Cypress Semiconductor Corporation
Oct 22, 2015

Cypress Reports Third Quarter 2015 Results

SAN JOSE, Calif., Oct. 22, 2015 /PRNewswire/ -- Cypress Semiconductor Corp. (NASDAQ: CY) today announced its third quarter 2015 results, which included the remarks below from its president and CEO, T.J. Rodgers. Highlights for the quarter included (financial highlights are based on non-GAAP results, unless otherwise noted):

  • Revenue of $470.1 million
  • Gross margin of 41.2%
  • Earnings per share of $0.17—highest quarterly earnings in four years for the combined pro forma company
  • $120.3 million in annualized synergies realized; synergies are ahead of plan
  • Completed divestiture of mobile touch business, proceeds received of $98.6 million
  • Paid dividend of $36.7 million ($0.11 per share, equivalent to 5.1% annualized yield)

Fellow shareholders:

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

(In thousands, except per-share data)



NON-GAAP


GAAP




Q3 2015


Q2 2015


Q3 2015


Q2 2015


Revenue


$470,060


$491,028


$463,810


$484,778












Gross margin


41.2%


41.0%


34.6%


28.5%












Pretax margin


13.2%


11.4%


6.9%


-18.1%












Net income (loss)


$60,040


$52,870


$30,312


$(90,051)












Diluted EPS (loss)


$0.17


$0.15


$0.09


$(0.27)












Third quarter revenue declined 4.3% sequentially in a softening semiconductor market. Our pretax profit increased 10.6% quarter-on-quarter, driven in part by continued integration progress in the wake of our merger with Spansion, which led to a 7.9% reduction in operating expenses. We achieved $120.3 million in annualized synergies from the merger as of the end of the third quarter and are ahead of our three-year plan to achieve $160 million in annualized synergies.

Despite the current semiconductor industry environment, we made progress selling into fast-growing segments of the Automotive, Industrial, Home Appliance and Internet of Things (IoT) markets plus applications using the USB Type-C standard, which provides power and data from a single plug.

Our new $450 million stock buyback program, announced today, underscores our confidence in our business model and our continued commitment to return capital to our shareholders through the combination of stock buybacks and our quarterly dividend. Since 2008, Cypress has returned more than $4.2 billion in capital to shareholders.

BUSINESS REVIEW

  • Our non-GAAP consolidated gross margin for the second quarter was 41.2%, meeting our expectations at this point in the merger. Excluding our systems-based Emerging Technologies Division (ETD), our core semiconductor gross margin was 42.0%.
  • Net inventory at the end of the third quarter was $279.0 million, down $21.9 million from the second quarter, based on our lean inventory initiative, which will run through the third quarter of 2016. This initiative includes running our fab capacity at roughly 60%, which in turn will keep our reported gross margin at around 40% until inventory improves in the second half of 2016.
  • 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 24, 2015. This dividend was paid on October 15, 2015.

FOURTH QUARTER 2015 FINANCIAL OUTLOOK

For the fourth quarter of 2015, Cypress estimates non-GAAP financial results as follows: net sales in the range of $430 million to $460 million, gross margin of 41%, and diluted EPS in the range of $0.11 to $0.15. These estimates exclude amortization of intangibles of approximately $32 million, equity compensation expense of approximately $25 million, and restructuring charges, depreciation or amortization related to accounting for the Spansion merger of approximately $37 million.


NET SALES SUMMARY

(In thousands, except percentages)

(Unaudited)




THREE MONTHS ENDED














Sept. 27,


   Jun. 28,


Sequential


Business Unit


2015


2015


Change


PSD1


$178,503


$202,806


-12%


MPD1,3


$260,897


$261,407


-0%


DCD1


$17,617


$19,087


-8%


ETD2


$13,043


$7,728


69%


Total


$470,060


$491,028


-4%










Geographic








China and ROW


39%


41%


-5%


Americas


14%


11%


27%


Europe


14%


14%


0%


Japan


33%


34%


-3%


Total


100%


100%


0%










Channel








Distribution


71%


72%


-1%


Direct


29%


28%


4%


Total


100%


100%


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 named in Footnote 1. ETD includes subsidiaries AgigA Tech Inc., Deca Technologies Inc., and our foundry business unit.

