Cypress sales miss goals; major revamping in works

Electronic News, March 16, 1998 by Jim DeTar

San Jose, Calif.--Cypress Semiconductor last week said it will not hit sales targets for the current period and became the latest in a long string of semiconductor companies to report a decline in sales, saying it expected to see a 4 to 9 percent decline in sales.

At the same time, the company announced a restructuring that will take Cypress further away from the volatile SRAM memory market and will consolidate some of the company's manufacturing facilities, resulting in the planned layoffs of approximately 100 people and a total charge to earnings for severance costs, inventory adjustments and asset writedowns of $85.5 million.

Cypress CEO T.J. Rodgers said: "Cypress is making three major moves to increase efficiency. First, we are shutting down our six-inch, 0.6-micron wafer fabrication plant, Fab 3, in Bloomington, Minn., and moving all its production to Fab 4, our state-of-the-art, eight-inch, 0.35-micron fab, also in Minnesota.

"Second, we are downsizing our six-inch Fab 2 facility in Round Rock, Texas, to eliminate SRAM production and also to reduce manufacturing costs significantly on high-margin non-SRAM products.

"Third, we are shutting down our test plant in Thailand and consolidating a majority of our test manufacturing operations into our new, fully automated Manila plant. These three changes will significantly reduce our costs and improve our efficiency," Dr. Rodgers said.

In an interview, Cypress executive VP of sales and marketing J. Daniel McCranie said that Cypress' decision to downsize Fab 2 in Round Rock to eliminate SRAM production there does not indicate a total withdrawal by Cypress from that segment.

"This is a comprehensive decision to not make SRAMs that we cannot be competitive with," Mr. McCranie said, referring to the aging process technology at the Texas plant and adding that "40 percent of the factory in Texas was used for SRAMs.

"This has to be viewed as a positive for Cypress shareholders and customers. The reason, notwithstanding the fact that we had to let go of some of our folks, is that we don't have to carry the burden of carrying underperforming facilities. For Cypress shareholders the pain is over. Take the hit and you are in a better position going forward.

"It should be obvious that we are now ready to drive our SRAMs to 0.35-micron and below. We are positioning ourselves for continued migration down the traditional price learning curve."

Although Cypress has limited exposure to the current softness in the PC market--acknowledged by the SIA in its quarterly Global Chip Sales report last week (see related story on page 4), mainly through its clock chips, Mr. McCranie said there is an overall softness in the semiconductor market as well.

"There is always a softening in the first quarter; always in PCs, but I think what happened is that softness has been exacerbated in the average selling pricing in PCs. It's a seasonal softness coupled with an extraordinary price reduction," Mr. McCranie said, referring to the recent popularity of lower margin sub-$1,000 PCs.

"For PC clocks the fourth quarter of 1997 was very good. The first quarter of this year was not good but the second quarter order book is building up fast. I have a feeling I had an inventory issue," that is working itself out, he said.

Mr. McCranie said that the slump in Japan had also taken a toll on Cypress. "In Japan first quarter, bookings and sales are going to be off in excess of 15 percent." Mr. McCranie noted that when discussing the impact of the slowdown in sales in Japan he had already taken into account the change in the yen vs. the dollar. He was upbeat about the company's future in Asia however. "Asia has been growing for us; has been fairly strong."