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Cypress Reports Third Quarter 2003 Results SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 16, 2003--Cypress
Semiconductor Corporation (NYSE:CY) today announced that revenue for the
2003 third quarter was $216.6 million, up 7% from prior quarter revenue
of $203.1 million and 6% from year-ago third quarter revenue of $205.0
million. Pro forma net income for the 2003 third quarter was $11.1 million,
resulting in diluted earnings per share of $0.08, compared with prior
quarter diluted earnings per share of $0.03 and a year-ago third quarter
loss per share of $0.03. Gross margin for the 2003 third quarter was 49%, aided by a 1% benefit from the sale of previously reserved inventory. This compares with last quarter's 3% benefit on a gross margin of 48%. Cypress ended the quarter with total cash (including cash, investments and restricted cash) of $319.3 million, after the payment of $328.4 million to redeem our convertible subordinated notes. The company also continued to generate free cash (cash from operations less capital expenditures). Cypress President and CEO T.J. Rodgers said, "We are pleased to announce the third sequential, quarterly improvement in revenue and pro forma profit since the bottom of the 2001-2002 semiconductor recession in Q4 2002. Booking activity picked up during the quarter, allowing us to exceed our guidance and expectations twice. The book-to-bill ratio was 1.06, with all divisions posting a book-to-bill of greater than unity. The booking momentum has continued into early October. Backlog for the quarter grew by 18%." Rodgers continued, "Our recent growth appears to be the result of a broad-based recovery, with improvements and market-share gains in consumer, wireless and computation. Even the long-dormant networking business began to show a few signs of life, particularly on the enterprise side of the business. Historically low customer inventories and a narrowing of the gap between semiconductor supply and demand are prompting a change in customer purchasing habits. With unit demand continuing to improve, an increasing number of our products are experiencing longer lead times. We shipped 160 million units in the quarter, a record, beating the 157 million units we shipped at the peak in Q3 2000. If these trends continue, we believe there is a strong possibility that the modest recovery of 2003 will turn into a boom in 2004-2005." (Click here to view Investor's Business Daily editorial on the semiconductor market by T.J. Rodgers: www.cypress.com/aboutus/link.cfm?pr=09240301) MARKET SEGMENTS Wide Area Network and Storage Area Network (WAN/SAN) Revenue from the WAN/SAN segment, which accounted for 31% of third-quarter revenue, increased 3% from the prior quarter, aided by modest improvement in the enterprise side of the business. The segment posted a gross margin of 54%. We anticipate a moderate increase in end-market demand through the fourth quarter. With customer inventories at historical lows, this increase could translate into stronger segment performance. Segment highlights include: -- Cypress passed the 1.5 million-unit mark in shipments of network search engines (NSEs) and ternary content addressable memories (TCAMs). Cypress recently demonstrated its Ayama(TM) 10000 NSE family at the Intel(R) Developer's Forum. Ayama delivers 266 million searches per second, the industry's highest-performance. -- Cypress launched a development kit to support Intel's advanced TCA processing platform, ensuring compatibility between Cypress NSEs and Intel's IXP2800-, IXP2850- and IXP2400-families of network processors. -- Cypress launched the HOTLink II(TM) independent-channel device, the industry's first transceiver with four independent video channels, capable of supporting the Gigabit Ethernet (GbE), Fibre Channel and Enterprise System Connection (ESCON(R)) protocols. The transceiver is also optimized to handle a variety of conventional- and high-definition video standards, including the Society of Motion Pictures and Television Engineers (SMPTE) standard and the Digital Video Broadcast-Asynchronous Serial Interface (DVB-ASI) standard. -- Cypress announced production volume of its 18-Mbit family of Quad Data Rate(TM) (QDR(TM)) and QDR II memories, manufactured on its proprietary 0.15-micron RAM7(TM) technology. QDR memories increase system bandwidth in network switches and routers. -- Cypress sampled its 18-Mbit