3.

Our net sales for the second and third quarters of 2015 and our estimates for the fourth quarter of 2015 include $6.25 million of non-GAAP licensing revenue in MPD, APAC region and direct channel.

THIRD QUARTER 2015 HIGHLIGHTS

  • Cypress introduced a family of single-chip Energy Harvesting Power Management Integrated Circuits (PMICs). When paired with Cypress's wireless EZ-BLE™ PRoC™ modules, the new PMICs provide a complete solution that enables solar-powered, wireless sensors in smart home, commercial building, factory automation and agriculture applications that are part of the Internet of Things (IoT).
  • Cypress introduced its Automotive TrueTouch® CYAT8168X controller family, a capacitive touchscreen solution that enables infotainment screen sizes up to 15 inches with industry-leading water tolerance and immunity to the electromagnetic interference (EMI) in cars, buses and trucks. The controllers deliver a flawless user experience even with water droplets, condensation or sweat on the touchscreen and provide industry-leading glove touch, which allows drivers to operate the touchscreen even with gloves up to 5-mm thick.
  • Cypress introduced the EZ-BLE PSoC® module, the market's first Bluetooth Low Energy solution to integrate programmable analog and digital blocks in a fully-certified Bluetooth Smart module. The compact module is pre-certified, simplifying design and accelerating time-to-market for designers of IoT applications such as sports and fitness monitors, medical devices, wearable electronics, home automation and game controllers. Some 61% of all Bluetooth Smart devices introduced in 2014 used BLE Modules, due to their ease of use.
  • Cypress introduced a high-throughput, low-power EZ-USB® GX3™ controller for adapter cables that adds Gigabit Ethernet (GigE) connectivity to USB 3.0 laptops, tablets, docking stations, set-top boxes and smart TVs.
  • Cypress announced that the USB Implementers Forum (USB-IF) has certified its EZ-PD™ CCG1 and EZ-PD CCG2 USB Power Delivery (PD) controllers for a variety of USB Type-C™ applications. EZ-PD controllers address the new wave of USB Type-C notebook computers and their power adapters, monitors, docking stations, cables and cable adapters (dongles).  
  • Cypress and Fujitsu Electronics Incorporated (FEI) finalized an agreement that significantly expands FEI's role as a distribution partner for Cypress. The agreement provides FEI with access to the products covered by prior agreements with Spansion and adds access to Cypress's entire product line. The agreement is expected to generate $500 million in sales over the next four quarters.
  • Cypress continued to bring innovative new memory products to market, introducing several products during the quarter, including a 256Mb HyperFlash™ NOR Flash memory—an addition to its HyperFlash portfolio of the industry's fastest Flash memories—a 1Mb nonvolatile static random access memory (nvSRAM) with a Quad Serial Peripheral Interface (QSPI) for fail-safe data retention in industrial automation, computing and networking applications, and a SecureNAND™ Single-Level Cell (SLC) NAND Flash family for set-top boxes, point-of-sale systems, wearable electronics and other applications that require the highest levels of security. Cypress is the industry's No. 1 seller of SRAM and NOR Flash memories.    
  • Cypress completed the divestiture of its TrueTouch mobile touchscreen business to Parade Technologies, a leading supplier of video displays and interface ICs. Under the terms of the deal, Cypress will continue to provide TrueTouch touchscreen solutions to its focus markets: automotive, industrial and home appliance.
  • Cypress announced the debut of a regular blog by its president and chief executive officer, T.J. Rodgers. Once or twice a month, Rodgers will post on business, technology and management topics. Current posts and a blog repository will be available at www.cypress.com/ceo.

