UBS Investment Research
Downgrade to Neutral on Valuation. Sector
Thesis Remains Positive, Raising PT to $7
A small cap idea that has reached fair value – downgrade to Neutral
Our recent discussions with Cypress and industry checks continue to point to its
microcontroller (PSoC) and smartphone connectivity controller (West Bridge)
adoption. On raised conviction for expected growth for these products, we raise our
price target to $7, however, given the solid performance in the past year (~+55%
YTD) we downgrade to Neutral as we see limited upside potential to the stock.
Expect further growth in microcontrollers, smartphone connectivity chips
We expect PSoC growth, especially given continued design win momentum in
touch sensor/screen applications, with recently announced wins at LG and
Samsung, as well as West Bridge growth with LG and Samsung expected in ’09
and Nokia further out (in addition to RIMM, Motorola as current customers). Even
in the current macro, we expect modest single-digit growth for West Bridge in ’09.
CY model has sustainability on secular growth drivers, focus on margin
Beyond 2009, we expect PSoC and West Bridge to return to double-digit growth
on the secular growth of touch sensing and smartphones. New products in the
PSoC (improved 8-bit, new 32-bit) and West Bridge (support for USB 3.0) families
should sustain growth. For Cypress’s other businesses, we expect limited or no
growth but rather a focus on margin expansion.
Valuation: Raise PT to $7, Lower rating to Neutral
We raise our DCF-based 12-month PT to $7 (16x 43c 2011E EPS) from $6.
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Profitability & Valuation
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