SAN JOSE, Calif.--(BUSINESS WIRE)--Jan. 20, 1998--Cypress Semiconductor Corporation CY today
reported that revenue for the fourth quarter ended December 29, 1997, was $134.1 million, up 18.6%
from the year-ago quarter's revenue of $113.1 million and down 8.2% from the prior quarter.
For the full year, revenue was $544.4 million, up 3.0% from 1996 revenue of $528.4 million.
Diluted earnings for the fourth quarter were $0.00 per share, down from $0.02 per share from the
year-ago quarter and down from the prior quarter's $0.08 per share. For the full year, diluted earnings
were $0.21 per share, down from 1996's earnings of $0.62 per share.
Q4 1997 Revenue Shortfall
Cypress's decline in sales in the fourth quarter is attributed partly to the shortfall in wafer-foundry
revenue due to lower orders from our foundry customers, and to a shortfall in static RAM (SRAM)
revenue due to a timing problem in shipping by the quarter-end cutoff. Cypress's three other divisions --
Programmable Products, Data Communications, and Computer Products, which account for 51% of the
company's sales, realized higher bookings. Increased sales in Data Communications and Computer
Products partially offset the SRAM and foundry shortfalls.
The SRAM revenue shortfall is due to a timing problem in ramping up the production of SRAMs at
Cypress's Round Rock, Texas, (Fab 2) wafer-fabrication plant, which produces non-volatile memories,
programmable logic, and data communications products, but not SRAMs. Cypress's Bloomington,
Minnesota, plants (Fabs 3 and 4) produced all Cypress SRAMs prior to Q4. Starting in the third quarter
of 1997, Fabs 3 and 4 reached their maximum capacity, as SRAM unit demand surged to a record 37.5
million units, compared with only 29.4 million SRAMs in the fourth quarter of 1996. The growth in
SRAMs to record unit volumes necessitated the installation and ramping of SRAM technology in a third
plant, Texas Fab 2. The Texas fab is now producing SRAMs and Cypress is now producing SRAM
chips at a rate higher than ever before. However, the rapid ramp of the new SRAM technology in the
Texas facility was slightly delayed, causing us not to be able to ship some SRAM orders that were in
backlog. Cypress expects to catch up on SRAM shipments during the first quarter of 1998 and to
resume revenue growth in Q1.
Profit Impact
The profit impact from the lost foundry business and product revenue shortfall, coupled with yield losses
and inefficiencies attributable to the rapid ramp of the SRAM process technology in the Texas facility,
caused the company to have an operating loss of $0.04 cents per share in the fourth quarter. The
quarter, however, benefited from a favorable tax provision that resulted in net reported profit after tax of
$108 thousand. The tax benefit consists primarily of an R&D tax credit and a benefit from zero-tax
operations in the Philippines. The 1997 effective tax rate was 23.4%, compared with 36.5% in 1996, and
the company now estimates a tax rate of 31% in 1998.
Shift to 0.35-Micron Technology
Prior to Q4, Cypress produced 0.25-micron technology in its San Jose wafer fab, and 0.35- and
0.47-micron technologies in its Fab 4 Minnesota SRAM facility, but only 0.65- and 0.8-micron
technologies in its Texas facility. Consequently, to meet our immediate SRAM unit needs, we ramped an
older 0.57-micron SRAM process in Texas Fab 2 this quarter. In 1998, in order to continue to increase
our SRAM capacity rapidly and profitably, Fab 2 will be upgraded to 0.35-micron technology in mid
year.
1998 Earnings
The slowdown in foundry business is likely to persist in 1998. All of our foundry wafers are
manufactured in Fab 2, which is currently under capacity. As long as that situation persists, the foundry
impact on profits will continue. We expect Fab 2 to ramp to full capacity by the end of 1998, allowing
for the external foundry business to be replaced with internal production, thus eliminating the earnings
shortfall.
