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Avoid Cypress Semiconductor


The other thing to remember here is this entire sector continues to struggle with weak margins due to lower average selling prices (ASP) of high-end handsets. This is the main reason why Broadcom underperformed for all of 2013. Even so, unlike Broadcom and Qualcomm, which are also battling high-end device saturation, Cypress does not enjoy the leverage of having Apple (AAPL) as a product partner.

This is another reason why I've been unable to give this management team the benefit of the doubt -- not when adjusted gross margin continues to trend lower each quarter while revenue guidance missed estimates by 20%. What this means is management isn't making the right decisions. After so many years of failed plans, I can't say I have any faith it can right this ship.

Now I do realize this may be perceived as harsh. Even so, purely from a performance standpoint, I offer no apologies. Investors are suffering. Today the company's critics are looking smarter with each passing quarter. To that end, I'm buying into any notion that this stock is cheap, even with the 24% decline over the past six months.

The company's exposure to the dying personal computer industry should not be discounted. Let's not forget two of Cypress' largest customers -- Nokia (NOK) and BlackBerry (BBRY) -- are not exactly juggernauts in the mobile/wireless handset market. I question whether Cypress' management anticipated BlackBerry's demise or that Nokia would have sold its handset business to Microsoft (MSFT).

Regardless of the scenario, stay away from this stock. I do understand the appeal of "buying the bottom" but I don't believe Cypress is there yet. Unless you have a crystal ball and know this current management team is still up to the task, you would be better off buying a lottery ticket.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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