FOLLOW CYPRESS ONLINE

ABOUT CYPRESS

Cypress (NASDAQ: CY) delivers high-performance, high-quality solutions at the heart of today's most advanced embedded systems, from automotive, industrial and networking platforms to highly interactive consumer and mobile devices. With a broad, differentiated product portfolio that includes NOR flash memories, F-RAM™ and SRAM, Traveo™ microcontrollers, the industry's only PSoC® programmable system-on-chip solutions, analog and PMIC Power Management ICs, CapSense® capacitive touch-sensing controllers, and Wireless BLE Bluetooth Low-Energy and USB connectivity solutions, Cypress is committed to providing its customers worldwide with consistent innovation, best-in-class support and exceptional system value. To learn more, go to 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 the future are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. We may use words such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "continue" or other wording indicating future results or expectations to identify such forward-looking statements that include, but are not limited to, statements related to our estimated non-GAAP revenue, non-GAAP gross margin and non-GAAP EPS in our financial outlook, the expected timing and costs related to the integration of the company with Spansion as a result of our recent merger; our ability to execute on planned synergies related to the merger with Spansion; the semiconductor market; the strength and growth of our proprietary and programmable products; our expectations regarding our revenue growth and earnings leverage;  as well as 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 risk that that future revenues, margins and earnings may not be achieved as expected; the state of and future of the global economy, business conditions and growth trends in the semiconductor market, our ability to effectively integrate our company with Spansion in a timely manner, our ability to attract and retain key personnel, 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 and 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 "Risk Factors" in our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We assume no responsibility to update any such forward-looking statements.

Cypress, the Cypress logo, Spansion, the Spansion logo, and combinations thereof, PSoC, CapSense, EZ-USB and TrueTouch are registered trademarks and EZ-PD, EZ-BLE, PRoC, GX3, F-RAM, HyperBus, HyperFlash, SecureNAND and Traveo are trademarks of Cypress Semiconductor Corp. All other trademarks or registered trademarks are the property of their respective owners.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)








September 27,


December 28,



2015


2014

ASSETS





Cash, cash equivalents and short-term investments


$               194,631


$               118,812

Accounts receivable, net


293,832


75,984

Inventories, net (a)


279,007


88,227

Property, plant and equipment, net


459,040


237,763

Goodwill and other intangible assets, net


2,565,169


99,615

Other assets


290,253


122,880

Total assets


$            4,081,932


$               743,281

LIABILITIES AND EQUITY





Accounts payable


$               145,757


$                 42,678

Deferred margin and allowances on sales to distributors


120,393


95,187

Income tax liabilities


60,117


21,494

Other liabilities


464,366


155,057

Long-term revolving credit facility


449,000


227,000

Total liabilities


1,239,633


541,416

Total Cypress stockholders' equity


2,849,994


207,757

Noncontrolling interest


(7,695)


(5,892)

Total equity


2,842,299


201,865

Total liabilities and equity


$            4,081,932


$               743,281






(a) Inventories include $3.9 million and $2.0 million of capitalized inventories related to stock-based compensation expense, 'as of September 27, 2015 'and December 28, 2014, respectively.

 

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

ON A GAAP BASIS

(In thousands, except per-share data)

(Unaudited)








September 27,


June 28,



2015


2015

Revenues


$               463,810


$               484,778

Cost of revenues


303,434


346,705

Gross margin


160,376


138,073

Operating expenses:





Research and development


$                 75,960


81,227

Selling, general and administrative


74,627


86,011

Acquisition costs and amortization of acquisition-related intangibles


32,359


41,758

Gain on divestiture of TrueTouch business


(66,472)


-

Restructuring charges


2,924


10,039

Total operating expenses, net


119,398


219,035

Operating income (loss)


$                 40,978


(80,962)

Interest and other income (loss), net


(8,884)


(6,794)

