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October 13, 1998


By CBR Staff Writer

Cypress Semiconductor Corp posted a surprise third quarter profit of $513,000, or $0.01 per share, thanks to a $3.0m income tax benefit. Analysts were expecting a loss of $0.02 per share from the San Jose-based company. In the year ago quarter, net income was $7.2m. The tax boost helped end Cypress’ streak of money- losing quarters at two and keep its total of losing quarters since going public in 1986 at four. The tax benefit resulted from a changed estimate of additional research and development credits. Revenue for the quarter slipped 13.7% year-over-year to $126m, while gross margins were 31.4%. Europe and Japan saw slight sales downturns as a percentage of overall sales, while North America grew slightly to account for 61% of the total. Overall, the company saw an operating capacity level of 88% for the quarter. The SRAM business continues to be the main problem area, accounting for a loss of $11.8m on its own. That business is expected to turn the corner by the second quarter of 1999, as it completes it shift to the latest manufacturing processes. The telecoms business, meanwhile should see sales flat to slightly up in the near term, while datacoms sales will be way up, the company said. On the whole, Cypress said it is well positioned for sustained profitability despite overall industry conditions thanks to its reduced cost structure after restructuring activities earlier in the year that included the cutting of 300 jobs and the consolidation of chip fabs. For the nine-month period, net losses were $107.4m on revenue down 11.6% at $362.7m, against net income of $18.3m, or $0.20 per share, last year. Nine-month results include a restructuring charge of $65.1m. Looking ahead, the company will see its tax benefit continue into the fourth quarter, where it will see a 0% tax rate. But the quarter will be weighed down by capital expenditures that will rise from about $19m last quarter to $43m, as the company builds up its fabs to get them decked out with state of the art equipment. All things considered, though, revenue and net income are expected to rise from the third quarter, with gross margins at about 37%. For next year, Cypress reckons it will see revenues of about $600m – in line with most Wall Street estimates – and that by the end of the year margins will be approaching 45%. Cypress shares fell $0.0625 Tuesday to close at $8.8125.

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