Cypress to Miss Q4 Analysts Estimates.SAN JOSE San Jose, city, United States San Jose (sănəzā`, săn hōzā`), city (1990 pop. 782,248), seat of Santa Clara co., W central Calif.; founded 1777, inc. 1850. , Calif.--(BUSINESS WIRE)--Dec. 15, 1997--Cypress Semiconductor Corporation announced today that it would fail to meet analysts' expectations for the fourth quarter ending December 29. The analysts' estimates for Cypress revenues and earnings, as of December 9, are $152-155 million in revenues and $0.09-$0.10 EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. . The company's current estimates are for revenues in the range of $140-143 million, and EPS in the range of $0.00-$0.01. The shortfall is approximately $12 million in revenue and $0.08-$0.10 in EPS. Q4 1997 Revenue Shortfall There are two causes for the $12 million revenue shortfall: a $5 million shortfall in wafer-foundry revenue due to lower orders from their foundry customers, and a $10 million shortfall in static RAM A fast memory technology that requires power to hold its content. Static RAM (SRAM, S-RAM) is used for high-speed registers, caches and relatively small memory banks such as a frame buffer on a display adapter. (SRAM See static RAM. SRAM - static random-access memory ) revenue due to a timing problem in shipping by the quarter-end cutoff. Cypress's three other divisions -- Programmable Products, Data Communications data communications, application of telecommunications technology to the problem of transmitting data, especially to, from, or between computers. In popular usage, it is said that data communications make it possible for one computer to "talk" with another. , and Computer Products -- which account for 56% of the company's sales, are each forecast to beat their revenue figures for last quarter and the year-ago quarter, partially offsetting the SRAM and foundry shortfalls. The SRAM revenue shortfall is due to a timing problem in ramping up the production of SRAMs at Cypress's Round Rock, Texas, (Fab 2) wafer-fabrication plant, which produces non-volatile memories, programmable logic See PLD. , and data communications products, but not SRAMs. Cypress's Bloomington, Minn., plants (Fabs 3 and 4) produced all Cypress SRAMs prior to Q4. Starting in the third quarter of 1997, Fabs 3 and 4 reached their maximum capacity, as SRAM unit demand surged to 38.5 million units, compared with only 21.3 million SRAMs in the third quarter of 1996. The growth in SRAMs to record unit volumes necessitated the installation and ramping of SRAM technology in Texas Fab 2. The Texas fab is now producing SRAMs and Cypress is now producing SRAM chips at a rate higher than their SRAM unit sales unit sales Sales measured in terms of physical units rather than dollars. Unit sales data are often used by financial analysts when evaluating the health of a company. . However, the rapid ramp of the new SRAM technology in the Texas facility was slightly delayed, spilling shipments intended for December orders over into the first quarter of 1998. Cypress expects to catch up on SRAM shipments during the first quarter of 1998 and to resume growth in Q1, with a current projection of $150-155 million in revenue for that quarter. The company's current revenue projection for all of 1998 is still in the range of analysts' current estimates, which vary from $671-725 million. Profit Impact The profit impact of the $5 million in lost foundry business is $3.3 million, or 2.4 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. , out of the 8-10 cents-per-share total EPS shortfall. The impact of the rest of the net $7 million product revenue shortfall is 3.0 cents-per-share. The remaining 2.6-4.6 cents-per-share difference between the analysts' EPS estimates for the quarter (which were in line with their internal forecast) and this forecast is due to the yield losses and inefficiencies attributable to the rapid ramp of the SRAM process technology in the Texas facility. Shift to 0.35-Micron Technology Prior to Q4, Cypress produced 0.25-micron technology in its San Jose wafer fab, and 0.35- and 0.47-micron technologies in its Fab 4 Minnesota SRAM facility, but only 0.65- and 0.8-micron technologies in its Texas facility. Consequently, to meet their immediate SRAM unit needs, they ramped an older 0.57-micron SRAM process in Texas Fab 2 this quarter. In 1998, in order to continue to increase their SRAM capacity rapidly and profitably, both the Texas Fab 2 and the Minnesota Fab 3 facilities will be converted to 0.35-micron technology. 