 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
Cypress Semiconductor Corporation makes the processors and chips that go into computers, phones, and other integrated electronic devices. Cypress' product portfolio has two segments. First, there are commodity products for timing and communication - an example is a USB controller integrated into a mouse or a digital camera, allowing communication between the device and a computer. Cypress also sells newer programmable chips that can conduct multiple tasks at lower cost since they combine functionalities spread across multiple chips.[1] These newer devices can compute and communicate for devices such as mp3 players, laptop computers, and other household appliances. The majority of Cypress' revenues still come from the legacy business, although the company's focus is to develop the higher-margin programmable chip business.
CY is also the majority shareholder in SunPower (SPWR), allowing Cypress to claim the subsidiary's revenues as its own. The SunPower ownership gives it exposure to the solar market that has performed robustly in the face of rising Oil Prices. In 2007, SunPower earned nearly as much revenue as the core chip making business, and it has grown much more rapidly than the chip business since 2005. It is unclear whether Cypress will continue to hold onto its stake, as it has been selling off its ownership to fund its core chip business over the last several years, most recently selling 7.5 million SunPower shares in Q1 of 2007.[2] Currently Cypress owns 51% of Sunpower, and if this stake drops below 50% the company will no longer be able to include Sunpower's revenues in its own financial statements.
From a manufacturing standpoint, the majority of Cypress' work is conducted in-house, with only a small portion outsourced to foundries, in contrast with many competitors such as QUALCOMM (QCOM) or Broadcom (BRCM) that have switched to "fabless" outsourcing to foundries. This leads to a higher cost structure for Cypress, since it must handle its own manufacturing. However, it also means it does not have to invest capital into designing processes and products that meet foundry requirements for outsourcing.
Business Description
The company is organized into three main segments and SunPower (a majority-owned subsidiary offering solar power products).
- Consumer and Computations Division (CCD) - makes general purpose timing products, USBs and programmable systems on chips (PsoCs). [3]
- Data Communication Division (DCD) - makes data communications devices for wireless handsets and video systems. [4]
- Memory Product Division (MID) - offers SRAM memory and image sensors. [5]
- SunPower (SPWR) trades separately on the NASDAQ, and Cypress owns approximately 51% of the subsidiary as of the end of FY2007.[6] PowerLight was purchased by SunPower in 2006 for approximately $330MM.[7] PowerLight is an installer/constructor of solar-photovoltaics, and the integration of the two companies has led to movement of more SunPower panels through the PowerLight business.
The core semiconductor business of Cypress and the Solar-PV technology built by SunPower share the commodity silicon, there is little cross-over between the two businesses other than the raw material input.
Products are sold through distributors, trading companies, representative firms, manufacturing representatives and directly to device manufacturers who integrate the products. Distributors accounted for 59% of total sales in 2006. The company has a very broad customer base, with only one 10%+ customer (a distributor generating 11% of sales).
Financial Overview
Cypress reports on a consolidated basis with SunPower. The shrinking semiconductor business, with a 4% contraction in revenues from 2006 to 2007[8] has been offset by growth in SunPower, over 200% in both 2006 and 2007.[9]
| Revenues($MM) | 2005 | 2006 | 2007 |
| CCD | $303.6 | $334.2 | $357.7 |
| CDC | $156.5 | $131.9 | $117.8 |
| MID | $311.2 | $342.3 | $330.3 |
| SunPower | $78.7 | $236.5 | $774.8 |
| Other | $36.3 | $46.6 | $15.9 |
| % CCD | 34% | 31% | 22% |
| % CDC | 18% | 12% | 7% |
| % MID | 35% | 31% | 21% |
| % SunPower | 9% | 22% | 49% |
| % Other | 4% | 4% | 1% |
| % growth CCD | - | 10% | 7% |
| % growth CDC | - | -16% | -11% |
| % growth MID | - | 10% | -3% |
| % growth SunPower | - | 200% | 228% |
| % growth Other | - | 28% | -66% |
Traditional semiconductor sales growth has lagged SunPower, with revenues actually declining between 2006 and 2007. Management hopes to increase revenue growth by selling more programmable chip systems, and has signed 6,301 customers, up from 3,371 customers the year prior.[12] However, this segment's growth has not been enough to offset the commoditization of older semiconductor technologies.
