Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Brad Buss - EVP, Finance and Administration and CFO

Analysts

Cypress Semiconductor (CY) Bank of America Merrill Lynch 2012 Global Technology Conference May 8, 2012 5:00 PM ET

And I am delighted to introduce Brad Buss, CFO of Cypress and Brad promised to make the most interesting presentation that we so far guaranteed.

Brad Buss

Especially after today.

Unidentified Analyst

So Brad we can go to Q&A or if you want to just run through a few slides, up to you. Or we can just.

Brad Buss

Q&A is always good.

Unidentified Analyst

Okay. Great. And maybe let's start with the last quarter if you could just bring everyone on the same page, what you said. What are the key…?

Brad Buss

Do we have to talk about the last quarter? The last quarter I mean no surprise, was a pretty challenging one obviously. I mean we unfortunately had to preannounce I think most of you saw that. And I think there are still some misconceptions and I am sure we'll touch on touch quite frequently. But there was no competitive dynamics that were impacting it. There was no pricing dynamics which seems to be the question of the day. I mean it was really end customer issues in their sell through. The two tablet guys that we had. I don't think any real surprise there. Another bigger North American cellphone guy that's been in the news a lot was having some challenges, much bigger than what they or we expected. And the good thing is, we've definitely bought (inaudible) in Q1. I mean we had pretty nice guidance as a company. We saw touch rebounding back in a very nice way after horrible Q1 and we said we would grow 25% and I had a lot of questions; oh, that's pretty big, my other two competitors were wishy (ph) wash. But I think the thing you've got to remember is we came up probably a lower base than they did which you would expect to have a little better bounce back and we do have some new designs that are ramping, in the e-reader market, the tablet end of it as well as new cellphones with some of the gen 4 stuff. So I am very confident. Again, macro willing and [Foreign Language] as they would say in Greece, you know who the hell knows what's going to happen. But we feel pretty good on that and I think with the design backdrop that we have for Q3, we're seeing the rebound that we expected.

Unidentified Analyst

So on the touch market, one view is of course, it’s a growth market. There is growing adoption of touch in many different kinds of mobile devices. The other extreme view, look the market is commoditizing, you have multiple suppliers. There is the integration aspect where you have multi-chip solutions going to a single chip solution. You have a number of Asian players coming up. So can you maybe take us through what is the way that you differentiate. What part of the market is sort of protected by intellectual property. So willy nilly people can't just get into the market and how should we look at your touch growth opportunity?

Brad Buss

Sure, well I mean I think the biggest thing just that levels anybody, I still don't see any other end market that semis complain, they are going to grow as fast the touch will really over multiple years. I think that's the first thing to kind of think about. I mean if you look at where the macro is, and you look at whatever GDP plus, whatever everybody likes to apply to semi-growth these days, I mean the touch one of the CAGR, I think will be far greater than anything going. Number one. And then within that you've got the units and you've got the ASP stuff which is getting a lot of attention and if you think about it, the capacitive touch market is barely a third of the cellphone market. We've got that whole other chunk of the market to go. And whether it’s a tablet or whether it's an Ultrabook, whether it’s a car or printer or camera.

I mean there is probably at least another billion to two billion non-cellphone units that we can see over the next three to five years. So if you take all of that and you everyone has a different view on an ASP, it is going to be one of the biggest markets that we see from our end of it that we can still grow and we're one of the key leaders in that. And then I think we're starting to differentiate in that market with our gen 4. I think we clearly have the technology lead. We're half way through doing our Gen 5. We plan on getting that out in the summer and keeping on that, hey, we're the leader, the other guys need to keep up. Whether that's the other two to three incumbents that are in the area or any of the little guys that people are continually worried about, there is not an in-semi markets that doesn’t have multiple competitors. I mean there is 20 guys playing an analogue plus. I mean at least that I count, there's probably more. Every sector has multiple guys other than one or two and I don't think touch was ever going to be one where its only two or three guys. It's not like SRAM where the markets really capped and you've got to fight for your share. I mean this market is still continuing to grow pretty rapidly.

