Cypress Reports 2007 Second-Quarter Results: Record Revenue
Cypress Semiconductor Corp. (NYSE: CY) today announced that revenue for the 2007 second quarter was $372.8 million, up 8.7% from prior-quarter revenue of $342.9 million and up 40.6% from year-ago second-quarter revenue of $265.2 million.
Cypress recorded GAAP net income of $363.4 million in the 2007 second quarter, or diluted earnings per share of $2.29. This compares with last quarter’s diluted net loss per share of $0.01. GAAP diluted earnings per share in the year-ago second quarter was $0.04 per share. The large increase in the 2007 second quarter earnings per share was primarily due to a significant gain from the sale of 7.5 million shares of SunPower Corporation common stock. Cypress continues to own 44.5 million SunPower Class B common shares with a current market value of approximately $3.1 billion.
Non-GAAP(1) net income for the 2007 second quarter-earnings that exclude gains from the sale of SunPower common stock, stock-based compensation, acquisition-related charges and other special charges and credits-totaled $26.8 million, or diluted earnings per share of $0.16. This compares with the prior quarter’s non-GAAP1 diluted earnings per share of $0.16 and $0.13 in the year-ago second quarter.
On a GAAP basis, second-quarter consolidated gross margin was 32.9%, down 5.7 percentage points from the prior quarter. Semiconductor gross margin(2) for the second quarter was 43.3%, down 3.5 percentage points from the previous quarter. Semiconductor gross margin was down 4.8 percentage points from 48.1% in the year-ago second quarter.
Non-GAAP(1) consolidated gross margin for the second quarter was 34.7%, down 5.5 percentage points from the previous quarter due to a higher mix of SunPower revenue. Non-GAAP(1) semiconductor margin for the second quarter was 44.9%, down 3.3 percentage points from 48.2% in the previous quarter and down 4.4 percentage points from 49.3% in the year-ago second quarter.
Cypress President and CEO T.J. Rodgers said, "Record revenue! If someone had told me in the fourth quarter of 2000, when we achieved record revenue during the dot.com boom, that we would not set a new record again until the second quarter of 2007-and that our memory division would be our third-biggest, behind a new programmable products division and a solar energy division-I would have laughed at them. But that is the journey we have taken to survive and prosper in our highly competitive industry, where 47 of the 59 U.S. semiconductor companies in business when Cypress was founded in 1982 no longer exist.
"Revenue for the second quarter of 2007 exceeded our guidance due to the continued strong growth of our SunPower division and record revenue from our fast-growing PSoC business unit. Cypress continued to focus on higher-margin programmable solutions in the second quarter; they accounted for 43% of our semiconductor revenue.
“Semiconductor ASPs remained reasonably strong and increased sequentially for the seventh consecutive quarter. As expected, semiconductor gross margins decreased in Q2 due to divestitures, product mix and lower factory utilization. We expect gross margins to increase sequentially over the next few quarters toward our target of 50%, driven by the strong growth of our proprietary products and improved factory utilization that will result from sequential revenue growth that we are expecting across the business in the third and fourth quarters of 2007.”
Consumer and Computation Division (CCD)
CCD revenue was $85.5 million in the second quarter, up 11.3% from the prior quarter, exceeding our expectations. Driven by record sales of the PSoC mixed-signal array, CCD revenue accounted for 22.9% of Cypress’s second-quarter revenue. Cypress’s PSoC customer count expanded 10.6% quarter-on-quarter to nearly 4,700 customers; new design activity in all major end markets remained very strong. Third-quarter revenue is expected to increase due to continued strong demand from the consumer and handset sectors.
Second-quarter highlights for the division include:
+ Cypress introduced a touch screen solution based on its PSoC® CapSense™ technology. The new solution leverages Cypress’s flexible PSoC mixed-signal array architecture to deliver high-accuracy, flexible touch-screen performance to mobile handsets, smartphones, and portable media players, as well as video games, point-of-sale terminals and white goods. Stylish touch screens are becoming a more popular interface for handheld consumer devices.
+ Cypress launched its EZ-Color™ high-brightness LED (HB-LED) solution in the second quarter. With their superior efficiency and color control, HB-LEDs are fast replacing conventional lighting solutions in entertainment, architectural and stadium-caliber displays; backlighting for cell phones, digital-still cameras and high-definition televisions; and a wide range of other applications. The HB-LED sector is expected to grow from $3.7 billion in 2006 to more than $7 billion by 2010, according to market research firm iSuppli Corp. EZ-Color controllers are supported by PSoC Express™ software, Cypress’s breakthrough visual embedded system design tool, which enables designers to create even the most challenging lighting designs with an intuitive, easy-to-use, drag-and-drop interface - without having to write complex microcontroller code. The EZ-Color module enables users to produce precise colors by simply selecting the desired color from an on-screen color gamut diagram embedded in PSoC Express. The software provides HB-LED binning compensation and temperature compensation algorithms to improve color accuracy and stability relative to competing solutions.
