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Why Cypress Semi's Chip Is a Game Changer


Road may be long and difficult, but company is poised for success.

Have you wished that back in the middle of 2003, you'd recognized that the economy was recovering, and that when Apple's (AAPL) new Macs and iPods were starting to fly off the shelves, you'd purchased the stock for something in the $6-$7 range? It's had some fits and starts over the last six years but had you stuck with the stock based upon those new products and others, you'd have had the pick of a lifetime to be sure.

That type of opportunity doesn't come around very often, but when you look back in retrospect, one of the common threads of these stories is that the product or technology involved changed the market. While that's a claim made by just about every company at some point in their history, the fact is that it's rare and difficult to identify beforehand.

Cypress Semiconductor (CY) is in a position to do just that.

Cypress has spent much of the last five years transforming itself from a company that developed a lot of commodity-like products to one in which more than 80% of the products are proprietary. The single biggest driver of the company's growth and the technology that I think is a real game-changer is a programmable-system-on-chip (PSoC).

PSoC is mixed signal (i.e. analog and digital) semiconductor that includes a microcontroller plus analog and digital peripheral controllers and memory integrated onto a single piece of silicon. While that may be a lot of mumbo-jumbo, the bottom line is that they're a more efficient and cost-effective replacement for today's microcontroller applications, which represent a $15 billion market annually.

Microcontrollers are virtually everywhere: in cars, video games, cameras, audio/video products, factory robotics, engines or any type of motor control, microwaves, and refrigerators. Push a button on just about anything and you've activated a microcontroller. They're in just about everything that runs on electricity.

Your personal computer contains an x86-based central processing unit (CPU) probably from Intel (INTC) that's called a general purpose CPU capable of doing many things under the instructions of a program. A microcontroller is a CPU also but it's essentially a single-purpose processing unit capable of performing very limited tasks in response to an external signal. When your microwave completes its cooking cycle, a microcontroller tells the buzzer its time to do its thing.

Today's microcontroller "solutions" are multiple parts (the microcontroller, memory, peripheral controllers) that are connected together (i.e. integrated) on a circuit board. That's the same design that's been in place for decades. The engineer is responsible for insuring that the components work properly together -- which isn't always the case. Furthermore, microcontrollers aren't particularly easy to instruct (i.e. program) given their limited capabilities and the fact that the expertise developed in designs created using microcontrollers from Company A aren't transferable if you need to use a microcontroller from Company B.

In essence, what you have is a solution that's not terribly user-friendly; is prone to failures (which increase with the number of components); has environmental limitations; and may be physically large relative to the application.

Along came Cypress a few years ago with their PSoC1 product that directly targeted the eight-bit microcontroller market. Rather than using a circuit board as the integration medium, the microcontroller, memory, and peripheral sensor are integrated in a single piece of silicon. The PSoC family employs a common programming language across all its products and that now includes PSoC3 and PSoC5, which expand TAM (total addressable market) to include the 16-bit and 32-bit microcontroller markets as well.
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