Cypress Reports Third-Quarter 2013 Results

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Cypress Reports Third-Quarter 2013 Results

SAN JOSE, Calif.--(BUSINESS WIRE)-- Cypress Semiconductor Corp. (NAS: CY) today announced its third-quarter 2013 results, which included the remarks below from its president and CEO, T.J. Rodgers. Highlights for the quarter included:

  • Revenue and earnings exceeded revised guidance
  • Non-GAAP operating expenses dropped to a 3.5-year low
  • Non-GAAP operating income increased 7% sequentially
  • Dividend yield was 4.9% with a favorable tax treatment

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-GAAPGAAP
Q3 2013 Q2 2013 Q3 2012Q3 2013 Q2 2013 Q3 2012
Revenue$188,723$193,466$203,015$188,723$193,466$203,015
 
Gross margin53.8%53.1%57.1%48.6%47.3%54.2%
 
Pretax margin12.5%11.5%16.7%-5.1%-3.1%6.8%
 

Net income (loss)

$22,015$21,635$32,322$(8,358)$3,766$14,332
 
Diluted EPS

(loss per share)

$0.14$0.14$0.20$(0.06)$0.02$0.09
 

Our third quarter revenue declined 2% sequentially and was slightly higher than our recently revised guidance. We were disappointed to lower our guidance for the third quarter, but we experienced unforecasted weakness in the mobile handset market. Our gross margins remained strong at 53.8% and our operating expenses achieved a 3.5-year low. Together, they allowed us to deliver 12.5% pretax profitability, despite the revenue decline.

We will continue to endure volatility and granularity in our mobile handset business in the fourth quarter, leading to a sequential decline of 10% to 14% in revenue, consistent with the guidance given in our pre-announcement. Despite some delays, our design win pipeline remains robust, especially for our new TrueTouch® Gen5 touchscreen products, and we expect to resume revenue growth in early 2014.

BUSINESS REVIEW

+ Our non-GAAP consolidated gross margin for the third quarter was 53.8%, up 0.7 percentage points from the previous quarter, due to customer mix and continued cost-reduction efforts. Excluding our Emerging Technologies Division, our core semiconductor gross margins were 54.8%, a record for the year.

+ Net inventory at the end of the third quarter was $101.0 million, up just $2.5 million from the second quarter despite the revenue weakness.

 
NET SALES SUMMARY

(In thousands, except percentages)

(Unaudited)
 
THREE MONTHS ENDED

Sept. 29,

 

June 30,

 Sept. 30, Sequential Year-over-
Business Unit201320132012ChangeYear Change
 
PSD1$78,136$81,320$91,207-4%

-14%

MPD1$88,743$88,127$88,2541%1%
DCD1$18,884$21,296$21,236-11%-11%
ETD1, 2$2,960$2,723$2,3189%28%
Total$188,723$193,466$203,015-2%-7%
 
Geographic
China and ROW64%69%67%-7%-4%
Americas14%13%14%8%0%
Europe12%10%10%20%20%
Japan10%8%9%25%11%
Total100%100%100%0%0%
 
Channel
Distribution74%75%74%-1%0%
Direct26%25%26%4%0%
Total100%100%100%0%0%
 
1.PSD, Programmable Systems Division; DCD, Data Communications Division; MPD, Memory Products Division: ETD, Emerging Technology Division.
2."Emerging Technology" 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 2013 HIGHLIGHTS

+ Cypress named David Loftus Executive Vice President of Sales and Applications. Loftus joins Cypress from Intersil Corp., where he had served as the Senior Vice President of Worldwide Sales and Corporate Marketing since 2008. The Georgia Tech graduate has more than 20 years of experience in the semiconductor industry. Prior to Intersil, Loftus spent 17 years at Xilinx in various sales and business unit positions, including Vice President and General Manager of the General Products Division and Vice President and Managing Director of Xilinx Asia Pacific based in Hong Kong.

+ Cypress introduced version 3.0 of its PSoC® Creator™ Integrated Design Environment (IDE) for its PSoC 3, PSoC 4 and PSoC 5LP programmable system-on-chip architectures. The new version reduces the compiled code size and includes significant improvements to the integrated firmware editor. It also allows users to configure their PSoC designs and export them to various ARM® IDEs.

+ KORG selected PSoC 3 to implement touchpad and slider controls, voltage sequencing and signal-conversion in its kaossilator 2 and mini kaoss pad 2 portable synthesizers. PSoC 3 integrates three chips from previous-generation Korg products into a one-chip solution.

+ Griffin Technology selected PSoC 3 for its StudioConnect, StudioConnect with Lightning, MIDIConnect and GuitarConnect Pro products, which enable users to connect guitars, keyboards and musical equipment to their Apple iOS devices for recording and mixing. A single PSoC 3 manages both the digital audio interface and Apple's proprietary MFi (Made for iPod | iPhone | iPad) protocol in these products, enabling communication with Apple devices via the company's all-digital Lightning connectors.

+ Expanding its TrueTouch Gen5 family, Cypress introduced a new touch controller that brings the world's best noise-immunity technology to superphones, smartphones, e-readers and tablets with screens up to 8.3 inches. The TMA568 controller also supports a 2.0-mm-tip passive stylus, enabling touchscreens to capture characters as small as 7 mm—an important capability for writing in languages such as Chinese and Japanese. The controller also rejects unintended touch inputs from a user's palm resting on the screen.

