Cypress Reports Second-Quarter 2014 Results

Marketwired

SAN JOSE, CA--(Marketwired - Jul 17, 2014) - 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 Silicon) embedded flash memory intellectual property (IP) for its 55-nanometer process technology. This license means that much of our industry will adopt Cypress's SONOS as their next-generation embedded-flash foundry technology.

+ Cypress introduced the PSoC® 4000 family, which offers low-cost 32-bit ARM®-based system-on-chip solutions for quick upgrades of embedded systems using legacy 8-bit and 16-bit microcontrollers. It also delivers Cypress's industry-leading CapSense technology to cost-sensitive, high-volume applications. The PSoC 4000 family comes with a revolutionary CY8CKIT-049 Prototyping Kit, which sells for only $4, introducing designers of products for the Internet of Things to our low-cost PSoC 4 product family.

+ A teardown by analytics firm TechInsights found that the Cypress TrueTouch Gen5 TMA545 controller drives the touchscreen of the new Samsung Gear Live smartwatch. The smartwatch features the Gen5 controller's best-in-class water-rejection capability and a wake-on-touch mode that helps prolong battery life. 

+ Huawei designed Cypress's TrueTouch Gen4 capacitive touchscreen controllers into five smartphone models, including the Honor 3X and 3C and the Ascend G716, G730 and G740.

+ ZTE selected Cypress's TrueTouch Gen5 TMA568 touchscreen controller to drive the 6.44-inch display in its nubia X6 superphone, whose new feature is to switch automatically between glove- and finger-tracking modes.

+ Cypress introduced its fourth-generation, 2.4-GHz WirelessUSB™ radio-on-a-chip transceiver, WirelessUSB NX. The transceiver features ultra-low power consumption with a fast, 2-Mbps data rate, which limits the time and power spent transmitting and receiving, enabling three years of battery life for wireless mice, keyboards, trackpads and remote controls.

+ intelliPaper designed Cypress's enCoRe™ V USB microcontroller into its line of intelligent paper products. The products can be folded to provide a standard USB thumb drive with data stored on a chip embedded in the paper. Intelligent paper products include smart business cards with digital contact info and smart product brochures with additional information.

+ Oneking Technologies of Shenzhen, China selected Cypress's EZ-USB® FX3™ controller for its new high-definition (HD) color video conference camera. The HD820-SN6300 camera uses the USB 3.0 controller's 5-Gbps bandwidth to stream HD video without compression, which degrades image quality.

+ EverPro Technologies and Cypress successfully completed testing of EverPro's USB 3.0 active optical cable. The cable uses Cypress FX3 and CX3™ controllers to transfer data at 5 Gbps over a distance of up to 100 meters -- a requirement for many machine vision and industrial camera applications.

+ Cypress introduced the world's first 16Mb fast asynchronous SRAM with on-chip Error-Correcting Code (ECC). On-chip ECC makes this new SRAM 1,000 times more reliable than standard SRAMs, enabling designers to eliminate additional error correction chips. The SRAM is the first in a new family of ECC-enabled asynchronous SRAMs.

+ Cypress expanded its portfolio of nonvolatile Static Random Access Memories (nvSRAMs) with a new 16Mb family, which is the industry's fastest.

+ Cypress signed agreements with five new distribution partners in Asia: Dadoutek, Sekorm and Lierda in China, and HB Corporation and STC Corporation in Korea. These distributors will sell Cypress's entire product line and expand the reach of its sales organization with 65 new distributor branches in the region.

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 Q3 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 revenue for the third quarter and fiscal 2014 overall as well as our earnings leverage; our expectations regarding gross margin growth; our expectation that our ETD division will significantly contribute to our 2014 financial performance; our expectations regarding the demand for our products and how our products are expected to perform, our expectations for our new Asian distributors, as well as, our belief that much of the industry will adopt our SONOS foundry technology. 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 and Emerging Technologies Division 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 revenue growth, our ability to effectively implement our foundry processes at third party facilities, 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 Emerging Technologies Division, the performance of our new distributors in Asia, 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, CapSense, PSoC and EZ-USB are registered trademarks and WirelessUSB, enCoRe, FX3 and CX3 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)  
             
