Cypress Reports Third Quarter 2003 Results.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 16, 2003

Cypress Semiconductor Corporation (NYSE:CY) today announced that revenue for the 2003 third quarter was $216.6 million, up 7% from prior quarter revenue of $203.1 million and 6% from year-ago third quarter revenue of $205.0 million. Pro forma net income for the 2003 third quarter was $11.1 million, resulting in diluted earnings per share of $0.08, compared with prior quarter diluted earnings per share of $0.03 and a year-ago third quarter loss per share of $0.03.

Including amortization of intangibles and other acquisition-related, restructuring and special charges and credits, Cypress posted a GAAP net income of $17.3 million for the 2003 third quarter, resulting in diluted earnings per share of $0.12, compared with the prior quarter loss per share of $0.10, and the year-ago third quarter loss per share of $0.45.

Gross margin for the 2003 third quarter was 49%, aided by a 1% benefit from the sale of previously reserved inventory. This compares with last quarter's 3% benefit on a gross margin of 48%. Cypress ended the quarter with total cash (including cash, investments and restricted cash) of $319.3 million, after the payment of $328.4 million to redeem our convertible subordinated notes. The company also continued to generate free cash (cash from operations less capital expenditures).

Cypress President and CEO T.J. Rodgers said, "We are pleased to announce the third sequential, quarterly improvement in revenue and pro forma profit since the bottom of the 2001-2002 semiconductor recession in Q4 2002. Booking activity picked up during the quarter, allowing us to exceed our guidance and expectations twice. The book-to-bill ratio was 1.06, with all divisions posting a book-to-bill of greater than unity. The booking momentum has continued into early October. Backlog for the quarter grew by 18%."

Rodgers continued, "Our recent growth appears to be the result of a broad-based recovery, with improvements and market-share gains in consumer, wireless and computation. Even the long-dormant networking business began to show a few signs of life, particularly on the enterprise side of the business. Historically low customer inventories and a narrowing of the gap between semiconductor supply and demand are prompting a change in customer purchasing habits. With unit demand continuing to improve, an increasing number of our products are experiencing longer lead times. We shipped 160 million units in the quarter, a record, beating the 157 million units we shipped at the peak in Q3 2000. If these trends continue, we believe there is a strong possibility that the modest recovery of 2003 will turn into a boom in 2004-2005." (Click here to view Investor's Business Daily editorial on the semiconductor market by T.J. Rodgers: www.cypress.com/aboutus/link.cfm?pr=09240301)

MARKET SEGMENTS

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

Revenue from the WAN/SAN segment, which accounted for 31% of third-quarter revenue, increased 3% from the prior quarter, aided by modest improvement in the enterprise side of the business. The segment posted a gross margin of 54%. We anticipate a moderate increase in end-market demand through the fourth quarter. With customer inventories at historical lows, this increase could translate into stronger segment performance. Segment highlights include:

-- Cypress passed the 1.5 million-unit mark in shipments of

network search engines (NSEs) and ternary content addressable

memories (TCAMs). Cypress recently demonstrated its Ayama(TM)

10000 NSE family at the Intel(R) Developer's Forum. Ayama

delivers 266 million searches per second, the industry's

highest-performance.

-- Cypress launched a development kit to support Intel's advanced

TCA processing platform, ensuring compatibility between

Cypress NSEs and Intel's IXP2800-, IXP2850- and

IXP2400-families of network processors.

-- Cypress launched the HOTLink II(TM) independent-channel

device, the industry's first transceiver with four independent

video channels, capable of supporting the Gigabit Ethernet

(GbE), Fibre Channel and Enterprise System Connection

(ESCON(R)) protocols. The transceiver is also optimized to

handle a variety of conventional- and high-definition video

standards, including the Society of Motion Pictures and

Television Engineers (SMPTE) standard and the Digital Video

Broadcast-Asynchronous Serial Interface (DVB-ASI) standard.

-- Cypress announced production volume of its 18-Mbit family of

Quad Data Rate(TM) (QDR(TM)) and QDR II memories, manufactured

on its proprietary 0.15-micron RAM7(TM) technology. QDR

memories increase system bandwidth in network switches and

routers.