| ' | 2005 | 2006 | 2007 |
| Cypress Core Revenues | $807.7 | $855.0 | $821.6 |
| Sunpower Revenues | $78.7 | $236.5 | $774.8 |
| Cypress Core OpInc | ($6.8) | $64.6 | $91.6 |
| SunPower OpInc | ($9.7) | $38.0 | $116.1 |
| Core margin | 8% | 11% | |
| SunPower margin | 16% | 15% | |
As described in the Business Description, the two businesses are very different, as evidenced by their different margin structures. While the margin structure on the core semiconductor side of the business has been improving due to the programmable chips, margins at SunPower have slipped in 2007 due to the integration of the PowerLight installation business.[14]
| Geographic Revenues ($MM) | 2005 | 2006 | 2007 |
| North America | $265.5 | $310.4 | $583.0 |
| Europe | $81.8 | $243.7 | $492.3 |
| Asia | $539.1 | $537.5 | $521.1 |
While Asia's contribution to revenues have stayed flat, the European and North American market revenues have grown. Although Cypress does not give a clear breakout of Semiconductor versus SunPower geographic earnings, the lack of Asian increases likely stem from SunPower's Chinese competition in Asia, such as Suntech Power Holdings (STP).
SunPower (SPWR) Subsidiary
The SunPower subsidiary's market value in early 2008 dwarfs that of its parent company, especially as rising oil prices fuel interest in the renewable energy market. Cypress originally could not sell its SunPower stake without a significant tax bill until, at the earliest, November 2009. This changed on April 17th, when Cypress received a favorable ruling that may permit it to sell its shares tax-free.[16] A divestiture of the business would allow Cypress to reinvest in its core semiconductor business which has been cash flow negative for 3 years. The company has already been selling some of its stake to meet cash flow needs for the new programmable chip business.[17]
Trends/Forces
Trend of device integration will grow the programmable chip business
Management has been attempting to shift the product mix of the semiconductor business towards programmable chips which can do the work of several non-programmable chips. For example, the Programmable System on a Chip system (PSoC) allows for as many as 100 functions on one chip, saving customers design time, space, power consumption, and system cost.[18] The Programmable Radio on a Chip system (PRoC) integrates PSoC with a wireless USB radio. As consumers demand more sophisticated devices, with better battery life and smaller size, manufacturers are turning to innovative products such as CY's to offer advanced capabilities in smaller devices. For example, many of Apple's iPod Nano's components are sourced from Cypress.[19] However, this market segment is still immature and fragmented, and a number of other companies are offering competing integrated systems.
Development of Solar Power is boosting growth
As indicated in the Financial Analysis, the SunPower (SPWR) subsidiary has earned much of the consolidated company's revenue growth from 2005 to 2007, and the subsidiary's value is significantly larger than Cypress' Semiconductor business. This reflects investors' interest in Solar-Photovoltaic technology and the need for replacements for fossil fuels. Solar Power's main advantage is the lack of variable energy cost, as the continuous input, sunlight, is free to users. As a result, as fixed costs of investment come down, and Oil Prices go up, SunPower (SPWR) has been able to sell more products. Cypress has already sold off some its shares in Sunpower, however - most recently, 7.5 million shares in Q1 2007 - and may sell more or all of its stake in order to focus more capital on the semiconductor business.
Semiconductor Cyclicality is a constant risk for Cypress
Semiconductors underpin many of the consumer electronics in the industrialized world. These range from smartphones and mp3 players, to smart appliances like newer TV's and laundry machines. This correlation with the macro-economy makes Cypress susceptible to economic boom and downturn. This is compounded by the significant capital expenditure required to create the product, as well as a short product life due to R&D making old parts obsolete. The vast majority of Cypress' semiconductor business are considered commodity products, with the exception of the PSoC business mentioned above, which accentuates the company's vulnerability to lower-priced competitors. For more information on semiconductor chips, see the Semiconductor Cyclicality article.
Dilution of stock makes CY a less compelling investment
From a shareholder perspective, management's generous compensation of employees with stock is a source of concern, as shareholder value has been diluted 20% since 2004 due to new share issued to employees as compensation.[20] This virtually ensures the devaluation of shares, as an increased number of shares (dilution) means a smaller stake in the company per share, which leads to a lower earnings per share.
Silicon Prices are a major input to CY's cost structure
Rising prices of silicon have fueled a search for alternative materials in both the semiconductor and solar photovoltaic industries.[21] While there is no immediate alternative to silicon for semiconductors, thin-film's rise has fueled growth expectations for competitors such as First Solar (FSLR). Cypress' margins have not been significantly dented by the price inflation, but continued price inflation will put pressure to either hurt margins or raise prices.
