If you don’t mind Risk, Cypress Semiconductor Might be an Interesting Play
NEW YORK – Following Cypress Semiconductor’s (NASDAQ:CY) recent warning for the remainder of the fiscal year, it was no surprise that shares fell. However, some analysts believe that the downside risk has largely been priced into the company’s stock at this point and according to freelance financial writer, Ashraf Eassa, there is very little room for negative surprise for the fourth quarter. Additionally, Eassa believes that the company could deliver surprising results in the coming quarter and that shares could climb at least 30 percent above Friday’s close of $ 9.05.
However, the company’s pre-warning of a ‘disastrous’ third quarter did not fill investors with confidence. In particular, the company warned that third quarter revenue would come in between $ 184 to $ 187 million compared to consensus expectations of $ 204.7 million. The company also forecast that fourth quarter revenues would fall by as much as 11 percent from third quarter revenues, to somewhere just below $ 170 million.
In Cypress’ case the pre-warning looks to be driven by weak Asian mobile orders and the delay of certain handset programs until the first quarter of 2014. While fourth quarter weakness is driven by seasonal declines in touch, customer program delays, and end of life actions.
Cypress CEO T. J. Rodgers is known for his ability to communicate with investors and his position as one of the company’s largest shareholders (approximately 5.6 percent of the shares). In addition, the company has nearly $ 80 million left on its existing $ 400 million buyback authorization, and it is quite possible that the company could ramp up its share buyback while the price is down.
Cypress’ divisions include memory products where it has nearly a 40 percent share of the asynchronous SRAM market, and programmable systems division, which designs and sells a suite of touch sensing products for the smartphones, tablets, cars, and more. Even though revenue was down in 2012 and most likely this year, the business it well positioned to grow over the next several years.
From a financial engineering standpoint, Cypress is an interesting play, especially if the fourth quarter is much stronger than the company projects. Given the company’s most recent guidance, most estimates are erring on the side of caution, so there is a reasonable chance that this could happen. In addition, the company’s positioning in the touch market makes them an intriguing option for value investors with an appetite for risk. While the company needs a whopping quarter to get back on track, they could be well positioned for the long-term.