Cypress Reports Fourth Quarter 2002 Results.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--January 23, 2003

Cypress Semiconductor Corporation (NYSE:CY) today announced that revenue for the 2002 fourth quarter was $174.4 million, down 15% from the prior quarter revenue of $205.0 million, and down 9% from year-ago fourth quarter revenue of $191.1 million. Pro forma net loss for the 2002 fourth quarter was $14.9 million, resulting in a pro forma loss per share of $0.12, compared to the prior quarter pro forma loss of share of $0.03 and year-ago fourth quarter pro forma loss of $0.11 per share.

Including acquisition-related, restructuring and non-recurring charges and credits, Cypress posted a net loss of $126.2 million for the 2002 fourth quarter, resulting in a loss per share of $1.02, compared with the prior quarter net loss of $55.1 million or $0.45 per share. Included in the fourth quarter results were restructuring charges of $44.5 million, and impairment charges and asset write downs of $43.8 million. The restructuring charge represents the company's actions to further reduce its cost structure, which included a reduction in force impacting approximately 360 employees and further reduction of wafer fabrication capacity due to continued softness in demand. The cash portion of these restructuring charges was only $6.3 million, mostly relating to the work force actions. The asset-impairment charge was primarily the result of the write down in the investment value of Cypress subsidiary Silicon Light Machines.

Revenue for fiscal year 2002 was $774.7 million, a decline of 5% from 2001 revenue of $819.2 million. The pro forma net loss for fiscal year 2002 was $37.0 million, resulting in a pro forma loss per share of $0.30, compared to 2001 pro forma net loss of $77.4 million, or $0.62 per share. Including acquisition-related, restructuring and non-recurring charges and credits, the net loss for fiscal year 2002 were $249.1 million, or $2.02 loss per share, compared to fiscal 2001 net loss of $407.4 million, or $3.28 loss per share.

Cypress CEO T.J. Rodgers said, "After four straight quarters of growth, the last quarter of 2002 softened for us and for the industry. For Cypress, the fourth-quarter decline is largely attributed to our wireless business, where aggressive pricing pressure continued, and where we have experienced an earlier-than-expected market shift to the 16-megabit density, a product we're currently qualifying at major customers. The aggressive inventory builds by some of our wireless- and consumer-segment customers in Q3 2002 also contributed to the decline. We did close the fourth quarter with a book-to-bill of 1.0."

Rodgers continued, "Gross margin for the 2002 fourth quarter was 41%, with approximately a 2% benefit from the sale of previously reserved inventory. During the fourth quarter, we restructured the company to take our pro forma breakeven sales down to $195 million. These actions impacted approximately 9% of our workforce and included reductions in R&D. We were cash-flow positive in the fourth quarter, finishing with total cash of approximately $222 million."

                            MARKET SEGMENTS

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

Revenue from the WAN/SAN segments, which accounted for 37% of fourth-quarter revenue, decreased 5% from the prior quarter and posted a gross margin of 54%. This segment benefited from market share gains in Network Search Engines (NSEs) and a slight increase in storage business. We expect relatively flat revenue in the first quarter of 2003, aided by continued market share gains and contribution from new product sales. Segment highlights for the quarter include:

-- Silicon Light Machines posted record revenue as it doubled Q3 shipments to printing equipment customers and secured development contracts to enhance products based on its patented Grating Light Valve(TM) (GLV(TM)) technology. In addition, SLM initiated customer engagements for new, industrial GLV applications.

-- Cypress announced agreements to deliver interoperability between its Ayama(TM) NSE and industry-leading network processors from Intel(R) and Applied Micro Circuits Corporation.

-- Cypress sampled the first member of its next-generation, high-performance QuadPort(R) Datapath Switching Element (DSE) family. Featuring 27-Gbps bandwidth, the CY7C0451 device targets high-end wireless basestations, storage subsystems, and WAN switch applications. The QuadPort DSE, a concept pioneered by Cypress and the EMC Corporation, allows simultaneous access to an integrated memory array through each of its four independent ports, improving performance by eliminating contention and arbitration issues on a shared bus when multiple processors or functional blocks require access to the same data. The new DSE will be manufactured on Cypress's proprietary, 0.13-micron C8(TM) CMOS process technology.

