Cypress Q401 Results: Revenue $191.1 Million; EBG $0.11 Loss Per Share.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--Jan. 24, 2002

Cypress Semiconductor Corporation (NYSE:CY) today announced that revenue for the 2001 fourth quarter, ended December 30, 2001, was $191.1 million, up 6% from 2001 third quarter revenue of $180.3 million but down 48% from record revenue in the year-ago quarter of $370.0 million. Cypress ended fiscal 2001 with annual revenue of $819.2 million, a decrease of 36% from fiscal 2000 record revenue of $1.288 billion.

Excluding acquisition-related costs, restructuring costs and other non-recurring charges and credits, herein collectively called Goodwill, Cypress posted a net loss for the fourth quarter of $13.5 million, resulting in a diluted loss per share of $0.11, compared with a third quarter diluted loss per share of $0.14 and year-ago fourth quarter record EBG (earnings before goodwill) of $0.74 per diluted share. For fiscal 2001, net income before Goodwill was $2.2 million, amounting to an EBG of $0.02 per share, compared with fiscal 2000 net income before Goodwill of $329.2 million, or $2.39 per diluted share.

Including Goodwill, net loss in the fourth quarter of 2001 was $37.7 million or a net loss of $0.31 per diluted share, compared with a net loss of $2.92 per diluted share in the third quarter of 2001 and record earnings of $0.68 per diluted share in the year-ago quarter. For fiscal 2001, including Goodwill, net loss was $407.4 million or a net loss of $3.28 per diluted share, compared with fiscal 2000 net income of $277.3 million or $2.03 per diluted share.

Cypress CEO T.J. Rodgers said, "This is our first sequential quarterly improvement after three quarters of declining revenue. We are hoping that this is the beginning of a sustainable recovery for the semiconductor industry. We made our numbers in the fourth quarter relying heavily on business booked in the quarter -- and that appears to be the case again this quarter."

Rodgers continued, "Our fourth quarter loss before Goodwill of $0.11 per share was a slight improvement over last quarter's $0.14 per share loss. Nevertheless, we still saw a significant decrease in average selling price during the quarter. The benefit of our recent restructuring offset this impact, leading to a slight improvement in EBG gross margin to 41% from last quarter's 39%. As noted in last quarter's report, our break-even sales target is approximately $225 million per quarter."

MARKET SEGMENTS

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

Sales of the WAN/SAN segments, which accounted for 33% of fourth quarter sales, increased 8% quarter-to-quarter, the first sequential quarterly improvement in this segment since the fourth quarter of 2000. We have seen continued reduction in end-customer inventory in the WAN segment, leading to modest spot buying patterns from major datacom accounts. The WAN/SAN segment posted gross margins of 45% in the fourth quarter. We expect WAN/SAN revenue to grow slightly in the first quarter. Segment highlights for the quarter include:

-- Silicon Light Machines enlisted two alpha-site customers to work with its
new dynamic gain equalizer (DGE), a device that provides for the continuous,
automatic equalization of the multiple laser signals used on a single fiber in
dense wave division multiplexing (DWDM) systems.

-- SLM and Cypress announced the development of working prototypes of a
Parallel Optical Transceiver module which can transmit and receive data over
optical fibers and convert the data stream into electrical signals on either
end. The complex mechanical, optical, and electronic technologies involved in
designing the module will be used to develop next-generation optical
transceiver and transponder modules for high-bandwidth, optical interconnects
in next-generation switches and routers.

-- Cypress signed a multisource agreement to provide four-channel, 10 gigabit
per second (Gbps), parallel, optical transceivers with Alvesta, a
privately-held provider of optical communications products to high-end telecom,
datacom, and storage systems companies. Cypress and Alvesta will combine to
produce QuadLink(TM) transceivers, which are optimized for 10-gigabit operation
across multiple industry standards, including Optical Internetworking Forum
(OIF) for SONET/SDH, InfiniBand(TM), and the emerging 10-gigabit Fibre Channel
specification. Four-channel parallel transceivers are the most cost-effective
optical solution for 10-gigabit applications.