+ Cypress announced that Hewlett-Packard selected its CapSense™ touch-sensitive interface solution for the multimedia buttons on several of its HP Compaq® Notebook PC models. CapSense, a PSoC-based alternative to mechanical buttons and sliders, adds elegance, integration and reliability to end-product designs.
+ Cypress released version 4.4 of its PSoC Designer™ Integrated Development Environment that is compatible with Microsoft’s new Windows Vista™ operating system. PSoC Designer is a unique software platform that allows our customers to design custom, proprietary systems on chip in hours, instead of days or weeks. The software platform took Cypress designers more than 70 man years to create. Cypress also introduced PSoC evaluation kits to implement motion detection and port expansion in a variety of end products.
+ Cypress published “The Beginner’s Guide to PSoC Express,” the sixth book on PSoC platform software, targeting students, hobbyists and professional engineers. More information is available at www.cypress.com/psocbook."
+ Harman Kardon® selected Cypress’s PRoC™ LP Programmable Radio-on-Chip for the remote control of its Drive + Play 2 Mobile Media Manager, a wireless, automotive system that enables users to browse content on their iPods, satellite radio systems and multimedia phones. PRoC LP integrates PSoC and Cypress’s 2.4-GHz WirelessUSB™ LP transceiver, providing unparalleled low power and robust immunity to radio interference.
+ Electronic Engineering & Product World (EEPW) magazine, one of China’s leading electronics magazines, recognized PRoC LP with a 2006 Editor’s Choice Technology Innovation Award.
+ Cypress introduced the CYONS1001G OvationONS™ precision laser navigation sensor targeting high-performance mice for gaming and graphic design. OvationONS uses high-speed position sampling to deliver an instantaneous, high-resolution response, enhancing the user experience.
Data Communications Division (DCD)
DCD revenue was $27.4 million in the second quarter, down 15.7% from the prior quarter, below expectations, due to the discontinuation of older products. Divisional revenue accounted for 7.3% of second-quarter revenue. DCD revenue is expected to increase in the third quarter due primarily to increased shipments of West Bridge™ peripheral controllers to cell phone makers.
Second-quarter highlights for the division include:
+ Cypress’s new West Bridge Antioch™ peripheral handset controller continued to gain traction with major cell phone makers during its first full-quarter of mass production. The first phones featuring the device are expected to begin shipping in the third quarter. The Antioch controller enables a full CD of music to be transferred from a PC to a cell phone in less than a minute, compared with more than 10 minutes for conventional solutions.
Memory and Imaging Division (MID)
MID revenue was $83.4 million in the second quarter, down 1.5% from the prior quarter, consistent with our expectation. Divisional revenue accounted for 22.4% of second-quarter revenue. Overall MID revenue is expected to decrease in the third quarter due to the divestiture of the Pseudo-Static Random Access Memory (PSRAM) business unit. Excluding PSRAMs, SRAM revenues are expected to increase in the third quarter. MID gross margins are also expected to increase.
Second-quarter highlights for the division include:
+ EE Times China, a leading electronics publication, named Cypress’s nonvolatile SRAM (nvSRAM) family its “Memory Product of the Year.” Cypress’s nvSRAMs deliver the high-speed of SRAMs along with the ability to store information with the power off (non-volatility) of Flash memory. This long sought-after combination is ideal for any application requiring continuous high-speed data recording and robust data security, including “black box” recorders, Redundant Array of Independent Disks (RAID) systems, copiers, point-of-sale terminals, handheld meters and consumer electronics. Cypress’s nvSRAMs are being developed with Simtek Corp.
+ Cypress delivered a CMOS image sensor solution that allows data to be read at 500 frames-per-second to InPhase Technologies for use in its Tapestry™ holographic data storage system. Holographic storage records data three-dimensionally, throughout the storage medium, not just on the surface.
+ Taiwan-based Elite Semiconductor Memory Technology Inc. acquired Cypress’s PSRAM product line, including all PSRAM-related intellectual property, photomasks and probe-card assets in a Q2 technology-transfer agreement.