You really haven't seen anybody that wasn’t one of the initial incumbents and they really make any traction. It's been Synaptic, it's been (inaudible) and then to a lesser degree you've really kind of had (inaudible). So a few other guys have tried and they've retreated. Other guys might get one device and are they getting a repeat device. Because it’s a very tough solution to do and it gets harder at every generation as the screens get bigger, it's harder. As you go to a bigger form factor, it's exponential. The move towards on-sell and in-sell raises the bar even higher. So just keeping up with the grind and never mind features that are coming. We're moving into hover, stylus are starting to come out. There is all of these other things that get put into the equation that makes it more and more difficult.

And then forget IP. I mean IP is probably the second question coming out of any customer's mouth these days, because they are scared shitless. They are getting through nine ways to Sunday and the operating system and everything else. And they are very concerned in this area and I think they should be. Because a lot of the newer guys, they don't really have the IP, they are not putting the tad protection in place. And the customers across the board, not only are they asking for identification, but even if you are willing to sign it, you've got to have the financial wherewithal and/or the other patents to stand by it. So you're seeing that become more and more of an issue and I think some of the newer guys trying to get in were very concerned on signing up for some of those. And I think they made the right business choice. And I think you'll see others, which I would put as one of the guys will get more aggressive with ankle budgets that aren't bringing in their own IP into the situation.

So if you take out of the equation, the other thing that we're doing is really, we're the only, one of the programmable solution. And then if you backup just from touch and really think of the whole user interface world, we're interfacing with things very different. It could be the cap sense button that replaced mechanical buttons that then spawned touch. Now it's trackpad. Whether it's an Ultrabook or a Win 8 or this or that, those point deals, track pads that all of you have got are going to become multi-touch trackpads. You will be flipping through things, you'll be pinching and zooming, you'll be doing some kind of Spock thing to turn it on or off. There is a whole different way you're going to interact with these things and whether you buy the tablet or whether you buy the Ultrabook, those are new 100 unit opportunities that we've never played in before. So there is another couple hundred plus million dollar market that we have the opportunity to play in. we've got very good traction in some of the trackpads. We're already into different Ultrabooks. You'll see us in the Win 8 stuff as well.

And then we've got the optical finger mouse. With mechanical that's gone. Those things you are still seeing them in cell phones, you are seeing them in other peripherals. I think you'll start seeing some of it in cars. So we are the only one of the major competitors that can go in to a customer and say hey, you can interface with anything you want with whichever way you want and with us. And by the way every one of them is programmable and then we'll start integrating a couple of those. So again, that's going to be a bigger differentiator that none of the other guys have the full slate of products to do right now.

And just on the cap sense to give you a thing on the competition end of it, just a little mechanical button's going away. The big Galaxy phone, the big Rave, we do the four buttons at the bottom. We've done it in every generation and we still do it in every generation. There is 19 people that compete in that space. We are the last guy to get into it and we have 35% market share in that area.

So again, there is not a market out there where there isn't multiple competitors just who has enough economies of scale to truly compete. And I don't think it's going to change. You'll see the odd guy get a phone or tablet here and there but until they are getting 10 and 20 and 30 that quite frankly I wouldn’t worry about it. We keep our eye on the competition and our view is to set the tone for where it wants to go.

And then, while we're on it, the ASP thing keeps coming up. You saw a lot of ASP movement last year which you'd expect in any year of any introduction of product. Your margins tend to be here. your ASPs are there. You start to amortize cost so you can take it down. But guess what, volume is going up in the cellphone market. So all of that really kind of come into our head and quite frankly if we looked up when we do a product roadmap of where ASPs are from introduction to a scale over time, the ASPs have gone where we thought and actually have been a little better than what we thought. So the fact that it was a multi-chip in a tablet going to a single chip is well expected, was very normal and was on the roadmap and the ASPs are within the range of what we thought and the same thing really on the cellphone end of it.

And I don't see any big movement or change that's going to happen this year that's not like there is 12 different foreign guys come in bomb and price any more. Because the price is really where it's at and the value ad in that module in the chip. And as you go to insell and on sale, you want to save a buck or two, you need the chip to be able to do that. So I don't think you're going to see it pink. And even as you move into the low end of the cellphones, it will have a lower ASP because it will be older technology. But I expect our gross margin file to be as good or better and the operating margin with that to be better because it's less hand holding that you have to do at the top end of it.

