SOURCE: Cypress Semiconductor Corp.

Cypress Semiconductor Corp.

October 16, 2014 08:00 ET

Cypress Reports Third-Quarter 2014 Results

SAN JOSE, CA--(Marketwired - Oct 16, 2014) - Cypress Semiconductor Corp. (NASDAQ: CY) today announced its third-quarter 2014 results, which included the remarks below from its president and CEO, T.J. Rodgers. Highlights for the quarter included:

  • Revenue ($187.5 million), gross margin (53.5%), pretax margin (15.0%) and earnings per share ($0.16) all met non-GAAP guidance
  • Emerging Technologies Division revenue increased 40% sequentially and 153% year-on-year
  • Dividend yield was 4.4% with favorable tax treatment
  • Industrial and Automotive segments remained strong and combined for 45% of revenue

Fellow shareholders:

Our revenue and earnings for the quarter are given below, compared with those of the prior quarter and prior year:

(In thousands, except per-share data)

             
    NON-GAAP     GAAP  
    Q3 2014     Q2 2014     Q3 2013     Q3 2014     Q2 2014     Q3 2013  
Revenue   $ 187,516     $ 183,601     $ 188,723     $ 187,516     $ 183,601     $ 188,723  
                                                 
Gross margin     53.5 %     54.0 %     53.8 %     51.7 %     51.9 %     48.6 %
                                                 
Pretax margin     15.0 %     14.9 %     12.5 %     7.4 %     5.2 %     -5.1 %
                                                 
Net income (loss)   $ 26,538     $ 26,723     $ 22,015     $ 12,840     $ 9,527     $ (8,358 )
                                                 
Diluted EPS (loss per share)   $ 0.16     $ 0.16     $ 0.14     $ 0.08     $ 0.06     $ (0.06 )
                                                 

Third-quarter revenue increased 2.1% sequentially, led by growth in our Memory Products Division (MPD) and Emerging Technologies Division (ETD), which is now contributing significantly to Cypress's growth with 40% sequential growth to $7.5 million. All three of our ETD startup businesses grew sequentially and will contribute significantly to revenue growth in 2015. The revenue growth in MPD and ETD was partially offset by ongoing softness in the handset market.

Our non-GAAP pretax profit increased 18.7% year-on-year, partly driven by a 7.0% reduction in non-GAAP operating expenses.

Our cash, cash equivalents and short-term investments increased 5.8% sequentially, demonstrating the fall-through leverage of our current business model.

BUSINESS REVIEW

+ Our non-GAAP consolidated gross margin for the third quarter was 53.5%, down 0.5 percentage points from the previous quarter, primarily due to product mix. Excluding ETD, our core semiconductor gross margin was 55.3%.

+ Net inventory at the end of the third quarter was $88.8 million, flat from the second quarter.

+ Cypress announced that its Board of Directors approved a quarterly cash dividend of $0.11 per share, payable to holders of record of the company's common stock as of the close of business on September 25, 2014. This dividend was paid on October 16, 2014.

   
NET SALES SUMMARY  
(In thousands, except percentages)  
(Unaudited)  
   
    THREE MONTHS ENDED        
   
Sept. 28,
   
 Jun. 29,
    Sept. 29,     Sequential     Year-over-  
Business Unit   2014     2014     2013     Change     Year Change  
PSD1   $ 68,750     $ 74,676     $ 78,135     -8 %   -12 %
MPD1   $ 92,179       85,582       88,743     8 %   4 %
DCD1   $ 19,091       17,989       18,884     6 %   1 %
ETD2   $ 7,496       5,354       2,961     40 %   153 %
Total   $ 187,516     $ 183,601     $ 188,723     2 %   -1 %
                                     
Geographic                                    
China and ROW     60 %     62 %     64 %   -3 %   -6 %
Americas     17 %     17 %     14 %   0 %   21 %
Europe     14 %     13 %     12 %   8 %   17 %
Japan     9 %     8 %     10 %   13 %   -10 %
Total     100 %     100 %     100 %   0 %   0 %
                                     