Competition
Semiconductor Firms
- Altera (ALTR) - pioneering "System-on-a-programmable-chip technology, with a similar premise to PSoC.
- Applied Micro Circuits (AMCC) - A diversified chip company with some System-on-a-Chip design processes purchased from IBM.
- Freescale Semiconductor, Inc. (FSL) - Chief provider of integrated circuits to the automotive industry bought-out by a consortium of Private Equity companies led by Blackstone.[22]
- National Semiconductor (NSM) - Large diversified semiconductor company now focusing on analog devices.
- STMicroelectronics N.V. (STM) - French-Italian company focusing on memory chips.
- Texas Instruments (TXN) - Largest manufacturer of analog chips in the world, with estimated 14% market share.[23]
The semiconductor market is crowded, with several specialty and commodity players. Competitors pursing a similar programmable chip strategy include Applied Micro Circuits (AMCC) and Altera (ALTR).
Solar Power-related firms
The SunPower (SPWR) subsidiary competes against:
For more information, see the SunPower page.
Market Share
Core Semiconductor Business
Cypress' share by revenues in this global market is small, especially when only considering the core semiconductor business. These numbers were calculated by dividing Datamonitor's global semiconductor sales estimates by Cypress' semiconductor revenues (Consolidated revenues less SunPower division revenues).
| Year | Value ($MM) | Growth | Share | ' |
| 2005 | 207600 | 6.40% | CY 2005 Share | 0.39% |
| 2006 | 225400 | 8.60% | CY 2006 Share | 0.38% |
| 2007 | 243300 | 7.90% | - | - |
| CAGR | 2003-2007 | 10.70% | - | - |
SunPower
Please see SunPower, Competition
References
- ↑ Cypress Semiconductor "PSoC" pg.7
- ↑ Reuters "Cypress Semi sells 7.5 mln SunPower shares" April 30, 2007
- ↑ Cypress Semiconductor "Business - General" pg.4
- ↑ Cypress Semiconductor "Business - General" pg.4
- ↑ Cypress Semiconductor "Business - General" pg.4
- ↑ Cypress Semiconductor Press Release "Cypress Reports Fourth-Quarter and Record Year-End 2007 Results: January 24, 2008
- ↑ SunPower Corporation "SunPower Signs Agreement to Acquire PowerLight Corporation" November 16, 2006
- ↑ Cypress Semiconductor FY 2007 10-k "SEGMENT, GEOGRAPHICAL AND CUSTOMER INFORMATION" pg. 151
- ↑ Cypress Semiconductor FY 2007 10-k "SEGMENT, GEOGRAPHICAL AND CUSTOMER INFORMATION" pg. 151
- ↑ Cypress Semiconductor FY 2007 10-k "SEGMENT, GEOGRAPHICAL AND CUSTOMER INFORMATION" pg. 151
- ↑ Cypress Semiconductor FY 2007 10-k "SEGMENT, GEOGRAPHICAL AND CUSTOMER INFORMATION" pg. 151
- ↑ Cypress Semiconductor Press Release "Cypress Reports Fourth-Quarter and Record Year-End 2007 Results: January 24, 2008
- ↑ Cypress Semiconductor FY 2007 10-k "Income (Loss) Before Income Taxes and Minority Interest" pg. 151
- ↑ SeekingAlpha "SunPower's Powerlight Acquisition: Both Companies Win" November 16, 2007
- ↑ Cypress Semiconductor FY 2007 10-k "SEGMENT, GEOGRAPHICAL AND CUSTOMER INFORMATION" pg. 151
- ↑ MoneyCentral "Cypress Receives Favorable Ruling From IRS With Respect to a Potential Tax-Free Distribution of its SunPower Class B Common Shares" April 17th, 2008
- ↑ Morningstar "Cypress Semiconductor Company" August 27, 2007
- ↑ Cypress Semiconductor FY 2007 10-k "PRoC" pg. 7
- ↑ BusinessWeek "Unpeeling Apple's Nano" September 22, 2006
- ↑ Cypress Semiconductor "Selected Financial Data" pg.43
- ↑ Tekrati.com "Record Solar Silicon Prices Helping Thin Film Solar Companies and Equipment Suppliers, says The Information Network " January 3, 2008
- ↑ ComputerWorld "Freescale accepts $17.6B equity buyout" September 16, 2006
- ↑ Wikipedia "Texas Instruments"
- ↑ Datamonitor Industry Reports "Global - Semiconductors" January 15, 2008
| ||||||
|
|
