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Cypress Reports Fourth-Quarter and Year-End 2006 Results


• Fiscal 2006 revenue increased 23.1% over 2005
• Adjusted-GAAP EPS1 for 2006 increased by $0.64 over 2005, to $0.51
• Record quarterly PSoC® revenue; 99.1% growth year-on-year
• SRAM quarterly gross margins and earnings at highest level since Q1 2001
• Cash and short-term investments from semiconductor business increased $210 million year-on-year
• SunPower contributed significantly to revenue and EPS

SAN JOSE, Calif., January 25, 2007 - Cypress Semiconductor Corp. (NYSE: CY) today announced that revenue for the 2006 fourth quarter was $287.0 million, down 1.1% from prior-quarter revenue of $290.2 million-a figure that included $5.4 million in revenue from the PC clock group, which was divested in October 2006. Fourth-quarter revenue increased 20.3% from year-ago fourth-quarter revenue of $238.5 million.

Adjusted-GAAP net income for the 2006 fourth quarter-earnings that exclude charges for stock-based compensation, acquisition-related charges and other special charges and credits-totaled $26.1 million(5), or diluted earnings per share of $0.15(1). This compares with the prior quarter’s diluted earnings per share of $0.16(1). Diluted earnings per share in the year-ago fourth quarter was $0.04(1).
Cypress recorded GAAP net income of $15.8 million in the 2006 fourth quarter, or diluted earnings per share of $0.09. This compares with last quarter’s diluted earnings per share of $0.06. Diluted loss per share in the year-ago fourth quarter was $0.02 per share.

Consolidated gross margin on an adjusted-GAAP basis4 for the fourth quarter was 42.5%, down 0.9% from the previous quarter primarily due to product mix. On a GAAP basis, gross margin was 41.6%, down 1.0% from the prior quarter. Semiconductor margin on an adjusted-GAAP basis(4) for the fourth quarter was 48.2%, down slightly from the previous quarter due to product mix, and up 4.1% from 44.1% in the year-ago fourth quarter.

For the fiscal year 2006, Cypress posted total revenue of $1.09 billion, an increase of 23.1% from fiscal year 2005 revenue of $886.4 million. On an adjusted-GAAP basis, Cypress’s fiscal year 2006 diluted earnings per share(1) were $0.51, compared with a diluted net loss per share of $0.13 in 2005. On a GAAP basis, including a first-time FAS123R stock-based compensation expense, Cypress’s fiscal year 2006 diluted earnings per share was $0.25 compared with a diluted net loss per share of $0.69 in 2005.

Cypress President and CEO T.J. Rodgers said, "Cypress achieved more than $1 billion in annual revenue for the first time since the boom of 2000, propelled by a solid overall fourth quarter that featured a record revenue quarter for PSoC, resulting in a year-on-year doubling of PSoC revenue. We are structurally a substantially more profitable company than we were a year ago, driven by strong overall direct margins, a stable ASP environment and significant contributions from SunPower and our SRAM division.

“Cypress’s business remains fundamentally solid with a book-to-bill ratio of 0.96 and 86% of the first quarter booked, going into the quarter. We expect routine seasonality in our core semiconductor business, and are seeing some softness in certain communications-related markets-especially cell phone basestations-but we currently do not anticipate any significant or prolonged slowdown in 2007.”

Consumer and Computation Division (CCD)

CCD revenue was $79.9 million in the fourth quarter, down 10.9% from the prior quarter in large part due to the sale of the PC Clock business unit. Record PSoC quarterly revenue was offset by slowing demand for communications-based, general-purpose clocks in the fourth quarter. CCD accounted for 27.8% of Cypress’s quarterly revenue. First-quarter revenue is expected to be slightly down due to seasonality.

CCD posted a gross margin of 43.8%(4) in the fourth quarter, down from 45.7%(4) in the third quarter. The division contributed $0.01(1) earnings per share to the company’s adjusted-GAAP net income in the fourth quarter, compared with $0.03(1) in the third quarter. CCD’s contribution to earnings per share is expected to remain relatively flat in the first quarter due to aggressive investments in PSoC.

Fourth-quarter highlights for the division include:

+ Cypress grew its PSoC customer base to 3,371 customers for the quarter, representing a gain of 68% year-on-year.