-- Working in a joint project with Lucent Technologies, Cypress co-designed a
line card that includes design wins for its OC-48 Packet Over SONET framer
(POSIC(TM)); HOTLink II(TM), a 1.5-Gbps physical-layer device for backplane
switching applications; and Cypress's portside OC-48 PHY. Including design wins
at Nortel, Ericsson and Groupe Sagem, France's largest telecommunications
company, Cypress has now completed four design wins for POSIC, the industry's
first intelligent OC-48 framer capable of real-time bandwidth allocation. The
Lucent win is the product of a strategic alliance agreement signed in 2001
under which Cypress receives early access to information about key Lucent
technology and development plans.

-- Cypress's 0.20-micron silicon germanium (SiGe) process, first used to
manufacture an OC-48 PHY -- a 2.5-Gbps data transmitter/receiver for the
Synchronous Optical Network, SONET--has yielded 80 GHz transistors, the fastest
devices ever created by Cypress. Production prototypes of the new transceiver
are expected this quarter.

-- Cypress Semiconductor and SiGe Semiconductor of Ottawa, Canada, signed an
agreement to collaborate on Cypress's 0.20-micron SiGe process. Under the
agreement, the companies will merge SiGe Semiconductor's RF process and device
modeling expertise with Cypress's leading-edge manufacturing capabilities to
bring performance, integration and power advantages to manufacturers of
wireless and broadband communications equipment. The companies expect to
deliver production-ready SiGe processes in the current quarter.

-- Cypress's lithium tantalate fab in San Jose yielded its first good wafers
during the quarter. LiTaO3 is a new material that enables the unique
interaction of electrical, optical and acoustical signals on an integrated
circuit. Cypress is developing the expertise to produce high-performance active
components for optical networks.

-- Cypress qualified at Cisco Systems the 128K-entry version of its family of
wirespeed network search engines. The NSEs, which will be used to accelerate
routing decisions in Cisco's next-generation Cat 6000 switching equipment, are
capable of 100 million lookups per second, establishing a new performance
standard. Wire-speed processing is the critical new requirement for
high-performance, next-generation networking system with speeds at OC-192
(10-Gbps) and up.

-- Cypress debuted the latest release of its popular Warp(R) software and
design environment. Warp Release 6.2 expands Cypress's support for its
Programmable Serial Interface(TM) (PSI(TM)) devices, a unique family of
communications chips that combines high speed physical layer (PHY) technology
with a flexible programmable logic architecture.

Wireless Terminals and Wireless Infrastructure (WIT/WIN)

Sales of the WIT/WIN segments, which accounted for 32% of fourth quarter sales, increased by 1% from the prior quarter due to a slight increase in basestation related business and a shift towards higher-density memories for cellular handsets. These segments posted a gross margin of 35% in the fourth quarter. We expect WIT/WIN sales to be flat in the first quarter of 2002. Segment highlights for the quarter include:

-- Cypress converted 40% of total Fab IV wafer starts during the

quarter with its RAM7(TM) 0.15-micron CMOS technology,

including its MoBL2(TM) family of 1.8 V micropower memories.

-- Cypress announced a first-to-market USB embedded

host/peripheral controller reference design to implement the

new On-the-Go (OTG) supplement to the USB 2.0 specification.

Translation: USB OTG products can communicate with each other

without needing to be connected to a PC host -- for example, a

USB OTG mobile phone can interface directly with an

OTG-compatible digital still camera. Additional OTG

applications include mobile phones, PDAs, and cable set-top

boxes. Cypress is a charter member of the USB On-the-Go

Working Group.

-- Cypress announced first revenue and a design win on its 4-Mbit

family of dual-port RAMs, the highest-density dual-ports

available. Cypress 4-Mbit dual-ports will be designed into

third-generation (3G) Fujitsu wireless basestations. Cypress

dual-ports are optimized for wireless basestation use.