1998 Earnings The slowdown in foundry business is likely to persist in Verb 1. persist in - do something repeatedly and showing no intention to stop; "We continued our research into the cause of the illness"; "The landlord persists in asking us to move" continue 1998. All of their foundry wafers are manufactured in Fab 2, which is currently under capacity. As long as that situation persists, the 2.4 cents-per-quarter foundry impact on profits will continue. They expect Fab 2 to ramp to full capacity by the end of 1998, allowing for the external foundry business to be replaced with internal production, thus eliminating the earnings shortfall. Texas Fab 2 has just completed its manufacturing ramp of their 0.57-micron SRAM technology. That ramp will be followed in succession by ramps of their 0.47- and 0.35-micron technologies, respectively. They therefore expect the manufacturing inefficiencies associated with ramping new technologies rapidly in Fab 2 to continue for the first three quarters of 1998. The combined impact of the shortfall in foundry business, and the rapid ramping of new technologies in Fabs 2 and 3, will have an impact on earnings comparable to that of this quarter, about 5-7 cents per share per quarter. The current analysts' EPS estimates of 65-70 cents per share for Cypress's 1998 earnings is thus overstated o·ver·state tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states To state in exaggerated terms. See Synonyms at exaggerate. o relative to the 50 cents per share now estimated by the company for 1998. Reorganization In addition to ramping their 0.35-micron technology in all of their fabs, they have taken several measures to improve profitability, both immediately in the first quarter and consistently throughout 1998: -- Exiting the Commodity EPROM EPROM in full erasable programmable read-only memory Form of computer memory that does not lose its content when the power supply is cut off and that can be erased and reused. Business. Their non-volatile memory division (approximately $40 million per year) has been redirected. The vice president of that division, Jeff Linden, has relocated to Seattle to take over their profitable and rapidly growing Computer Products Division. The former CPD CPD citrate phosphate dextrose; see anticoagulant citrate phosphate dextrose solution, under solution. Cephalopelvic disproportion (CPD) division vice president, John Torode John Torode is an Australian chef based in the UK but specialising in Australasian food. He runs Smiths of Smithfield, and several other restaurants scattered around London's Smithfield market. , also a former professor of computer science at UC Berkeley, has been promoted to chief technical officer -- with the specific challenge of expanding their most profitable businesses: data communications, clocks, PLDs, and USB USB in full Universal Serial Bus Type of serial bus that allows peripheral devices (disks, modems, printers, digitizers, data gloves, etc.) to be easily connected to a computer. microcontrollers. The residual EPROM business has been merged into their SRAM division where they will continue to serve their EPROM customers in the future -- but without the heavy costs of maintaining a product division. The design engineers from the EPROM group are now working on other projects with a higher return on investment. -- Exiting the Chipset Business. Three years ago, Cypress launched an effort to make "core logic," the system logic that connects components in a personal computer to the microprocessor. The value they intended to add in that arena was to merge the static RAM required by personal computers with the chipset core logic to create a more highly integrated and cost-effective solution. Their chipset was technically successful, and it has been designed into multiple projects, but the basic architecture incorporating SRAMs into personal computers has been changed by Intel, limiting the commercial viability of their product. Furthermore, Intel has entered the chipset market, placing their chipsets at a great disadvantage. They have therefore decided to exit the market and to cease shipments. The chipset business unit has been disbanded. Their Munich, Germany, motherboard verification center has been closed. The architects, memory engineers, system engineers, and designers who created the technically successful hyperCache chipset product have been transferred to the data communications group to help build that business. -- Shutting Down San Jose Assembly and Test Operations. In 1992, Cypress moved its 100%-American assembly-and-test operation offshore to Alphatec, a subcontractor in Bangkok, Thailand. They maintained a small test organization in San Jose to support new-product and last-minute shipments. In 1996, they opened their own offshore assembly and test plant in Manila, the Philippines. Given the high yields and short cycle times of their new Philippines plant, they no longer need to carry the financial burden of the small, but expensive, San Jose test plant. It will be shut down this quarter. -- Contingency for Alphatec Bond Default. Recently, their Thai subcontract assembly-and-test house, Alphatec, experienced severe financial difficulties, partly due to the economic crisis in