Cypress Semiconductor Corp. has lowered its third quarter revenue forecast, citing weakness at an unnamed Asian mobile handset customer. The chip vendor also said inventory re-balancing at some other customers in China would likely negatively impact sales for the third quarter.
The company now expects third quarter revenue to be in the range of $184 million to $187 million with earnings per share dropping to between 9 cents and 11 cents. Cypress reported revenue of $194 million in the second quarter and hinted that sales in the third quarter would grow sequentially. The revised forecast indicates a decline of up to 5 percent in sales.
Cypress sells mixed-signal, programmable semiconductor products to customers in numerous markets, including the automotive, data, industrial, military and mobile communication markets. It’s a relatively small player in all of these markets with annual sales in the range of $780 million and doesn’t, as a result, represent a bellwether for the entire industry. However, any weakness in Cypress’ sales could still point to slowing demand in several end markets. Cypress CFO Brad Buss noted in the company’s statement that its final revenue could still vary widely from the provided estimate due to continued uncertainty in demand at customers.
“By geography, the weakness is mainly in Asia,” Buss said. “By end market, the majority of the weakness is in mobile handsets and to a lesser degree in the PC market. Greater than 70% of our revenue traditionally has come from distributors and the final week of September is our largest week of the quarter, and, as such, our revised revenue estimates could vary significantly. Lead-times also continue to be near historical lows, reducing revenue visibility for Cypress and our distribution partners.”
The sales decline expected for the third quarter could be carried into the fourth quarter, a seasonally slower period for the company, according to Buss who said revenue for the period could be up to 11 percent lower sequentially.
“We are very disappointed to have to revise our prior guidance,” Buss added. “However, the revenue weakness is mostly specific to certain end customer challenges in the mobile handset markets and is not a broad-based customer weakness. As revenue growth resumes, and with continued proactive cost management, we expect that we will be in a position to significantly increase the financial leverage in our operating model.”