Cypress Q201 Results: Revenue, $186 Million; Earnings $0.01 Per Share.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--July 19, 2001

Cypress Semiconductor Corporation (NYSE:CY) today announced that revenue for the second quarter 2001 ended July 1, 2001, was $185.5 million, down 29% from first quarter 2001 revenue of $262.3 million and down 38% from the year-ago quarter revenue of $300.8 million.

Net income for the second quarter 2001 excluding goodwill (acquisition-related costs and non-recurring items) was $787,400, resulting in diluted earnings before goodwill (EBG) of $0.01 per share, compared with first quarter 2001 EBG of $0.25 per share and the year-ago quarter EBG of $0.54 per share.

Cypress CEO T.J. Rodgers said, "Cypress has been through two sequential down quarters of 29% since we achieved record revenue of $370.0 million in the fourth quarter of 2000. Our company's quarterly revenue has effectively been cut in half in six months, illustrating just how steep this downturn has been. We are proud to have endured this precipitous decline in revenue without losing money."

Rodgers continued, "That performance notwithstanding, the absence of a sizable short-term recovery in the datacom segment -- despite promising signs in the computation and consumer segments -- along with pressure on average selling prices, will cause us to be unprofitable for the rest of 2001, unless we take action. We are therefore sizing the company to a level that ensures optimum cost efficiency for the remainder of this downturn but leaves the right infrastructure in place to grow the company rapidly when the recovery begins."

Rodgers continued, "In the third quarter of 2001, we will take a restructuring charge of $140 million-$180 million, primarily to write down excess manufacturing equipment and to reduce our manufacturing headcount by 500. There will also be a 10% across-the-board reduction in force in non-manufacturing functions of the company, bringing the total reduction in force to 650. The benefit of these actions will commence in the fourth quarter of 2001."

Rodgers continued, "As expected, gross margins were 45% in the second quarter, down from 52% last quarter, due to lower average selling prices and lower volume, which, in turn, resulted in under-utilization of our factories. Our bookings in the second quarter exceeded those of the first quarter, and -- so far -- third quarter bookings are ahead of prorated second quarter bookings.

MARKET SEGMENTS

Wide Area Network and Storage Area Network (WAN/SAN)

Sales of the WAN/SAN division, which accounted for 44% of second quarter sales, declined 42% quarter-to-quarter, the biggest decline of all our segments. The decline is due to a continued lack of demand in the wireline market. As we noted in prior statements, we expect recovery in this segment to begin in early 2002. The WAN/SAN division posted respectable gross margins of 43% in the second quarter. We expect this segment to experience another decline in revenue in the third quarter. Segment highlights for the quarter include:

-- Silicon Light Machines announced the appointment of Tom Werner as CEO. Werner has a diverse background with management experience at General Electric, U.S. Robotics, and 3Com, including 10 years of profit-and-loss management. Werner's primary charter is to leverage Silicon Light Machines' microelectromechanical systems (MEMS)-based Grating Light Valve(TM) technology in communications markets.

-- Cypress announced two major design wins for its Packet Over SONET Integrated Circuit (POSIC), a 14-million-transistor OC-48 framer designed to handle data at 2.5 Gbps. Both Nortel and Ericsson have committed to the new chip, which is the industry's first intelligent, programmable OC-48 framer featuring dynamic bandwidth allocation -- the ability to pack 16 different information channels of continuously varying size onto one high speed "data pipe."

-- Cypress announced eight new design wins during the quarter for its OC-48 transceiver, which transmits and receives data at 2.5 Gbps over long-haul fiber networks. This brings to 10 the total number of OC-48 design wins, including those at Cisco, Marconi and Lucent. Cypress's OC-48 transceiver has an edge over competing products in the critical areas of package and die size, input sensitivity and power consumption.

-- Cypress achieved "first silicon" on a 0.20-micron silicon germanium (SiGe) version of Cypress's OC-48 transceiver. This internally fabbed part will use half the power of its pure-silicon counterpart and will form the basis of a new family of transceivers. SiGe is a very-high-performance process that is significantly more cost-effective than the gallium arsenide (GaAs) process, today's predominant high-performance technology.

-- Cypress will commence operations during the quarter in a San Jose research and development fab built to make lithium tantalate wafers. The company believes that LiTaO3 is a technology superior to the more well known lithium niobate (LiNiO3) technology used for filters in mobile phones and laser modulators in 10-Gbps and 40-Gbps fiber transmission systems.