FLEx72(TM) Dual-Port memory, the highest-performance memory of its kind with double the density of comparable devices. The FLEx72 Dual Port handles the increased processing speeds required by next-generation wireless basestations, storage area network subsystems, and video- and image-processing systems. -- Cypress and programmable-logic leader Xilinx Inc. will collaborate on reference designs for state-of-the-art communications and memory products. The first product of this collaboration is a reference design for a fiber-optic-over-SONET/SDH solution. Wireless Terminals and Wireless Infrastructure (WIT/WIN) Revenue from the WIT/WIN segment, which accounted for 30% of third-quarter revenue, increased 10% from the prior quarter with a gross margin of 38%. The revenue increase is attributable in part to strength in the handset business and a continued shift to a higher-density SRAM product mix. New customers were a major contributor to our market-share gains. We anticipate WIT/WIN sales to be slightly higher in the fourth quarter, based on a continued improvement in unit demand. Segment highlights for the quarter include: -- Cypress and Cambridge Silicon Radio (CSR) announced the industry's lowest-cost Bluetooth(R) adapter for USB-enabled peripherals. The solution combines Cypress's USB On-The-Go technology with CSR's Bluetooth expertise, enabling USB printers to communicate with Bluetooth PCs through a "dongle" adapter. Ultimately, Cypress-CSR solutions are expected to support host-free wireless connections between USB printers and Bluetooth peripherals such as personal digital assistants (PDAs), digital cameras, and mobile phones. Computation and Consumer Revenue from the computation and consumer segment, which accounted for 35% of third-quarter revenue, posted a gross margin of 49% and was up 7% from the prior quarter due to robust demand for clocks in PC and consumer applications. We expect flat revenue rather than the typical seasonal downturn in the fourth quarter. Segment highlights include: -- Cypress announced the availability of its WirelessUSB(TM) LS controller, a revolutionary 2.4-GHz radio frequency interconnect protocol for mice, keyboards, game controllers, remote controls and other cordless devices. WirelessUSB LS provides an optimal price/performance combination vs. protocols such as Bluetooth, ZigBee and proprietary 27-MHz solutions. The new device is the first 2.4-GHz system-on-a-chip solution priced under $2 in volume. -- Cypress achieved first revenue and ramped production of its WirelessUSB(TM) EX solution. WirelessUSB EX provides an optimal combination of latency, power, bandwidth and price for higher-performance systems. -- Cypress's flagship wired USB products that target the embedded-host and mobile markets passed a battery of tests by the USB Implementers Forum (USB-IF), making them the first to achieve full USB On-The-Go certification, which enables PC-free connectivity among portable devices such as cell phones, PDAs, video and still cameras, MP3 players and mass-storage peripherals. -- Cypress launched a development kit for its EZ-Host(TM) and EZ-OTG(TM) embedded solutions featuring tools from Red Hat, the leader in open source and Linux development. -- In the timing technology market, Cypress introduced two "clocks" for digital imaging, targeting set-top boxes, DVD recorders, and high-definition television. Previously introduced clocks for the digital still camera market have achieved a run rate of three million units per quarter. Separately, Cypress's run rate in silicon-based oscillator circuits reached 25 million units in the last quarter, up from 16 million units in the previous quarter. -- Cypress's PC clock revenue expanded approximately 20% quarter-on-quarter, partly due to strong demand for the Intel Springdale chipset, which is expected to continue to improve this quarter. Cypress also sampled its Grantsdale (CK410) clock to major OEMs and the Taiwan marketplace. The new clock supports the latest high-performance Pentium(R) 4 and PCI-Express clocking standards. -- Cypress introduced the industry's highest-speed double-data-rate (DDR) memory registers and phase-locked loops. The new devices operate at 270 MHz and 250 MHz, respectively, and conform to DDR1-400, the JEDEC-standard DDR memory interface. Cypress supports JEDEC standards and is the chair of the organization's soon-to-be-launched next-generation memory buffer task group. -- Cypress