    June 29,     December 29,  
    2014     2013  
                 
ASSETS                
                 
  Cash, cash equivalents and short-term investments   $ 113,768     $ 104,462  
  Accounts receivable, net     115,805       81,084  
  Inventories, net (a)     88,955       100,612  
  Property, plant and equipment, net     248,878       258,585  
  Goodwill and other intangible assets, net     102,765       106,524  
  Other assets     116,095       111,617  
    Total assets   $ 786,266     $ 762,884  
                 
LIABILITIES AND EQUITY                
                 
  Accounts payable   $ 48,251     $ 47,893  
  Deferred margin on sales to distributors     138,755       122,578  
  Income tax liabilities     23,031       29,865  
  Other liabilities     176,220       159,865  
  Long-term revolving credit facility     227,000       227,000  
    Total liabilities     613,257       587,201  
  Total Cypress stockholders' equity     178,751       180,157  
  Noncontrolling interest     (5,742 )     (4,474 )
    Total equity     173,009       175,683  
      Total liabilities and equity   $ 786,266     $ 762,884  
                 
(a) Net inventories include $4.5 million and $5.3 million of capitalized inventories related to stock compensation expense, as of June 29, 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  
      June 29,       March 30,       June 30,  
      2014       2014       2013  
                               
Revenues     $ 183,601       $ 170,283       $ 193,466  
Cost of revenues       88,231         92,561         102,041  
Gross margin       95,370         77,722         91,425  
Operating expenses:                              
  Research and development       40,927         45,330         48,804  
  Selling, general and administrative       42,059         42,609         48,073  
  Amortization of acquisition-related intangibles       1,800         1,833         1,987  
  Restructuring charges       -         (1,014 )       693  
    Total operating expenses, net       84,786         88,758         99,557  
Operating income (loss)       10,584         (11,036 )       (8,132 )
Interest and other income, net       (1,128 )       (1,750 )       2,119  
Income (loss) before income taxes       9,456         (12,786 )       (6,013 )
Income tax benefit (provision)       (299 )       4,517         9,343  
Income (loss), net of taxes       9,157         (8,269 )       3,330  
Adjust for net loss attributable to noncontrolling interest       370         335         436  
Net Income (loss) attributable to Cypress     $ 9,527       $ (7,934 )     $ 3,766  
                               
Net Income (loss) per share attributable to Cypress:                              
    Basic     $ 0.06       $ (0.05 )     $ 0.03  
    Diluted     $ 0.06       $ (0.05 )     $ 0.02  
Cash dividend per share     $ 0.11       $ 0.11       $ 0.11  
Shares used in net income (loss) per share calculation:                              
    Basic       157,936         154,572         147,287  
    Diluted       164,460         154,572         156,262  
                                   
                                   
                                   
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)
(In thousands, except per-share data)
(Unaudited)
               
    Three Months Ended  
    June 29,   March 30,   June 30,  
    2014   2014   2013  
                     
GAAP gross margin   $ 95,370   $ 77,722   $ 91,425  
  Stock-based compensation expense     4,433     2,251     3,279  
  Acquisition-related expense     (109 )   2,967     1,321  
  Changes in value of deferred compensation plan     248     218     31  
  Impairment of assets and other     187     2,564     6,681  
  Tax and tax-related items     (925 )            
Non-GAAP gross margin   $ 99,204   $ 85,722   $ 102,737  
                     
GAAP research and development expenses   $ 40,927   $ 45,330   $ 48,804  
  Stock-based compensation expense     (4,362 )   (7,183 )   (6,913 )
  Acquisition-related expense     -     -     (26 )
  Changes in value of deferred compensation plan     (483 )   (424 )   (99 )
  Impairment of assets and other     -     -     -  
Non-GAAP research and development expenses   $ 36,082   $ 37,723   $ 41,766  
                     
GAAP selling, general and administrative expenses   $ 42,059   $ 42,609   $ 48,073  
  Stock-based compensation expense     (5,523 )   (7,388 )   (10,203 )
  Acquisition-related expense     (385 )   (473 )   (98 )
  Changes in value of deferred compensation plan     (1,097 )   (964 )   (145 )
  Impairment of assets and other     (877 )   -     (160 )
Non-GAAP selling, general and administrative expenses   $ 34,177   $ 33,784   $ 37,467  
                     
