Cypress Forges Foundry Agreement with Grace Semiconductor Manufacturing Corporation; Launches Flexible Manufacturing Strategy; Capacity Increase to Support Fast-Growing Consumer, Computation Products.

SAN JOSE, Calif. & SHANGHAI, China -- Cypress Semiconductor Corp. (NYSE:CY) and Grace Semiconductor Manufacturing Corporation (Grace) today announced that they have entered into a strategic foundry partnership. Under terms of the agreement, Cypress will transfer its Programmable System-on-Chip(TM) (PSoC(R)) mixed signal array, CMOS image sensor, WirelessUSB(TM), and PC clock process technologies to Grace and in turn receive preferential volume access to Grace's foundry capacity. The increase in capacity will augment output from Cypress's production facilities in Bloomington, Minn., and Round Rock, Texas, supporting Cypress's high-volume, high-growth products used in consumer and computation devices.

"This agreement marks our first step in the implementation of a new flexible manufacturing strategy that will enable Cypress to leverage its proprietary process technologies while achieving significant foundry capacity to support the rapid growth of our leading products," said T.J. Rodgers, president and CEO of Cypress. "In addition, we will be able to decrease the ongoing capital requirements needed to support our growth needs while maintaining a consistently high level of utilization in our own fabs - making this a winning strategy for our customers, our shareholders and Grace."

Qualification of the first product is scheduled for the beginning of the third quarter of 2006 in Grace's 8-inch facility in Shanghai. Grace will start production with the PSoC mixed-signal array on Cypress's proprietary S4 technology. Following the ramp-up at Grace, Cypress expects to increase its overall capacity by an additional 15,000 wafer starts per month by the fourth quarter of 2007.

Cypress will transfer its technology using best-in-class business processes in conjunction with the deployment of manufacturing process control experts to oversee the seamless integration of Cypress's manufacturing technology and advanced process control infrastructure into Grace. This will ensure a timely and efficient transfer of technologies, methodologies and requisite skill sets, enabling Grace to fully integrate Cypress's quality, statistical process control and demand fulfillment attributes.

"After conducting an exhaustive audit, we are confident that Grace can provide not only the product quality but also the technology capability that our customer base has come to expect from Cypress," said Shahin Sharifzadeh, executive vice president of Manufacturing and R&D at Cypress. "Our partnership with Grace will provide Cypress the agility and flexibility to meet our manufacturing requirements while providing world-class service to our customers in terms of lead-time and cost."

"Cypress's selection of Grace is a clear recognition of our foundry model and technical expertise to develop long-term synergistic partnerships that generate added value and maximize our partner's competitive advantages," said Mr. Dong Yeshun, president and CEO of Grace. "We are strongly committed to providing Cypress with state-of-the-art facilities to support the increasing demand for its products and provide the capacity to meet its future growth needs."

Revenue from Cypress's Consumer and Computation devices grew by more than 25 percent in the third quarter of 2005 and is expected to increase again in the fourth quarter. The chips are used in a variety of applications including MP3 players, set-top boxes, gaming systems, and computers.

About Grace Semiconductor Manufacturing Corporation

Grace Semiconductor Manufacturing Corporation (Grace) is a pure IC foundry company that specializes in integrated circuit (IC) fabrication. Grace's mission is to become a leading foundry in China by supplying high quality and advanced process technology to domestic and global customers. Grace is located in Zhangjiang Hi-Tech Park in Pudong, Shanghai, with a total land area of 240,000 square meters and a first-phase investment of $1.63 billion. Two Fabs with one based on 12-inch wafer specifications have been constructed. Currently, Fab 1A (8") is in full production. It already reached a monthly capacity of 27,000 8-inch wafers by the end 2004. More information about Grace is available at http://www.gsmcthw.com/.

About Cypress

Cypress solutions are at the heart of any system that is built to perform: consumer, computation, data communications, automotive, industrial, and solar power. Leveraging a strong commitment to customer service and performance-based process and manufacturing expertise, Cypress's product portfolio includes a broad selection of wired and wireless USB devices, CMOS image sensors, timing solutions, network search engines, specialty memories, high-bandwidth synchronous and micropower memory products, optical solutions, and reconfigurable mixed-signal arrays. Cypress stock is traded on the New York Stock Exchange under the ticker symbol CY. More information about the company is available online at www.cypress.com.

Cypress and the Cypress logo are registered trademarks of Cypress Semiconductor Corporation. All other trademarks are the property of their respective owners.