Cypress Semiconductor Corporation (CY): Can This Stock Extend Its Rally Post Earnings?

The third week of April will see a number of companies reporting results. Some will provide positive momentum to their stock price with solid numbers and/or a decent outlook, while some will be gunning for a turnaround in their fortunes. Chipmaker Cypress Semiconductor Corporation (NASDAQ:CY) falls in the latter category, as the company looks to do better in 2013 after crashing 36% last calendar year.

Cypress reports first-quarter results on Apr. 18. The company has been waiting on the success of Android tablets for quite some time now, but to no effect. Moreover, Cypress has been reeling under the effects of tepid economic conditions, and its products have not been finding good traction. However, the stock has seen a sort of mini rally since the middle of February, when Needham upgraded it to a Buy from Hold.

As such, the next earnings report will be crucial if Cypress Semiconductor Corporation (NASDAQ:CY) is to justify the surge it has seen over the past two months. Let’s see what the Street expects from the company and if it can provide some hope to investors with a decent showing.

On revenue

Analysts, according to Yahoo! Finance, expect Cypress Semiconductor Corporation (NASDAQ:CY) to post revenue of $167.3 million, almost 10% lower than the prior-year period. The top line has slumped massively in the last two earnings reports, down 23% and 26% in the third and fourth quarters of the previous fiscal year, respectively. Thus, a drop of just 10% would be a terrific improvement this time.

As Needham analysts cited (sign-in required) while upgrading the stock, the company’s most important product, the TrueTouch touchscreen controller, is finding some traction in the budget smartphone market in China. Moreover, they believe that the Cypress’ focus on the e-reader market is another positive. These checks by Needham suggest that the company is on course for a decent top-line showing as far as meeting analyst consensus is concerned.

However, with an expected year-over-year drop of 10%, Cypress will need to come up with some positive commentary about its revenue prospects. The company’s efforts in the Android tablet market haven’t been very profitable for it. While it had landed the touchscreen controller spot in Amazon.com, Inc.’s (NASDAQ:AMZN) 8.9-inch Kindle Fire HD, it didn’t receive much of a lift from this account.

It’s clear that sales of the 8.9-inch Kindle Fire HD haven’t been as great as the 7-inch version, as evidenced by a couple of discounts that the tablet has seen in the past four months. Amazon.com, Inc.’s (NASDAQ:AMZN)’s pricing of the tablet, which went for around $300 before discount wasn’t too far from the iPad mini, and this has hurt sales.

As such, Cypress Semiconductor Corporation (NASDAQ:CY) would be looking to the booming Chinese market for budget smartphones to arrest its slide. In addition, investors would hope that Cypress’ relationship with Samsung (NASDAQOTH:SSNLF), which is a 10%-plus customer, would provide further support to the company’s top line.

The Korean giant has improved its position in tablets as it doubled its share in the fourth quarter last year. Moreover, ABI Research expects Samsung to achieve a similar feat this year as well. This certainly bodes well for Cypress, as Samsung’s growing stature in the tablet market would be a significant tailwind.