Unidentified Analyst

Is there a rough ASP range sort of market range that we should be thinking about?

Brad Buss

Well again, it will vary by, if I could track that, it could be $3 to $5. I mean a Win 8 screen could be $4 to $8 depending on the size and complexity and performance. I would say a higher end, a smartphonish type of cellphone chip would be in a $1.50 range, I think the low end could be $0.80 to a $1. I mean that's still, who the heck knows right now. That's really not all there.

Unidentified Analyst

The eBook readers and the same, sort of.

Brad Buss

Sorry which one?

Unidentified Analyst

EBook reader.

Brad Buss

That would be somewhere between a cellphone chip and a tablet again depending on the size and the performance that you want. And then again, the main thing really is going to be all the units that are varying in those. And then you get outside of the cellphone arena. If you look out at cameras and printers and video cameras auto, those ranges of ASPs will probably be higher than what you saw on the cellphone area because the volumes are much different depending on the customer that you are dealing with. And we're moving very nicely in that. We have a dominant share in the camera market. We won probably 80% of the auto design wins last year for cars that are becoming late this year in to '12 and '13. So I am pretty excited on this stuff outside of cellphones as well. Because again, between that and what we're doing in peace-off (ph) 1, 3 and 5, they are very big end markets that even if some might stay flat for the next five years because the world sucks, we're going into these new TAMs that can keep us growing quite nicely for quite a few years.

Unidentified Analyst

So how should we think about your TrueTouch business this year. I think on the call you mentioned it's going to be flat to possibly down?

Brad Buss

Yes, we said that we would expect it to be down because the hole in Q1 was still there with the tablet stuff going backwards. I don't see any way we can dig through that. I mean unless things rocket in the back half of the year, you might have a chance to getting flat. And I think we'll probably underperform a little bit of the market, a lot in Q1. I think we're probably doing better than the market in Q2 and I think we'll do better in Q3 and 4 as some of these new designs and new customers' ramp. We probably have the broadest range of customers and applications out of any of the guys out there. So I am hoping, as we continue to broad, we don't have one guy bringing it down if they hit a soft patch, which is going to happen. I mean we're all at different players, models come and go, customers unfortunately come and go and we’ve had our fair share of that.

Unidentified Analyst

And the whole industry is suffering.

Brad Buss

Yes, I wouldn’t trade it though. It’s a fantastic business.

Unidentified Analyst

Could you talk about Windows 8 percentage of devices you expect to have touch and type? Of touch where's trackpad or actual screen touch capacitive touch? What units do you think will support touch?

Brad Buss

Generically we are very optimistic on the Win 8 platform. We think it will do very well and for us in both of the areas that you mentioned, the trackpad area that again new to us as well as screen. We think as that initial rollout kind of year, where is it going to be, what are the form factors, pricing could be interesting. I don't think we're really going to see a decent lift I should from it till next year. but I think it's very real. What we see and what our engineering guys see, the roadmaps are really good. The products are pretty good. The standard issue of what software platform do people want to pick. These days you're picking a platform and the device is really secondary. I mean you ask a kid, they don't say I want a Motorola phone, they don't even know who the hell makes the phone. They are picking the platform and that's what's going to go on. But what the install base that's out there and then the ability to truly bridge work and your personal life. I mean that's kind of where the bread and butter can be. But we're very optimistic that that could be 20ish percent of operating system business over the next few years and we definitely will be partaking in that. We'll have some stuff rolling out this year alter in the second half of the year but I don't think it's really meaningful for us or really the industry into early next year.

Unidentified Analyst

[Question Inaudible]

Brad Buss

That's a combo. There will be some of those.