introduced the industry's first and only field-programmable spread-spectrum clock generators (SSCGs) to reduce electromagnetic interference (EMI) in a system. A single SSCG device can now be programmed to meet any design-specific requirement. The amount of EMI emitted by a system is tightly controlled by U.S. and international regulatory bodies. The spread-spectrum approach modulates frequencies within a narrow range to reduce frequency spikes. Cypress Subsidiaries Revenue from Cypress subsidiaries, which accounted for 4% of third-quarter revenue, was up 13% from the prior quarter. The subsidiaries posted a gross margin of approximately 71%. Cypress expects a continued improvement in subsidiary performance as new products generated by the group reach the marketplace. Segment highlights include: -- Cypress Microsystems (CMS) announced production shipments of a more advanced analog family of its Programmable System-on-Chip(TM) (PSoC(TM)) mixed-signal array. CMS recently enjoyed its first $1.6 million revenue quarter. The new family will double CMS's served market. -- SunPower Corporation, a supplier of high-efficiency silicon solar cells, appointed Tom Werner as CEO. Werner comes to SunPower from a position as CEO of Cypress subsidiary Silicon Light Machines. Werner brings to the job brand- and operations-management experience with large electronics companies such as 3Com(R) and U.S. Robotics(R). His charter is to accelerate SunPower's transition from a supplier of high-performance specialty products to a large-scale manufacturer of high-efficiency solar cells for volume applications. -- Silicon Light Machines(TM) (SLM) announced that it signed a contract with Evans and Sutherland Computer Corporation to develop a next-generation Grating Light Valve(TM) (GLV(TM)) for displays in flight simulators. Flight simulator displays -- and the pilots that use them -- require superior resolution. SLM's latest GLV device will enable the production of displays with 20 million pixels, superior to any currently on the market. The GLV is a patented, light-switching micro-electromechanical system (MEMS) device that is also used in a variety of communications, printing and lithography applications. Other Developments -- During the third quarter, Cypress retired the entire $255.2 million principal amount of its 4% convertible subordinated notes due February 2005 and another $70.0 million of its 3.75% convertible subordinated notes due July 2005, leaving $68.7 million outstanding. -- During the third quarter, Cypress sold approximately 687,000 common shares of NVE Corporation for $23.4 million, resulting in a gain of $17.1 million. This gain was excluded from the pro forma results. Cypress continues to hold a warrant to purchase 400,000 NVE Corporation common shares with a $15-per-share exercise price. -- Cypress received the Jabil Strategic Supplier award for the second consecutive year. The company issues this award annually to the supplier that demonstrates exceptional performance and dedication to a long-term partnership. -- Cypress received Celestica's Partners in Performance award for the fifth consecutive year. The award recognizes Cypress's support of Celestica's supply chain management objectives. Conclusion Rodgers concluded, "We expect to grow and become more profitable in the fourth quarter. I said in last quarter's report that 'this feels like the beginning of a recovery.' I still believe that, based on our growing backlog of $223.4 million. Consumer activity has carried the recovery so far. If the early signs of recovery in the communications business turn into a bona fide upswing, 2004 will be a strong year both for Cypress and the semiconductor industry." About Cypress Cypress Semiconductor Corporation (NYSE:CY) is Connecting from Last Mile to First Mile(TM) with high-performance solutions for personal, network access, enterprise, metro switch, and core communications-system applications. Cypress Connects(TM) using wireless, wireline, digital, and optical transmission standards, including USB, Fibre Channel, SONET/SDH, Gigabit Ethernet, and DWDM. Leveraging its process and system-level expertise, Cypress makes industry-leading physical layer devices, framers, and network search engines, along with a broad portfolio of high-bandwidth memories, timing technology solutions, and reconfigurable mixed-signal arrays. Website: http://www.cypress.com
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