Channel                                    
Distribution     68 %     68 %     74 %   0 %   -8 %
Direct     32 %     32 %     26 %   0 %   23 %
Total     100 %     100 %     100 %   0 %   0 %
                                     
1.   PSD, Programmable Systems Division; DCD, Data Communications Division; MPD, Memory Products Division.
2.   ETD, Emerging Technologies Division includes businesses outside our core semiconductor businesses outlined in Footnote 1. Includes subsidiaries AgigA Tech Inc., Deca Technologies Inc., and our foundry business unit.
     

THIRD-QUARTER 2014 HIGHLIGHTS

+ Huawei tablet. Huawei designed Cypress's TrueTouch® Gen5 TMA568 capacitive touchscreen controller into its new MediaPad X1 tablet. The controller features industry-leading gloved-finger tracking and hover support.

+ Samsung Galaxy S5 Mini smartphone. A teardown by analytics firm TechInsights found Cypress's TrueTouch Gen5 TMA545 touchscreen controller in the new Samsung Galaxy S5 Mini smartphone. The smartphone employs Gen5's advanced features, including gloved-finger tracking and hover support. The teardown noted that the TrueTouch controller replaced competing touch controllers used in the previous-generation Galaxy S4 Mini and S3 Mini smartphones.

+ Low-cost touchscreen sensors and controllers. The TrueTouch Gen4X touchscreen controller family now supports Cypress's Single-Layer Independent Multi-touch (SLIM®) sensor structures, which reduce multi-layer sensor costs by as much as 50%. The Gen4X TMA445 and TMA445A controllers also support gloved-finger tracking and a face-detection feature that prevents hang-ups.

+ CapSense buttons for 2.5 cents. Cypress announced that designers can now replace mechanical buttons for just 2.5 cents apiece using its CY8CMBR3110 CapSense® controllers. The mechanical button replacement (MBR) family enables the quick implementation of sleek, reliable capacitive touch-sensing user interfaces with advanced features such as water tolerance and proximity sensing.

+ A $49 kit to implement USB 3.0. Cypress introduced a new, low-cost, easy-to-use USB 3.0 SuperSpeed Explorer Kit based on its programmable EZ-USB® FX3™ peripheral controller, the undisputed leader for USB 3.0-compatible devices. The development platform enables designers to add 5-Gbps USB 3.0 data throughput to virtually any system quickly and cheaply.

+ Cypress-Lattice kit. Cypress collaborated with Lattice Semiconductor to bring 5-Gbps data throughput to the Lattice USB 3.0 Video Bridge Development Kit. The kit uses the Cypress EZ-USB FX3 controller to simplify the integration of USB 3.0 audio and high-definition (HD) video.

+ Raytrix camera. Raytrix GmbH selected Cypress's EZ-USB CX3™ USB 3.0 camera controller for its next-generation 3-D camera. The CX3's 5-Gbps USB 3.0 throughput enables the innovative R42 3-D Light Field Camera to create images with extended depth-of-field, allowing for precise focusing later in software.

+ Nonvolatile DDR4 DIMMs. Cypress subsidiary AgigA Tech began sampling the industry's first DDR4 Nonvolatile DIMM (NVDIMM) to key OEMs and development partners. The NVDIMM preserves data during power outages, while still operating as a full-performance DIMM. The device targets next-generation, Intel-based server platforms.

+ Ultra-high-reliability SRAM. Cypress expanded its family of asynchronous SRAMs with a new 16 Mb MoBL® (More Battery Life™) low-power SRAM that includes embedded, on-chip Error-Correcting Code (ECC). On-chip ECC makes these SRAMs 1,000 times more reliable than standard SRAMs and eliminates the need for additional error correction chips.

