- Revenue ($187.5 million), gross margin (53.5%), pretax margin (15.0%) and earnings per share ($0.16) all met non-GAAP guidance
- Emerging Technologies Division revenue increased 40% sequentially and 153% year-on-year
- Dividend yield was 4.4% with favorable tax treatment
- Industrial and Automotive segments remained strong and combined for 45% 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
---------------------------- ----------------------------
Q3 2014 Q2 2014 Q3 2013 Q3 2014 Q2 2014 Q3 2013
-------- -------- -------- -------- -------- --------
Revenue $187,516 $183,601 $188,723 $187,516 $183,601 $188,723
Gross margin 53.5% 54.0% 53.8% 51.7% 51.9% 48.6%
Pretax margin 15.0% 14.9% 12.5% 7.4% 5.2% -5.1%
Net income
(loss) $ 26,538 $ 26,723 $ 22,015 $ 12,840 $ 9,527 $ (8,358)
Diluted EPS
(loss per
share) $ 0.16 $ 0.16 $ 0.14 $ 0.08 $ 0.06 $ (0.06)
Third-quarter revenue increased 2.1% sequentially, led by growth in our Memory Products Division (MPD) and Emerging Technologies Division (ETD), which is now contributing significantly to Cypress's growth with 40% sequential growth to $7.5 million. All three of our ETD startup businesses grew sequentially and will contribute significantly to revenue growth in 2015. The revenue growth in MPD and ETD was partially offset by ongoing softness in the handset market.
Our non-GAAP pretax profit increased 18.7% year-on-year, partly driven by a 7.0% reduction in non-GAAP operating expenses.
Our cash, cash equivalents and short-term investments increased 5.8% sequentially, demonstrating the fall-through leverage of our current business model.
BUSINESS REVIEW
+ Our non-GAAP consolidated gross margin for the third quarter was 53.5%, down 0.5 percentage points from the previous quarter, primarily due to product mix. Excluding ETD, our core semiconductor gross margin was 55.3%.
+ Net inventory at the end of the third quarter was $88.8 million, flat from the second quarter.
+ 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 25, 2014. This dividend was paid on October 16, 2014.
NET SALES SUMMARY
(In thousands, except percentages)
(Unaudited)
THREE MONTHS ENDED
----------------------------------
Sept. 28, Jun. 29, Sept. 29, Sequential Year-over-
Business Unit 2014 2014 2013 Change Year Change
---------- ---------- ---------- ---------- -----------
PSD(1) $ 68,750 $ 74,676 $ 78,135 -8% -12%
MPD(1) $ 92,179 85,582 88,743 8% 4%
DCD(1) $ 19,091 17,989 18,884 6% 1%
ETD(2) $ 7,496 5,354 2,961 40% 153%
---------- ---------- ---------- ---------- -----------
Total $ 187,516 $ 183,601 $ 188,723 2% -1%
---------- ---------- ---------- ---------- -----------
Geographic
China and ROW 60% 62% 64% -3% -6%
Americas 17% 17% 14% 0% 21%
Europe 14% 13% 12% 8% 17%
Japan 9% 8% 10% 13% -10%
---------- ---------- ---------- ---------- -----------
Total 100% 100% 100% 0% 0%
---------- ---------- ---------- ---------- -----------
Channel
Distribution 68% 68% 74% 0% -8%
Direct 32% 32% 26% 0% 23%
---------- ---------- ---------- ---------- -----------
Total 100% 100% 100% 0% 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 outlined in Footnote 1. Includes subsidiaries
AgigA Tech Inc., Deca Technologies Inc., and our foundry business unit.
THIRD-QUARTER 2014 HIGHLIGHTS
+ Huawei tablet. Huawei designed Cypress's TrueTouch® Gen5 TMA568 capacitive touchscreen controller into its new MediaPad X1 tablet. The controller features industry-leading gloved-finger tracking and hover support.
+ Samsung Galaxy S5 Mini smartphone. A teardown by analytics firm TechInsights found Cypress's TrueTouch Gen5 TMA545 touchscreen controller in the new Samsung Galaxy S5 Mini smartphone. The smartphone employs Gen5's advanced features, including gloved-finger tracking and hover support. The teardown noted that the TrueTouch controller replaced competing touch controllers used in the previous-generation Galaxy S4 Mini and S3 Mini smartphones.
+ Low-cost touchscreen sensors and controllers. The TrueTouch Gen4X touchscreen controller family now supports Cypress's Single-Layer Independent Multi-touch (SLIM®) sensor structures, which reduce multi-layer sensor costs by as much as 50%. The Gen4X TMA445 and TMA445A controllers also support gloved-finger tracking and a face-detection feature that prevents hang-ups.