Unidentified Analyst

Just maybe Brad follow on that question. Do you see Windows 8 as the opportunity for a lot of the traditional PC players to get into this market like as you look at your customer engagement, there's still the traditional smartphone you need to gather. Are you engaged…

Brad Buss

No it’s a traditional PC flash some of the bigger smartphone guys. There is always a couple of other guys that we're sitting back on. What are you doing? We don't turn him away. If they think they have a decent shop, we'll send the engineer in resources with him but we don't. we think it's one of those why do I want to tie two guys up for six months. We'll tend to pass on it and concentrate on the major guys. But yes, I don't think you'll see a lot of new surprises out there maybe the traditional people you want to keep your eye on it.

Unidentified Analyst

It's not like the older telecom market where you just had a lot of a these competitive people get involved and flooded the markets.

Brad Buss

I think the whole tablet hurrah to beginning at CES when you're looking around and going, how many of them ever even went to market and then those that did, we all knew how that turned out. But I think again, that was a function of form factor and the operating system really not quite ready. We're pretty optimistic on where the Android and the Microsoft part will go in addition of the Apple stuff will continue to do well.

Unidentified Analyst

You do think Windows 8 will have a better shot at the tablet market than Android did?

Brad Buss

I think probably equal. It just depends. There's so many business users. It doesn’t take a lot. You don't need to convince too many to do pretty well on the tablet end of it. But whether they go, it's like I said, whether you end up going tablet or the Ultrabook gets so close that it's really just a personal form factor choice. We don't really care because we have the opportunity to be in both. And even if it switches from the tablet into the Ultrabook innovative, if I can do the screen and the touchpad or one of the other, ASP I am as good as the tablet or potentially better. So we're very optimistic because that's hundreds of millions of units that we've never done a goose (ph) in notebooks historically. And then we have the opportunity with USB and a couple other things we have up our sleeves to get a higher dollar content per device.

Unidentified Analyst

Brad, the question on your non-touch PSoC business, obviously a 32 bit line done extremely a lot share, that ARM line has helped, has gained share a lot and you've had very, now you're playing not just in the consumer markets but also in the industrial and automotive, other end markets. So how do you see the long term growth in this business. Is this a double digit kind of growth business and also on the margin profile and how this fits into overall cost rate.

Brad Buss

Sure, again I love the touch and again, like I said, it's going to be one of those big secular grower things but what I love even more that being said an offshoot from our base PSoC business. I mean if you wind the clock back five years ago and you had the crystal ball to say hey, worst user interface in touch and who's going to win. Trust me, you wouldn’t have taken Cyprus in that now. I mean who would have voted there? I wouldn’t have. And I worked there. And the only reason we're there is because of the flexibility of that PSoC fabric and the software. The only reason not now is there because they bought the company that we should have bought it up, but we didn’t. so they should be thanking us for allows us then the opportunity to get into that business, and I'll thank them after the conference.

And that's the beauty of the PSoC. So it's allowed us to get some early entrees in to certain areas and then go deep into some verticals like touch and then the three and five that's allowing us to have that can expand pretty rapidly. So there's about $15 billion TAM that we can play in it. It's about 10x greater than what PSoC 1 was. And quite frankly PSoC 1 was a pretty wimpy part. It was a home grown microcontroller that couldn’t even cover the whole 8 bit market and I have this really cool chart that shows us as the number sixth or seventh guy in the 8 bit micro market now. And we don't even cover the whole damn market. We are the fastest growing guy in that market last year.

So what can we do in three and five and we're just on the cusp of that. We've got north of I think 18,000 software downloads, thousands of kits and over a 1,000 design wins. The problem is there's a long design win cycle but it’s a longer revenue cycle and they are just starting to bleed in right now in to revenue. So I think sequentially year-on-year I should say, I mean that will grow pretty nicely but off a small base and there is no reason there couldn’t be a couple hundred million dollar plus business growth opportunity just there beyond what happens in the touch arena and then if you add that with some of the SRAM dynamics USB 3 going, the core business has a lot of different growth drivers that all have very good margin profiles, because the PSoC like you were saying as well as the touch, they are up in our target range of where we want to be in gross margin and then you are seeing our memory business running at 60% in a shitty Q1 not too bad and that's why even in our Q1 that was horrible on the revenue line, we will still do that 57% gross margin in our core business. I would never have guessed that four years ago but we've got so much of that cost structure flexible and such a good mix of the business and the PSoC is enabling a lot of that to happen.