+ Foundry technology deal. Cypress and Chinese wafer foundry licensee Shanghai Huali Microelectronics Corp. (HLMC) developed functioning memory cells using Cypress's SONOS (Silicon Oxide Nitride Oxide Silicon) embedded flash memory intellectual property (IP) at the 55-nanometer process technology node. The nonvolatile memory cells are designed for use in smartcards and embedded-flash microcontrollers.

+ Access to 60,000 technical documents. Cypress introduced a document management tool that helps customers quickly search Cypress online technical content. The Cypress Document Manager tool allows users to search and locate more than 60,000 Cypress technical documents.

FOLLOW CYPRESS ONLINE

ABOUT CYPRESS

Cypress delivers high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and exceptional system value. Cypress offerings include the flagship PSoC® 1, PSoC 3, PSoC 4 and PSoC 5LP programmable system-on-chip families. Cypress is the world leader in capacitive user interface solutions including CapSense touch sensing, TrueTouch touchscreens, and trackpad solutions for notebook PCs and peripherals. Cypress is a world leader in USB controllers, which enhance connectivity and performance in a wide range of consumer and industrial products. Cypress is also the world leader in SRAM and nonvolatile RAM memories. Cypress serves numerous major markets, including consumer, mobile handsets, computation, data communications, automotive, industrial and military. Cypress trades on the NASDAQ Global Select Market under the ticker symbol CY. Visit Cypress online at www.cypress.com.

FORWARD-LOOKING STATEMENTS

Statements herein that are not historical facts and that refer to Cypress or its subsidiaries' plans and expectations for Q4 2014 and the remainder of fiscal year 2014 and beyond are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. We may use words such as "believe," "expect," "future," "plan," "intend" and similar expressions to identify such forward-looking statements that include, but are not limited to, statements related to the semiconductor market; the strength and growth of our proprietary and programmable products; our expectations regarding our revenue growth and earnings leverage; our expectation that our ETD division will significantly contribute to our 2014 revenue growth; our expectations regarding the demand for our products and how our products are expected to perform. Such statements reflect our current expectations, which are based on information and data available to our management as of the date of this release. Our actual results may differ materially due to a variety of uncertainties and risk factors, including, but not limited to, the state of and future of the global economy, business conditions and growth trends in the semiconductor market, whether our products perform as expected, whether the demand for our proprietary and programmable products is fully realized, our ability to manage our business to have strong earnings and significant revenue growth, reduce operating expenses, our ability to effectively implement third party wafer processes, the strength or softness of the markets we serve, our ability to maintain and improve our gross margins and realize our bookings, the seasonality of the markets we serve, the financial performance of our subsidiaries and Emerging Technologies Division, and other risks described in our filings with the Securities and Exchange Commission. We assume no responsibility to update any such forward-looking statements.

Cypress, the Cypress logo, PSoC, TrueTouch, SLIM, EZ-USB, MoBL and CapSense are registered trademarks and FX3, CX3 and More Battery Life are trademarks of Cypress Semiconductor Corp. AGIGA is a registered trademark of AgigA Tech, Inc. All other trademarks or registered trademarks are the property of their respective owners.

   
CYPRESS SEMICONDUCTOR CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
             
    September 28,     December 29,  
    2014     2013  
                 
ASSETS                
                 
  Cash, cash equivalents and short-term investments   $ 120,377     $ 104,462  
  Accounts receivable, net     105,853       81,084  
  Inventories, net (a)     88,790       100,612  
  Property, plant and equipment, net     244,298       258,585  
  Goodwill and other intangible assets, net     100,970       106,524  
  Other assets     116,821       111,617  
    Total assets   $ 777,109     $ 762,884  
                 
LIABILITIES AND EQUITY                
                 
  Accounts payable   $ 33,462     $ 47,893  
  Deferred margin on sales to distributors     134,726       122,578  
  Income tax liabilities     22,041       29,865  
  Other liabilities     155,073       159,865  
  Long-term revolving credit facility     227,000       227,000  
    Total liabilities     572,302       587,201  
  Total Cypress stockholders' equity     210,836       180,157  
  Noncontrolling interest     (6,029 )     (4,474 )
    Total equity     204,807       175,683  
      Total liabilities and equity   $ 777,109     $ 762,884  
                 
(a) Net inventories include $3.2 million and $5.3 million of capitalized inventories related to stock compensation expense, as of September 28, 2014 and December 29, 2013, respectively.  
   
