TORONTO — Cypress Semiconductor continues its road trip away from low-margin, commoditized business with a third-quarter earnings report that it described as “stellar,” driven by the Internet of Things (IoT), the automotive market, and USB-C.
In a webcast for investors and analysts, president and CEO Hassane El-Khoury said that it was the company’s best quarter since 2011, and its “Cypress 3.0” strategy begun in 2016 to focus on the IoT is paying off faster than expected. Cypress reported record revenue of $604.6 million with its IoT wireless connectivity business growing 80% year over year. Cash from operations of $143.8 million increased 37% year over year. El-Khoury highlighted the company’s combination Bluetooth/Wi-Fi chips as a key reason that Cypress has the “#1 connectivity business,” but its MCU and memory portfolios are also key contributors. “MCU and memory products are critical to our IoT strategy,” he said. “Many of our IoT customers use memory products for mission-critical applications, thus putting a premium on Cypress memory products.”
Consumers are helping to drive Cypress’ growth, in part due to the company’s USB-C business that’s benefitting from Apple’s latest iPhones, as well as its technologies being incorporated into products popular with the upcoming holiday shopping crowd, said El-Khoury, such as smart home products and even connected cars. “Consumers buy IoT products expecting a great experience. That’s why Cypress wins.”
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Beyond specific market segments, Cypress’ has shifted away from low-margin, commoditized businesses to higher-margin, “sticky businesses,” as well as cross-selling to provide customers solutions at the system level. The company’s customers are relying on it for more bill-of-material coverage, with approximately 80% of its revenue generated by customers buying more than one product family across connectivity, microcontrollers, and memory.
This cross-selling approach includes smart cars for driver safety such as advanced driver assistance systems (ADAS) and infotainment systems that help OEMs differentiate themselves, said El-Khoury. The company only has so much capacity, so it’s going to stay in its sweet spot and continue to focus on the automotive and industrial segments.
In a one-on-one telephone interview with EE Times following the webcast, El-Khoury said that value-added memory products really speak to the needs of the industrial and automotive markets, and Cypress expects to see a lot of traction over the next five to 10 years. He noted that some of the ADAS designs using the company’s products haven’t even begun to ramp up yet.
Cypress’ broad automotive product portfolio that includes AEC-Q100-qualified microcontrollers, flash memories, PMICs, and Human Machine Interface devices helped to drive record revenue in its latest quarter.
Automotive is a segment in which safety and security are critical, and that extends to other embedded applications such as the smart home and wearables. El-Khoury said that the company hasn’t abandoned any customers by dropping lower-margin opportunities. Rather, it’s changed its approach to going to market with these customers.
He said that customers are putting a lot of investment upfront, particularly into complex software capabilities, and want assurance that vendors are equally committed to a roadmap across different streams. In Cypress’ case, that’s the connectivity through Bluetooth/Wi-Fi, the MCU, and the memory. “They want confidence that we’re investing in all three.”
Rather than playing vendors off of each other for the best deal, said El-Khoury, customers want to partner with a one-stop shop so that they can move quickly. Otherwise, they risk losing market share. “Once they pick a vendor, the investment happens on both sides. It’s more of a partnership than a customer agreement.” He said that this is particularly true in automotive, wherein getting approved as a supplier is a rigorous process for an OEM.
Like other vendors, favorable pricing in the NAND flash segment helped boost revenue for Cypress, said Jim Handy, principal analyst with Objective Analysis, but it’s also built a broader portfolio and is spending more time focusing on its own profitability and targets rather than outdoing a competitor. It’s also done a good job of nurturing the automotive business that it acquired through Spansion. “Cypress was not big in the automotive market until they bought Spansion.”
He said that the company’s strategy of having more than one product in a customer’s environment is something that all large semiconductors are aiming for so that customers don’t go to competitors. It gives customers “one throat to choke,” although they are wary of getting locked in. “Cautious OEMs will always make sure that they don’t become overly reliant on one supplier.”
Handy said that Cypress is “well-defended” in the SLC NAND flash market, one that most companies don’t want to deal with. SLC NAND sells for 10 times more, but only costs twice as much to manufacture. He sees a lot of upside for the Bluetooth and Wi-Fi product portfolio as there are still new things being connected wirelessly, such as doorbell security cameras. “I could picture a lot more things like that going into the home.”
—Gary Hilson is a general contributing editor with a focus on memory and flash technologies for EE Times.