Cypress Reports Third Quarter 2004 Results

Business Wire, Oct 14, 2004

SAN JOSE, Calif. -- Cypress Semiconductor Corp. (NYSE:CY) today announced that revenue for the 2004 third quarter was $219.6 million, down 17% from prior-quarter revenue of $264.3 million and up 1% from year-ago third-quarter revenue of $216.6 million. Pro forma net income for the 2004 third quarter was $34.1 million, resulting in diluted earnings per share of $0.22, compared with prior-quarter diluted earnings per share of $0.23 and year-ago third-quarter diluted earnings per share of $0.08. Included in our 2004 third quarter pro forma net income is $29.9 million of favorable adjustment to income tax liabilities equivalent to $0.18 per share. Gross margin for the 2004 third quarter was 49%.

Including amortization of intangibles and other acquisition-related, restructuring and special charges and credits, Cypress posted GAAP net income of $4.3 million for the 2004 third quarter, resulting in diluted earnings per share of $0.02, compared with prior-quarter diluted earnings per share of $0.13 and year-ago third-quarter diluted earnings per share of $0.12.

Cypress President and CEO T.J. Rodgers said, "The 2004 third quarter results were disappointing, particularly after six sequential quarters of revenue growth. We entered the third quarter with a sizable backlog but the usual turns business that we were expecting did not materialize. What appeared to be a simple, short-term over-inventory situation in the computation and consumer segment has extended to our communications and wireless segments as well. It is likely that this slow-turns environment will extend into the current quarter."

MARKET SEGMENTS

Wide Area Networks and Storage Area Networks (WAN/SAN)

Revenue from the WAN/SAN segment, which accounted for 33% of third-quarter revenue, decreased 11% from the prior quarter, compared with our expectation of modest growth. The gross margin for the segment was 52%. We continued to see strong demand for products supporting enterprise systems. The telecom and storage markets were relatively weak. We do not see any revenue improvement in this market for the fourth quarter. Segment highlights for the third quarter include:

--Cypress sampled its Ayama(TM) 20000 family of network search engines (NSEs). The new 9-Mbit and 18-Mbit devices interface with the Network Processing Forum-approved LA-1 specification, supporting commercial network processors (NPUs) including Intel's IXP2400, IXP2800 and IXP2850, and AMCC's nP3700 devices. The Ayama 20000 NSE can be combined with Cypress's ultra-high density Sahasra(TM) 50000 NSE to create a TCAM and algorithmic solution for large-scale IPV6 applications. Its portfolio also includes the Ayama 10000 NSE, a ternary content addressable memory (TCAM) solution optimized for ASIC applications.

--Cypress filled out its synchronous SRAM product line, introducing new 4-Mbit, 9-Mbit and 36-Mbit families based on its proprietary, 90-nm RAM9(TM) process technology. Cypress had previously sampled 18-Mbit and 72-Mbit synchronous memories at the 90-nm geometry.

Wireless Terminals and Wireless Infrastructure (WIT/WIN)

Revenue from the WIT/WIN segment, which accounted for 36% of third-quarter revenue, declined 15% from the prior quarter, compared with our expectation of reasonable growth in the segment. The WIT/WIN gross margin was 42%. We had a significant drop in demand for solutions to support 3G basestations, affecting both revenue and margin. We expect segment revenue to be flat quarter on quarter. Highlights for the third quarter include:

--Cypress completed the acquisition of FillFactory NV during the quarter. FillFactory is a Belgium-based leader in CMOS image sensors. The demand for CMOS image sensors is growing rapidly, driven by a swift expansion of the market for digital still cameras (DSCs) and cell phone cameras. FillFactory image sensors offer Cypress the opportunity to double its sales into the cell phone market, where it is already a leading supplier of low-power memories. FillFactory sensors are also expected to expand Cypress sales into DSCs, where it currently sells timing products and Programmable System-on-Chip(TM) (PSoC(TM)) mixed-signal arrays. In addition, FillFactory provides a wide array of products for professional photography, medical, industrial, automotive, and space applications.

--Cypress announced commercial sampling of the LUPA-4000-M, a four megapixel CMOS image sensor targeting professional and industrial machine vision, instrumentation, surveillance, biometric identification and medical imaging applications. The LUPA-4000-M offers three unique features: a fully synchronous or pipelined snapshot shutter, making it possible to read one image while the next is being captured and to capture moving objects without distortion; a multiple windowing feature that enables the user to read out only regions of interest of the image, increasing the effective frame rate; and a multiple-slope capability that allows the user to capture scenes with a high-contrast ratio without saturating the bright areas while maintaining sufficient contrast in the dark areas.