+ Cypress trained 1,500 engineers on PSoC in the fourth quarter, and more than 4,200 engineers over the course of the year, through a series of live, hands-on seminars, focusing mostly on the new PSoC Express™ software tool. PSoC Express is a revolutionary, visual embedded development tool that allows engineers to develop microcontroller-based designs without having to write even one line of computer code.

+ Cypress introduced five PSoC development kits to accelerate embedded designs that involve SD flash memory cards, I2C port expanders, capacitive-touch-sense interfaces and lighting controls based on the latest light-emitting diode technology. Each of the kits helps engineers to debug hardware and software in PSoC-enabled applications.

+ Cypress launched PRoC™ LP, a low-power, Programmable Radio-on-a-Chip™ that reduces the bill of materials and simplifies the coding and layout of human interface devices, including computer keyboards, mice and remote controls. The solution integrates Cypress’s 2.4-GHz WirelessUSB™ transceiver with a PSoC chip, allowing almost any peripheral device to be easily connected wirelessly to a PC with just a few days of engineering time.

+ Cypress launched the industry’s first I2C-programmable clock chip with four phase-locked loops (PLLs), targeting digital entertainment applications and other devices requiring multiple frequencies. The programmable interface enables end-product designers to make frequency changes with software commands even after the clock has been soldered onto the circuit board.

+ Hitachi Ltd. selected a Cypress programmable clock chip for use in its Wooo™ 9000 series of high-definition digital televisions. The chip replaces multiple crystal oscillators and provides Hitachi with the flexibility to make changes throughout the design and production cycles.

+ Cypress and Unigen introduced the industry’s smallest precertified wireless modules, combining WirelessUSB with Unigen’s LETO module family. The solutions eliminate the need for costly, time-consuming RF certification by the FCC, speeding the development of wireless links in home automation, medical, industrial and consumer-electronics systems.

+ Cypress and Winbond introduced a demonstration board for wireless Voice over IP (VoIP) headsets. The board combines the exceptional interference immunity of WirelessUSB LP with the clean signal delivery of Winbond Electronics’ W681360 CODEC and improves customer time-to-market.

+ Cypress announced that its MoBL-USB™ TX2 high-speed USB 2.0 transceiver and MoBL® ADM dual-port interconnects have been adopted in Marvell Technology Group’s new PXA3xx application processor platform used in mobile handsets, PDAs and portable music players. The low-power devices provide reliable and efficient access to multimedia content.

+ Cypress introduced a small-form-factor, high-speed USB 2.0 hub controller that enables bus-powered designs and reduces overall bill-of-materials costs in standalone hubs, monitors, docking stations, keyboards and other end products.

+ Cypress and UPEK introduced two USB reference design kits that enable fingerprint security for USB Flash disk drives and external hard disk drives.

Data Communications Division (DCD)

DCD revenue was $27.9 million in the fourth quarter, down 22.9% from the prior quarter, below our expectations. The revenue decline was due primarily to a greater-than-expected slowdown in the basestation market. DCD accounted for 9.7% of fourth-quarter revenue. Divisional revenue is expected to remain flat to slightly down in the first quarter.

DCD posted a gross margin of 62.6%(4) in the fourth quarter, down from 67.7%(4) in the third quarter. The division contributed $0.02(1) earnings per share on an adjusted-GAAP basis to net income in the fourth quarter, compared with $0.06(1) in the third quarter. DCD’s contribution to earnings per share is expected to remain stable in the first quarter.

Fourth-quarter highlights for the division include:

+ Cypress introduced the West Bridge™ Antioch™ peripheral controller, the first in a family of devices that enables users to talk on the phone while downloading music from their PC. The device leverages Cypress’s Simultaneous Link to Independent Multimedia™ (SLIM™) architecture to free the phone’s processor from USB and storage-management tasks and to enable high-performance data transfers.

Memory and Imaging Division (MID)

MID revenue was $91.7 million in the fourth quarter, up 6.6% from the prior quarter, exceeding expectations. Demand increased across all MID business units during the quarter. Divisional revenue accounted for 32.0% of fourth-quarter revenue. First-quarter MID revenue is expected to be flat to slightly down compared to Q406.

MID posted a gross margin of 43.0%(4) in the fourth quarter, compared with 39.3%(4) in the third quarter as SRAM ASPs and margins remained strong. The division reported net earnings per share of $0.08(1) on an adjusted-GAAP basis in the fourth quarter, compared with net earnings per share of $0.04(1) in the third quarter. MID’s contribution to earnings per share is expected to remain stable in the first quarter.