   
   
CYPRESS SEMICONDUCTOR CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
ON A GAAP BASIS  
(In thousands, except per-share data)  
(Unaudited)  
                   
    Three Months Ended  
    September 28,     June 29,     September 29,  
    2014     2014     2013  
                         
Revenues   $ 187,516     $ 183,601     $ 188,723  
Cost of revenues     90,633       88,231       97,070  
Gross margin     96,883       95,370       91,653  
Operating expenses:                        
  Research and development     38,626       40,927       50,429  
  Selling, general and administrative     41,119       42,059       45,533  
  Amortization of acquisition-related intangibles     1,701       1,800       1,987  
  Restructuring charges     (238 )     -       3,693  
    Total operating expenses, net     81,208       84,786       101,642  
Operating income (loss)     15,675       10,584       (9,989 )
Interest and other income, net     (1,890 )     (1,128 )     427  
Income (loss) before income taxes     13,785       9,456       (9,562 )
Income tax benefit (provision)     (1,231 )     (299 )     774  
Income (loss), net of taxes     12,554       9,157       (8,788 )
Adjust for net loss attributable to noncontrolling interest     286       370       430  
Net Income (loss) attributable to Cypress   $ 12,840     $ 9,527     $ (8,358 )
                         
Net Income (loss) per share attributable to Cypress:                        
  Basic   $ 0.08     $ 0.06     $ (0.06 )
  Diluted   $ 0.08     $ 0.06     $ (0.06 )
  Cash dividend per share   $ 0.11     $ 0.11     $ 0.11  
Shares used in net income (loss) per share calculation:                        
  Basic     159,759       157,936       149,679  
  Diluted     166,481       164,460       149,679  
                           
                           
                           
CYPRESS SEMICONDUCTOR CORPORATION  
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)  
(In thousands, except per-share data)  
(Unaudited)  
                               
    Three Months Ended  
    September 28,   % of     June 29,   % of     September 29,   % of  
    2014   Revenue     2014   Revenue     2013   Revenue  
                                     
GAAP gross margin   $ 96,883   51.7 %   $ 95,370   51.9 %   $ 91,653   48.6 %
  Stock-based compensation expense     3,766   2.0 %     4,433   2.4 %     2,804   1.5 %
  Acquisition-related expense     -   0.0 %     (109 ) 0.0 %     6,849   3.6 %
  Changes in value of deferred compensation plan     4   0.0 %     248   0.1 %     265   0.1 %
  Impairment of assets and other     (303 ) -0.2 %     187   0.1 %     (64 ) 0.0 %
  Tax and tax-related items     -   0.0 %     (925 ) -0.5 %     -   0.0 %
Non-GAAP gross margin   $ 100,350   53.5 %   $ 99,204   54.0 %   $ 101,507   53.8 %
                                     
GAAP research and development expenses   $ 38,626         $ 40,927         $ 50,429      
  Stock-based compensation expense     (2,089 )         (4,362 )         (6,806 )    
  Acquisition-related expense     -           -           (19 )    
  Changes in value of deferred compensation plan     (13 )         (483 )         (548 )    
  Impairment of assets and other     (231 )         -           (1,078 )    
Non-GAAP research and development expenses   $ 36,293         $ 36,082         $ 41,978      
                                     