-- Cypress sampled its 18-Mbit FLEx72(TM) Dual-Port memory, the

highest-performance memory of its kind with double the density

of comparable devices. The FLEx72 Dual Port handles the

increased processing speeds required by next-generation

wireless basestations, storage area network subsystems, and

video- and image-processing systems.

-- Cypress and programmable-logic leader Xilinx Inc. will

collaborate on reference designs for state-of-the-art

communications and memory products. The first product of this

collaboration is a reference design for a

fiber-optic-over-SONET/SDH solution.

Wireless Terminals and Wireless Infrastructure (WIT/WIN)

Revenue from the WIT/WIN segment, which accounted for 30% of third-quarter revenue, increased 10% from the prior quarter with a gross margin of 38%. The revenue increase is attributable in part to strength in the handset business and a continued shift to a higher-density SRAM product mix. New customers were a major contributor to our market-share gains. We anticipate WIT/WIN sales to be slightly higher in the fourth quarter, based on a continued improvement in unit demand. Segment highlights for the quarter include:

-- Cypress and Cambridge Silicon Radio (CSR) announced the

industry's lowest-cost Bluetooth(R) adapter for USB-enabled

peripherals. The solution combines Cypress's USB On-The-Go

technology with CSR's Bluetooth expertise, enabling USB

printers to communicate with Bluetooth PCs through a "dongle"

adapter. Ultimately, Cypress-CSR solutions are expected to

support host-free wireless connections between USB printers

and Bluetooth peripherals such as personal digital assistants

(PDAs), digital cameras, and mobile phones.

Computation and Consumer

Revenue from the computation and consumer segment, which accounted for 35% of third-quarter revenue, posted a gross margin of 49% and was up 7% from the prior quarter due to robust demand for clocks in PC and consumer applications. We expect flat revenue rather than the typical seasonal downturn in the fourth quarter. Segment highlights include:

-- Cypress announced the availability of its WirelessUSB(TM) LS

controller, a revolutionary 2.4-GHz radio frequency

interconnect protocol for mice, keyboards, game controllers,

remote controls and other cordless devices. WirelessUSB LS

provides an optimal price/performance combination vs.

protocols such as Bluetooth, ZigBee and proprietary 27-MHz

solutions. The new device is the first 2.4-GHz

system-on-a-chip solution priced under $2 in volume.

-- Cypress achieved first revenue and ramped production of its

WirelessUSB(TM) EX solution. WirelessUSB EX provides an

optimal combination of latency, power, bandwidth and price for

higher-performance systems.

-- Cypress's flagship wired USB products that target the

embedded-host and mobile markets passed a battery of tests by

the USB Implementers Forum (USB-IF), making them the first to

achieve full USB On-The-Go certification, which enables

PC-free connectivity among portable devices such as cell

phones, PDAs, video and still cameras, MP3 players and

mass-storage peripherals.

-- Cypress launched a development kit for its EZ-Host(TM) and

EZ-OTG(TM) embedded solutions featuring tools from Red Hat,

the leader in open source and Linux development.

-- In the timing technology market, Cypress introduced two

"clocks" for digital imaging, targeting set-top boxes, DVD

recorders, and high-definition television. Previously

introduced clocks for the digital still camera market have

achieved a run rate of three million units per quarter.

Separately, Cypress's run rate in silicon-based oscillator

circuits reached 25 million units in the last quarter, up from

16 million units in the previous quarter.

-- Cypress's PC clock revenue expanded approximately 20%

quarter-on-quarter, partly due to strong demand for the Intel

Springdale chipset, which is expected to continue to improve

this quarter. Cypress also sampled its Grantsdale (CK410)

clock to major OEMs and the Taiwan marketplace. The new clock

supports the latest high-performance Pentium(R) 4 and

PCI-Express clocking standards.

-- Cypress introduced the industry's highest-speed

double-data-rate (DDR) memory registers and phase-locked

loops. The new devices operate at 270 MHz and 250 MHz,

respectively, and conform to DDR1-400, the JEDEC-standard DDR

memory interface. Cypress supports JEDEC standards and is the

chair of the organization's soon-to-be-launched

next-generation memory buffer task group.