-- Cypress commenced volume shipments of its 8-nanosecond, 16-Mbit asynchronous SRAM, the world's fastest, lowest-power 16-Mbit product. The CY7C1061 device is manufactured on Cypress's on its 0.15-micron, RAM7(TM) platform. These parts offer an industry-best 8-10 nanosecond access time at significantly lower active power than the competition.

-- Cypress announced a strategic partnership with Computer Modules Inc. to provide complete, industry-standard physical-layer (PHY) solutions for broadband video applications in routers, aggregators and other video networking equipment. The partnership plans to target solutions using the DVB/ASI and SMPTE-259M industry standards for digital video. Computer Modules is a leader in broadband video delivery technologies.

-- Cypress announced a partnership with Honeywell International Inc. to develop Silicon-On-Insulator (SOI) technology to be used in a variety of end products. Cypress plans to use SOI to develop next-generation communications chips. SOI technology has always provided superior performance at best-in-class power consumption. The joint venture will install Honeywell's state-of-the-art SOI capability onto Cypress's low-cost, high-yield 0.13-micron C8(TM) technology.

      Wireless Terminals and Wireless Infrastructure (WIT/WIN)

Revenue from the WIT/WIN segments, which accounted for 28% of fourth-quarter revenue, decreased 35% from prior quarter and posted gross margin of 24%. The decline in revenue were attributed to: (a) continued pricing pressure, (b) some market-share loss from earlier-than-expected market shift to 16-meg density, a product we're currently qualifying at major customers, (c) some market share loss from a niche demand for 2.2-volt products, currently a hole in our portfolio of 1.8 V and 3.3 V products also being qualified at customers, and (d) the overly aggressive inventory builds in Q3 2002 by some of our customers, which resulted in reduced Q4 order rates. We expect WIT/WIN sales to be slightly up in the first quarter of 2003, aided by some recovery from the abnormally low order rates in Q4 offset by seasonal effects on the quarter. Segment highlights for the quarter include:

-- Cypress sampled its first generation of one-transistor (1T) pseudo-SRAM (PSRAM) products, a key addition to its portfolio of micropower memories for cell phones. The new family of devices, which includes 16-Mbit and 32-Mbit densities, offers higher density than a conventional SRAM at a lower cost. The increase in density is driven by the proliferation of end product features in mobile phones, including color LCD screens, integrated cameras, and other multimedia applications. PSRAM products are available in 1.8- and 2.5-volt versions with 70- and 85-ns access times.

-- Cypress shipped first revenue of its 8-Mbit second-generation More Battery Life(TM) (MoBL(R)) micropower SRAM. Manufactured using the company's proprietary 0.13-micron C8 technology, the CY7C62155D is the world's smallest, low-power 8-Mbit SRAM, increasing battery life in cell phones and other mobile applications.

                        Computation and Consumer

Revenue from the computation and consumer segment, which accounted for 35% of fourth-quarter revenue was only down 1% from the prior quarter and posted gross margin of 42%. PC clock revenue grew 9% sequentially, while Universal Serial Bus (USB) product sales grew 7% sequentially. The decline in this segment's revenue was driven primarily by aggressive order rates for consumer and gaming clocks in Q302, which adversely impacted Q4 order rates. We expect the computation and consumer segment sales to be slightly down in the first quarter due to seasonal effects on the quarter. Segment highlights include:

-- Cypress sampled its WirelessUSB(TM) family of products, the first wireless solution that enables manufacturers of PC mice, keyboards and gaming consoles to minimize development time, cost, and power requirements without sacrificing performance. Operating at 2.4 GHz, the CY694X WirelessUSB solution can connect up to seven devices up to 30 feet apart with minimal latency -- an important consideration for designers of gaming solutions. WirelessUSB is Cypress's first wireless product, leveraging its leadership in USB solutions into the wireless world.