+ Huawei designed TrueTouch controllers into four separate smartphones. Two of these phones use the TrueTouch Gen4 controller, which enables users to navigate touchscreens even through thick gloves in cold weather. Gen 4 also delivers best-in-class touchscreen performance in the presence of electronic noise from after-market chargers.

+ Cypress announced a new CapSense® Express™ capacitive touch-sensing controller family that is optimized to quickly and simply replace mechanical buttons on the front panels of industrial and consumer applications, portable medical devices, gaming devices and home automation systems. The simplicity of use comes from Cypress's EZ-Click™ software, which streamlines the configuration of these new CapSense controllers to accelerate time-to-market.

+ Cypress expanded its portfolio of programmable, 5-Gbps SuperSpeed USB 3.0 controllers with three devices targeting new applications. The first device, the EZ-USB® CX3™ camera controller, adds USB 3.0 connectivity to image sensors with the standardized Camera Serial Interface (CSI). CX3 is ideally suited for high-definition, high-speed imaging applications. The second device, the EZ-USB FX3S™ storage controller, enables simultaneous links among storage media, an applications processor and a USB 3.0 host. This unrestricted three-way data flow enables new classes of portable devices. The third device, the EZ-USB FX3™ CSP controller is the industry's smallest USB 3.0 device with a footprint that is 75% smaller than its BGA counterpart.

+ Lenovo, the world's leading PC supplier, selected Cypress's PRoC™-UI (Programmable Radio-on-Chip User Interface) solution for its new SmartTouch N800 wireless touch mouse. The single-chip PRoC-UI wireless connectivity solution supports Windows 8 standard gestures.

+ LSI selected Cypress's nonvolatile Static Random Access Memories (nvSRAMs) for its new 12Gb/s SAS Host Bus Adapter family, used in high-performance servers and storage systems. nvSRAMs were selected because of their high-speed performance, low voltage operation and ability to retain data on power loss. Cypress leads the nonvolatile RAM market with a portfolio that includes the world's fastest (nvSRAM), highest-density (AGIGARAM®), and lowest-power (F-RAM) nonvolatile RAM products.

+ 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 26, 2013. This dividend will be paid on October 17, 2013.

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 5 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 the remainder of fiscal year 2013 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 markets we serve, including expected volatility in the mobile handset market; the strength and growth of our proprietary and programmable products; our expectations regarding our fourth quarter 2013 and first quarter 2014 revenue levels, earnings leverage, margins, profit and cash flow; the effectiveness of our cost-saving measures; our expectations regarding the demand for our products and how we expect our products to perform, the strength of our design win pipeline, expected market share gains and the expected tax treatment of our dividends. 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, whether our product and design wins and kit sales result in increased sales, our ability to manage our business to have strong earnings, reduce operating expenses, factory utilization, 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 Technology 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, TrueTouch, PSoC, CapSense, EZ-USB, and AGIGARAM are registered trademarks, and PSoC Creator, CapSense Express, EZ-Click, CX3, FX3S, FX3 and PRoC 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 29, December 30,
2013 2012
 
ASSETS
 
Cash, cash equivalents and short-term investments$101,389$117,210
Accounts receivable, net108,20082,920
Inventories, net (a)101,031127,596
Property, plant and equipment, net259,897274,427
Goodwill and other intangible assets, net108,548113,410
Other assets 116,926  116,066 
Total assets$795,991 $831,629 
 
LIABILITIES AND EQUITY
 
Accounts payable$52,809$58,704
Deferred margin on sales to distributors137,959131,192
Income tax liabilities29,01347,454
Other liabilities171,668185,418
Long-term revolving credit facility 227,000  232,000 
Total liabilities 618,449  654,768 
Total Cypress stockholders' equity181,679180,900
Noncontrolling interest (4,137) (4,039)
Total equity 177,542  176,861 
Total liabilities and equity$795,991 $831,629 
 

(a) Net inventories include $4.4 million and $2.8 million of capitalized inventories related to stock compensation expense, as of September 29, 2013 and December 30, 2012, respectively.

 
   
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
     
Three Months Ended
September 29,June 30,September 30,
201320132012
 
Revenues$188,723$193,466$203,015
Cost of revenues 97,070  102,041  92,959 
Gross margin91,65391,425110,056
Operating expenses:
Research and development50,42948,80446,908
Selling, general and administrative45,53348,07347,328
Amortization of acquisition-related intangibles1,9871,987707
Restructuring charges 3,693  693  66 
Total operating expenses, net 101,642  99,557  95,009 
Operating income (loss)(9,989)(8,132)15,047
Interest and other income, net 428  2,119  (1,330)
Income (loss) before income taxes(9,561)(6,013)13,717
Income tax provision (benefit) (774) (9,343) (241)
Income (loss), net of taxes(8,787)3,33013,958
Adjust for net loss attributable to noncontrolling interest 429  436  374 
Net Income (loss) attributable to Cypress$(8,358)$3,766 $14,322 
 
Net Income (loss) per share attributable to Cypress:
Basic$(0.06)$0.03$0.10
Diluted$(0.06)$0.02$0.09
Shares used in net income (loss) per share calculation:
Basic149,679147,287147,673
Diluted 149,679   156,262   160,300 
 
   
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 29,June 30,September 30,
201320132012
 
GAAP gross margin
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