-- Cypress was the first semiconductor company invited to join Lucent in a Strategic Alliance Agreement to share critical technology, capacity and projected pricing information early in the design cycle. Cypress will get early access to information about key Lucent technologies, system architectures and product development roadmaps to align its product plans and corporate strategy with Lucent.

-- Cypress expects to sample this quarter a 10-gigabit transceiver for high-speed communications applications. The company's Quad HOTLink III(TM) device is a four-channel serial transceiver equipped to provide high bandwidth and flexibility for storage area network (SAN), wide area network (WAN), wireless infrastructure (WIN), and local area network (LAN) switches. HOTLink III, which extends Cypress's high-performance physical layer portfolio from its original HOTLink(R) and HOTLink II(TM) products, is the first part to be sampled as a result of the April 2001 acquisition of HiBand Semiconductors. Cypress has been manufacturing high-performance physical layer devices (PHYs) since 1985.

-- Cypress expects to sample this quarter a 10-Gbps (gigabit-per-second) integrated optoelectric (IOE) device for backplane solutions. The new Cypress IOE product will combine our high-speed physical layer (PHY) data transmission competencies with the optical capabilities of recently acquired Silicon Light Machines to produce a fully integrated, single-chip solution that converts backplane electrical signals to laser-on-fiber transmissions at 10 Gbps.

-- Cypress completed its acquisition of Lara Networks Inc., an industry leader in high-performance, silicon-based packet-processing solutions for WAN infrastructure equipment. Lara's products target switches, routers and multiservice gateways handling multiple high-speed protocols up to OC-768, including 10-Gigabit Ethernet. Wire-speed packet processing is the critical new requirement for high-performance, next-generation networking systems. Lara's family of network search engines (NSEs) and network coprocessors have chalked up 50 design wins at companies including Cisco Systems, Nortel, Fujitsu, Juniper Networks and Ericcson.

-- The QDR codevelopment partners, which include Cypress customers Cisco and Nortel, agreed on specifications for the next generation of Quad Data Rate (QDR) SRAMs. QDR is a fourth-generation synchronous memory that is capable of delivering data at speeds up to 333 MHz. It is specifically optimized for high-performance networking and telecommunications systems.

-- Cypress has achieved full integration with International Microelectronics Inc. (IMI), which it acquired in the first quarter of 2001. With the IMI acquisition, Cypress has built the industry's widest portfolio of timing technology solutions for communications applications, including the industry's broadest array of more than 35 zero-delay buffers for tightly controlled clock distribution in high-performance systems.

-- Cypress acquired ScanLogic in May 2001 to expand its market-leading portfolio of USB products. ScanLogic had established a leadership position in the emerging USB embedded host market with its host/slave controller, the first of its kind on the market. Cypress will implement ScanLogic's technology in USB 1.1 and 2.0 controllers for USB-to-IDE/ATAPI (disk drive standard) peripherals, imaging devices, communication devices, embedded USB host/slave applications, audio/video devices and telephony and networking applications. Scanlogic products pave the way to move the cost-efficient USB standard onto non-PC communications platforms.

-- The QuadPort(TM) Datapath Switch Element(TM) (DSE)(TM) family offers customers a wide range of storage capacities for data path management, including 256K, 512K and 1M switching elements. The devices target high-end storage area network (SAN), high-speed wide area network (WAN) and wireless infrastructure applications. When used in conjunction with the Cypress OC-48 port SERDES, Delta39K(TM) CPLDs and the HOTLink family of backplane physical-layer devices, the QuadPort DSE provides a complete communications linecard solution.

-- Cypress has sampled the Delta39K200 CPLD, the world's largest complex programmable logic device (CPLD). Delta39K200 CPLDs provide double the capacity and memory of the company's previously announced Delta39K100 devices. The Delta39K family -- which spans eight device densities, ranging from 50,000 to 350,000 gates -- offers more embedded memory than any other programmable logic device (PLD), and is the first CPLD family to embed integrated FIFOs, dual-port memories and SpreadAware phase lock loops (PLLs).

-- Cypress announced first revenue on its 18-Mbit family of synchronous SRAMs. CY7C137X devices are offered in NoBL(TM) (No Bus Latency(TM), a datacom standard) and standard configurations. These products support speeds up to 200 MHz, the fastest 3.3-V and 2.5-V 18-Mbit Sync SRAMs.

-- Cypress sampled its NetRAM(TM) family of synchronous SRAMs in 8-Mbit, 4-Mbit, and 1-Mbit densities. This family is the Motorola-created solution for WAN/SAN applications requiring multiport access in a single clock domain in which Cypress now takes the lead with the highest density, 8-Mbit product.