-- Cypress introduced the industry's first and only

field-programmable spread-spectrum clock generators (SSCGs) to

reduce electromagnetic interference (EMI) in a system. A

single SSCG device can now be programmed to meet any

design-specific requirement. The amount of EMI emitted by a

system is tightly controlled by U.S. and international

regulatory bodies. The spread-spectrum approach modulates

frequencies within a narrow range to reduce frequency spikes.

Cypress Subsidiaries

Revenue from Cypress subsidiaries, which accounted for 4% of third-quarter revenue, was up 13% from the prior quarter. The subsidiaries posted a gross margin of approximately 71%. Cypress expects a continued improvement in subsidiary performance as new products generated by the group reach the marketplace. Segment highlights include:

-- Cypress Microsystems (CMS) announced production shipments of a

more advanced analog family of its Programmable

System-on-Chip(TM) (PSoC(TM)) mixed-signal array. CMS recently

enjoyed its first $1.6 million revenue quarter. The new family

will double CMS's served market.

-- SunPower Corporation, a supplier of high-efficiency silicon

solar cells, appointed Tom Werner as CEO. Werner comes to

SunPower from a position as CEO of Cypress subsidiary Silicon

Light Machines. Werner brings to the job brand- and

operations-management experience with large electronics

companies such as 3Com(R) and U.S. Robotics(R). His charter is

to accelerate SunPower's transition from a supplier of

high-performance specialty products to a large-scale

manufacturer of high-efficiency solar cells for volume

applications.

-- Silicon Light Machines(TM) (SLM) announced that it signed a

contract with Evans and Sutherland Computer Corporation to

develop a next-generation Grating Light Valve(TM) (GLV(TM))

for displays in flight simulators. Flight simulator displays

-- and the pilots that use them -- require superior

resolution. SLM's latest GLV device will enable the production

of displays with 20 million pixels, superior to any currently

on the market. The GLV is a patented, light-switching

micro-electromechanical system (MEMS) device that is also used

in a variety of communications, printing and lithography

applications.

Other Developments

-- During the third quarter, Cypress retired the entire $255.2

million principal amount of its 4% convertible subordinated

notes due February 2005 and another $70.0 million of its 3.75%

convertible subordinated notes due July 2005, leaving $68.7

million outstanding.

-- During the third quarter, Cypress sold approximately 687,000

common shares of NVE Corporation for $23.4 million, resulting

in a gain of $17.1 million. This gain was excluded from the

pro forma results. Cypress continues to hold a warrant to

purchase 400,000 NVE Corporation common shares with a

$15-per-share exercise price.

-- Cypress received the Jabil Strategic Supplier award for the

second consecutive year. The company issues this award

annually to the supplier that demonstrates exceptional

performance and dedication to a long-term partnership.

-- Cypress received Celestica's Partners in Performance award for

the fifth consecutive year. The award recognizes Cypress's

support of Celestica's supply chain management objectives.

Conclusion

Rodgers concluded, "We expect to grow and become more profitable in the fourth quarter. I said in last quarter's report that 'this feels like the beginning of a recovery.' I still believe that, based on our growing backlog of $223.4 million. Consumer activity has carried the recovery so far. If the early signs of recovery in the communications business turn into a bona fide upswing, 2004 will be a strong year both for Cypress and the semiconductor industry."

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 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 reconfigurable mixed-signal arrays. 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 and that refer to Cypress's plans and expectations for the fourth quarter of 2003 and the future are "forward-looking statements" involving risks and uncertainties, including but not limited to: the recovery, the expected increase in end-market demand for our WAN/SAN segment in the fourth quarter, the expectation of higher sales in the WIT/WIN segment in the fourth quarter, the expectation of flat revenue rather than the typical seasonal downturn in the fourth quarter in the computation and consumer segment, expected continued improvement in subsidiary segment performance, expected product availability dates, and expectations for 2004 to be a strong year for Cypress and the semiconductor industry. Actual results may differ materially from Cypress's projections. Please refer to Cypress's Securities and Exchange Commission filings for a discussion of such risks.

Cypress, the Cypress logo and HOTLink are registered trademarks of Cypress Semiconductor Corporation.

Ayama, Quad Data Rate, QDR, HOTLink II, FLEx72, RAM7, WirelessUSB, EZ-OTG, EZ-Host, Connecting from Last Mile to First Mile, and Cypress Connects are trademarks of Cypress Semiconductor Corporation.