Texas Fab 2 has just completed its manufacturing ramp of our 0.57-micron SRAM technology. That
ramp is now being followed by ramp of our 0.47-micron technology, which in turn will be followed by a
ramp of our 0.35 technology later in the year. We therefore expect the manufacturing inefficiencies
associated with ramping new technologies rapidly in Fab 2 to continue for the first three quarters of
1998. The combined impact of the shortfall in foundry business, and the rapid ramping of new
technologies in Fabs 2 and 3, will have an impact on earnings comparable to that of this quarter.
Reorganization
In addition to ramping our 0.35-micron technology in all of our fabs, we have taken several measures to
improve profitability, both immediately in the first quarter and consistently throughout 1998:
-- Exiting the Commodity EPROM Business. Our non-volatile memory
division (approximately $40 million per year) has been
redirected. The vice president of that division, Jeff Linden, has
relocated to Seattle to take over our profitable and rapidly
growing Computer Products Division. The former CPD division vice
president, John Torode, also a former professor of computer
science at UC Berkeley, has been promoted to chief technical
officer with the specific challenge of expanding our most
profitable businesses: data communications, clocks, PLDs, and USB
microcontrollers. The residual EPROM business has been merged
into our SRAM division -- where we will continue to serve our EPROM
customers in the future -- but without the heavy costs of
maintaining a product division. The design engineers from the
EPROM group are now working on other projects with a higher
return on investment.
-- Exiting the Chipset Business. Three years ago, Cypress launched
an effort to make "core logic," the system logic that connects
components in a personal computer to the microprocessor. The
value we intended to add in that arena was to merge the static
RAM required by personal computers with the chipset core logic to
create a more highly integrated and cost-effective solution. Our
chipset was technically successful, and it has been designed into
multiple customer projects, but the basic architecture
incorporating SRAMs into personal computers has been changed by
Intel, limiting the commercial viability of our product.
Furthermore, Intel has entered the chipset market, placing any
future chipset efforts at a great disadvantage. We have therefore
decided to exit the market and to cease shipments. The chipset
business unit has been disbanded. Our Munich, Germany,
motherboard verification center has been closed. The architects,
memory engineers, system engineers, and designers who created the
technically successful hyperCache(TM) chipset product have been
transferred to the data communications group to help build that
business.
-- Shutting Down San Jose Assembly and Test Operations. In 1992,
Cypress moved its 100%-American assembly-and-test operation
offshore to Alphatec, a subcontractor in Bangkok, Thailand. We
maintained a small test organization in San Jose to support
new-product and last-minute shipments. In 1996, we opened our own
offshore assembly and test plant in Manila, the Philippines.
Given the high yields and short cycle times of our new
Philippines plant, we no longer need to carry the financial
burden of the small, but expensive, San Jose test plant. It was
shut down this quarter.
-- Contingency for Alphatec Bond Default. Recently, our Thai
subcontract assembly and test house, Alphatec, experienced severe
financial difficulties, partly due to the economic crisis in
Thailand. Approximately 17% of Cypress's production passes
through the Alphatec test area (which is managed by our people
and uses our equipment). While Alphatec is a good manufacturing
partner for Cypress, and while we are still confident that its
reorganization plan will be successful, we have taken steps to
guarantee that our production will be uninterrupted in the event
that Alphatec becomes unstable. Toward that end, we have
facilitized an entire new test floor in a separate facility in
Bangkok. This facility is intended as a contingency measure only.
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The reserves required to cover the cost of the reorganization
outlined above have been taken by the company over time as we have
identified the need. The human resource costs, equipment obsolescence
costs, and inventory reserves caused by exiting the chipset and
commodity EPROM businesses have all been managed to modest levels and
recognized as period costs. The costs associated with setting up the
contingency test floor in Bangkok have been absorbed by manufacturing
over the last two quarters. Our inventories are conservatively valued
and require no additional reserves at this time. Consequently, despite
the disappointing shortfall in revenue and earnings this quarter due
largely to an SRAM miscue, Cypress did not take special charges to
earnings and remained profitable in 1997.