Fourth-quarter highlights for the division include:

+ Cypress achieved its first nonvolatile memory (NVSRAM) product revenue with the shipment of new 1-Mbit and 256-Kbit products. NVSRAMs are typically used in RAID controllers, industrial automation controllers, set-top boxes, copiers, multifunction printers, and point-of-sale terminals.

+ Cypress’s IM103 CMOS image sensor was named the industry’s most innovative image sensor by the consulting firm Semiconductor Insights.

SunPower Corporation

Revenue from Cypress’s SunPower subsidiary was $74.5 million in the fourth quarter, up 14.1% from the prior quarter and up 154% from the fourth quarter of 2005, driven primarily by higher worldwide unit sales of solar panels. SunPower accounted for 26.0% of Cypress’s fourth-quarter revenue. Revenue is expected to increase markedly in the first quarter based primarily on the acquisition of PowerLight.

SunPower posted an adjusted-GAAP gross margin of 26.2%(4) in the fourth quarter of 2006, compared with 25.3%(4) in the third quarter of 2006. The company reported an adjusted-GAAP pretax profit of 19.2%(6) in the fourth quarter. SunPower contributed adjusted-GAAP diluted earnings per share of $0.05(1) in the fourth quarter, compared with earnings per share of $0.05(1) in the third quarter. SunPower’s contribution to Cypress’s earnings per share is expected to increase in the first quarter of 2007.

Fourth-quarter highlights include:

+ SunPower acquired PowerLight Corp., a leading provider of large-scale solar-power systems. The acquisition and related future stock compensation, valued at $329.1 million in cash and stock, closed on January 10, 2007. The PowerLight addition is expected to accelerate SunPower’s revenue growth by $250 million to $300 million in 2007 and to expand its technology portfolio related to solar systems products. SunPower acquired some key, patented, proprietary products to add to its line of high-efficiency solar modules, including SunTile® residential roof tiles to create solar roofs on new houses, PowerGuard® interlocking solar tiles that are the industry standard for low-cost commercial applications (e.g., Cypress’s solar roof), and PowerTracker® systems that tilt solar panels to follow the sun-often used in large solar plants like the 11-megawatt installation commissioned by General Electric in Serpa, Portugal.

+ SunPower announced the SPR-315, the first solar panel made from its 22-percent-efficient Gen2 solar cells and by far, the highest wattage panel available from any source. The panels offer a larger footprint and deliver more power per square meter, compared with standard solar panels. Customers will benefit from the faster, more-efficient installation of approximately half the number of panels for a given wattage system.

+ SunPower signed a $20 million silicon ingot supply agreement with REC SiTech AS, a leading supplier of monocrystalline ingots to the solar industry.

+ SunPower President and Chief Technology Officer Dick Swanson received a Wall Street Journal Technology Innovation Award for his career contributions to the commercialization of solar power.

Other Developments

+ In January, Cypress’s Board of Directors authorized a new stock buyback program of up to $300 million.

+ Cypress signed a global agreement with Premier Farnell, a U.K.-based distributor, under which Farnell will sell PSoC and other Cypress products to customers worldwide. Online and catalog sales through the distribution channel are a key part of Cypress’s effort to expand its PSoC customer base.

+ Cypress launched a $160,000 global university competition to encourage engineering students to design with Cypress products. First-place winners and their professors in six global regions will compete for $10,000 cash prizes and the inaugural T.J. Rodgers Innovation Trophy.

+ Cypress donated computer equipment and the use of a 1,960 square-foot computer lab at its San Jose headquarters to the nonprofit California Alliance of African American Educators, an organization that produces extraordinary college acceptance rates for African-American students enabling them to pursue careers in math, science and technology.

+ Cypress won its 15th consecutive Holiday Food Bowl Challenge trophy from the Second Harvest Food Bank of Santa Clara and San Mateo Counties by donating 961,680 pounds of food, or 1,330 pounds per Cypress employee-a per-capita donation that topped all other companies in Silicon Valley.


Rodgers concluded: "Cypress succeeded in its focus on improving investor returns in 2006. Our goal is to continue to do so in 2007. Our stock price appreciated by 18.4% in 2006, outpacing the Philadelphia Semiconductor Index (SOXX) by 21 percentage points. Cypress’s stock appreciated by 21.5% in 2005.

