, the share price declined 35% and reached its 52-week low of $11.76 on October 24, 2018.
The share price attempted a brief recovery, but the overall market pullback in December pushed the Cypress Semiconductor share price on December 24, 2018, to within 2% of the year’s low. After this near low, the share price embarked on a steady uptrend and recovered nearly half of its losses since the 52-week high before closing at $14.84 on March 25, 2019. While down 13.5% for the trailing 12-months, this closing price was 26% above the 52-week low from late October 2018 and 45% higher than it was five years ago.
The 3% dividend income offset some of the 13.5% share price decline to deliver a one-year combined loss of less than 11%. However, the company delivered to its shareholders a total return of 60% over the past five years. Additionally, because of a favorable share price trend, the three-year total return was even higher at 85%.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
This content is for paid subscribers only. To gain access subscribe to one of our…
It is hard to find a seasoned investor who doesn’t believe the stock market is…
No one believes a financial disaster can strike… until it’s too late. That’s bizarre, considering…
The Options Industry Council is a resource used to educate investors about the benefits and…
The put-call parity is the relationship that exists between put and call prices of the…
“It’s not a stock market, it’s a market of stocks.” -- “Maxims of Wall Street,”…