Unidentified Analyst

Just a bit in the SRAM market as leaving the market and how big is that opportunity for you and when does it start to flow?

Brad Buss

Yes great question. So our good friends at Samsung are leaving that market. The end of life notices or end of by order I should say, need to end by the end of June and then they are supposedly delivering by the end of the year. so that's their announced timeline which could change who knows. We think they are around 150 to 200 millionish, kind of roughly. We're number one NEC/Renaissance are number two, they were number three and our other friends at GSI were number for. So there is no indication that people are rushing to place big orders yet. We don't see any unnatural pricing acts getting done to entice people to do anything and even if they did, we wouldn’t partake in it. We'd say fine. If you want to load up on inventory, knock yourself out. When you are done, we'll see you in x months or x quarters, whatever it maybe. So we're very optimistic on that. I think that whole market dynamic has changed over the last few years. You are seeing it in the margin and the operating margin profile and we only see it getting better and then obviously we have depending lots going on with GSI, trampling on the IP end of it and that should come to a head with the ITC by the end of July. So we'll see where that takes us.

So I think why you don't have the big sexy fast growing market like you do in touch, you also have more stable business environment in there that I think they are share gains for us in there never mind the fact that we're starting to see a little bit of life in the telecom guys that we expect to pick up in the back half of the year and we're also going into some new areas in SRAM a little more in to automotive, military and aerospace where we traditionally in place as much. We think there could be another 50 to $75 million TAM expansion TAM expansion in that area that we're starting to bite into the next couple of years.

I don't think it's going to be an area that is on a rocket ride but I think depending on CapEx spending with the careers in that, has very nice profile to it and obviously very nice margin and very low CapEx for us these days.

Unidentified Analyst

Brad why don't you give more confidence about or maybe it's just not perception about gaming that Samsung should. Is it just that transition is taking longer or what…

Brad Buss

Because again, it’s a little too early to tell what the customers are all going to do. Like I said, there is no indication they are rushing to sign up and there is no indication but until they decide and they convert and/or your calls, it's just an unknown. I get a lot of people that are going geez, your restaurant business is going to go up 50 million in Q4, and it's totally bonkers. That is not going to happen. So I'd like it to happen and we're ready for it to happen. There's capacity waiting for it.

Unidentified Analyst

So what are those customers saying? Why aren't they knocking around your door to make it sound like…

Brad Buss

I didn’t say they weren't. And we're obviously very aggressively out there doing it. It's just they don't need to make a filed decision for a couple more months. And again, I don't see them making any big decisions or commitments because unlike other times when there is an end of life, you've got very low lead times in the industry and you have very good capacity and again, you are in an environment now where people don't want to hold inventory unless they really, really, really have to. And I don't think those dynamics will change.

Unidentified Analyst

And you don't see any of your competitors play a pricing game to sort of grab that share?

Brad Buss

No nothing at this time. You really don't need to. The natural guys there are generally going to get a fair bit and then you're going to get into a situation where you already have 60% of my business, but I really want you to have 80. So there's going to be natural share split that will go on out there and people will benefit from it. But yes, I think we still have over this year and into next year the opportunity to grow another 10% points easy in the SRAM business.

Unidentified Analyst

So somebody had mentioned to you a few years ago that you would see this huge growth in smartphones and tablets but that debt account CapEx is going to stuck like the way it is doing right now. Would you have believed that?

Brad Buss

I think yes and no. there is always timing differences in everything. We obviously saw smartphones and cellphones being a huge area in area we were in, that's why we make conscious choices to get there. But the carrier is quite frankly were in a dilemma with the rest of us where the amount of conception going through and it's gone nutty with 4G and they need to get a return. They probably haven't got a return on their capital from 3G, never mind how am I going to get it on 4G. so there is going to be a coming of Jesus meeting and I think they are using that to their advantage right now and trying to figure out who's paying the pie and how do I get a return, which quite frankly is the right business decision.