-- Cypress extended its Programmable Serial Interface(TM) (PSI(TM)) family of programmable PHY devices into the InfiniBand(TM) marketplace. The company's CYP25G01K100 PSI device is the world's only 2.5-Gbps programmable PHY.

-- Cypress received its third consecutive Global Partners in Performance (top supplier) award from contract manufacturer Celestica Inc.

-- Cypress MicroSystems, a subsidiary of Cypress Semiconductor, has achieved more than 600 design registrations -- and sales of 1200 Developer's Kits -- for its Programmable System-on-Chip(TM) (PSoC(TM)) microcontroller family. PSoC microcontrollers create custom on-chip peripherals through the configuration of programmable digital and analog circuitry.

Wireless Terminals and Wireless Infrastructure (WIT/WIN)

Sales of the WIT/WIN divisions, which accounted for 32% of second quarter sales, declined 12% from the prior quarter, the smallest decline of the segments Cypress serves. This segment posted gross margins of 51% in the second quarter. After two quarters of sequential decline, we expect sales in this market segment to increase slightly in the third quarter and begin to show improvement in the fourth quarter. Segment highlights for the quarter include:

-- Cypress announced that its 8-Mbit MoBL(TM) (More Battery Life(TM)) micropower memory has been fully qualified in the company's RAM7 technology. Manufactured at 0.15-micron line widths, the new device is the world's smallest 8-Mbit micropower memory.

Computation and Other

Sales for computation products, which accounted for 24% of second quarter revenue, declined 18% from the prior quarter. Gross margins were 38%. Consistent with our prior statements, we expect this market segment to recover first. We also expect a modest 3-5% revenue increase in the third quarter and higher growth thereafter. Segment highlights for the quarter include:

-- Cypress's Timing Technology Division (TTD) has doubled its presence in Sony's PS2 game console with an additional programmable media clock.

-- Cypress is ramping high-end consumer clocks for DVD and DSC (digital still camera) for Sony into full production. In addition, Cypress ink-jet clocks for Canon printers are also moving to full production.

-- The Cypress CY4611 USB reference design kit uses Cypress's EZ-USB(R) FX2(TM) controller to provide a high-performance USB 2.0-to-ATA bridge solution. The reference design supports a wide range of storage media -- including CD-RW, DVD, magneto-optical and hard disk drives -- and the Microsoft Windows and Macintosh operating systems. The mass storage reference design kit is the first in a series of kits that will include designs for digital video, flash memory card reader and port-replicator applications.

Conclusion

Rodgers concluded, "We've profitably survived the steepest two-quarter sequential drop in sales in our history. We're looking at a flat third quarter, which could well be the bottom quarter of this recession, unless we've already seen the bottom. The third quarter is therefore forecasted to be up in bookings and billings, but the bottom quarter for profit. However, even with some recovery in sight, our cost structure will be adjusted to make Cypress solidly profitable in 2002. The restructuring includes a write-down of excess manufacturing equipment, a reduction of our manufacturing headcount to inventory-neutral levels and an across-the-board 10% headcount reduction."

About Cypress Semiconductor

Cypress Semiconductor is "Driving the Communications Revolution"(TM) by providing high-performance integrated circuit solutions to fast-growing markets, including data communications, telecommunications, computation, consumer products, and industrial control. With a focus on emerging communications applications, Cypress's product portfolios include high-speed data communications ICs; networking-optimized and micropower static RAMs; high-bandwidth FIFO memories; high-density programmable logic devices; timing technology solutions; and controllers for Universal Serial Bus (USB).

More than two-thirds of Cypress's sales come from fast-growing communications markets and dynamic companies such as Alcatel, Cisco, Ericsson, Lucent, Motorola, Nortel Networks, and 3Com. Cypress's ability to mix and match its broad portfolio of intellectual property enables targeted, integrated solutions for high-speed systems that feed bandwidth-hungry Internet applications. Cypress aims to become the preferred silicon supplier for Internet switching systems and for every Internet data stream to pass through at least one Cypress IC.

Cypress employs more than 3,500 people worldwide with international headquarters in San Jose. Its shares are listed on the New York Stock Exchange under the symbol CY. More information about Cypress is accessible electronically on the company's worldwide Web site at http://www.cypress.com.

Safe Harbor -- Forward Looking Statements

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements herein that are not historical facts are "forward-looking statements" involving risks and uncertainties, including but not limited to: the effect of global economic conditions, shifts in supply and demand, market acceptance, the impact of competitive products and pricing, product development, commercialization and technological difficulties, and capacity and supply constraints. Please refer to Cypress's Securities and Exchange Commission filings for a discussion of such risks.