Computation and Other

The computation and other segments accounted for 35% of fourth quarter revenue, an increase of 9% from the prior quarter, driven by strong seasonal demand in PC-related clocks and a significant rebound in USB sales. Gross margins were 41% in the fourth quarter. We expect this market segment to have flat or slightly down revenue in the first quarter of 2002 with a PC-related business decline offset by continuing USB growth. Segment highlights for the quarter include:

-- Cypress reached the one-million-unit per quarter mark in

shipments of Neuron(TM) chips, shipping its family of

intelligent control communications processors for LonWorks(R)

control networks.

-- Cypress announced that continuing strong design activity has

led to the first one-million-unit quarter for its USB 2.0

controllers USB 2.0 is the 480 megabit-per-second version of

Cypress's popular USB 1.1 twelve megabit-per-second

"plug-and-play" standard interface for PC-peripheral

connectivity. USB 2.0 is used to hook up higher-performance

peripherals, such as printers, scanners, and mass-storage

devices.

-- Cypress designed a USB controller into the Microsoft Xbox(R)

gaming system. Every Xbox now ships with three Cypress chips,

including an additional USB chip and a Cypress clock chip.

Cypress also expects strong USB design-in activity and revenue

in the robust market for Xbox add-ons, such as joysticks and

gamepads.

-- Cypress launched the MediaClocks(TM) Voltage Controlled

Crystal Oscillator (VCXO) family of clock devices, targeted at

audio and video systems, including set-top boxes, digital

cameras, video game consoles, DVD players, and HDTV sets. The

advanced MediaClocks architecture facilitates the design and

delivery of engineering samples compliant with new multimedia

clock requirements in as little as one to two weeks. While the

audio clock was once the limiting component in achieving

high-quality audio, the new Cypress devices leverage the

latest phase-locked-loop (PLL) technology to achieve better

clock jitter and enable full 24-bit audio performance, in line

with DVD and other emerging audio standards.

Other Developments

The company purchased $52.8 million of its 3.75% convertible debentures due July 2005 through open market purchases while trading at a discount of approximately 15%. This brought in a gain before tax of $7.2 million which was excluded from EBG reporting.

Conclusion

Rodgers concluded, "We are pleased to have ended 2001 with $0.02 cents per share EBG, despite the severity of the 2001 downturn. Our bookings started to recover six months ago, our revenue last quarter. Despite very limited visibility, the market upturn continues. We plan to control costs and stay ready for the recovery."

About Cypress Semiconductor

Cypress Semiconductor is "Driving the Communications Revolution"(TM) with high-performance integrated circuits for network infrastructure and access equipment. Leveraging its process and system-level expertise, the company designs and manufactures solutions targeted across wireless and wireline communications. Cypress supports a wide range of industry standards, such as SONET/SDH (OC-192/STM-64 and above), 10G Ethernet, Voice over Internet Protocol (VoIP) and InfiniBand. The company's communications product lines include programmable high-speed physical layer devices (PHYs), wirespeed network search engines (NSEs) and network coprocessors (NCPs), and datapath switching elements (DSEs). Cypress is also the industry's foremost provider of communications timing solutions, networking-optimized communications memories and personal connectivity solutions, such as USB and Bluetooth. Cypress is a leader in pure optical and optoelectronic technologies designed to push network transmissions to higher performance levels and to satisfy the increasing demand for network bandwidth. With a focus on emerging communications applications, Cypress aims to become the preferred silicon supplier for network infrastructure solutions and for every network data stream to pass through at least one Cypress IC. Cypress employs approximately 4,000 people worldwide. Its shares are listed on the New York Stock Exchange under the symbol CY. More information about Cypress is accessible on the Web 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: Cypress, the Cypress logo and Warp are registered trademarks of Cypress Semiconductor Corporation.

Delta39K, Driving the Communications Revolution, HOTLink II, MediaClock, MoBL2, More Battery Life, POSIC, Programmable Serial Interface, PSI, QuadLink, RAM7 and Warp are trademarks of Cypress Semiconductor Corporation.

Infiniband is a trademark of the InfiniBand Trade Association.

QDR and Quad Data Rate SRAMs comprise a new family of products developed by Cypress, IDT, Micron Technology, Inc., NEC and Samsung.

Xbox is a registered trademark of Microsoft.

