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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FEBRUARY 3, 1998
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Date of Report (Date of earliest event reported)
CYPRESS SEMICONDUCTOR CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 1-10079 94-2885898
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
3901 NORTH FIRST STREET
SAN JOSE, CALIFORNIA 95134-1599
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(Address of principal executive offices)
(408) 943-2600
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
This Form 8-K/A is being filed to correct the earnings per share numbers
for the three months ended September 29, 1997 and December 30, 1996 to $0.08
and $0.02, respectively, from that which was previously included in the press
release filed as Exhibit No. 99.1 to the Form 8-K filed by Cypress
Semiconductor Corporation on January 29, 1998.
The information which is set forth in the Registrant's Press Release
dated January 20, 1998 is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(C) EXHIBITS
Exhibit No. Description
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99.1 Text of Press Release dated January 20, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CYPRESS SEMICONDUCTOR CORPORATION
Date: February 3, 1998 By: /s/ Emmanuel Hernandez
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Emmanuel Hernandez
Chief Financial Officer, Vice President,
Finance and Administration, and Secretary
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INDEX TO EXHIBITS FILED WITH
THE CURRENT REPORT ON FORM 8-K/A DATED FEBRUARY 3, 1998
Exhibit No. Description
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99.1 Text of Press Release dated January 20, 1998.
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EXHIBIT 99.1
FOR IMMEDIATE RELEASE
CYPRESS Q4 97: $134.1 MILLION REVENUE, BREAKEVEN
SAN JOSE, CALIFORNIA, January 20, 1998...Cypress Semiconductor Corporation
(NYSE:CY) today reported that revenue for the fourth quarter ended December 29,
1997, was $134.1 million, up 18.6% from the year-ago quarter's revenue of $113.1
million and down 8.2% from the prior quarter. For the full year, revenue was
$544.4 million, up 3.0% from 1996 revenue of $528.4 million.
Diluted earnings for the fourth quarter were $0.00 per share, down from $0.02
per share from the year-ago quarter and down from the prior quarter's $0.08 per
share. For the full year, diluted earnings were $0.21 per share, down from
1996's earnings of $0.62 per share.
Q4 1997 REVENUE SHORTFALL
Cypress's decline in sales in the fourth quarter is attributed partly to the
shortfall in wafer-foundry revenue due to lower orders from our foundry
customers, and to a shortfall in static RAM (SRAM) revenue due to a timing
problem in shipping by the quarter-end cutoff. Cypress's three other
divisions--Programmable Products, Data Communications, and Computer Products,
which account for 51% of the company's sales, realized higher bookings.
Increased sales in Data Communications and Computer Products partially offset
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, and data
communications products, but not SRAMs. Cypress's Bloomington, Minnesota, 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 a record 37.5 million units, compared with only 29.4 million
SRAMs in the fourth quarter of 1996. The growth in SRAMs to record unit volumes
necessitated the installation and ramping of SRAM technology in a third plant,
Texas Fab 2. The Texas fab is now producing SRAMs and Cypress is now producing
SRAM chips at a rate higher than ever before. However, the rapid ramp of the new
SRAM technology in the Texas facility was slightly delayed, causing us not to be
able to ship some SRAM orders that were in backlog. Cypress expects to catch up
on SRAM shipments during the first quarter of 1998 and to resume revenue growth
in Q1.
PROFIT IMPACT
The profit impact from the lost foundry business and product revenue shortfall,
coupled with yield losses and inefficiencies attributable to the rapid ramp of
the SRAM process technology in the Texas facility, caused the company to have an
operating loss of $0.04 cents per share in the fourth quarter. The quarter,
however, benefited from a favorable tax provision that resulted in net reported
profit after tax of $108
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thousand. The tax benefit consists primarily of an R&D tax credit and a benefit
from zero-tax operations in the Philippines. The 1997 effective tax rate was
23.4%, compared with 36.5% in 1996, and the company now estimates a tax rate of
31% in 1998.
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 our immediate SRAM unit needs, we ramped an older 0.57-micron SRAM process
in Texas Fab 2 this quarter. In 1998, in order to continue to increase our SRAM
capacity rapidly and profitably, Fab 2 will be upgraded to 0.35-micron
technology in mid year.