Note to Editors: EZ-USB, HOTLink and RoboClock are registered trademarks of Cypress Semiconductor.

Datapath Switch Element, Delta39K, DSE, FX2, Grating Light Valve, HOTLink II, HOTLink III, MoBL, More Battery Life, No Bus Latency, NoBL, Oasis, Programmable Serial Interface, Programmable System-on-Chip, PSI, PSoC, Quad Port and Driving the Communications Revolution are trademarks of Cypress Semiconductor Corporation.

QDR us a trademark of Cypress Semiconductor Corporation and Integrated Device technology.

NetRAM is a trademark of Motorola.

                   CYPRESS SEMICONDUCTOR CORPORATION
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                 (In thousands, except per share data)

                              (Unaudited)

                                                  July 1,      Dec 31,
                                                    2001         2000
                                              ----------   ----------
                                ASSETS

Current assets:
  Cash and short-term investments (1)         $  585,840   $  884,601
  Accounts receivable, net                       107,116      193,525
  Inventories                                    154,481      104,935
  Other current assets                           149,870       99,725
                                              ----------   ----------
     Total current assets                        997,307    1,282,786

Property and equipment, net                      615,959      571,475
Long-term investments (1)                        214,799      211,444
Restricted investments (1)                        62,549       60,698
Other assets                                     373,040      235,351
                                              ----------   ----------
     Total assets                             $2,263,654   $2,361,754
                                              ==========   ==========


                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                            $   59,327   $   95,735
  Accrued liabilities                            129,403      121,487
  Deferred income on sales to distributors        30,278       34,084
  Income taxes payable                            37,633       48,121
                                              ----------   ----------
     Total current liabilities                   256,641      299,427

Convertible subordinated notes                   570,500      570,500
Deferred income tax                              102,212      103,604
Other long-term liabilities                       49,872       60,555
                                              ----------   ----------
     Total liabilities                           979,225    1,034,086

Stockholders' equity (2)                       1,284,429    1,327,668
                                              ----------   ----------
     Total liabilities and stockholders'
      equity                                  $2,263,654   $2,361,754
                                              ==========   ==========

(1) Cash and investments at July 1, 2001 totals $863,188

(2) Common stock, $.01 par value, 650,000 and 250,000 shares
    authorized; 138,339 and 136,895 issued; 125,232 and 125,659
    outstanding


                   CYPRESS SEMICONDUCTOR CORPORATION
       PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share data)

                         THREE MONTHS ENDED        SIX MONTHS ENDED
                             (Unaudited)              (Unaudited)
                    ----------------------------- --------------------
                       July 1,   July 2,  April 1,   July 1,   July 2,
                         2001      2000      2001      2001      2000
                    --------- --------- --------- --------- ---------

Revenues             $185,546  $300,834  $262,263  $447,809  $565,075

Costs and expenses:
  Costs of revenues   102,160   135,056   125,245   227,405   265,778
  Research and
   development         56,364    42,674    56,233   112,597    80,998
  Selling, general
   and
   administrative      34,826    36,432    43,948    78,774    69,965
  Acquisition,
   merger and other
   non-recurring
   costs                   --        --        --        --        --
  Restructuring
  (credits)                --        --        --        --        --
                    --------- --------- --------- --------- ---------
  Total operating
   costs              193,350   214,162   225,426   418,776   416,741
                    --------- --------- --------- --------- ---------

Operating Income
(Loss)                 (7,804)   86,672    36,837    29,033   148,334
Net Interest income
 and other              8,929     6,814     9,914    18,843    11,650
                    --------- --------- --------- --------- ---------
Income before income
 tax                    1,125    93,486    46,751    47,876   159,984
                    --------- --------- --------- --------- ---------
(Provision) for
 income tax              (338)  (20,566)  (14,025)  (14,363)  (35,434)
                    --------- --------- --------- --------- ---------
Net income            $   787  $ 72,920  $ 32,726  $ 33,513  $124,550
                    ========= ========= ========= ========= =========


Pro Forma earnings
 per share:
Basic net income per
 share                $  0.01  $   0.62  $   0.26  $   0.27  $   1.06

Diluted net income
 per share            $  0.01  $   0.54  $   0.25  $   0.25  $   0.94

Shares used in per
 share calculation:

  Basic               125,515   118,186   126,417   125,966   117,014
  Diluted             130,830   142,117   132,050   131,440   140,433

Memo: After tax
interest added to
net income for
diluted earnings per
share calculation          --     3,320        --        --     6,844

CYPRESS SEMICONDUCTOR CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

The preceding unaudited pro forma consolidated statements of operations exclude the effects of restructuring credits, acquisition and merger costs, and other non-recurring items as follows:

For the quarter ended July 2, 2000 restructuring credits of $0.5 million were excluded on a pre-tax basis.