GAAP selling, general and administrative expenses   $ 41,119         $ 42,059         $ 45,533      
  Stock-based compensation expense     (6,427 )         (5,523 )         (9,701 )    
  Acquisition-related expense     -           (385 )         (366 )    
  Changes in value of deferred compensation plan     (24 )         (1,097 )         (1,181 )    
  Impairment of assets and other     64           (877 )         131      
Non-GAAP selling, general and administrative expenses   $ 34,732         $ 34,177         $ 34,416      
                                     
GAAP operating income (loss)   $ 15,675         $ 10,584         $ (9,989 )    
  Stock-based compensation expense     12,282           14,318           19,311      
  Acquisition-related expense     1,701           2,077           9,221      
  Changes in value of deferred compensation plan     41           1,828           1,994      
  Impairment of assets and other     (136 )         1,063           883      
  Restructuring charges     (238 )         -           3,693      
  Tax and tax-related items     -           (925 )         -      
Non-GAAP operating income   $ 29,325         $ 28,945         $ 25,113      
                                     
GAAP pretax profit   $ 13,785   7.4 %   $ 9,456   5.2 %   $ (9,562 ) -5.1 %
  Stock-based compensation expense     12,282   6.5 %     14,318   7.8 %     19,311   10.2 %
  Acquisition-related expense     1,701   0.9 %     2,076   1.1 %     9,221   4.9 %
  Changes in value of deferred compensation plan     288   0.2 %     75   0.0 %     (97 ) 0.0 %
  Impairment of assets and other     (137 ) -0.1 %     -   0.0 %     883   0.4 %
  Restructuring charges     (238 ) -0.1 %     156   0.1 %     3,693   2.1 %
  Tax and tax-related items     (966 ) -0.5 %     -   0.0 %     231   0.0 %
  Losses from equity method investment     1,386   0.7 %     1,366   0.7 %     -   0.0 %
Non-GAAP pretax profit   $ 28,101   15.0 %   $ 27,447   14.9 %   $ 23,680   12.5 %
                                     
GAAP net income (loss) attributable to Cypress   $ 12,840         $ 9,527         $ (8,358 )    
  Stock-based compensation expense     12,282           14,318           19,311      
  Acquisition-related expense     1,701           2,075           9,221      
  Changes in value of deferred compensation plan     288           75           (97 )    
  Impairment of assets and other     (136 )         1,080           883      
  Restructuring charges     (238 )         -           3,693      
  Tax and tax-related items     (1,585 )         (1,719 )         (2,638 )    
  Losses from equity method investment     1,386           1,367           -      
Non-GAAP net income attributable to Cypress   $ 26,538         $ 26,723         $ 22,015      
                                     
GAAP net income (loss) per share attributable to Cypress - diluted   $ 0.08         $ 0.06         $ (0.06 )    
  Stock-based compensation expense     0.07           0.09           0.12      
  Acquisition-related expense     0.01           0.01           0.02      
  Changes in value of deferred compensation plan     -           -           -      
  Impairment of assets and other     -           0.01           0.05      
  Restructuring charges     -           -           0.02      
  Tax and tax-related items     (0.01 )         (0.01 )         (0.02 )    
  Losses from equity method investment     0.01           0.01           -      
  Non-GAAP share count adjustment     -           (0.01 )         0.01      
Non-GAAP net income per share attributable to Cypress - diluted   $ 0.16         $ 0.16         $ 0.14      
                                     
                                     
(a) Refer to the accompanying "Notes to Non-GAAP Financial Measures" for a detailed discussion of management's use of non-GAAP financial measures.  
                                     
                                     
                                     
CYPRESS SEMICONDUCTOR CORPORATION  
SUPPLEMENTAL FINANCIAL DATA  
(In thousands)  
(Unaudited)  
                               
    Three Months Ended     Nine Months Ended  
    September 28,     June 29,     September 29,     September 28,     September 29,  
    2014     2014     2013     2014     2013  
Selected Cash Flow Data (Preliminary):                                        
  Net cash provided by operating activities   $ 8,322     $ 44,309     $ 7,905     $ 77,822     $ 46,525  
  Net cash provided by (used in) investing activities   $ (11,173 )   $ (19,310 )   $ (2,080 )   $ (28,420 )   $ 570  
  Net cash provided by (used in) financing activities   $ 6,501     $ (27,209 )   $ 108     $ (30,327 )   $ (33,748 )
                                         