Thailand. Approximately 30% of Cypress's production passes through the Alphatec test area (which is managed by their people and uses their equipment). While Alphatec is a good manufacturing partner for Cypress, and while Cypress is still confident that its reorganization plan A scheme authorized by federal law and promulgated by the president whereby he or she alters the structure of federal agencies to promote government efficiency and economy through a transfer, consolidation, coordination, authorization, or abolition of functions. will be successful, they have taken steps to guarantee that their production will be uninterrupted in the event that Alphatec becomes unstable. Toward that end, they have facilitized an entire new test floor in a separate facility in Bangkok. This facility is intended as a contingency measure only. The reserves required to cover the cost of the reorganization outlined above have been taken by the company over time as they have identified the need. The human resource costs, equipment obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. costs, and inventory reserves caused by exiting the chipset and commodity EPROM businesses have all been managed to modest levels and recognized as period costs. The costs associated with setting up the contingency test floor in Bangkok have been absorbed by manufacturing over the last two quarters. Their inventories are conservatively valued and require no additional reserves at this time. Consequently, despite the disappointing shortfall in revenue and earnings this quarter due to an SRAM miscue mis·cue n. 1. Games A stroke in billiards that misses or just brushes the ball because of a slip of the cue. 2. A mistake. intr.v. mis·cued, mis·cu·ing, mis·cues 1. , Cypress will have no special charges to earnings and will remain profitable. Impact of Asian Economic Crisis The recent devaluation devaluation, decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments. of most Asian currencies and the potential softening of demand in that region may have both favorable and unfavorable effects on Cypress. The bond default of their assembly and test subcontractor, Alphatec, is part of Cypress's Asian jeopardy. But, even that problem has a positive side: The manufacturing costs at Alphatec, as well as those at their other subcontractors in Asia, and at their Manila plant, have dropped. On the revenue side, Cypress ships 9% of its revenue to Japan. That business appears to be stable. Ten percent of Cypress's revenue is shipped to other non-Japanese Asian sites. An analysis of that 10% of the business shows that half of it is shipped directly to Asian companies with Asian end customers. That portion of their shipments -- 5% of their total revenue -- is subject to currency devaluation Currency devaluation A deliberate downward adjustment in the official exchange rates established, or pegged, by a government against a specified standard, such as another currency or gold. and potential demand correction. The other half of their Asian shipments is sent to the Asian subcontractors of North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. and European companies It may never be fully completed or, depending on its its nature, it may be that it can never be completed. However, new and revised entries in the list are always welcome. This is a list of companies from the countries in the European Union. . They expect that those companies will take the benefit of reduced manufacturing costs and that they will not be materially impacted by the Asian currency collapse because their end markets are mostly non-Asian. In summary, Cypress has a relatively small amount of its business in Asia, and the impacts of the recent economic crisis are mixed for us, not just negative. Data Communications End-Market Slowdown Cypress's Data Communications Division grew from $19.9 million of revenue in the fourth quarter of 1995 to $26.2 million of revenue in the first quarter of 1997, the fastest growth of any Cypress division. In 1997, data communications sales leveled off with record quarterly revenues of $26-29 million, up 35+% from 1996, but still showing the slowdown in the data communications industry noted by others. Nonetheless, they anticipate revenue for the Data Communications Division to grow this quarter, both relative to last quarter and also relative to the year-ago quarter, partly because of their entry into a new rapid-growth market segment: wireless. As outlined in numerous Cypress reports, their new SRAM technologies produce six-transistor SRAM cells, which offer battery standby current that is 10 times lower than industry-standard four-transistor SRAM cells (which Cypress also manufactures). Most SRAMs shipped in the industry are of the four-transistor variety, while most of the six-transistor SRAMs shipped are slow SRAMs meant for consumer applications. Cypress is one of a few companies