1998 EARNINGS
The slowdown in foundry business is likely to persist in 1998. All of our
foundry wafers are manufactured in Fab 2, which is currently under capacity. As
long as that situation persists, the foundry impact on profits will continue. We
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 our 0.57-micron SRAM
technology. That ramp is now being followed by ramp of our 0.47-micron
technology, which in turn will be followed by a ramp of our 0.35 technology
later in the year. We 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.
REORGANIZATION
In addition to ramping our 0.35-micron technology in all of our fabs, we have
taken several measures to improve profitability, both immediately in the first
quarter and consistently throughout 1998:
o Exiting the Commodity EPROM Business. Our 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 our profitable and rapidly growing Computer Products Division.
The former CPD division vice president, John Torode, also a former
professor of computer science at UC Berkeley, has been promoted to chief
technical officer with the specific challenge of expanding our most
profitable businesses: data communications, clocks, PLDs, and USB
microcontrollers. The residual EPROM business has been merged into our
SRAM division--where we will continue to serve our 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.
o 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 we 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. Our chipset was technically
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successful, and it has been designed into multiple customer projects,
but the basic architecture incorporating SRAMs into personal computers
has been changed by Intel, limiting the commercial viability of our
product. Furthermore, Intel has entered the chipset market, placing any
future chipset efforts at a great disadvantage. We have therefore
decided to exit the market and to cease shipments. The chipset business
unit has been disbanded. Our Munich, Germany, motherboard verification
center has been closed. The architects, memory engineers, system
engineers, and designers who created the technically successful
hyperCache(TM) chipset product have been transferred to the data
communications group to help build that business.
o 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. We maintained a small
test organization in San Jose to support new-product and last-minute
shipments. In 1996, we opened our own offshore assembly and test plant
in Manila, the Philippines. Given the high yields and short cycle times
of our new Philippines plant, we no longer need to carry the financial
burden of the small, but expensive, San Jose test plant. It was shut
down this quarter.
o Contingency for Alphatec Bond Default. Recently, our Thai subcontract
assembly and test house, Alphatec, experienced severe financial
difficulties, partly due to the economic crisis in Thailand.
Approximately 17% of Cypress's production passes through the Alphatec
test area (which is managed by our people and uses our equipment). While
Alphatec is a good manufacturing partner for Cypress, and while we are
still confident that its reorganization plan will be successful, we have
taken steps to guarantee that our production will be uninterrupted in
the event that Alphatec becomes unstable. Toward that end, we 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 we have identified the need. The
human resource costs, equipment obsolescence 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. Our inventories are conservatively
valued and require no additional reserves at this time. Consequently, despite
the disappointing shortfall in revenue and earnings this quarter due largely to
an SRAM miscue, Cypress did not take special charges to earnings and remained
profitable in 1997.
IMPACT OF ASIAN ECONOMIC CRISIS
The recent devaluation 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 our 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 our other
subcontractors in Asia, and at our Manila plant, have dropped. On the revenue
side, Cypress shipped 9% of its fourth quarter revenue to Japan. That business
appears to be stable. Thirteen percent of Cypress's revenue shipped to other
Asian sites. An analysis of that 13% of the business shows that half of it is
shipped directly to Asian companies with Asian end customers. That portion of
our shipments (6.5% of our total revenue) is subject to currency devaluation and
potential demand correction. The other half of our Asian shipments is sent to
the Asian subcontractors of North American and European companies. We expect
that those companies will take the benefit of reduced manufacturing costs and
that they will not be materially impacted by the
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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 more than 35%
from 1996, but still showing the slowdown in the data communications industry
noted by analysts. Nonetheless, Cypress's Data Communications Division grew this
quarter, both relative to last quarter and also relative to the year-ago
quarter, partly because of our entry into a new rapid-growth market segment:
wireless.
As outlined in numerous Cypress reports, our 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
our existing business. We also use the same technology in our newest FIFO (First
In, First Out) memories, another integral component in data communications
systems.
The combination of a mild weakness in our base data communications market, and a
growing new wireless business, accounts for our growth in datacom.
