Cypress CEO seeks to rise from ashes of fight with predecessor

Cypress Semiconductor Corp. A Programmable System-on-Chip from Cypress Semiconductor Corp.

A few months after a bruising battle with its founder and longtime chief executive, Cypress Semiconductor Corp.’s current CEO, Hassane El-Khoury, is finding coherence in the renovated yet battle-scarred company that remains.

El-Khoury, formerly a top executive in the automotive division at Cypress CY, +0.13%became CEO of the San Jose chip maker last August. He replaced T.J. Rodgers, well known in Silicon Valley for his outspoken views on the semiconductor industry, government policies and politics.

Earlier this year, Rodgers stunned many investors and the press when he began a proxy fight with his former company, over its chairman’s role in another rival chip industry deal. Rodgers alleged that then-chairman Ray Bingham had a conflict of interest when he led what ended up being a failed bid by a Chinese-backed investment firm for Lattice Semiconductor LSCC, +0.92% Rodgers’s nominees won two seats on the Cypress board, and Bingham stepped down as chairman. In its proxy materials, Cypress described the battle as a personal vendetta by its former CEO who was “stuck in the past,” one that was “tarnishing” reputations.

Several weeks before the battle with Rodgers began, El-Khoury was in the throes of revamping Cypress to focus on the fast growing markets and take better advantage of the overhaul Rodgers had put in motion before he left. In his first call as CEO with analysts last October, El-Khoury said Cypress was reallocating resources, making changes in its organization and management team to streamline operations. Those moves cut about 500 jobs.

“Piece by piece, we’ve been transforming Cypress into the preferred solution supplier for automotive, industrial, and Internet of Things or IoT customers,” he said at the time. Then in early December, Rodgers sent the board the letter that started his big fight over conflicted board members, a fight that would create a big distraction for management.

Now, after the fight is over, El-Khoury speaks warmly of the company’s culture and direction despite the bruising battle with its founder. Indeed, no love seems to be lost for Rodgers.

“It feels great,” El-Khoury said in a brief interview, when asked how Cypress has fared in the year since Rodgers was asked to step down by the board. “Look at our presence in the market, with customers, our performance financially.”

In the year since Rodgers left, shares of Cypress are up about 20%, trading at about $15.52 on Monday, faring slightly better than the S&P 500 index SPX, -0.18% which is up about 15% over the same period.

El-Khoury spoke to MarketWatch while in San Francisco for a product launch last month. Cypress unveiled a new low-power combo chip with Wi-Fi and Bluetooth, aimed at devices that are connected all the time in smart homes, wearable devices, health care and portable audio applications. The new chip is part of Cypress’s continued push in the Internet of Things market, one of a few ways it has been expanding beyond its core memory focus, providing static random access memory, or SRAM, chips.

The push into the Internet of Things began with one of the very last acts by Rodgers, who purchased Broadcom’s IoT business for $550 million. In 2014, Rodgers placed an even bigger bet, announcing a $4 billion all-stock deal for Spansion, a developer of SRAM chips that was spun out of Advanced Micro Devices Inc. AMD, +1.81%  in 2005. That deal was also how Bingham, then chairman of Spansion, joined Cypress’s board.

Cypress has received a boost to its revenue and profits, like other memory chip companies, from the higher prices in memory. But El-Khoury says the company is focused on growth markets like automotive and Internet of Things, two areas that Cypress has embraced in a big way through the deals done by Rodgers, and on improving its profit margins.

“We are a programmable systems company, not a memory chip company anymore,” El-Khoury said, adding that SRAMs now make up less than 8% of Cypress total revenue. As part of that expansion, Cypress now has software development kits which make it easier for its device customers to write their own customized solutions

Rodgers told Wall Street analysts when he left the company that the deal for Spansion had not yet reached the revenue targets he had hoped. But in its last earnings call in July, Cypress said its automotive business grew 23% compared with a year ago.

“Today, one third of our business is automotive,” El-Khoury noted.

At the time of the Spansion deal, Cypress made touch-sensing controllers and SRAMs for infotainment systems in autos. With Spansion, it went even further into the car, acquiring flash memory and microcontrollers for infotainment systems, body and climate control systems, instrument clusters and advanced driver assistance systems, or ADAS.

“That was one of the appeals of buying Spansion, it had a very strong automotive business,” said Kevin Krewell, principal analyst at Tirias Research Krewell said. “A lot of Cypress’s automotive business came from the purchase of Spansion.”

Cypress’s ADAS business could be the key to its future, as autonomous functions become more common in cars. While Cypress does not provide the full supercomputer that controls self-driving cars, like Nvidia Corp. NVDA, +2.26% it sees a big opportunity as cars become smarter.

See also: Want to invest in self-driving cars? Check out the chips

“We provide the memory to run their machine learning and AI…The fact that we are an enabling technology makes us agnostic,” El-Khoury said.

He added that no matter which company ends up becoming the brain chip for self-driving cars, Cypress’s chips will play a role.

“Lots of companies talk about the automotive market, it’s a lot of talk,” he said, adding that it is a market Cypress knows well.

Beyond the business strategy, El-Khoury is important as a symbol for a new Cypress not built in the image of Rodgers, who represented a bygone era in Silicon Valley. Krewell said that he believes El-Khoury is starting to change the culture at the company.

“It was a bit polarizing in the past, you either liked T.J. or you couldn’t stand him. He was a lightning rod and a polarizing character.” Krewell said, adding that even though El-Khoury comes from the Cypress culture, where he worked in various roles over the last decade, he is more approachable and not quite as iconoclastic as his predecessor.

“It’s very happy times,” said Neeta Shendy, a Cypress spokeswoman. “The past year has been the brightest: we launched a new brand, our CEO tweets, it’s a new modern era for us.”

While Cypress’s culture will continue to adapt after the public fight between its founder and its current leadership, the new era will be defined by the acquisitions Rodgers left behind. It will be up to El-Khoury to ensure that future is a coherent and profitable one.

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