LonWorks and Neuron are registered trademarks of Echelon.

All registered trademarks or trademarks are the property of their respective owners.

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

                                               Dec. 30,    Dec. 31,
                                                 2001         2000
                                             ----------   ----------
                                ASSETS
Current assets:
  Cash and short-term investments/a            $205,422     $884,601
  Accounts receivable, net                       97,817      193,525
  Inventories                                    73,268      104,935
  Other current assets                          250,328       99,725
                                             ----------   ----------
     Total current assets                       626,835    1,282,786

Property and equipment, net                     499,795      571,475
Long-term investments/a                         134,495      211,444
Restricted investments/a                         74,968       60,698
Other assets                                    550,343      235,351
                                             ----------   ----------
     Total assets                            $1,886,436   $2,361,754
                                             ==========   ==========

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                              $73,916      $95,735
  Accrued liabilities                           167,360      121,487
  Deferred income on sales to distributors       11,926       34,084
  Income taxes payable                            1,300       48,121
                                             ----------   ----------
     Total current liabilities                  254,502      299,427

Convertible subordinated notes                  517,700      570,500
Long-term income tax liabilities                203,272      103,604
Other long-term liabilities                      42,534       60,555
                                             ----------   ----------
     Total liabilities                        1,018,008    1,034,086
Stockholders' equity/b                          868,428    1,327,668
                                             ----------   ----------
     Total liabilities and stockholders'
      equity                                 $1,886,436   $2,361,754
                                             ==========   ==========

/a  Cash and investments at December 30, 2001 totals $414,885
/b  Common stock, $.01 par value, 650,000 and 250,000 shares
    authorized; 139,052 and 136,895 issued; 121,495 and 125,659
    outstanding


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

                      THREE MONTHS ENDED        TWELVE MONTHS ENDED
                          (Unaudited)              (Unaudited)
                  Dec. 30,   Dec. 31,  Sept. 30,  Dec. 30,   Dec. 31,
                    2001       2000      2001      2001       2000
                 ---------  --------- --------- ---------  ---------
Revenues          $191,099   $370,025  $180,284  $819,192 $1,287,787
Costs and
 expenses:
  Costs of
   revenues        113,574    151,053   110,566   451,545    564,580
  Research and
   development      60,425     53,323    62,032   235,054    181,277
  Selling,
   general and
   administrative   37,265     41,912    37,488   153,527    151,494
                 ---------  --------- --------- ---------  ---------
     Total
      operating
      costs        211,264    246,288   210,086   840,126    897,351
                 ---------  --------- --------- ---------  ---------
Operating
 income (loss)     (20,165)   123,737   (29,802)  (20,934)   390,436

Net interest
 income
 (expense)
 and other             849     10,915     4,389    24,081     31,599
                 ---------  --------- --------- ---------  ---------
Income (loss)
 before income
 tax               (19,316)   134,652   (25,413)    3,147    422,035

(Provision)
 benefit for
 income tax          5,795    (29,337)    7,624      (944)   (92,799)
                 ---------  --------- --------- ---------  ---------
Net income
 (loss)           $(13,521)  $105,315  $(17,789)   $2,203   $329,236
                 =========  ========= ========= =========  =========

Pro forma earnings
 per share:

Basic net income
 (loss) per share   $(0.11)     $0.81    $(0.14)    $0.02      $2.72

Diluted net
 income (loss)
 per share          $(0.11)     $0.74    $(0.14)    $0.02      $2.39

Shares used in per
 share calculations:
  Basic            120,501    129,335   124,107   124,135    121,126
  Diluted          120,501    147,575   124,107   127,068    144,228

Memo: After tax
 interest added to
 net income for
 diluted earnings
 per share
 calculation          --        3,370      --        --       15,014

                  CYPRESS SEMICONDUCTOR CORPORATION
                NOTES TO UNAUDITED PRO FORMA CONDENSED
                 CONSOLIDATED STATEMENTS OF OPERATIONS

