Investor's Business Daily
New Solar Business Helping Put Sunny Side Up At Cypress Semi
Tuesday December 16, 10:23 am ET
By James Detar
For chipmakers, sunnier days are here again, a phrase that has double meaning for Cypress Semiconductor Corp. (NYSE:CY - News)
Cypress is in a turnaround. This quarter it's expected to have a per-share profit of 12 cents vs. a loss of 12 cents in the year-ago quarter. Still, it's looking outside chips for some of its future growth, and spotting . . . solar panels.
"We're making solar cells in Texas right now," said Cypress Chief Executive T.J. Rodgers. "And we're launching a big plant right now in the Philippines that will be producing solar cells by the end of the year."
Solar cells are used to make solar panels put on roofs to draw energy from the sun's rays. Cypress sells its solar cells to companies that make these panels, and sells some panels under its own brand.
It's an offshoot field for Cypress, but solar cells are made on wafers, similar to the way chips are made.
Rodgers is counting on a mix of chips, and the solar cells, to quadruple sales in roughly three years.
That would mark unprecedented success for Cypress. It did triple sales from 1994 to 2000, though in the dot-bomb its sales fell more than a third in 2001.
Cypress's main business remains selling chips, especially synchronous RAMS, to makers of cell phones, computers and other consumer electronics goods. SRAMS are a type of memory chip used in such products. After two lackluster years, cell phones and PCs are hot items again.
Goal: $1 Billion Quarter Soon
But those hot markets aren't enough to keep up with Rodgers' ambitious plans.
"Our mission is to have a billion-dollar quarter in the fourth quarter of 2005. We've got to do a lot of growing to get there," Rodgers said. He stresses that's a "rough goal" the company will make only if it runs flat out.
"To make our goal we've got to grow as fast as we can," Rodgers said. "So we said, 'Where do we invest to grow faster?' We said, 'Let's get into some areas that aren't communication, but still are really hot areas.' "
"Hot" is an apt word. Even before that conversation, Rodgers already was interested in solar cells. Cypress built a new headquarters in San Jose, Calif., that it opened in January 2002. It features liberal use of solar panels to cut energy costs.
A chance meeting a short while later put Cypress into the solar cell business.
"I ran into an old friend of mine, a guy I graduated from Stanford with. And he ran a company called SunPower. And they made the most efficient solar cells in the world," Rodgers said.
Cypress bought the company in May 2002.
The friend, Dick Swanson, stayed at SunPower, where he's president and chief technology officer.
Swanson says a mutual friend first told him of Rodgers' interest in solar, and the match came about quickly. He's glad. "We see this solar business continuing to grow at a fast pace," Swanson said. "Starting from a very small base, relative to total energy capacity, it's enjoying dramatic growth."
SunPower has at least one claim to fame. In 2001, NASA's Helios unmanned airplane flew nearly 100,000 feet above the Earth, a record height. The plane used solar panels made by SunPower.
Acquisitions, even if they take Cypress in new directions, are part of Rodgers' strategy. From 1999 through 2002, Cypress bought 14 firms. It spent 2003 digesting them.
"We had a binge, and we're happy with the results," Rodgers said.
He says only two of the purchases, Silicon Packets and High Bandwidth, didn't work out. The other 12 accounted for $200 million of Cypress' $775 million in sales last year.
On Oct. 20, Cypress revealed its first and so far only acquisition of 2003. It's buying privately held Cascade Semiconductor for an undisclosed amount of cash and stock. The deal should close this month.
Cascade specializes in a type of chip called a single transistor memory. Product makers prize such devices because they use little power.
"It's an embryonic new sector of the market, and we're moving into it," Rodgers said.
Rodgers remains on the lookout.
"We have an acquisition strategy," he said. "Our focus is communications. That basically boils down to networking on the wired side and wireless."
More Acquisitions Likely
Cypress has more than $320 million in cash, but Rodgers says he's also ready to trade stock. That is, he'll be ready when Cypress gets fully back on its feet.
"Right now, taking on large acquisitions that are not accretive (making money) right away is not what we're about," he said.
Cypress is in good position as tech recovers, says VLSI Research analyst Dan Scovel in San Jose, Calif.
"They are the most bullish of all semi companies," he said. "They believe we're in a recovery now that will turn into a boom next year.
"And I think their optimism is warranted. A significant portion of their strength is coming from market share gains, specifically SRAM memories going into cell phones."
Rodgers agrees. He looks for a chip sales explosion starting in 2004.
"It's going to be a boom," Rodgers said. "This latest upturn is happening with a dormant communications industry. Networking is still napping."
And when networking awakens, he says the tech recovery will kick into high gear. Rodgers says Cypress' bookings are at their highest level in two years. "We're booked well into next quarter," he said.
Rodgers welcomes the change.
After the dot-bomb, Cypress lost 30 cents a share in 2002. But the consensus of 12 analysts polled by Thomson Financial/First Call is that final 2003 numbers will show a 12-cent profit, and they forecast per-share profit of 71 cents in 2004. |