in the world that uses six-transistor SRAM technology to make very low-power SRAMs that are also fast. It is precisely that combination of high speed and low power that puts us squarely into the new wireless market for portable equipment such as cellular phones, which are using more fast SRAMs as they go digital. This wireless SRAM market is a new component of Cypress's growth, not influenced by fluctuations in their existing business. They also use the same technology in their newest FIFO (First In First Out) A storage method that retrieves the item stored for the longest time. Contrast with LIFO. See traffic engineering methods. FIFO - first-in first-out (First In, First Out) memories, another integral component in data communications systems. The combination of a mild weakness in their base data communications market, combined with a growing new wireless business, accounts for their growth in datacom. Q4 Bookings, Outlook Cypress recorded $146 million of total bookings for the third quarter of 1997. Their current bookings for the fourth quarter, as of the close of business on December 11, are ahead of the bookings for the equivalent day in the third quarter. Cypress will ship approximately 70 million units in the fourth quarter, a company record, and their bookings are in line to grow revenue in the first quarter of 1998. They believe that the product realignment re·a·lign tr.v. re·a·ligned, re·a·lign·ing, re·a·ligns 1. To put back into proper order or alignment. 2. To make new groupings of or working arrangements between. and restructuring they have outlined in this release, even in light of the current mixed-market scenario, will lead to sequential revenue and earnings growth in the first and subsequent quarters of 1998. Stock Buyback Stock buyback A corporation's purchase of its own outstanding stock, usually in order to raise the company's earnings per share. stock buyback See buyback. Program The Cypress board of directors approved a 2-million-share stock buyback program on October 23, 1997 (on which day Cypress closed at $11.56). Since then, they have repurchased 300,000 shares outright at $11.16 per share and sold 2 million put (buy) options at a strike price of $11.00. Management will present a proposal to increase the current buyback program by 2 million shares at the December 16, 1997 board meeting. A poll of the directors indicated that they will unanimously approve this second program on December 16. Cypress Semiconductor Cypress Semiconductor is a semiconductor design and manufacturing company. It began operations in 1982 and listed publicly in 1986. Two years later, the company shifted over to the New York Stock Exchange under the symbol, (NYSE: CY). Corporation is an international supplier of high-performance integrated circuits Integrated circuits Miniature electronic circuits produced within and upon a single semiconductor crystal, usually silicon. Integrated circuits range in complexity from simple logic circuits and amplifiers, about 1/20 in. (1. with worldwide headquarters in San Jose, Calif. The company provides a broad range of products for leading computer, networking and telecommunications companies worldwide. The company's product line includes static RAM, EPROM, and specialty memories; programmable logic devices (PLDs); data communications products; and timing devices and USB microcontrollers. Cypress shares are listed on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. under the symbol CY. The company has a site on the worldwide web at http://www.cypress.com -0- "Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " Statement under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995: Statements in this press release regarding Cypress's business that are not historical facts are "forward-looking statements" involving risks and uncertainties, including, but not limited to, market-acceptance risks, the effect of economic conditions and shifts in supply and demand, the impact of competitive products and pricing, product development, commercialization and technological difficulties, and capacity and supply constraints. Please refer to the MD&A (Management Discussion and Analysis of Financial Condition and Results of Operations) for a discussion of such risks in the most recent Cypress annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , the quarterly report on Form 10-Q Form 10-Q See 10-Q. and the convertible debenture Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. offering memorandum Offering Memorandum A legal document stating the objectives, risks, and terms of investment involved with a private placement. Notes: The private placement of hedge funds necessitates the issue of memorandums. . CONTACT: Cypress Semiconductor Corporation Manny Manny may refer to: In nobility:
Joseph L. McCarthy, 408/943-2902 (Press Contact) |
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