+ CapSense buttons for 2.5 cents. Cypress announced that designers can now replace mechanical buttons for just 2.5 cents apiece using its CY8CMBR3110 CapSense® controllers. The mechanical button replacement (MBR) family enables the quick implementation of sleek, reliable capacitive touch-sensing user interfaces with advanced features such as water tolerance and proximity sensing.
+ A $49 kit to implement USB 3.0. Cypress introduced a new, low-cost, easy-to-use USB 3.0 SuperSpeed Explorer Kit based on its programmable EZ-USB® FX3™ peripheral controller, the undisputed leader for USB 3.0-compatible devices. The development platform enables designers to add 5-Gbps USB 3.0 data throughput to virtually any system quickly and cheaply.
+ Cypress-Lattice kit. Cypress collaborated with Lattice Semiconductor to bring 5-Gbps data throughput to the Lattice USB 3.0 Video Bridge Development Kit. The kit uses the Cypress EZ-USB FX3 controller to simplify the integration of USB 3.0 audio and high-definition (HD) video.
+ Raytrix camera. Raytrix GmbH selected Cypress's EZ-USB CX3™ USB 3.0 camera controller for its next-generation 3-D camera. The CX3's 5-Gbps USB 3.0 throughput enables the innovative R42 3-D Light Field Camera to create images with extended depth-of-field, allowing for precise focusing later in software.
+ Nonvolatile DDR4 DIMMs. Cypress subsidiary AgigA Tech began sampling the industry's first DDR4 Nonvolatile DIMM (NVDIMM) to key OEMs and development partners. The NVDIMM preserves data during power outages, while still operating as a full-performance DIMM. The device targets next-generation, Intel-based server platforms.
+ Ultra-high-reliability SRAM. Cypress expanded its family of asynchronous SRAMs with a new 16 Mb MoBL® (More Battery Life™) low-power SRAM that includes embedded, on-chip Error-Correcting Code (ECC). On-chip ECC makes these SRAMs 1,000 times more reliable than standard SRAMs and eliminates the need for additional error correction chips.
+ Foundry technology deal. Cypress and Chinese wafer foundry licensee Shanghai Huali Microelectronics Corp. (HLMC) developed functioning memory cells using Cypress's SONOS (Silicon Oxide Nitride Oxide Silicon) embedded flash memory intellectual property (IP) at the 55-nanometer process technology node. The nonvolatile memory cells are designed for use in smartcards and embedded-flash microcontrollers.
+ Access to 60,000 technical documents. Cypress introduced a document management tool that helps customers quickly search Cypress online technical content. The Cypress Document Manager tool allows users to search and locate more than 60,000 Cypress technical documents.
FOLLOW CYPRESS ONLINE
- Join the Cypress Developer Community.
- Follow @CypressSemi on Twitter.
- Visit us on Facebook and LinkedIn.
- View Cypress videos on our Video Library or YouTube.
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 Q4 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 our revenue growth and earnings leverage; our expectation that our ETD division will significantly contribute to our 2014 revenue growth; 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 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, our ability to manage our business to have strong earnings and significant revenue growth, 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 our filings with the Securities and Exchange Commission. We assume no responsibility to update any such forward-looking statements.
Cypress, the Cypress logo, PSoC, TrueTouch, SLIM, EZ-USB, MoBL and CapSense are registered trademarks and FX3, CX3 and More Battery Life are trademarks of Cypress Semiconductor Corp. AGIGA is a registered trademark of AgigA Tech, Inc. All other trademarks or registered trademarks are the property of their respective owners.