-- Cypress sampled its third generation of in-system reprogrammable(TM) (ISR(TM)) clock generators, designed to dramatically simplify the process of programming clocks for consumer electronics and communications control systems applications. Designers are able to program Cypress's Multiclock(TM) CY27EE16 device directly on their system board via an industry-standard interface -- without the need for an external programmer or special programming voltages.

-- Cypress also announced the release of CyberClocks(TM), a comprehensive timing tool software suite that supports all of its programmable clocks, including Multiclock. CyberClocks dramatically simplifies the process of designing with phase-locked loops (PLLs), enabling a designer to customize clock requirements through an easy-to-use interface. The software automatically compiles design parameters into a bit stream and loads the bit stream into the chip.

-- Cypress MicroSystems (CMS), a subsidiary of Cypress Semiconductor, announced that Turkey-based Elektromed Ltd. Corporation has selected its Programmable System on Chip(TM) (PSoC(TM)) device technology to add advanced capabilities and lower the development costs of its electronic metering systems. Elektromed is the world's largest meter manufacturer.

-- Cypress introduced the Programmable Input Output Neuron Node (Pioneer Node(TM)) reference design. The CY5301 reference design combines Cypress's Neuron(R) chip -- an intelligent control communications processor for LonWorks(R) control networks -- with Cypress MicroSystems's PSoC technology to simplify development of LonWorks nodes for building automation, industrial control, transportation, and utility applications.

                              Conclusion

Rodgers said, "Actions we had taken to reduce the company's breakeven sales to $195 million are no longer sufficient given our current level of sales and near-term outlook. As a result, we have identified incremental actions to be taken in the first-quarter to lower our breakeven sales further to $185 million and keep to our objective of returning the company to profitability and continuing to generate free cash-flow. Given the typical seasonal decline in first quarter revenue, which will blunt our new product growth, we can only see flat revenue in first quarter sales, but we should see a slight improvement in profitability in Q103."

                             About Cypress

Cypress Semiconductor Corporation (NYSE:CY) is Connecting from Last Mile to First Mile(TM) with high-performance solutions for personal, network access, enterprise, metro switch, and core communications-system applications. Cypress Connects(TM) using wireless, wireline, digital, and optical transmission standards, including Bluetooth, USB, Fibre Channel, SONET/SDH, Gigabit Ethernet, and DWDM. Leveraging its process and system-level expertise, Cypress makes industry-leading physical layer devices, framers, and network search engines, along with a broad portfolio of high-bandwidth memories, timing technology solutions, and programmable microcontrollers. More information about Cypress is accessible online at www.cypress.com.

"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. This press release contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 including statements regarding the effects of restructuring actions on our profitability and cash-flow revenue expectations from our market segments and product and technology initiatives.

Factors that could use actual results to differ materially from the forward looking statements include but are 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 (including its Annual Report on Form 10-K for the fiscal year ended December 30, 2001 and the Quarterly Reports on Form 10-Q for the fiscal quarters ended March 21, 2002 and September 29, 2002) for a discussion of such risks. Cypress assumes no obligation to update these forward looking statements.

Notes to Editors:

Cypress, the Cypress logo, MoBL, QuadPort, and RoboClock are registered trademarks of Cypress Semiconductor Corporation.

Ayama, RAM7, C8, Programmable System-on-Chip, PsoC, WirelessUSB, Pioneer Node, In-System Reprogrammable, ISR, Multiclock, CyberClocks, More Battery Life, Connecting from Last Mile to First Mile, and Cypress Connects are trademarks of Cypress Semiconductor Corporation.

Silicon Light Machines, Grating Light Valve, and GLV are trademarks of Silicon Light Machines, a subsidiary of Cypress.

