CY

Cypress Semiconductor Corporation (CY)

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Cypress Semiconductor Corporation, (CY)

Q3 2010 Earnings Conference Call

October 21, 11:30 am ET

Executives

T.J. Rodgers - President and CEO

Brad W. Buss – Chief Financial Officer

Christopher A. Seams – Executive Vice President, Worldwide Wafer Manufacturing

Dana Nazarian – Executive Vice President, Memory and Imaging Division

Norman Taffe - Executive Vice President, Consumer and Computation Division

Cathal Phelan - Executive Vice President, Chief Technical Officer

Analysts

Chris Stanley - JPMorgan

John Pitzer - Credit Suisse

Tim Luke - Barclays Capital

Adam Benjamin - Jefferies & Co

Douglas Freedman - Broadpoint AmTech

Glen Yeung - Citigroup

Steve Eliscu - UBS

Charles Anderson - Dougherty & Company

John Barton - Cowen & Company

Jeffrey Schreiner - CapStone Investments

Presentation

Operator

Good morning and welcome to Cyprus Semiconductor Third Quarter Earnings Release Conference Call. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Robert Rodgers, President and CEO of Cyprus Semiconductor. Sir, you may begin.

T.J Rodgers

Good morning. We are reporting the third quarter in this meeting. We will start up with our CFO, Brad Buss, talking about the finance.

Brad Buss

Thanks TJ. Good morning everyone. Thanks for joining us, as usual just a quick reminder that we are going through our preliminary unaudited results. Our 10-Q gets filed in early November and we obviously encourage you to take a very good look through that. All of our statements today will be forward looking and we have no duty to update that as well. And just a quick housekeeping thing, we have our annual stay that is going to be held at our corporate offices here in on November ten and we look forward to hosting everybody, we are going to have a short product demo, and a lot of in-depth overview system of our strategic initiatives for 2011.

I will do my usual review of third quarter and then go through the fourth quarter guide. So, with third quarter, even with lower than expected revenue, we were able to report very strong growth margin earnings and cash flow, the revenue for third quarter was $232 million, slightly below our guide and there was an increase of 4% and nice strong 30% on the year over year basis. To put any contacts, this is the highest level of revenue we have seen since 2004 and I think reflect very well on not only on the strong, product line up that we have, but more importantly the focus is on price resolution, particularly in the touch screen analog and micro controller market.

In the quarter we saw strong sequential revenue growth in handset and various consumer and market and we saw some softness late in the quarter really on communication, some of the PC related areas and industrial real distribution. If you look at it on a division basis, MID decreased 6% from second quarter, driven by a one-time manufacturing limitation that is now behind us. And to a lesser extent, some weakness later in the quarter for distribution. CCD decreased 1%, driven by lower end of life communication field, and CCD increased a whopping 20% and our flagship P-SoC family which is the largest revenue component of CCD, we are adding a much faster rate in our total business units there. Our P-SoC family of products had an all-time record revenue and we also had another all-time record revenue for rapidly growing touch screen business unit. Our design activity continues to remain very strong, for P-SoC and P-SoC 3, 5 as well as our touch screen business. And we once again expect to see record revenues for P-SoC and True Touch. In fourth quarter, this again by the way is much better than normal seasonality that we have shortly seen in the P-SoC area. Our P-SoC based optical fingers nab sensors for cell phones continue to ramp in the production and it helps drive our emerging tax division to a 17% sequential revenue increase. Turning to the profit end of things, on a gap basis, we posted another strong quarter. We had a net income of 34.4 million which was 18% for deluded share, and that was an increase of 80% sequentially versus deluded earnings of 10%, 10 tens in second quarter and a lot for share in the order 13%

On a Non-GAAP basis, our net income was $53.4 million, an increase of 11% sequentially, and again up at highest levels since 2000. That year earnings deluded shares of 28% which again was at the high end of my guidance of 26 – 28, even with a lower revenue. I was very pleased with the leverage though we dropped through a quarter, our EPS has increased by 180% on the year on year basis and our operating income increased much faster than the rate of sale and we achieved a 25.6% PBC which was an increase of a full 14.4% point year on year and again as our highest Non-GAAP PBC s since 2000.

Non-GAAP close margin was a record, 60.2% up from 59.3% in second quarter and up from 48.3% points from third quarter of 2009, we continue to have a good factory absorption of the available products next and lower inventory reserves.

If you look at our core semiconductor business which excludes the impact of our emerging tax division, we have had an impressive 61%, again another record, utilization in our staff in Minnesota based of wafer stats for third quarter was 91% up slightly from 89% in second quarter, mainly the product led to increased revenue, I expect the fourth quarter utilization to decrease to about 85% as we balance inventory on demand. I continue to be very pleased with our ASP which means wireless even with a much higher proportion of consumer business and again as a remainder, our ASP’s are higher in almost a decade. Again another big consequence of having a very strong appraiser product line up.

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