Other Supplemental Data (Preliminary):                                        
  Capital expenditures   $ 5,800     $ 5,779     $ 10,808     $ 17,178     $ 27,877  
  Depreciation   $ 10,093     $ 10,133     $ 9,745     $ 29,711     $ 30,136  
  Payment of dividend   $ 17,413     $ 17,257     $ 16,258     $ 51,520     $ 48,241  
  Dividend paid per share   $ 0.11     $ 0.11     $ 0.11     $ 0.33     $ 0.33  
  Dividend yield per share (a)     4.4 %     4.1 %     4.9 %     4.4 %     4.9 %
                                         
(a) Dividend yield per share is calculated based on annualized dividend paid per share divided by the common stock share price at the end of the period.  
   
   
   
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED DILUTED EPS CALCULATION
(In thousands, except per-share data)
(Unaudited)
                           
    Three Months Ended
    September 28,   June 29,   September 29,
    2014   2014   2013
    GAAP   Non-GAAP   GAAP   Non-GAAP   GAAP     Non-GAAP
                                       
Net income (loss) attributable to Cypress   $ 12,840   $ 26,538   $ 9,527   $ 26,723   $ (8,358 )   $ 22,015
                                       
Weighted-average common shares outstanding (basic)     159,759     159,759     157,936     157,936     149,679       149,679
Effect of dilutive securities:                                      
  Stock options, unvested restricted stock and other     6,722     8,460     6,524     8,761     -       12,525
Weighted-average common shares outstanding for diluted computation     166,481     168,219     164,460     166,697     149,679       162,204
                                       
Net income (loss) per share attributable to Cypress - basic   $ 0.08   $ 0.17   $ 0.06   $ 0.17   $ (0.06 )   $ 0.15
Net income (loss) per share attributable to Cypress - diluted   $ 0.08   $ 0.16   $ 0.06   $ 0.16   $ (0.06 )   $ 0.14
             
    September 28,   June 29,   September 29,
    2014   2014   2013
             
Average stock price for the period ended   $10.54   $10.13   $11.70
             
Common stock outstanding at period end (in thousands)   161,178   158,299   150,833
             
             

NOTES TO NON-GAAP FINANCIAL MEASURES

To supplement its consolidated financial results presented in accordance with GAAP, Cypress uses the following non-GAAP financial measures which are adjusted from the most directly comparable GAAP financial measures:

  • Gross margin
  • Research and development expenses
  • Selling, general and administrative expenses
  • Operating income (loss)
  • Net income (loss)
  • Diluted net income (loss) per share

The non-GAAP measures set forth above exclude charges primarily related to stock-based compensation, which represent approximately 60% to 85% of total adjustments for the four most recent quarters, as well as restructuring charges, acquisition-related expenses and other adjustments. Management believes that these non-GAAP financial measures reflect an additional and useful way of viewing aspects of Cypress's operations that, when viewed in conjunction with Cypress's GAAP results, provide a more comprehensive understanding of the various factors and trends affecting Cypress's business and operations. Management uses these non-GAAP measures for strategic and business decision-making, internal budgeting, forecasting and resource allocation processes. In addition, these non-GAAP financial measures facilitate management's internal comparisons to Cypress's historical operating results and comparisons to competitors' operating results. Pursuant to the requirements of Regulation G and to make clear to our investors the adjustments we make to GAAP measures, we have provided a reconciliation of the non-GAAP measures to the most directly comparable GAAP financial measures.

Contact Information

  • Contacts:
    Thad Trent
    EVP Finance & Administration and CFO
    (408) 943-2925

    Joseph L. McCarthy
    Director, Corporate Communications
    (408) 943-2902