2017 was a great year for the semiconductor industry thanks to robust demand for chips across multiple industries. The Philadelphia Semiconductor Index rallied 46% this year, easily beating the S&P 500's 15% gain.
Some shining stars, like Cypress Semiconductor (NASDAQ: CY), even outperformed the index -- Cypress itself grew nearly 50% this year. Yet there were also laggards, like AMD (NASDAQ: AMD), which stayed nearly flat this year after being one of the hottest chip stocks of 2016.
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I previously compared these two chipmakers back in February, and concluded that Cypress was a better pick thanks to its better-diversified business, wider moat, and decent dividend. Today, we'll reexamine both companies to see if Cypress is still a better buy than AMD after its year-long rally.
What do Cypress and AMD do?
Cypress produces a wide range of analog and memory chips for the automotive, industrial, home automation, medical devices, and consumer electronics markets. Most of its recent growth comes through acquisitions. It merged with embedded chipmaker Spansion in 2015, then acquired Broadcom's Internet of Things (IoT) business last year.
Cypress reports its revenue in two segments: the MCD (microcontroller and connectivity division), which sells analog, wireless, and wired connectivity chips; and the MPD (memory products division), which produces NOR, NAND, SRAM, F-RAM, and other types of specialty memory chips. The MCD unit generated 62% of its sales last quarter, while the MPD unit accounted for the remaining 38%.
AMD is the world's second biggest supplier of x86 CPUs and discrete GPUs. It directly competes against Intel and NVIDIA (NASDAQ: NVDA), which respectively lead the CPU and GPU markets. Those two businesses are placed together in AMD's Computing and Graphics unit, which generated half its revenues last quarter.
The other half of its revenues came from its EESC (Enterprise, Embedded, and Semi-Custom) unit, which provides custom SoCs (system on chips) for gaming consoles and other devices.
How fast are Cypress and AMD growing?
Cypress' revenues rose 20% to $1.92 billion last year thanks to a combination of robust chip demand, a transition toward higher-margin chips, and its inorganic growth strategy. Analysts expect its sales to rise another 20% this year, then cool off to 7% growth next year as year-over-year comparisons stabilize.
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On the bottom line, Cypress' non-GAAP earnings are expected to grow 76% this year and 38% next year. Cypress attributes that growth to the expansion of the IoT market lifting demand for its connected chips, which provide Wi-Fi and Bluetooth connectivity to a wide range of devices -- including Nintendo's popular Switch console.