Programmable System-on-Chip and PSoC are trademarks of Cypress MicroSystems.

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

ESCON is a registered trademark of International Business Machines Corporation.

U.S. Robotics is a registered trademark of U.S. Robotics Corporation.

3Com is a registered trademark of 3Com Corporation.

Intel and Pentium are registered trademarks of Intel Corporation.

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)

                                                 Sep 28,     Dec 29,
                                                  2003        2002
                                               ----------- -----------

                                ASSETS

Cash, cash equivalents, and investments *        $319,315    $206,891
Accounts receivable, net                          115,810      83,054
Inventories                                        71,743      92,721
Property and equipment, net                       445,441     496,566
Goodwill and other intangible assets              384,724     411,284
Other assets                                      275,460     282,132
                                               ----------- -----------

    Total assets                               $1,612,493  $1,572,648
                                               =========== ===========


                 LIABILITIES AND STOCKHOLDERS' EQUITY


Accounts payable and accrued liabilities         $164,729    $173,674
Deferred income on sales to distributors           13,908      15,774
Convertible subordinated notes                    668,652     468,900
Income tax liabilities                            168,652     177,404
Other liabilities                                  65,752      63,273
                                               ----------- -----------

    Total liabilities                           1,081,693     899,025

Stockholders' equity **                           530,800     673,623
                                               ----------- -----------

    Total liabilities and stockholders'
     equity                                    $1,612,493  $1,572,648
                                               =========== ===========


*   Cash, cash equivalents, and investments includes restricted
    amounts totaling $62.8 million and $62.4 million as of September
    28, 2003 and December 29, 2002, respectively. Approximately $15.6
    million of investments related to Cypress's key employee deferred
    compensation plan, at December 29, 2002, has been reclassified to
    Other assets to conform with our current presentation.

**  Common stock, $.01 par value, 650,000 and 650,000 shares
    authorized; 119,014 and 123,743 outstanding as of September 28,
    2003 and December 29, 2002, respectively.




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


                          THREE MONTHS ENDED       NINE MONTHS ENDED
                             (Unaudited)              (Unaudited)
                    ----------------------------- --------------------

                     Sep 28    Sep 29    Jun 29    Sep 28     Sep 29
                      2003      2002      2003      2003      2002
                    --------- --------- --------- --------- ----------

Revenues            $216,642  $205,021  $203,116  $600,725   $600,297

Costs of revenues    111,444   110,657   106,354   319,966    339,020
                    --------- --------- --------- --------- ----------

Gross margin         105,198    94,364    96,762   280,759    261,277

Operating expenses:
  Research and
   development        61,175    63,359    60,413   180,037    188,444
  Selling, general
   and
   administrative     33,007    32,996    31,525    95,430    101,124
                    --------- --------- --------- --------- ----------

    Total operating
     costs            94,182    96,355    91,938   275,467    289,568
                    --------- --------- --------- --------- ----------

Operating income
 (loss)               11,016    (1,991)    4,824     5,292    (28,291)

Net interest income
 (expense) and
 other                   334    (2,448)   (1,461)   (2,969)    (2,386)
                    --------- --------- --------- --------- ----------

Income (loss)
 before income tax    11,350    (4,439)    3,363     2,323    (30,677)

Income tax
 (provision)
 benefit                (299)    1,243         -      (299)     8,589
                    --------- --------- --------- --------- ----------

Net income (loss)    $11,051   $(3,196)   $3,363    $2,024   $(22,088)
                    ========= ========= ========= ========= ==========


Basic net income
 (loss) per share      $0.09    $(0.03)    $0.03     $0.02     $(0.18)
Diluted net income
 (loss) per share      $0.08    $(0.03)    $0.03     $0.01     $(0.18)

Shares used in
 calculation:
    Basic            118,116   123,634   122,941   122,021    122,907
    Diluted          163,175   123,634   129,072   141,161    122,907


Reconciliation of our GAAP Net Income (Loss) to our Pro Forma Net
 Income (Loss):