Income (loss) before income taxes


32,094


(87,756)

Income tax provision


2,303


2,934

Income (loss), net of taxes


29,791


(90,690)

Adjust for net loss attributable to noncontrolling interest


521


639

Net Income (loss) attributable to Cypress


$                 30,312


$                (90,051)

Net Income (loss) per share attributable to Cypress:





Basic


$                     0.09


$                    (0.27)

Diluted


$                     0.09


$                    (0.27)

Cash dividend declared per share


$                     0.11


$                      0.11

Shares used in net income (loss) per share calculation:





Basic


335,299


333,334

Diluted


357,657


333,334

 

CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES  (a)

(In thousands, except per-share data)

(Unaudited)












September 27,


% of


June 28,


% of



2015


Revenue


2015


Revenue

GAAP Revenues


$                       463,810




$                       484,778



Revenue from intellectual property license (b)


6,250




6,250



Non-GAAP Revenues


$                       470,060




$                       491,028



GAAP gross margin


$                       160,376


34.6%


$                       138,073


28.5%

Stock-based compensation expense


4,357


0.9%


3,802


0.8%

Changes in value of deferred compensation plan


(326)


(0.1)%


46


0.0%

Impairment of assets, restructuring and other charges


(372)


(0.1)%


325


0.1%

Effect of Non-GAAP revenue from intellectual property license


6,250


0.8%


6,250


0.7%

Spansion merger costs and related amortization


23,164


5.0%


52,800


10.9%

Non-GAAP gross margin


$                       193,449


41.2%


$                       201,296


41.0%

GAAP research and development expenses


$                         75,960




$                         81,227



Stock-based compensation expense


(7,346)




(7,007)



Changes in value of deferred compensation plan


1,105




(153)



Impairment of assets, restructuring and other charges


(81)




(96)



Spansion merger costs and related amortization


(831)




(827)



Non-GAAP research and development expenses


$                         68,807




$                         73,144



GAAP selling, general and administrative expenses


$                         74,627




$                         86,011



Stock-based compensation expense


(13,253)




(16,859)



Changes in value of deferred compensation plan


1,959




(276)



Impairment of assets, restructuring and other charges





(36)



Legal and other


(443)






Spansion merger costs and related amortization


(2,376)




(1,634)



Non-GAAP selling, general and administrative expenses


$                         60,514




$                         67,206



GAAP operating income (loss)


$                         40,978




$                       (80,962)



Stock-based compensation expense


24,956




27,667



Gain from divestiture transaction


(66,472)






Ramtron acquisition-related expense


1,305




1,305



Changes in value of deferred compensation plan


(3,389)




474



Impairment of assets, restructuring and other charges







Legal and other


150




458



Effect of Non-GAAP revenue from intellectual property license


6,250




6,250



Spansion merger costs and related amortization


60,350




105,754



Non-GAAP operating income (loss)


$                         64,128




$                         60,946



GAAP pretax profit (loss)


$                         32,094


6.9%


$                       (87,756)


(18.1)%

Stock-based compensation expense


24,956


5.4%


27,667


5.7%

Gain from divestiture transaction


(66,472)


(14.3)%




Ramtron acquisition-related expense


1,305


0.3%


1,305


0.3%

Changes in value of deferred compensation plan


(50)


0.0%


(54)


0.0%

Impairment of assets, restructuring and other charges



0.0%



0.0%

Legal and other


151


0.0%


458


0.1%

Effect of Non-GAAP revenue from intellectual property license


6,250


1.2%


6,250


1.1%

Investment related losses (gains)


2,709


0.6%


(1,670)


(0.3)%

Tax-related, interest income, interest expense and other expenses


(1,157)


(0.2)%


2,586


0.5%

Losses from equity method investment


1,800


0.4%


1,459


0.3%

Spansion merger costs and related amortization


60,350


13.0%


105,754


21.8%

Non-GAAP pretax profit (loss)


