Cypress Semiconductor Corporation (NASDAQ:CY) Turnaround Gaining Momentum On Easing Trade Tensions And Robust Revenue Growth

Cypress Semiconductor Corporation (NASDAQ:CY) is back to winning ways after a ferocious sell-off wave threatened to plunge it to two-year lows. While the stock is still down for the year, initial indication is that the sell-off wave has lost its momentum.

The stock has resorted to trading in an uptrend having registered higher lows in recent trading sessions. One of the catalysts behind the recent upswing is the delivery of yet another record-breaking quarter depicted by robust revenue growth. Gross margins expanding as well as cash flow improving has also caught the attention of investors.

After plunging below the $12 a share level, the stock has held steady in recent weeks and in the process rallied by more than 10%. Taking into consideration the steep decline, the stock needs to rally and stabilize above the $15 a share level, which is a critical resistance level.

A rally followed by a close above the critical resistance level should reaffirm the uptrend and consequently set the stage for the stock to make a run for its 52-week highs of $18. On the downside, the stock faces immediate support at the $12 a share level. A sell-off, followed by a close below the critical support level would leave the stock susceptible to further declines in continuation of the downtrend.

Why Cypress Semi conduct bounced back

Robust revenue Growth

Cypress Semiconductor bounced back in the market on returning to profitability and reporting record revenues in Q3. A transition from a maker of commoditized memory chips to a specialized manufacturer and designer of programmable and connectivity solutions is slowly bearing fruit. The transition has helped the company stay clear of the slowdown experienced in the digital memory chips business.

The company reported revenues of $673 million in the third quarter representing a 7.8% year-over-year increase. Non-GAAP gross margins expanded 400 basis points to 47%, as earnings per share increased by 10 cents to $0.14.


“Our strategy and investments to advance our portfolio of highly-differentiated connect, compute and store solutions are paying off. We are seeing a strong design pipeline leading into the fourth quarter with design activity increasing 23% year-over-year,” said CEO Hassane El-Khoury.

Strategy Shift

Increased focus on emerging technologies has helped catapult the company back to profitability on robust revenue growth. The company has increased its focus on solutions for industrial sectors like the auto industry as well as the internet of things

The semiconductor company thus remains well positioned to benefit from long-term growth of connected and driverless cars. It’s NOR chips among a cluster of other auto chips continue to elicit strong demand as the driverless car spectacle continues to gain momentum.

Cypress Semiconductor is increasingly moving away from the memory chips business, even though the segment still accounts for a huge chunk of its total sales. Sales growth stagnation has left the company with no option, but to form’ a joint venture, with South Korean firm SK Hynix. The company has consequently contributed its problematic NAND memory business to the firm consequently relieving itself of unnecessary expenditures.

Bottom Line

A turn to profitability is a development that affirms Cypress Semiconductor growth metrics. The company has also trimmed its operations in the slow growth memory chips business as it looks to focus more on emerging technologies with high growth potential.

Cooling of trade tension between the U.S and China is another development poised to strengthen the stock’s bounce back. Just like other Chinese companies, Cypress Semiconductor came under immense pressure on escalating trade tension between the two economic powerhouses.

With all the bad news already priced in, all indication is that Cypress Semiconductor will continue climbing high after the recent surge.

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