Cypress Semiconductor: Undervalued and Very Appealing

| About: Cypress Semiconductor (CY)

Some analysts worry about the future for Cypress Semiconductor Corp. (NASDAQ:CY) , but I think this is going to be one of the big surprises in 2007.

The concerns about the company range from the commodity costs it faces to the declining market for its static random-access memory [SRAM] technology, which accounts for a third of CY's revenues. Of course, there are also those high R&D costs and the cyclical nature of the semiconductor business to worry about.

But there are two parts of CY that I think will make up for all of these concerns and pave the way for serious growth and maybe even a "takeover" in 2007. The first is its PSoC division -- this stands for "programmable systems on a chip." This technology has become extremely popular and its $50 million in revenue has helped drive CY's overall revenues in 2005. The company believes this technology is only going to become more popular as it develops further in coming years and it should make up for any flagging results in other divisions.

The other reason I believe in this company is its 77% ownership in SunPower Corp. (NASDAQ:SPWR), a solar power company. While SPWR hasn't been too profitable in recent years, many believe strong results are just around the corner with the growing interest in green technology. And it has certainly been a good source of revenues.

CY sold a part of its shares in SPWR this year, for a nice profit, but it seems committed to the technology, which I think will pay off in the near future. There are definitely some reasons to be leery of CY -- its net margins aren't all that impressive, and this is a very competitive industry. But there are also some compelling strengths that I think are about to turn into serious profits. The company is also a terrific target for acquisition.

Type of stock: An undervalued chip and semiconductor company that has two very appealing technologies.

Price target: I think the next four months will be great for CY. I see the stock price going as high as $25. I'd buy at its current price, just above $17. Other analysts are saying otherwise, but I believe this company is poised for growth.

CY 1-yr chart