GAAP Net Income
 (Loss)              $17,267  $(55,089) $(12,438) $(28,494) $(122,941)
Adjustments:
 Cost of revenues
  (acquisition
  related costs)          55       439        94       554      1,194
 Restructuring
  costs               (5,523)    2,433      (185)   (2,348)    (6,277)
 Amortization of
  intangibles          9,444    10,658     9,346    28,274     32,145
 Operating expenses
  (acquisition
  related costs)         985     8,482     3,924    11,013     39,615
 Employee loan
  reserve                  -    14,701       157       241     14,701
 (Gain) loss on
  retirement of
  bonds                6,278         -     1,246     7,524     (5,946)
 Impairments, asset
  write-downs and
  other              (17,876)   13,848     1,013   (16,863)    15,949
 Tax effects on pro
  forma adjustments      421     1,332       206     2,123      9,472
                    --------- --------- --------- --------- ----------
Pro Forma Net
 Income (Loss)       $11,051   $(3,196)   $3,363    $2,024   $(22,088)
                    ========= ========= ========= ========= ==========

To supplement the consolidated financial results prepared under
generally accepted accounting principles ("GAAP"), Cypress uses a
non-GAAP conforming, or pro forma, measure of net income that is GAAP
net income adjusted to exclude certain costs, expenses and gains. Pro
forma net income gives an indication of Cypress's baseline performance
before gains, losses or other charges that are considered by
management to be outside of the company's core operating results. In
addition, pro forma net income is among the primary indicators
management uses as a basis for planning and forecasting future
periods. Cypress computes pro forma net income by adjusting GAAP net
income with the impact of acquisition-related charges (intangible
asset amortization, deferred stock compensation and charges related to
milestone achievements), restructuring charges, and other
non-recurring charges and gains. 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       NINE MONTHS ENDED
                             (Unaudited)              (Unaudited)
                    ----------------------------- --------------------

                     Sep 28    Sep 29    June 29   Sep 28     Sep 29
                        2003      2002      2003      2003       2002
                    --------- --------- --------- --------- ----------

Revenues            $216,642  $205,021  $203,116  $600,725   $600,297

Costs of revenues    111,499   111,096   106,448   320,520    340,214
  Cost of revenues   111,444   110,657   106,354   319,966    339,020
  Acquisition
   related costs          55       439        94       554      1,194

                    --------- --------- --------- --------- ----------
Gross margin         105,143    93,925    96,668   280,205    260,083

Operating expenses:
  Research and
   development        61,175    63,359    60,413   180,037    188,445
  Selling, general
   and
   administrative     33,007    32,996    31,525    95,430    101,123
  Restructuring
   costs              (5,523)    2,433      (185)   (2,348)    (6,277)
  Amortization of
   intangibles         9,444    10,658     9,346    28,274     32,145
  Acquisition
   related costs         985     8,482     3,924    11,013     39,615
  Employee loan
   reserve                 -    14,701       157       241     14,701
                    --------- --------- --------- --------- ----------

    Total operating
     costs            99,088   132,629   105,180   312,647    369,752
                    --------- --------- --------- --------- ----------

Operating income
 (loss)                6,055   (38,704)   (8,512)  (32,442)  (109,669)

Net interest income
 (expense) and
 other                11,932   (16,296)   (3,720)    6,370    (12,389)
  Gain (loss) on
   retirement of
   bonds              (6,278)        -    (1,246)   (7,524)     5,946
  Impairments,
   asset write-
   downs and other    17,876   (13,848)   (1,013)   16,863    (15,949)
  Net interest
   income (expense)
   and other             334    (2,448)   (1,461)   (2,969)    (2,386)
                    --------- --------- --------- --------- ----------


Income (loss)
 before income tax    17,987   (55,000)  (12,232)  (26,072)  (122,058)

Income tax
 (provision)
 benefit                (720)      (89)     (206)   (2,422)      (883)
                    --------- --------- --------- --------- ----------


Net income (loss)    $17,267  $(55,089) $(12,438) $(28,494) $(122,941)
                    ========= ========= ========= ========= ==========


Basic net income
 (loss) per share      $0.15    $(0.45)   $(0.10)   $(0.23)    $(1.00)
Diluted net income
 (loss) per share      $0.12    $(0.45)   $(0.10)   $(0.23)    $(1.00)

Shares used in
 calculation:
    Basic            118,116   123,634   122,941   122,021    122,907
    Diluted          163,175   123,634   122,941   122,021    122,907


Prepared in accordance with GAAP