Impact of Asian Economic Crisis
The recent devaluation of most Asian currencies and the potential
softening of demand in that region may have both favorable and
unfavorable effects on Cypress. The bond default of our assembly and
test subcontractor, Alphatec, is part of Cypress's Asian jeopardy.
But, even that problem has a positive side: The manufacturing costs at
Alphatec, as well as those at our other subcontractors in Asia, and at
our Manila plant, have dropped. On the revenue side, Cypress shipped
9% of its fourth quarter revenue to Japan. That business appears to be
stable. Thirteen percent of Cypress's revenue shipped to other Asian
sites. An analysis of that 13% of the business shows that half of it
is shipped directly to Asian companies with Asian end customers. That
portion of our shipments (6.5% of our total revenue) is subject to
currency devaluation and potential demand correction. The other half
of our Asian shipments is sent to the Asian subcontractors of North
American and European companies. We expect that those companies will
take the benefit of reduced manufacturing costs and that they will not
be materially impacted by the Asian currency collapse because their
end markets are mostly non-Asian. In summary, Cypress has a relatively
small amount of its business in Asia, and the impacts of the recent
economic crisis are mixed for us, not just negative.
Data Communications End-market Slowdown
Cypress's Data Communications Division grew from $19.9 million of
revenue in the fourth quarter of 1995 to $26.2 million of revenue in
the first quarter of 1997, the fastest growth of any Cypress division.
In 1997, data communications sales leveled off with record quarterly
revenues of $26-29 million, up more than 35% from 1996, but still
showing the slowdown in the data communications industry noted by
analysts. Nonetheless, Cypress's Data Communications Division grew
this quarter, both relative to last quarter and also relative to the
year-ago quarter, partly because of our entry into a new rapid-growth
market segment: wireless.
As outlined in numerous Cypress reports, our new SRAM
technologies produce six-transistor SRAM cells, which offer battery
standby current that is 10 times lower than industry-standard
four-transistor SRAM cells (which Cypress also manufactures). Most
SRAMs shipped in the industry are of the four-transistor variety,
while most of the six-transistor SRAMs shipped are slow SRAMs meant
for consumer applications. Cypress is one of a few companies in the
world that uses six-transistor SRAM technology to make very low-power
SRAMs that are also fast. It is precisely that combination of high
speed and low power that puts us squarely into the new wireless market
for portable equipment such as cellular phones, which are using more
fast SRAMs as they go digital. This wireless SRAM market is a new
component of Cypress's growth, not influenced by fluctuations in our
existing business. We also use the same technology in our newest FIFO
(First In, First Out) memories, another integral component in data
communications systems.
The combination of a mild weakness in our base data communications
market, and a growing new wireless business, accounts for our growth
in datacom.
1998 Outlook
Cypress recorded $146.6 million of total bookings for the fourth
quarter of 1997, producing a book-to-bill ratio of 1.09. Cypress
shipped 68.1 million units in the fourth quarter; the second highest
unit shipment quarter in the company's history.
We believe that the product realignment and restructuring we have
outlined in this release, even in light of the current mixed-market
scenario, will lead to increased revenue and EPS performance for
Cypress in 1998.
Stock Buyback Program
The Cypress board of directors approved a 2-million-share stock
buyback program on October 23, 1997. At the December 16, 1997 meeting,
the board doubled the previously authorized program. As of January 20,
1998, the company has repurchased 515,800 shares and has entered into
put option contracts to buy 4 million additional shares of Cypress
stock at varying strike prices and maturity dates.
Cypress Semiconductor Corporation is an international supplier of
high-performance integrated circuits with worldwide headquarters in
San Jose, California. The company provides a broad range of products
for leading computer, networking, and telecommunications companies
worldwide. The company's product line includes static RAMs, high-speed
PROMs, and specialty memories; programmable logic devices (PLDs); data
communications products; and timing devices and USB microcontrollers.
