Cypress Semiconductor Corporation: Why George Soros is Buying in

George Soros Cypress Semiconductor CorporationBillionaire George Soros has been one of the most successful investors in the world. In his portfolio, there is a company whose shares Soros has been consistently adding—Cypress Semiconductor Corporation (NASDAQ:CY).

In its most recent disclosure of holdings, Soros Fund Management disclosed that it had increased its position in Cypress Semiconductor by 4.5 million shares! Soros now owns 17.67 million shares of Cypress Semiconductor, worth approximately $197.02 million. (Source: The Securities and Exchange Commission, last accessed August 7, 2015.)

Started in 1982, Cypress Semiconductor is an American semiconductor design and manufacturing company founded by T.J. Rodgers, who currently serves as the CEO of the company. Cypress Semiconductor went public in 1986.

The company has a successful track record when it comes of mergers and acquisitions. In the 1990s, it acted as an incubator for wholly-owned subsidiaries. Industries of its acquisitions ranged from timing technology, USB technology, RAM technology, etc. The company’s most recent merger was with another semiconductor company, Spansion Inc. The deal was completed earlier this year.

The merger was an all-stock, tax-free transaction valued at approximately $5.0 billion. The merger is expected to generate more than $135 million in cost synergies every year within three years after the transaction closes. Moreover, the deal is expected to be accretive to non-GAAP earnings within the first full year.

T.J. Rodgers, CEO of the combined company, is very optimistic about the future: “The new Cypress will be the No. 3 chip supplier worldwide of memories and microcontrollers to this business. You can think of the post-merger company truly in terms of the well-known equation: 1 + 1 = 3: No. 1 in SRAMs, No. 1 in NOR flash and No. 3 overall.” (Source: Spansion, last accessed August 7, 2015.)

The merger seems to work as expected. In the second quarter of 2015, the combined company achieved $51.6 million in annualized synergies. Moreover, the company was also streamlining operations. In the second quarter, it exited 19 of the 27 sites it planned for closure, and reduced its employee number by 833.

Cypress Semiconductor showed solid financials in the first full quarter as the combined company. Revenue came in at $491.0 million, while adjusted net income was $52.9 million, translating into adjusted earnings of $0.15 per share. Non-GAAP consolidated gross margin was 41% for the quarter, lower than the pre-merger 54% in the year-ago period, but in line with the company’s expectation. (Source: Cypress Semiconductors, last accessed August 7, 2015.)

The company also made progress in its lean inventory initiative. At the end of the second quarter, net inventory was $300.9 million, an $88.0 million decline from the first quarter.

For the third quarter, Cypress Semiconductor expects revenue to be between $490 and $520 million, in line with analyst’s expectation of $505 million. Adjusted earnings per share (EPS) are projected to be in the range of $0.15-$0.19, also in line with analyst’s expectation of $0.17.

The company also looks great for investors looking for dividend stock. Currently, it has a dividend yield of 3.96%.

Despite all the potential, investors haven’t warmed up to the company. Since the beginning of this year, Cypress Semiconductor’s stock price has plunged 21.9% to $11.15. The nice thing about this is, if you get in now, you are likely to be paying less per share than what Soros paid for most of his millions of shares in the company.