During the quarter ended July 1, 2001, acquisition-related pre-tax charges related to Altera Max5000 business, Anchor Chips, Arcus, Galvantech, HiBand, IC Works, IMI, RadioCom, ScanLogic and Silicon Light Machines of $28.9 million including:

-- $18.1 million related to amortization of goodwill and other intangibles.

-- $9.3 million related to non-cash deferred compensation.

-- $1.5 million related to the write-off of in process technology.

During the quarter ended April 1, 2001, acquisition-related pre-tax charges related to Altera Max5000 business, Anchor Chips, Arcus, Galvantech, HiBand, IC Works, IMI, RadioCom and Silicon Light Machines of $27.0 million including:

-- $11.3 million related to the write-off of in process

technology.

-- $11.7 million related to amortization of goodwill and other

intangibles.

-- $4.0 million related to non-cash deferred compensation.

During the quarter ended July 2, 2000, acquisition-related pre-tax charges related to Alation, Altera Max5000 business, Anchor Chips, Arcus, Galvantech, IC Works and RadioCom of $7.8 million including:

-- $2.0 million related to the write-off of in process

technology.

-- $2.0 million related to amortization of goodwill and other

intangibles.

-- $2.8 million related to non-cash deferred compensation.

-- $1.0 million related to transaction costs.

During the quarter ended April 2, 2000, acquisition-related pre-tax charges related to Alation, Altera Max5000 business, Anchor Chips, Arcus, Galvantech, and IC Works of $4.5 million including:

-- $2.3 million related to amortization of goodwill and other

intangibles.

-- $1.8 million related to transaction costs.

-- $0.4 million related to non-cash deferred compensation.

During the quarter ended April 2, 2000, a one-time gain on the sale of the FCT business of $5.0 million was excluded net of tax from the pro forma results.

For the quarter ended July 1, 2001 $10.2 million of the tax effects on the preceding transactions were excluded.

For the quarter ended April 1, 2001 $4.8 million of the tax effects on the preceding transactions were excluded.

                   CYPRESS SEMICONDUCTOR CORPORATION
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share data)

                         THREE MONTHS ENDED        SIX MONTHS ENDED
                             (Unaudited)              (Unaudited)
                    ----------------------------- --------------------
                       July 1,   July 2,  April 1,   July 1,   July 2,
                         2001      2000      2001      2001      2000
                    --------- --------- --------- --------- ---------

Revenues             $185,546  $300,834  $262,263  $447,809  $565,075

Costs and expenses:

  Costs of revenues   103,517   135,143   125,709   229,226   265,969
  Research and
   development         61,509    42,742    57,424   118,933    81,135
  Selling, general
   and
   administrative      37,644    36,513    46,292    83,936    70,139
  Acquisition,
   merger and other
   non-recurring
   costs               19,543     7,592    23,048    42,591    11,801
  Restructuring
  (credits)                        (485)                         (485)
                    --------- --------- --------- --------- ---------
  Total operating
   costs              222,213   221,505   252,473   474,686   428,559
                    --------- --------- --------- --------- ---------
Operating Income
(Loss)                (36,667)   79,329     9,790   (26,877)  136,516
Net Interest income
 and other              8,929     6,814     9,914    18,843    16,650
                    --------- --------- --------- --------- ---------
Income (loss) before
 income tax           (27,738)   86,143    19,704    (8,034)  153,166
                    --------- --------- --------- --------- ---------
(Provision) benefit
 for income tax         9,882   (20,514)   (9,247)      635   (35,497)
                    --------- --------- --------- --------- ---------
Net Income (Loss)    $(17,856) $ 65,629  $ 10,457  $ (7,399) $117,669
                    ========= ========= ========= ========= =========

Basic net income
(loss) per share     $  (0.14) $   0.56  $   0.08  $  (0.06) $   1.01
Diluted net income
(loss) per share     $  (0.14) $   0.49  $   0.08  $  (0.06) $   0.89

Shares used in per
 share calculation:

  Basic               125,515   118,186   126,417   125,966   117,014
  Diluted             125,515   142,117   132,050   125,966   140,433

Memo: After tax
interest added to
net income for
diluted earnings per
share calculation          --     3,320        --        --     6,844