$                         61,936


13.2%


$                         55,999


11.4%

GAAP net income (loss) attributable to Cypress


$                         30,312




$                       (90,051)



Stock-based compensation expense


24,956




27,667



Gain from divestiture transaction


(66,472)






Ramtron acquisition-related expense


1,305




1,305



Changes in value of deferred compensation plan


(50)




(53)



Impairment of assets, restructuring and other charges







Legal and other


151




458



Effect of Non-GAAP revenue from intellectual property license


6,250




6,250



Investment related losses (gains)


2,709




(1,670)



Tax-related, interest income, interest expense and other expenses


(1,271)




1,751



Losses from equity method investment


1,800




1,459



Spansion merger costs and related amortization


60,350




105,754



Non-GAAP net income attributable to Cypress


$                         60,040




$                         52,870



GAAP net income (loss) per share attributable to Cypress - diluted


$                             0.09




$                           (0.27)



Stock-based compensation expense


0.07




0.08



Gain from divestiture transaction


(0.18)






Ramtron acquisition-related expense







Effect of Non-GAAP revenue from intellectual property license


0.02




0.02



Investment related losses (gains)


0.01




(0.01)



Tax-related, interest income, interest expense and other expenses





0.01



Losses from equity method investment


0.01






Spansion merger costs and related amortization


0.17




0.32



Non-GAAP net income per share attributable to Cypress - diluted


$                             0.17




$                             0.15












(a) Refer to the accompanying "Notes to Non-GAAP Financial Measures" for a detailed discussion of management's use of non-GAAP financial measures.

(b) Non-GAAP revenue includes $6.25 million of Samsung intellectual property licensing revenue, not included in GAAP revenue as a result of the effects of purchase accounting for the Spansion merger.

 

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands)

(Unaudited)








Three Months Ended



September 27,


June 28,



2015


2015

Selected Cash Flow Data (Preliminary):





Net cash provided by (used in) operating activities


$                    19,724


$                  (65,620)

Net cash provided by (used in) investing activities


$                    80,574


$                  (24,584)

Net cash provided by (used in) financing activities


$                  (30,679)


$                    66,763

Other Supplemental Data (Preliminary):





Capital expenditures


$                    12,748


$                    18,735

Depreciation


$                    36,665


$                    36,486

Payment of dividend


$                    36,748


$                    36,402

Dividend paid per share


$                        0.11


$                        0.11

Dividend yield per share (a)


5.1%


3.7%

 

CYPRESS SEMICONDUCTOR CORPORATION

CONSOLIDATED DILUTED EPS CALCULATION

(In thousands, except per-share data)

(Unaudited)












Three Months Ended



September 27,


June 28,



2015


2015



GAAP


Non-GAAP


GAAP


Non-GAAP

Net income (loss) attributable to Cypress


$          30,312


$          60,040


$         (90,051)


$          52,870

Weighted-average common shares

   outstanding (basic)


335,299


335,299


333,334


333,334

Effect of dilutive securities:









Stock options, unvested restricted stock

   and other


9,161


14,549



13,764

Impact of convertible bond


13,197


13,197



15,668

Weighted-average common shares

   outstanding for diluted computation


357,657


363,045


333,334


362,766

Net income (loss) per share attributable

   to Cypress - basic


$              0.09


$              0.18


$             (0.27)


$              0.16

Net income (loss) per share attributable

   to Cypress - diluted


$              0.09


$              0.17


$             (0.27)


$              0.15












September 27,


June 28,



2015


2015

Average stock price for the period ended


$                                           10.64


$                                           13.14

Common stock outstanding at period end

   (in thousands)


335,590


334,088

 

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:

  • Revenue
  • 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 related to our merger with Spansion, stock-based compensation, and other adjustments.  Non-GAAP revenue includes the effect of revenue from an intellectual property license agreement.  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. 

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SOURCE Cypress Semiconductor Corp.

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