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CY > SEC Filings for CY > Form 10-Q on 2-May-2014All Recent SEC Filings

Show all filings for CYPRESS SEMICONDUCTOR CORP /DE/

Form 10-Q for CYPRESS SEMICONDUCTOR CORP /DE/


2-May-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties, which are discussed in the "Forward-Looking Statements" section under Part I of this Quarterly Report on Form 10-Q.

EXECUTIVE SUMMARY
General
Cypress Semiconductor Corporation ("Cypress") delivers high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and exceptional system value. Cypress offerings include our flagship PSoC® 1, PSoC 3, PSoC 4, and PSoC 5 programmable system-on-chip families. Cypress is a world leader in capacitive user interface solutions including CapSense® touch sensing, TrueTouch® touchscreens, and trackpad solutions for notebook PCs and peripherals. Cypress is also a significant participant in Universal Serial Bus (USB) controllers, which enhance connectivity and performance in a wide range of consumer and industrial products. Cypress is also the world leader in static random access memory (SRAM) and nonvolatile RAM memories. Cypress serves numerous major markets, including consumer, mobile handsets, computation, data communications, automotive, industrial, and military.

We evaluate our reportable business segments in accordance with the accounting guidance. We operate in the following four reportable business segments:

         Business Segments                            Description

MPD: Memory Products Division         MPD focuses on static random access memory
                                      (SRAM), nonvolatile RAMs and general-purpose
                                      programmable clocks.

DCD: Data Communications Division     DCD focuses on USB controllers and
                                      WirelessUSB™ peripheral controllers, also
                                      offering module solutions including
                                      Trackpads and Ovation™ Optical Navigation
                                      Sensors.

PSD: Programmable Systems Division    PSD focuses primarily on our PSoC®
                                      programmable system-on-chip and PSoC-based
                                      products. This business segment focuses on
                                      (1) the PSoC platform family of devices
                                      including PSoC 1, PSoC 3, PSoC 4 and PSoC 5,
                                      and all derivatives, (2) PSoC-based user
                                      interface products such as CapSense®
                                      touch-sensing and TrueTouch® touchscreen
                                      products, and (3) automotive products.

ETD: Emerging Technologies Division   Our "startup" division includes AgigA Tech
                                      Inc. and Deca Technologies Inc., both
                                      majority-owned subsidiaries of Cypress. ETD
                                      also includes our foundry business and other
                                      development-stage activities.

Manufacturing Strategy
Our core manufacturing strategy-"flexible manufacturing"-combines capacity from foundries with output from our internal manufacturing facilities. This initiative is intended to allow us to meet rapid swings in customer demand while lessening the burden of high fixed costs, a capability that is particularly important in high-volume consumer markets that we serve with our leading programmable product portfolio.


Tables of Contents

Results of Operations
Revenues
The following table summarizes our consolidated revenues by segments:
                                        Three Months Ended
                                March 30, 2014      March 31, 2013
                                          (In thousands)
Programmable Systems Division  $         69,347    $         65,505
Memory Products Division                 81,323              82,229
Data Communications Division             15,590              22,747
Emerging Technologies Division            4,023               2,247
Total revenue                  $        170,283    $        172,728

Programmable Systems Division:
Revenues from the Programmable Systems Division increased by $3.8 million in the first quarter of fiscal 2014, approximately 6% compared to the same prior-year periods primarily attributable to an increase in sales of our TrueTouch® touchscreen and automotive products. The increases were partially offset by a decrease in sales of certain legacy communication products.

Memory Products Division:
Revenues from the Memory Products Division decreased by approximately $0.9 million in the first quarter of fiscal 2014 or (1)% compared to the same prior-year period primarily attributable to a decline in sales of our SRAMs, partially offset by an increase in revenue of our non-volatile memory products. Data Communications Division:
Revenues from the Data Communications Division decreased by $7.2 million in the first quarter of fiscal 2014, or approximately 31%, compared to the same prior-year period primarily due to the decreases in sales of our older USB-related products.
Emerging Technologies Division:
Revenues from the Emerging Technologies Division increased by $1.8 million in the first quarter of fiscal 2014, or 79%, compared to the same prior-year period primarily due to the overall increase in demand as certain of our Emerging Technologies companies had design wins that moved into production. Cost of Revenues/Gross Margins

                          Three Months Ended
                  March 30, 2014      March 31, 2013
                            (In thousands)
Cost of revenues $        92,561     $       93,682
Gross margin                45.6 %             45.8 %

Gross margin percentage decreased slightly in the first quarter of fiscal 2014 primarily due to product and customer mix. Research and Development ("R&D") Expenses

                                     Three Months Ended
                             March 30, 2014      March 31, 2013
                                       (In thousands)
R&D expenses                $        45,330     $       49,330
As a percentage of revenues            26.6 %             28.6 %


Tables of Contents

R&D expenditures decreased by $4.0 million in the first quarter of fiscal 2014 compared to the same prior-year period. The decrease was primarily attributable to a $1.2 million one-time charge for the write-off of tools we purchased as part of the acquisition of Ramtron in the first quarter of 2013, a $0.9 million decrease in consulting fees, a $0.6 million decrease in headcount-related expenses, a $0.6 million decrease in outside services and a $0.5 million decrease in variable bonus-related expense. The decreases were partially offset by a $2.2 million increase in stock-based compensation. As a percentage of revenues, R&D expenses were lower in the first quarter of fiscal 2014 driven by the decrease in total revenues in the same prior-year period.

Selling, General and Administrative ("SG&A") Expenses

                                     Three Months Ended
                             March 30, 2014      March 31, 2013
                                       (In thousands)
SG&A expenses               $        42,609     $       45,442
As a percentage of revenues            25.0 %             26.3 %

SG&A expenses decreased by $2.8 million in the first quarter of fiscal 2014 compared to the same prior-year period. The decrease was primarily attributable to a $4.9 million decrease in headcount-related expenses which was driven by a company-wide effort to reduce costs, a $1.0 million decrease in variable bonus-related expense and a $0.9 million decrease in deferred compensation expense. These decreases were partially offset by an increase in stock-based compensation expense of $3.5 million due to an increase in certain performance-based awards and an increase in legal expenses of $1.1 million. As a percentage of revenues, SG&A expenses were lower in the first quarter of fiscal 2014 driven by a company-wide effort to reduce overall operating expenses. Restructuring
For the three months ended March 30, 2014 we recorded a benefit arising from restructuring related items of $(1.0) million, compared to a restructuring charge of $11.4 million incurred during the three months ended March 31, 2013. The benefit for the period primarily resulted from the gain on the sale of a previously restructured asset. The determination of when we accrue for severance and benefits costs, and which accounting standard applies, depends on whether the termination benefits are provided under a one-time benefit arrangement or under an on-going benefit arrangement.
The following table summarizes the restructuring charges recorded in the Condensed Consolidated Statements of Operations:

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