                     THREE MONTHS ENDED          TWELVE MONTHS ENDED
                        (Unaudited)                 (Unaudited)
                Dec. 30,   Dec. 31,  Sept. 30,  Dec. 30,   Dec. 31,
                  2001       2000      2001       2001       2000
               ---------  --------- ---------  ---------  ---------
GAAP net income
 (loss)         $(37,704)   $97,590 $(362,309) $(407,412)  $277,308
               =========  ========= =========  =========  =========
Acquisition
 costs            42,003     12,457    37,860    135,773     62,082
Restructuring
 costs (credits)                      132,113    132,113       (485)
Write-down of
 inventories                           93,112     93,112
Impairment
 of assets                   (6,630)   80,436     80,436     (6,630)
Other non-
 recurring
 (gains)
 charges          (4,345)     1,898     6,150      1,805     (3,102)
Tax effects
 on pro forma
 adjustments     (13,475)      --      (5,151)   (33,624)        63
               ---------  --------- ---------  ---------  ---------
Pro forma net
 income (loss)  $(13,521)  $105,315  $(17,789)    $2,203   $329,236
               =========  ========= =========  =========  =========


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

                      THREE MONTHS ENDED         TWELVE MONTHS ENDED
                          (Unaudited)                (Unaudited)
                 Dec. 30,  Dec. 31,  Sept. 30,   Dec. 30,    Dec. 31,
                   2001      2000      2001       2001        2000
                --------- --------- ---------   ---------   ---------

Revenues         $191,099  $370,025  $180,284    $819,192  $1,287,787
Costs and
 expenses:
 Costs of
  revenues        114,930   151,087   208,111     552,267     564,839
 Research and
  development      71,093    55,382    77,496     267,522     184,471
 Selling,
  general and
  administrative   40,148    43,420    41,571     165,655     153,909
 Restructuring
  costs (credits)                     132,113     132,113        (485)
 Acquisition and
  merger costs     27,096     8,856    25,006      94,693      54,250
 Non-recurring
  charges                              66,560      66,560       1,964
                --------- --------- ---------   ---------   ---------
  Total operating
    costs         253,267   258,745   550,857   1,278,810     958,948
                --------- --------- ---------   ---------   ---------
Operating
 income (loss)    (62,168)  111,280  (370,573)   (459,618)    328,839
Net interest
 income
 (expense)
 and other            849    15,647    (4,511)     15,181      41,331
                --------- --------- ---------   ---------   ---------
Income (loss)
 before income
 tax and
 extraordinary
 gain             (61,319)  126,927  (375,084)   (444,437)    370,170
(Provision)
 benefit
 for income
 tax               19,270   (29,337)   12,775      32,680     (92,862)
                --------- --------- ---------   ---------   ---------
Net income
 (loss) before
 extraordinary
 gain            $(42,049)  $97,590 $(362,309)  $(411,757)   $277,308

Extraordinary
 gain (net
 of tax
 of $2,896)         4,345                           4,345
                --------- --------- ---------   ---------   ---------
Net income
 (loss)          $(37,704)  $97,590 $(362,309)  $(407,412)   $277,308
                ========= ========= =========   =========   =========
Basic net
 income (loss)
 per share:

Before
 extraordinary
 gain              $(0.35)    $0.75    $(2.92)     $(3.32)      $2.29
Extraordinary
 gain (net
 of tax)            $0.04                           $0.04
                --------- --------- ---------   ---------   ---------
Net income
 (loss)            $(0.31)    $0.75    $(2.92)     $(3.28)      $2.29

Diluted net
 income (loss)
 per share

Before
 extraordinary
 gain              $(0.35)    $0.68    $(2.92)     $(3.32)      $2.03
Extraordinary
 gain (net
 of tax)            $0.04                           $0.04
                --------- --------- ---------   ---------   ---------
Net income
 (loss)            $(0.31)    $0.68    $(2.92)     $(3.28)      $2.03

Shares used in per
 share calculations:
   Basic          120,501   129,335   124,107     124,135     121,126
   Diluted        120,501   147,575   124,107     124,135     144,228

Memo: After
 tax interest
 added to net
 income for
 diluted
 earnings
 per share
 calculation         --       3,370      --          --        15,014