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 28, December 29,
2014 2013
------------- -------------
ASSETS
Cash, cash equivalents and short-term
investments $ 120,377 $ 104,462
Accounts receivable, net 105,853 81,084
Inventories, net (a) 88,790 100,612
Property, plant and equipment, net 244,298 258,585
Goodwill and other intangible assets, net 100,970 106,524
Other assets 116,821 111,617
------------- -------------
Total assets $ 777,109 $ 762,884
============= =============
LIABILITIES AND EQUITY
Accounts payable $ 33,462 $ 47,893
Deferred margin on sales to distributors 134,726 122,578
Income tax liabilities 22,041 29,865
Other liabilities 155,073 159,865
Long-term revolving credit facility 227,000 227,000
------------- -------------
Total liabilities 572,302 587,201
------------- -------------
Total Cypress stockholders' equity 210,836 180,157
Noncontrolling interest (6,029) (4,474)
------------- -------------
Total equity 204,807 175,683
------------- -------------
Total liabilities and equity $ 777,109 $ 762,884
============= =============
(a) Net inventories include $3.2 million and $5.3 million of capitalized
inventories related to stock compensation expense, as of September 28,
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
-------------------------------------------
September 28, June 29, September 29,
2014 2014 2013
------------- ------------- -------------
Revenues $ 187,516 $ 183,601 $ 188,723
Cost of revenues 90,633 88,231 97,070
------------- ------------- -------------
Gross margin 96,883 95,370 91,653
Operating expenses:
Research and development 38,626 40,927 50,429
Selling, general and
administrative 41,119 42,059 45,533
Amortization of acquisition-
related intangibles 1,701 1,800 1,987
Restructuring charges (238) - 3,693
------------- ------------- -------------
Total operating expenses,
net 81,208 84,786 101,642
------------- ------------- -------------
Operating income (loss) 15,675 10,584 (9,989)
Interest and other income, net (1,890) (1,128) 427
------------- ------------- -------------
Income (loss) before income
taxes 13,785 9,456 (9,562)
Income tax benefit (provision) (1,231) (299) 774
------------- ------------- -------------
Income (loss), net of taxes 12,554 9,157 (8,788)
Adjust for net loss
attributable to noncontrolling
interest 286 370 430
------------- ------------- -------------
Net Income (loss) attributable
to Cypress $ 12,840 $ 9,527 $ (8,358)
============= ============= =============
Net Income (loss) per share
attributable to Cypress:
Basic $ 0.08 $ 0.06 $ (0.06)
Diluted $ 0.08 $ 0.06 $ (0.06)
Cash dividend per share $ 0.11 $ 0.11 $ 0.11
Shares used in net income
(loss) per share calculation:
Basic 159,759 157,936 149,679
Diluted 166,481 164,460 149,679
------------- ------------- -------------
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 September
28, % of June 29, % of 29, % of
2014 Revenue 2014 Revenue 2013 Revenue
--------- ------- -------- ------- --------- -------
GAAP gross margin $ 96,883 51.7% $ 95,370 51.9% $ 91,653 48.6%
Stock-based
compensation
expense 3,766 2.0% 4,433 2.4% 2,804 1.5%
Acquisition-
related expense - 0.0% (109) 0.0% 6,849 3.6%
Changes in value
of deferred
compensation plan 4 0.0% 248 0.1% 265 0.1%
Impairment of
assets and other (303) -0.2% 187 0.1% (64) 0.0%
Tax and tax-
related items - 0.0% (925) -0.5% - 0.0%
--------- ------- -------- ------- --------- -------
Non-GAAP gross
margin $ 100,350 53.5% $ 99,204 54.0% $ 101,507 53.8%
========= ======= ======== ======= ========= =======
GAAP research and
development
expenses $ 38,626 $ 40,927 $ 50,429
Stock-based
compensation
expense (2,089) (4,362) (6,806)
Acquisition-
related expense - - (19)
Changes in value
of deferred
compensation plan (13) (483) (548)
Impairment of
assets and other (231) - (1,078)
--------- -------- ---------
Non-GAAP research
and development
expenses $ 36,293 $ 36,082 $ 41,978
========= ======== =========
GAAP selling,
general and
administrative
expenses $ 41,119 $ 42,059 $ 45,533
Stock-based
compensation
expense (6,427) (5,523) (9,701)
Acquisition-
related expense - (385) (366)
Changes in value
of deferred
compensation plan (24) (1,097) (1,181)
Impairment of
assets and other 64 (877) 131
--------- -------- ---------
Non-GAAP selling,
general and
administrative
expenses $ 34,732 $ 34,177 $ 34,416
========= ======== =========
GAAP operating
income (loss) $ 15,675 $ 10,584 $ (9,989)
Stock-based
compensation
expense 12,282 14,318 19,311
Acquisition-
related expense 1,701 2,077 9,221
Changes in value
of deferred
compensation plan 41 1,828 1,994
Impairment of
assets and other (136) 1,063 883