“In Q4, Cypress made public our new mission: ‘To transform ourselves from a traditional, broad-line semiconductor company to the leading supplier of programmable system solutions.’ This mission is the focus of a restructuring effort begun two years ago - one that has included the sale or divestiture of businesses that do not align with our long-term plan, our successful shift into flexible manufacturing (”No More Moore") and the addition to our management team of senior executives with broad experience defining and bringing to market new generations of high-performance programmable products.

“As a result, we exited 2006 with our most focused product portfolio ever, which helped to drive design wins to an all-time record. We expect to grow faster than the overall semiconductor market and to achieve record revenue in 2007.”

About Cypress

Cypress delivers high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and exceptional system value. Cypress offerings include the PSoC Programmable System-on-Chip, USB controllers, general-purpose programmable clocks and memories. Cypress also offers wired and wireless connectivity solutions ranging from its WirelessUSB radio system-on-chip, to West Bridge and EZ-USB FX2LP controllers that enhance connectivity and performance in multimedia handsets. Cypress serves numerous markets including consumer, computation, data communications, automotive, industrial, and solar power. Cypress trades on the NYSE under the ticker symbol CY. Visit Cypress online at

Statements herein that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for the first quarter of 2007, revenue for 2007, and the future are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995.“ We use words such as ”believes,“ ”expects,“ ”future,“ ”plan,“ ”intends" and similar expressions to identify forward-looking statements that include, but are not limited to, statements related to demand for our PSoC devices, CapSense devices and other products, the functionality and features of our new products, the strength of our product portolio, the stability of our ASPs, the softness in communications-related markets, our prices, growth, shipments, profit and revenue. Such statements reflect our current expectations, which are based on information and data available to our management as of the date of this release. Our actual results may differ materially due a variety of uncertainties and risk factors, including but not limited to the business and economic conditions and growth trends in the semiconductor and solar power industries, the state of the global economy, the actions of our competitors, our ability to develop and roll-out new products, our ability to execute on our flexible manufacturing plan, whether our products perform as expected, whether our investment in PSoC is fully realized, customer acceptance of Cypress and it’s subsidiaries’ products, factory utilization, seasonality in the markets we serve, our ability to maintain and improve our gross margins and realize our bookings, the financial performance of our subsidiaries, including SunPower’s ability to integrate PowerLight, meet demand and obtain a sufficient amount of polysilicon, SunPower’s production levels and module sales, and other risks described in our filings with the Securities and Exchange Commission. We assume no responsibility to update any such forward-looking statements.

To supplement the consolidated financial results prepared under GAAP, Cypress uses adjusted-GAAP measures, which are adjusted from the most directly comparable GAAP results to exclude charges for stock-based compensation, acquisition-related charges and other special charges and credits. Management does not consider these charges part of the day-to-day business or reflective of the core operational activities of the Company as they result from corporate transactions outside the ordinary course of business. Management uses these adjusted-GAAP measures internally to make strategic decisions, forecast future results and evaluate the Company’s current performance. Most analysts covering Cypress use the adjusted-GAAP measures as well. Given management’s use of these adjusted-GAAP measures, Cypress believes these measures are important to investors in understanding the Company’s current and future operating results as seen through the eyes of management. In addition, management believes these adjusted-GAAP measures are useful to investors in enabling them to better assess changes in Cypress’ core business across different time periods. These adjusted-GAAP measures are not in accordance with, or an alternative for, GAAP and may be different from adjusted-GAAP measures used by other companies.

Cypress, the Cypress logo, PSoC, and MoBL are registered trademarks of Cypress Semiconductor Corporation. PSoC Express, Programmable System-on-Chip, PRoC, Programmable Radio-on-a-Chip, MoBL-USB, EZ-USB FX2LP, WirelessUSB, enCoRe, HOTLink, SLIM, Simultaneous Link to Independent Multimedia, West Bridge and Antioch are trademarks of Cypress Semiconductor Corporation. SunPower is a registered trademark of SunPower Corporation. PowerLight, PowerGuard, SunTile and PowerTracker are registered trademarks of PowerLight, a subsidiary of SunPower Corp. Wooo is a trademark of Hitachi Ltd. All other trademarks or registered trademarks are the property of their respective owners.



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