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

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

                             (Unaudited)
                                                Dec 29,     Dec 30,
                                                 2002        2001
                                              ----------  ----------

                                 ASSETS

  Cash, cash equivalents, and
   investments (a)                            $  222,465  $  414,885
  Accounts receivable, net                        83,054      97,817
  Inventories                                     92,721      73,268
  Property and equipment, net                    496,566     499,795
  Goodwill and other intangible
   assets                                        411,284     486,960
  Other assets                                   266,558     313,711
                                              ----------- -----------

     Total assets                             $1,572,648  $1,886,436
                                              =========== ===========


               LIABILITIES AND STOCKHOLDERS' EQUITY

  Accounts payable and accrued
   liabilities                                $  179,774  $  242,576
  Deferred income on sales to
   distributors                                   15,774      11,926
  Convertible subordinated notes                 468,900     517,700
  Income tax liabilities                         177,404     203,272
  Other liabilities                               57,173      42,534
                                              ----------- -----------

     Total liabilities                           899,025   1,018,008

Stockholders' equity (b)                         673,623     868,428
                                              ----------- -----------

     Total liabilities and
      stockholders' equity                    $1,572,648  $1,886,436
                                              =========== ===========


(a) Cash, cash equivalents, and investments includes restricted
    amounts totaling $62.4 million and $75.0 million as of December
    29, 2002 and December 30, 2001, respectively.

(b) Common stock, $.01 par value, 650,000 and 250,000 shares
    authorized; 123,743 and 121,495 outstanding as of December 29,
    2002 and December 30, 2001, respectively.



                  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 29,    Dec 30,   Sep 29,    Dec 29,     Dec 30,
                   2002       2001      2002       2002        2001
               ------------ --------- --------- ----------- ----------

Revenues         $174,449   $191,099  $205,021   $774,746    $819,192

Costs of
 revenues         102,713    113,574   110,657    441,733     544,657
               ------------ --------- --------- ----------- ----------

Gross margin       71,736     77,525    94,364    333,013     274,535

Operating
 expenses:
    Research
     and
     develop-
     ment          61,138     60,425    63,359    249,582     235,054
    Selling,
     general
     and
     adminis-
     trative       31,828     37,265    32,996    132,952     153,527
               ------------ --------- --------- ----------- ----------

    Total
     operating
     costs         92,966     97,690    96,355    382,534     388,581
               ------------ --------- --------- ----------- ----------

Operating
 loss             (21,230)   (20,165)   (1,991)   (49,521)   (114,046)

Net interest
 income
 (expense) and
 other                515        849    (2,448)    (1,871)     24,081
               ------------ --------- --------- ----------- ----------

Loss before
 income tax       (20,715)   (19,316)   (4,439)   (51,392)    (89,965)

Income tax
 benefit            5,801      5,795     1,243     14,390      12,605
               ------------ --------- --------- ----------- ----------
Net loss         $(14,914)  $(13,521)  $(3,196)  $(37,002)   $(77,360)
               ============ ========= ========= =========== ==========

Basic and
 diluted net
 loss per share    $(0.12)    $(0.11)   $(0.03)    $(0.30)     $(0.62)


Shares used in
 per share
 calculations     123,731    120,501   123,634    123,112     124,135



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

           Following is a reconciliation of our GAAP net loss
               to our Pro Forma net loss (in thousands).

                      THREE MONTHS ENDED          TWELVE MONTHS ENDED
                         (Unaudited)                  (Unaudited)
               -------------------------------- ----------------------

                  Dec 29,    Dec 30,   Sep 29,    Dec 29,     Dec 30,
                   2002       2001      2002       2002        2001
               ------------ --------- --------- ----------- ----------

GAAP net loss    $(126,157) $(37,704) $(55,089)  $(249,098) $(407,412)
               ============ ========= ========= =========== ==========

