Cypress Semiconductor: Could Benefit from "Surface" Tablet Success
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For most of the past year, Cypress Semiconductor (NASDAQ: CY) has sailed into headwind after headwind. There is a good possibility, however, that the winds may be changing.
We can look at the stock on a chart and see how it peaked in mid February. From there it started a bearish trend to where it trades today at $12.51.
What I find interesting is that an analyst, Sterne Agee, reiterated that it believes the stock is a buy and has a price target of $19. A 52% price increase! Why so bullish on the company?
One move that Cypress has continually pressed is its bid to buy competitor Ramtron (NASDAQ: RMTR). So far though, it has resisted Cypress’ attempts to purchase the company. Ramtron International Corp turned down rival Cypress’ original offer of about $87.6 million, but it was refused in order to “explore other options.” What was the reason for the brush off? It did not believe that Cypress’ offer reflected the intrinsic value of the company, and the deal would not be good for its own stockholders. Then, Cypress made a second bid. Now it is looking at buying outstanding shares for about $2.68 per share in cash, which is close to 47% above current value.
But this would be a great merger for Cypress. It would be a shot in the arm for its “Memory Product Division,” which generates about 42% of the company’s total revenue through SRAM Memory. Ramtron has what is called ferroelectric RAM (F-RAM), a good complement to Cypress’ SRAM memory.
This is one strong positioning move the company is making for the future, but I believe the real reason Sterne Agee is so bullish on the stock is because of its relationship with Microsoft (NASDAQ: MSFT) and the launching of the “Surface” tablet. Agee asserts: "For CY, the 11-15" Touch surface is a $4-$6 per unit opportunity versus $2 (or under) in handsets." This makes the “Surface” much more profitable for the company and its touch sensor control chips.
If it is embraced by consumers, the 10.6” screen, which is larger than the Apple iPad screen, and the touch sensitive key pad will be real selling points. Cypress has a relationship with Windows 8 and it could be the beginning of a tablet-cover market that also includes Cypress technology.
It will not be the only company to benefit. Initially there will be two versions of the “Surface;” one will use an Intel chip and the other will use a microprocessor made by ARM. This is where it will compete with the iPad.
What Sterne Agee sees is a new type of tablet that has had good initial reviews. He anticipates enough of an embrace from consumers to see Cypress Semiconductor benefiting from a new product. This is the catalyst that will turn the company’s stock around. Does this make you bullish?
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