SunPower achieved record revenue of $173.8 million in the second quarter, up 22.1% from the prior quarter and up 217.7% from the 2006 second quarter, driven by continued strong demand for solar systems from the industrial, commercial and residential sectors. SunPower accounted for 46.6% of Cypress’s second-quarter revenue. SunPower revenue is expected to increase in the third quarter.
On a GAAP basis, SunPower posted a gross margin of 21.0% in the second quarter of 2007, compared with 27.0% in the first quarter. SunPower posted a non-GAAP gross margin of 23.0% in the second quarter of 2007, compared with 29.0% in the first quarter. The main difference between GAAP and non-GAAP figures is due to the amortization of intangibles and employee stock compensation.
Second-quarter highlights include:
+ Sandia National Laboratories certified SunPower’s new SPR-315 315-watt solar panel at 321.65 watts-with the highest-recorded conversion efficiency ever for a commercially available, mass-produced solar panel.
+ SunPower introduced the next generation of its SunPower® Tracker system-a mechanically tilted platform that follows the sun. The system’s 10 panels generate 30 percent more electricity than fixed-mounted systems.
+ SunPower kicked off construction of the largest solar electric system in North America at Nellis Air Force Base near Las Vegas. The 140-acre system, consisting of 70,000 solar panels mounted on 7,000 SunPower Tracker systems, will generate 15 megawatts of power, which is more than 25 percent of the power used at the base. Click www.cypress.com/nellistracker to see a photo of the SunPower Tracker system" Click www.cypress.com/nellissat for a satellite view of the Nellis installation.
+ SunPower contracted with Wal-Mart Stores Inc" to install more than four megawatts of solar power at seven facilities in California. Investment banker Morgan Stanley will purchase the systems and sell the solar energy to Wal-Mart under an innovative new funding initiative, SunPower Access™.
+ SunPower announced a contract with retailer Macy’s Inc. to install rooftop solar systems at 26 California stores, providing a combined eight megawatts of solar power. In addition, SunPower completed several solar-power system projects during the quarter, including a 9.9-kilowatt system at Coors Field in Colorado, the home of Major League Baseball’s Colorado Rockies; and two solar-power systems at Tiffany & Co. retail distribution centers in New York, providing a combined 1.3 megawatts of power.
+ Ernst & Young named SunPower CEO Tom Werner Entrepreneur of the Year® for 2007 in the Engineering and Manufacturing category for Northern California. SunPower Chairman T.J. Rodgers received the Entrepreneur of the Year award in 1991.
+ Cypress donated SunPower solar panels to a coral reef rehabilitation project in the Philippines’ Sagay Marine Reserve. The installation passes electrical current from panels mounted on a raft through submerged steel rebar, encouraging coral polyps attached to the rebar to regenerate five times faster than normal. The project is sponsored by the Massachusetts Institute of Technology.
+ Cypress redesigned its website - www.cypress.com - to support its drive to become a leading provider of programmable solutions and to facilitate sales to a broader range of small and midsized companies.“ The improved site significantly reduces the number of ”clicks" required for customers to access critical product information and makes resources associated with programmable product design-including application notes, software and development kits-much easier to find.
+ Cypress reached an agreement to license its 0.13-micron Silicon Oxide Nitride Oxide Silicon (SONOS) embedded memory technology to Shanghai’s Hua Hong NEC Electronics Co. Ltd.
+ Newark Electronics, a subsidiary of catalog distributor Premier Farnell, signed a franchise agreement with Cypress to sell its PSoC mixed-signal arrays, USB controllers and timing products. Cypress is increasing its catalog coverage in an effort to triple its customer base.
+ In May, Cypress sold 7,500,000 shares of SunPower Corporation’s Class B common stock in an offering pursuant to Rule 144 of the Securities Act. As of the end of Q2, Cypress retained 44,533,287 shares of SunPower Corporation Class B common stock, which equals approximately 59% basic ownership or 55% on a fully diluted basis. Cypress controls approximately 92% of the voting rights and its ownership stake has a current market value of $3.1 billion as of July 18, 2007.
Rodgers concluded, "Using the net proceeds from a $600 million convertible bond offering in Q1, Cypress successfully purchased and retired 28.9 million shares of common stock at an average price of $19.78-substantially below our recent stock price of approximately $25 per share. We also monetized a $437 million piece of our SunPower holdings and now have a solid $800 million cash position in our semiconductor business.
“We are well-positioned for continued growth in the second half of 2007-and into 2008-based on strong new product introductions and continued design-win strength in our PSoC and West Bridge business units, and significant revenue growth by the SunPower division. Coupled with lower operating expenses and our ”No More Moore“ and flexible-manufacturing strategies, we expect to deliver long-term profits and cash flow to our shareholders.”
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