Restructuring
charges (238) - 3,693
Tax and tax-
related items - (925) -
--------- -------- ---------
Non-GAAP operating
income $ 29,325 $ 28,945 $ 25,113
========= ======== =========
GAAP pretax profit $ 13,785 7.4% $ 9,456 5.2% $ (9,562) -5.1%
Stock-based
compensation
expense 12,282 6.5% 14,318 7.8% 19,311 10.2%
Acquisition-
related expense 1,701 0.9% 2,076 1.1% 9,221 4.9%
Changes in value
of deferred
compensation plan 288 0.2% 75 0.0% (97) 0.0%
Impairment of
assets and other (137) -0.1% - 0.0% 883 0.4%
Restructuring
charges (238) -0.1% 156 0.1% 3,693 2.1%
Tax and tax-
related items (966) -0.5% - 0.0% 231 0.0%
Losses from equity
method investment 1,386 0.7% 1,366 0.7% - 0.0%
--------- ------- -------- ------- --------- -------
Non-GAAP pretax
profit $ 28,101 15.0% $ 27,447 14.9% $ 23,680 12.5%
========= ======= ======== ======= ========= =======
GAAP net income
(loss) attributable
to Cypress $ 12,840 $ 9,527 $ (8,358)
Stock-based
compensation
expense 12,282 14,318 19,311
Acquisition-
related expense 1,701 2,075 9,221
Changes in value
of deferred
compensation plan 288 75 (97)
Impairment of
assets and other (136) 1,080 883
Restructuring
charges (238) - 3,693
Tax and tax-
related items (1,585) (1,719) (2,638)
Losses from equity
method investment 1,386 1,367 -
--------- -------- ---------
Non-GAAP net income
attributable to
Cypress $ 26,538 $ 26,723 $ 22,015
========= ======== =========
GAAP net income
(loss) per share
attributable to
Cypress - diluted $ 0.08 $ 0.06 $ (0.06)
Stock-based
compensation
expense 0.07 0.09 0.12
Acquisition-
related expense 0.01 0.01 0.02
Changes in value
of deferred
compensation plan - - -
Impairment of
assets and other - 0.01 0.05
Restructuring
charges - - 0.02
Tax and tax-
related items (0.01) (0.01) (0.02)
Losses from equity
method investment 0.01 0.01 -
Non-GAAP share
count adjustment - (0.01) 0.01
--------- -------- ---------
Non-GAAP net income
per share
attributable to
Cypress - diluted $ 0.16 $ 0.16 $ 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 Nine Months Ended
---------------------------------- ----------------------
September September September September
28, June 29, 29, 28, 29,
2014 2014 2013 2014 2013
---------- ---------- ---------- ---------- ----------
Selected Cash
Flow Data
(Preliminary):
Net cash
provided by
operating
activities $ 8,322 $ 44,309 $ 7,905 $ 77,822 $ 46,525
Net cash
provided by
(used in)
investing
activities $ (11,173) $ (19,310) $ (2,080) $ (28,420) $ 570
Net cash
provided by
(used in)
financing
activities $ 6,501 $ (27,209) $ 108 $ (30,327) $ (33,748)
Other
Supplemental
Data
(Preliminary):
Capital
expenditures $ 5,800 $ 5,779 $ 10,808 $ 17,178 $ 27,877
Depreciation $ 10,093 $ 10,133 $ 9,745 $ 29,711 $ 30,136
Payment of
dividend $ 17,413 $ 17,257 $ 16,258 $ 51,520 $ 48,241
Dividend paid
per share $ 0.11 $ 0.11 $ 0.11 $ 0.33 $ 0.33
Dividend yield
per share (a) 4.4% 4.1% 4.9% 4.4% 4.9%
---------- ---------- ---------- ---------- ----------
(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
------------------------------------------------------
September 28, June 29, September 29,
2014 2014 2013
----------------- ----------------- ------------------
GAAP Non-GAAP GAAP Non-GAAP GAAP Non-GAAP
-------- -------- -------- -------- -------- --------
Net income (loss)
attributable to
Cypress $ 12,840 $ 26,538 $ 9,527 $ 26,723 $ (8,358) $ 22,015
-------- -------- -------- -------- -------- --------
Weighted-average
common shares
outstanding (basic) 159,759 159,759 157,936 157,936 149,679 149,679
Effect of dilutive
securities:
Stock options,
unvested
restricted stock
and other 6,722 8,460 6,524 8,761 - 12,525
-------- -------- -------- -------- -------- --------
Weighted-average
common shares
outstanding for
diluted computation 166,481 168,219 164,460 166,697 149,679 162,204
-------- -------- -------- -------- -------- --------
Net income (loss) per
share attributable
to Cypress - basic $ 0.08 $ 0.17 $ 0.06 $ 0.17 $ (0.06) $ 0.15
Net income (loss) per
share attributable
to Cypress - diluted $ 0.08 $ 0.16 $ 0.06 $ 0.16 $ (0.06) $ 0.14
-------- -------- -------- -------- -------- --------
September 28, June 29, September 29,
2014 2014 2013
----------------- ----------------- ------------------
Average stock price
for the period ended $10.54 $10.13 $11.70
Common stock
outstanding at
period end (in
thousands) 161,178 158,299 150,833
----------------- ----------------- ------------------
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.
Contacts: Thad Trent EVP Finance & Administration and CFO (408) 943-2925 Joseph L. McCarthy Director, Corporate Communications (408) 943-2902