1998 OUTLOOK
Cypress recorded $146.6 million of total bookings for the fourth quarter of
1997, producing a book-to-bill ratio of 1.09. Cypress shipped 68.1 million units
in the fourth quarter; the second highest unit shipment quarter in the company's
history.
We believe that the product realignment and restructuring we have outlined in
this release, even in light of the current mixed-market scenario, will lead to
increased revenue and EPS performance for Cypress in 1998.
STOCK BUYBACK PROGRAM
The Cypress board of directors approved a 2-million-share stock buyback program
on October 23, 1997. At the December 16, 1997 meeting, the board doubled the
previously authorized program. As of January 20, 1998, the company has
repurchased 515,800 shares and has entered into put option contracts to buy 4
million additional shares of Cypress stock at varying strike prices and maturity
dates.
Cypress Semiconductor Corporation is an international supplier of
high-performance integrated circuits with worldwide headquarters in San Jose,
California. The company provides a broad range of products
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for leading computer, networking, and telecommunications companies worldwide.
The company's product line includes static RAMs, high-speed PROMs, 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 under the symbol CY. The company has a site on the worldwide
web at http://www.cypress.com.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act 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, the quarterly report on Form 10-Q and the convertible
debenture offering memorandum.
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CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Dec 29, Dec 30,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $201,561 $ 93,786
Accounts receivable 67,854 71,440
Other receivables 6,522 11,971
Inventories 76,925 53,107
Other current assets 45,218 51,108
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Total current assets 398,080 281,412
Property and equipment, net 442,661 437,566
Other assets (including long-term marketable securities of
$42,146 at December 29, 1997) 115,529 75,069
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Total assets $956,270 $794,047
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</TABLE>
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CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Dec 29, Dec 30,
1997 1996
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $60,857 $72,309
Accrued liabilities 21,472 19,195
Line of credit -- 49,000
Deferred income on sales to distributors 9,636 14,902
Income taxes payable 1,088 --
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Total current liabilities 93,053 155,406
Convertible subordinated note 175,000 98,241
Other long-term debt 8,671 8,366
Deferred income taxes 36,070 21,288
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Total liabilities 312,794 283,301
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 -- --
shares authorized; none issued and outstanding
Common stock, $.01 par value, 250,000,000
shares authorized; 101,460,000 and 91,358,000
issued; 90,684,000 and 81,098,000 outstanding 309,566 195,255
Retained earnings 333,910 315,491
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Total stockholders' equity 643,476 510,746
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Total liabilities and stockholders' equity $956,270 $794,047
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</TABLE>
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CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA )
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
(UNAUDITED) (UNAUDITED)
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Dec 29, Dec 30, Sep 29, Dec 29, Dec 30,
1997 1996 1997 1997 1996
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<S> <C> <C> <C> <C> <C>
Revenues $134,134 $113,103 $146,081 $544,356 $528,385
Costs and expenses:
Costs of revenues 94,538 75,223 93,345 356,919 305,174
Research and development 23,833 21,103 24,560 93,842 84,334
Marketing, general and
administrative 19,606 15,661 18,977 75,282 64,301
Restructuring and other non-
recurring benefits -- -- -- -- (7,018)
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Total operating costs 137,977 111,987 136,882 526,043 446,791
-------- -------- -------- -------- ---------
Operating Income (loss) (3,843) 1,116 9,199 18,313 81,594
Interest expense (3,154) (2,149) (948) (7,197) (6,895)
Interest income and other 3,095 3,089 2,756 12,916 8,806
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Income (loss) before income tax (3,902) 2,056 11,007 24,032 83,505
-------- --------- --------- --------- ---------
Benefit (Provision) for income tax 4,010 (752) (3,797) (5,613) (30,476)
-------- -------- -------- -------- ---------
Net income $ 108 $ 1,304 $ 7,210 $ 18,419 $ 53,029
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Net income per share:
Basic $ 0.00 $ 0.02 $ 0.08 $ 0.21 $ 0.66
Diluted 0.00 0.02 0.08 0.21 0.62
Weighted average shares of
common stock and common
stock equivalents:
Basic 90,890 80,821 90,054 87,888 80,241
Diluted 93,923 92,865 96,084 94,648 91,604
</TABLE>