GAAP operating income (loss)   $ 10,584   $ (11,036 ) $ (8,132 )
  Stock-based compensation expense     14,318     16,822     20,395  
  Acquisition-related expense     2,077     5,274     3,432  
  Changes in value of deferred compensation plan     1,828     1,606     275  
  Impairment of assets and other     1,063     2,564     6,841  
  Restructuring charges     -     (1,014 )   693  
  Tax and tax-related items     (925 )            
Non-GAAP operating income   $ 28,945   $ 14,216   $ 23,504  
                     
GAAP net income (loss) attributable to Cypress   $ 9,527   $ (7,934 ) $ 3,766  
  Stock-based compensation expense     14,318     16,822     20,395  
  Acquisition-related expense     2,075     747     3,432  
  Changes in value of deferred compensation plan     75     5,274     (21 )
  Impairment of assets and other     1,080     2,564     5,763  
  Restructuring charges     -     (1,014 )   693  
  Tax and tax-related items     (1,719 )   (5,367 )   (12,393 )
  Investment-related gains/losses     1,367     883     -  
Non-GAAP net income attributable to Cypress   $ 26,723   $ 11,975   $ 21,635  
                     
GAAP net income (loss) per share attributable to Cypress - diluted   $ 0.06   $ (0.10 ) $ 0.02  
  Stock-based compensation expense     0.09     0.10     0.13  
  Acquisition-related expense     0.01     0.03     0.02  
  Changes in value of deferred compensation plan     -     -     -  
  Impairment of assets and other     0.01     0.02     0.04  
  Restructuring charges     -     (0.01 )   0.01  
  Tax and tax-related items     (0.01 )   (0.03 )   (0.08 )
  Investment-related gains/losses     0.01     0.01        
  Non-GAAP share count adjustment     (0.01 )   -     -  
Non-GAAP net income per share attributable to Cypress - diluted   $ 0.16   $ 0.02   $ 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     Six Months Ended  
    June 29,     March 30,     June 30,     June 29,     June 30,  
    2014     2014     2013     2014     2013  
Selected Cash Flow Data (Preliminary):                                        
  Net cash provided by operating activities   $ 45,307     $ 25,191     $ 30,355     $ 70,498     $ 38,620  
  Net cash provided by (used in) investing activities   $ (20,148 )   $ 2,063     $ 3,545     $ (18,085 )   $ 2,650  
  Net cash provided by (used in) financing activities   $ (27,372 )   $ (9,619 )   $ (20,502 )   $ (36,991 )   $ (33,856 )
                                         
Other Supplemental Data (Preliminary):                                        
  Capital expenditures   $ 5,767     $ 5,559     $ 7,771     $ 11,326     $ 17,069  
  Depreciation   $ 10,133     $ 9,485     $ 10,036     $ 19,618     $ 20,391  
  Payment of dividend   $ 17,412     $ 16,850     $ 16,138     $ 34,262     $ 31,983  
  Dividend paid per share   $ 0.11     $ 0.11     $ 0.11     $ 0.22     $ 0.22  
  Dividend yield per share (a)     4.1 %     4.4 %     4.1 %     4.1 %     4.1 %
                                         
(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
    June 29,   March 30,   June 30,
    2014   2014   2013
    GAAP   Non-GAAP   GAAP     Non-GAAP   GAAP   Non-GAAP
                                       
Net income (loss) attributable to Cypress   $ 9,527   $ 26,723   $ (7,934 )   $ 11,974   $ 3,766   $ 21,635
                                       
Weighted-average common shares outstanding (basic)     157,936     157,936     154,572       154,572     147,287     147,287
Effect of dilutive securities:                                      
  Stock options, unvested restricted stock and other     6,524     8,761     -       11,366     8,975     12,500
Weighted-average common shares outstanding for diluted computation     164,460     166,697     154,572       165,938     156,262     159,787
                                       
Net income (loss) per share attributable to Cypress - basic   $ 0.06   $ 0.17   $ (0.05 )   $ 0.08   $ 0.03   $ 0.15
Net income (loss) per share attributable to Cypress - diluted   $ 0.06   $ 0.16   $ (0.05 )   $ 0.07   $ 0.02   $ 0.14
                                       
                                       
                                       
      June 29,     March 30,     June 30,
      2014     2014     2013
                                       
Average stock price for the period ended   $ 10.13   $ 10.13   $ 10.72
                                       
Common stock outstanding at period end (in thousands)     158,299     156,971     147,972
                                       
                                       
                                       
                                       

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

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