Cypress shares are listed on the New York Stock Exchange under the
symbol CY. The company has a site on the worldwide web at
cypress.com .
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995: Statements in this press release regarding
Cypress's business that are not historical facts are "forward-looking
statements" involving risks and uncertainties, including, but not
limited to, market-acceptance risks, the effect of economic conditions
and shifts in supply and demand, the impact of competitive products
and pricing, product development, commercialization and technological
difficulties, and capacity and supply constraints. Please refer to the
MD&A (Management Discussion and Analysis of Financial Condition and
Results of Operations) for a discussion of such risks in the most
recent Cypress annual report on Form 10-K, the quarterly report on
Form 10-Q and the convertible debenture offering memorandum.
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Cypress Semiconductor Corporation
Consolidated Balance Sheet
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Dec 29, 1997 Dec 30, 1996
ASSETS
Current assets:
Cash and short-term investments $ 201,561 $ 93,786
Accounts receivable 67,854 71,440
Other receivables 6,522 11,971
Inventories 76,925 53,107
Other current assets 45,218 51,108
-------- --------
Total current assets 398,080 281,412
Property and equipment, net 442,661 437,566
Other assets (including long-term
marketable securities of $42,146
at Dec 29, 1997) 115,529 75,069
-------- --------
Total Assets $ 956,270 $ 794,047
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,857 $ 72,309
Accrued liabilities 21,472 19,195
Line of credit - 49,000
Deferred income on sales to distributors 9,636 14,902
Income taxes payable 1,088 -
--------- ---------
Total current liabilities 93,053 155,406
Convertible subordinated note 175,000 98,241
Other long-term debt 8,671 8,366
Deferred income taxes 36,070 21,288
--------- ---------
Total liabilities 312,794 283,301
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value
5,000,000 shares authorized; none issued
and outstanding - -
Common stock, $.01 par value
250,000,000 shares authorized; 101,460,000
and 91,358,000 issued; 90,684,000 and
81,098,000 outstanding 309,566 195,255
Retained earnings 333,910 315,491
--------- ---------
Total stockholders' equity 643,476 510,746
Total liabilities and stockholders' equity $ 956,270 $ 794,047
Cypress Semiconductor Corporation
Consolidated Statement of Operations
(In Thousands, Except Per Share Data)
Three Months Ended Years Ended
(Unaudited) (Unaudited)
Dec 29, Dec 30, Sep 29, Dec 29, Dec 30
1997 1996 1997 1997 1996
Revenues $134,134 $113,103 $146,081 $544,356 $528,385
Costs and expenses:
Costs of revenues 94,538 75,223 93,345 356,919 305,174
Research and
development 23,833 21,103 24,560 93,842 84,334
Marketing, general
and administrative 19,606 15,661 18,977 75,282 64,301
Restructuring and
other non-
recurring benefits - - - - (7,018)
Total operating
costs 137,977 111,987 136,882 526,043 446,791
Operating Income
(loss) (3,843) 1,116 9,199 18,313 81,594
Interest expense (3,154) (2,149) (948) (7,197) (6,895)
Interest income
and other 3,095 3,089 2,756 12,916 8,806
Income (loss) before
income tax (3,902) 2,056 11,007 24,032 83,505
Benefit (Provision)
for income tax 4,010 (752) (3,797) (5,613) (30,476)
Net income $108 $1,304 $7,210 $18,419 $53,029
Net income per share:
Basic $0.00 $0.02 $0.08 $0.21 $0.66
Diluted 0.00 0.02 0.08 0.21 0.62
Weighted average shares
of common stock and
common stock equivalents:
Basic 90,890 80,821 90,054 87,888 80,241
Diluted 93,923 92,865 96,084 94,648 91,604 |
