July 17, 2014

Cypress Reports Second-Quarter 2014 Results

SAN JOSE, CA -- (Marketwired) -- 07/17/14 -- Cypress Semiconductor Corp. (NASDAQ: CY) today announced its second-quarter 2014 results, which included the remarks below from its president and CEO, T.J. Rodgers. Highlights for the quarter included:

  • Revenue met guidance
  • Net income beat guidance and more than doubled sequentially
  • Consumer electronics revenue slowed, but the industrial and automotive sector remained strong at 43% of revenue
  • Gross margin was 54%, up 3.7 percentage points sequentially
  • Free cash flow was $39.5 million (21.5% 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
Q2 2014 Q1 2014 Q2 2013 Q2 2014 Q1 2014 Q2 2013
Revenue $ 183,601 $ 170,283 $ 193,466 $ 183,601 $ 170,283 $ 193,466
Gross margin 54.0 % 50.3 % 53.1 % 51.9 % 45.6 % 47.3 %
Pretax margin 14.9 % 7.3 % 11.5 % 5.2 % -7.5 % -3.1 %
Net income (loss) $ 26,723 $ 11,974 $ 21,635 $ 9,527 $ (7,934 ) $ 3,766
Diluted EPS
(loss per share)
$ 0.16 $ 0.07 $ 0.14 $ 0.06 $ (0.05 ) $ 0.02

Second-quarter revenue increased 8% sequentially, and gross margin increased to 54%, due to a favorable product and end-customer mix. Higher revenue and gross margin produced $0.16 earnings per share in the quarter, up significantly from the $0.07 in the prior quarter.

Our book-to-bill ratio was 0.99, due to a mild, but broad, softening in the consumer electronics sector. However, based on the strength of the automotive and industrial sectors, we remain on track to attain our 2014 revenue forecast, which I communicated to shareholders in our 2013 Annual Report. Those two sectors account for 43% of revenue, more than double our TrueTouch® touchscreen revenue.

Our pretax profit of $27.4 million and our free cash flow of $39.5 million were up quarter-on-quarter by 120% and 102%, respectively, reflecting the fall-through leverage in our current model.

BUSINESS REVIEW

+ Our non-GAAP consolidated gross margin for the second quarter was 54.0%, up 3.7 percentage points from the previous quarter, primarily due to product and end-customer mix. Excluding our Emerging Technologies Division (ETD), our core semiconductor gross margin was 55.8%, the highest level since 2012. ETD revenue nearly doubled year-on-year (see Net Revenue Summary table) and will continue to grow rapidly throughout 2014.

+ Net inventory at the end of the second quarter was flat at $89.0 million.

NET REVENUE SUMMARY
(In thousands, except percentages)
(Unaudited)
THREE MONTHS ENDED

Jun. 29,

Mar. 30,
Jun. 30, Sequential Year-over-
Business Unit 2014 2014 2013 Change Year Change
PSD1 $ 74,676 $ 69,347 $ 81,320 8 % -8 %
MPD1 $ 85,582 $ 81,323 $ 88,127 5 % -3 %
DCD1 $ 17,989 $ 15,590 $ 21,296 15 % -16 %
ETD1, 2 $ 5,354 $ 4,023 $ 2,723 33 % 97 %
Total $ 183,601 $ 170,283 $ 193,466 8 % -5 %
Geographic
China and ROW 62 % 62 % 69 % 0 % -10 %
Americas 17 % 15 % 13 % 13 % 31 %
Europe 13 % 14 % 10 % -7 % 30 %
Japan 8 % 9 % 8 % -11 % 0 %
Total 100 % 100 % 100 % 0 % 0 %
Channel
Distribution 68 % 68 % 75 % 0 % -9 %
Direct 32 % 32 % 25 % 0 % 28 %
Total 100 % 100 % 100 % 0 % 0 %
1. PSD, Programmable Systems Division; DCD, Data Communications Division; MPD, Memory Products Division: ETD, Emerging Technologies Division.
2. "Emerging Technologies" includes businesses outside our core semiconductor businesses outlined in Footnote 1. Includes subsidiaries AgigA Tech Inc., Deca Technologies Inc., and our foundry business unit.

SECOND-QUARTER 2014 HIGHLIGHTS

+ Cypress announced a strategic partnership with Norway-based IDEX ASA to develop fingerprint-recognition solutions. Under terms of the agreement, Cypress will offer fingerprint solutions based on IDEX technology alongside its TrueTouch touchscreen solutions, CapSense® touch-sensing controllers and trackpad solutions. The combination will enable the design of sleek user interfaces with integrated personal security for smartphones, tablets, wearables and identity cards.

+ United Microelectronics Corporation (UMC) licensed Cypress's SONOS (Silicon Oxide Nitride Oxide S


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