It's no secret that cars were a very big deal at CES 2017. Cypress Semiconductor  (CY) must have been happy to see that: The chipmaker got 32% of its revenue from the automotive market in the third quarter, and is keen on growing that number as the arrival of more intelligent/connected cars spell new opportunities for Cypress' micro-controllers (MCUs), connectivity chips and memory chips.

I had a chance to talk with Cypress CEO Hassane El-Khoury about his company's attempts to grow its presence within cars and other IoT-type markets. CFO Thad Trent was also present.

El-Khoury, who took the top job at Cypress last year after founder T.J. Rodgers stepped down, noted that Cypress' IoT wireless connectivity chip business, acquired from Broadcom last year for $550 million, is growing rapidly as Cypress cross-sells the unit's products to its existing customers. Whereas the business had done $189 million in revenue over the prior 12 months as of last June (when the deal was announced), it did $62 million in revenue in Q3, implying a $248 million annual run rate.

El-Khoury asserts the connectivity chip intellectual property Cypress obtained from Broadcom is best-of-breed, and that customers are willing to pay a premium for it. And while only about 10% of the unit's current sales are to the auto market -- 60% comes from consumer products, and 30% from the industrial market -- Cypress sees this number rising thanks to the design wins it's now recording.

Cypress is also looking to create single-chip solutions featuring both an MCU and Bluetooth/Wi-Fi connectivity; it currently has chips pairing an MCU with Bluetooth. Many Qualcomm Snapdragon processors integrate Wi-Fi and Bluetooth with an app processor.

On Cypress' recent deal to support Verizon's (VZ) cloud-based ThingSpace platform -- it helps developers create and manage IoT devices -- El-Khoury stresses that the deal isn't exclusive, and that Cypress ultimately wants to support whatever IoT platforms its customers are using. He adds Cypress' WICED IoT platform (obtained through the Broadcom deal) already supports Google and Amazon's cloud platforms.

In addition, given how many companies are going after the IoT hardware market -- perhaps too many -- El-Khoury argues Cypress' sales approach for the IoT connectivity chip market works better than Broadcom's. "Their business model was...a handful of customers, a lot of products. Our model is 30,000 customers wide," he said.

On the subject of how Cypress' MCUs are differentiated in a very competitive market -- other major players include Texas Instruments (TXN) , NXP Semiconductor (NXPI) (about to be acquired by Qualcomm), Microchip and Renesas -- El-Khoury claimed that the analog integration of Cypress' chips is unmatched. Amplifiers and other analog circuitry that can require buying a separate chip from a company like Maxim Integrated (MXIM) if a rival's MCU is used are often built into Cypress' products.

Cypress' capacitive sensing technology, which is used to take in analog signals such as touch input, is also cited as an advantage, as is the ability to embed 2D graphic processing within MCUs for cars and other markets. "We have the best capacitive sensing technology in the world today... We have the #1 market share, and we're 2x the #2 guy," says El-Khoury.

The company also talks up the value of its chip integration work in the wearables market, where space can be at a premium. "When you have a chip that is able to do the battery, the touch, the LCD and the Bluetooth connectivity, and it's an ultra-low-power technology, you win," says El-Khoury.

He insists Cypress isn't squaring off much against app processor vendors such as Intel (INTC) and Qualcomm (QCOM) in the IoT processor market, and that these companies are more likely to see their products go into IoT gateway devices rather than end-products. The very low power consumption provided by MCUs is cited as a major edge.

All the same, as embedded systems become more powerful and new power-sipping chips keep launching, competition is likely to intensify. Intel's Quark microcontrollers and Samsung's Artik processors are among the low-power solutions from app processor firms that target IoT devices.

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Looking broadly at the IoT market, El-Khoury predicts Cypress will be able to continue outgrowing the chip industry as embedded devices become more connected and intelligent. Here, he notes Cypress has design wins for both Amazon's  (AMZN) Echo devices and Dash product-ordering buttons, with the latter using Cypress Wi-Fi and Bluetooth chips.

El-Khoury doesn't mince words when it comes to Cypress' sizable SRAM and NOR flash memory businesses: He admits they're declining, and doesn't expect that to change. However, he does forecast its sales will only drop by a 1% to 2% annual clip, less than a forecast industry decline of 3% to 4%, thanks to strong exposure to relatively healthy auto and industrial market segments.

Memory chip sales accounted for 44% of Cypress' Q3 revenue. MCUs made up 35% and connectivity chips 17%.

On the subject of whether Cypress, whose 2015 merger with MCU/flash memory maker Spansion has gone well, is open to more acquisitions, El-Khoury and Trent noted the company is still working to pay down the debt it took on to finance the Spansion deal. But they also suggested Cypress is willing to do smaller "tuck-in" deals that increase the number of chips it can sell to existing clients in markets such as automotive and IoT.

And amid considerable speculation that Cypress itself could become a buyout target -- the company, unsurprisingly, has declined to comment on the speculation -- Trent predicted the chip industry's consolidation wave is far from over. "Five years from now, you'll have half the [semiconductor] companies that you have today," he said.

Like many others in the industry, Trent sees all this consolidation as a financial boon for chip companies, and not just due to cost synergies. "Pricing becomes more stable... this industry has cut itself to the bottom, we've all been cutting ASPs over time. With consolidation, you're going to see less of that. We're seeing the ASP curve starting to level out a little bit, and that's good."

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