Acquisition
 costs (1)          15,054    42,003    19,579      88,008    135,773
Restructuring
 (2)                44,528         -     2,433      38,251    132,113
Impairments,
 asset write-
 downs and
 other (3)          43,807         -    13,848      59,756     86,586
Gain on
 retirement of
 bonds                   -    (7,241)        -      (5,946)    (7,241)
Employee loan
 reserve (4)            98         -    14,701      14,799          -
Pro forma tax
 adjustment          7,756   (10,579)    1,332      17,228    (17,179)

               ------------ --------- --------- ----------- ----------
Pro forma net
 loss             $(14,914) $(13,521)  $(3,196)   $(37,002)  $(77,360)
               ============ ========= ========= =========== ==========


(1) In-process technology, non-cash stock compensation costs, cash
    compensation based on the achievement of milestones under
    acquisition agreements and the amortization of intangible assets
    and goodwill (in 2001 only) related to those acquisitions.

(2) In Q4 2002, restructuring costs consist of a $45.3 million charge
    for workforce reductions, assets held for sale, and operating
    leases related to our Q4 2002 restructuring. This was offset by a
    $0.8 million credit related to our prior restructuring.

(3) Includes impairment charges related to investments and loans to
    development stage companies, impairment of certain intangibles and
    goodwill and write offs of other obsolete assets.

(4) In Q4 and Q3 2002, reserves were recorded against the outstanding
    loans to employees under the shareholder-approved Stock Purchase
    Assistance Program due to a decline in the value of the
    collateral, based upon a fair value analysis. The total reserve at
    the end of Q4 2002 and Q3 2002 is $16.0 and $15.9 million,
    respectively. The Company does not currently intend to call the
    loans.


    Cypress provides pro forma results as additional information for
    its operating results. These measures are not in accordance with,
    or an alternative for, generally accepted accounting principles
    and may be different from pro forma measures used by other
    companies.



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

                      THREE MONTHS ENDED          TWELVE MONTHS ENDED
                         (Unaudited)                  (Unaudited)
               -------------------------------- ----------------------

                  Dec 29,    Dec 30,   Sep 29,    Dec 29,     Dec 30,
                   2002       2001      2002       2002        2001
               ------------ --------- --------- ----------- ----------

Revenues        $ 174,449   $191,099  $205,021  $ 774,746   $ 819,192

Costs of
 revenues         103,151    114,930   111,096    443,365     552,267
               ------------ --------- --------- ----------- ----------

Gross margin       71,298     76,169    93,925    331,381     266,925

Operating
 expenses:
    Research
     and
     develo-
     pment         63,321     71,093    70,987    287,909     267,522
    Selling,
     general
     and
     admin-
     istrative     32,393     40,148    48,551    151,689     165,655
    Restruc-
     turing
     costs         44,528          -     2,433     38,251     132,113
    Acquisi-
     tion and
     merger
     costs         11,966     27,096    10,658     44,111      94,693
    Non-
     recurr-
     ing
     charges       40,765          -         -     40,765      66,560
               ------------ --------- --------- ----------- ----------

    Total
     operat-
     ing
     costs        192,973    138,337   132,629    562,725     726,543
               ------------ --------- --------- ----------- ----------

Operating
 loss            (121,675)   (62,168)  (38,704)  (231,344)   (459,618)

Net interest
 income
 (expense) and
 other             (2,527)     8,090   (16,296)   (14,916)     22,422
               ------------ --------- --------- ----------- ----------

Loss before
 income tax      (124,202)   (54,078)  (55,000)  (246,260)   (437,196)

(Provision)
 benefit for
 income tax        (1,955)    16,374       (89)    (2,838)     29,784
               ------------ --------- --------- ----------- ----------


Net loss        $(126,157)  $(37,704) $(55,089) $(249,098)  $(407,412)
               ============ ========= ========= =========== ==========



Basic and
 diluted net
 loss per share    $(1.02)    $(0.31)   $(0.45)    $(2.02)     $(3.28)


Shares used in
 per share
 calculations     123,731    120,501   123,634    123,112     124,135