Unidentified Analyst

But do you think that they have a choice so that if you do have a lot of these new phones coming out that the 4G ID capability that they at least need to have that.

Brad Buss

You're going to have people who are going to go nuts, well you know the service already sucks in general right for all of us. So it's just getting multiplied.

Unidentified Analyst

So who gets squeezed then. Who has the advantage?

Brad Buss

Consumer as usual. I think it's just a matter of time. It sounds like things are getting worked out and we are seeing people getting ready to spend again a lot stronger in the second half than the first half for sure. And again, from our end of it, we're well placed with really the all major guys. So whoever ends up winning, we tend to do pretty well. So there is not a big com guy on the wireless or the wire line side that we're not involved with.

Unidentified Analyst

USB 3, you mentioned that as a growth driver. How is the uptick for that? Is that Ultrabooks that's going to drive real demand or what's…

Brad Buss

We don't tend to play like kind of in the hub end of it and the notebook or the desktop. We really play more in the peripheral which again is good because so many things are plugging in these days and with now at the throughput, the 5x better, its backwards compatible, its lower power and again, as you all know, more and more things are getting charged via USB. Like in china they are basically line wall plugs. So the USB in of it is a big deal and now that everyone's a video freak and moving big files, and you got a 20 megapixel camera, the files are massive. The other thing that I think is important from our end is that USBs are third kind of major product line as a company but it's pretty small and hasn’t had innovation for years. So this is giving it a nice shot and even guys that are 2.0 that are moving to 3.0, their ASP is about is 50% to higher uplift.

So it's not a cannibalization one for one or oh boy you're giving away more to lower price. It's actually better for us and there is new business coming in, the industrial end of it. We see it pretty heavily as well. And again, the nice thing there it's one of those where it generally bleeds in over time. Our guys figured it a year and a half to two years before we really started getting anywhere near peak penetration. So we should see that continue to grow. And then we're bringing out a USB 3.0 version of like our West Bridge chip that we're getting some really interesting traction and we learn from the first one and we're seeing applications in cellphones, tablets and PCs with this. Because again, there is so much data moving in and out and this is really a data transfer accelerator beyond just the USB portion of it. So stayed tuned on that. Don't get too excited in your models yet.

Unidentified Analyst

How is the ASP roughly? You mentioned in USB uplift.

Brad Buss

About 50%.it's been running 50 to 100 and the interesting thing on USB, it was probably one of our and again, we do very exhaustive business plans to get a chip launch and it was probably one that I've seen in my seven years. It was actually on time, slightly under budget and has exceeded the marketing forecast. Usually the marketing guys are all taken over the world. So that was really good to see, so we're seeing very good uptick in that area.

Unidentified Analyst

Gross margins that's quite well, I think 55% plus and 57% in your core business. So what's the passion there to I think your longer term targets are in the high 50s, closer to 60%. Is it more of a mix issue, more utilization?

Brad Buss

It’s a combo. I mean I would say the 58 to 60 we talk about, we are in that range before. So obviously I need a little higher revenue level because we only have one fab left. So that fab's slightly under loaded right now. But as the revenue goes up, the absorption gets better there number one. Once I kind of cross over there into that 240, 250 range then the foundry business really picks up. So when our gross margins are cranking, our foundry mix was mid 40s and now we're in the 20. And that why when we talked in the low end of the cellphones, that that baby starts kicking in. most of that's coming through the foundry. So then I have stopped downs on my foundry pricing not only for that business but it applies across the whole company. So then we have the ability there to either go after greater market share if our margins are that good or the margins could accrete up. But I don't really want to see the margins going north of 60. I would rather use that margins and be able to price and take share. I want to see us grow twice the industry, that 58 to 60% gross margin and then drop close to 30% to the bottom line and then take about 80% of that free cash flow and give it back via buybacks dividends, take the other 20% to use some of our emerging tech deals that we have going. Some of them are pretty interesting.

Unidentified Analyst

Right. I think that's one of the unique aspects of Cypress, your emerging technologies and how you are able to pull that back into the main business as it starts maturing. But how do you look at inorganic M&A. is that a part of the strategy?

