Cypress Semiconductor got a price target increase Monday from an analyst who sees significant cost synergies from its acquisition of Spansion last week, and he ponders whether the 1,600 job cuts reportedly in the works mean that the company will exit some of its businesses.
RBC Capital Markets analyst Doug Freedman, in a research report Monday, increased his price target for Cypress stock to 18 from 17 after the merger with Spansion.
San Jose, Calif.-based Cypress Semiconductor, which specializes in microcontrollers and flash-memory chips in automotive, industrial and consumer markets, announced Friday that it had closed the merger, which it valued near $5 billion.
Freedman pointed to a report by the San Jose Mercury News, which obtained an internal memo saying that 1,600 workers would be laid off over the next three weeks.
“The speed and magnitude of the cuts are faster and larger than we would have expected, making us believe that some business lines are being exited as part of the restructuring,” Freedman said.
Freedman calculated that Cypress could cut total costs by $112 million to $160 million as a result of the layoffs.
Cypress Semiconductor stock, though, was near 16, down a fraction in early afternoon trading on the stock market today. Cypress stock touched a three-year high of 16.25 on Friday.
The Mercury News reported Friday that it had obtained a memo sent to employees by Cypress founder and CEO T.J. Rodgers saying that cuts would be “equally split between the two companies, with all North American employees being notified of their status by Friday.” About 20% of the company’s combined workforce will be cut, according to the memo.
“We believe Cypress Semiconductor’s merger with Spansion is transformative, as the combined company should be able to leverage a combined sales force and R&D workforce that is smaller than if each company operated stand-alone,” Freedman said.
Spansion’s fabrication plants in Texas could be used more heavily, resulting in higher gross profit margins, Freedman says.
Cypress Semiconductor also continues to demonstrate the ability to cross-sell its technology into new markets, Freedman said.
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