Brad Buss

Yes definitely. We'll let other guys run around paying 70% premiums for businesses and wondering if they can keep their revenue that they just paid a big premium or the people or the culture and our view has been the more go after some disruptive stuff outside of our core business that we can really make a difference, price it differently and then hopefully growing some faster end of the market. Because we're already growing and it doesn’t mean I wouldn’t buy something to tuck in to the core business but we don't want to add a new line of business because we've got big market opportunities in all of our core business as it is, so we rather spend, that might take us a year or two or three to build the revenue, we don't get instant revenue gratification but I think we pay less for it and I think we have a higher chance of success than some of the other deals that have gone down in the semi space. A lot of them really haven't been home runs or even doubles. But I am really glad to see a lot of those smaller guys throwing in the towel because I think it’s the right thing for them in the industry. It's very, very tough. If you are sub 300-400, running a public company, they can barely generate enough GP to honestly cover the R&D.

Unidentified Analyst

Can you update us on what some of the hot new areas that Cyprus is working on when some of these might come to market and become like meaningful revenue drivers?

Brad Buss

Sure, well so remember we used to have the trackpad in it. That's done well. We've decided we are going to make it mainstream, we moved it in to the core business as part of the segment realigning we did. So I would say the biggest one you want to keep your eye on is DekTek. It's doing very well. He has a very high hit ratio with customers. Many of my peers in the industry and some competitors even, it’s a very disruptive, intriguing technology that again is a multi-billion dollar opportunity and as they move into the silicon interposer space, that's even much bigger. The problem is more of them like that, but the packaging and substrates have not followed it right. So that's the big area and it’s a big area of cost and as everything goes thinner and more mobile, it's become a limiter in what you can do in some of the end materials. So we've got a really interesting way there. We've had a couple of guys that have loved it so much customers that want to buy into it. They want an equity stake. They see it as attractive, not something we need to do or want to do.

So right now he's out there displaying customers and again, it’s a fairly long call process, but I think as you exit this year and you go into '13, they'll start seeing a very good revenue contribution. Right now when you look at our consolidated results that include the drag of the emerging tech business. So that's $0.03 to $0.04 a quarter. So think about it, $0.12 a year, I just get those pigs to breakeven, I've got a 10 to 12% earnings growth right there. Never mind them becoming accretive and never mind what if DekTek ends up being worth $0.5 billion company by itself one day or we spin it or keep it or go public or lord knows what happens to it. So I think you really have to and that's why I reported in the press release the core group in that emerging tech so you can understand the drag of that group, evaluate the core and then you can do your own work on what's the optionality of that emerging tech business. Do you want to give it zero, give it zero. If you want to give it a few bucks, give it a few bucks. But I mean I think that thing could be worth $3 to $5 down the road but I don't think stock get into the stock price. And yes, we got to deliver and we got to improve on it. And I think its head in the right direction. I am very optimistic in it.

Unidentified Analyst

Maybe we just have time for one last question. You've boosted the dividend 22% recently. Is there a certain targets, the payout ratio that you'll keep over time or how do you look at that dividend payout?

Brad Buss

Yes, so if you look at the concept like I said about 80% of that free cash flow coming back. I could see 30ish being pegged towards dividend and then the balance going into buybacks but only if it makes sense. Obviously I think very opportunistic time now in my opinion and if it wasn't, we would just sit with the cash and there's always a time in semis when you'll be able to go through with it and then as we've bought back shares, I can keep the same dollars off the door with having the yield move without spending more and more money. But I think right now, that's probably the rough area that we're targeting right now. So while the stock's at a 52% week low, you're going at 3.1% dividend with a call option emerging tech and touch hasn’t blown up. Get over it.

Unidentified Analyst

Great. Thank you so much. I appreciate it.

Brad Buss

You are welcome. Well thanks for coming. Appreciate it. Thank you having us here.

Unidentified Analyst

Thank you.

Brad Buss

Good luck.

Question-and-Answer Session

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cypress Semiconductor's Management Present at Bank of America Merrill Lynch 2012 Global Technology Conference (Transcript)
This Transcript
All Transcripts