Cypress posted a GAAP net loss of $65.1 million in the 2005 first quarter, or a diluted loss per share of $0.50. This compares with last quarter's diluted loss per share of $0.22 and year-ago first-quarter diluted earnings of $0.16 per share. Our GAAP net loss in the 2005 first quarter includes restructuring charges of $19.0 million.
On an adjusted-GAAP basis -- excluding the amortization of intangibles and other acquisition-related, restructuring and special charges and credits -- the 2005 first quarter resulted in a net loss of $25.1 million, or a diluted loss per share of $0.19. This compares with the prior quarter's diluted loss per share of $0.14 and year-ago first quarter diluted earnings of $0.19 per share.
Cypress President and CEO T.J. Rodgers said, "Our revenue for the 2005 first quarter came in at the bottom of the range we provided in guidance at the beginning of the quarter. However, we believe that the first quarter was the bottom of this current slowdown. We have started the second quarter with a better backlog position than last quarter's, and bookings to date are strong. Most of our revenue shortfall in the first quarter was the result of a decrease in sales of memory products to the wireless handset market, which experienced softness towards the end of the quarter. On the other hand, SunPower Corp. -- our silicon solar cell subsidiary -- exceeded its revenue target slightly, posting sales of $11 million in the first quarter."
Rodgers continued, "Our adjusted-GAAP loss per share of $0.19 for the first quarter was slightly better than our low-end guidance of $0.21(1) per share. We remain committed to our goal of achieving profitability in the second quarter, the first quarter in which the restructuring and cost-reduction measures we announced earlier this year take effect."
Rodgers continued, "Gross margin for the first quarter was 37% -- flat compared to the previous quarter. We managed our net inventory down again, amounting to $3 million in the first quarter, despite missed sales and an increase in SunPower's inventory to support its ramp."
Rodgers continued, "Our cost reductions included a reduction from four divisions organized around product lines to three divisions organized around market segments: the Computation and Consumer Division (CCD), the Data Communications Division (DCD), and the Memory and Imaging Division (MID). Beginning this quarter, we will report along these lines, including a separate report on SunPower."
BUSINESS UNITS Business Unit Summary Financials(a) CCD DCD MID SUNPOWER OTHER TOTAL REVENUE $66.0 $41.4 $74.0 $11.0 $7.9 $200.3 GROSS MARGIN 30.7 25.4 13.2 (1.4) 5.9 73.8 ADJUSTED-GAAP EPS $0.01 $0.00 ($0.13) ($0.04) ($0.03) ($0.19) GAAP EPS ($0.05) ($0.02) ($0.31) ($0.05) ($0.07) ($0.50)(b) (a) In millions, except EPS (b) Includes non-recurring restructuring charge of ($0.15).
Computation and Consumer Division (CCD)
Revenue from the Computation and Consumer Division was $66.0 million. This represented an increase of 12% from the prior quarter and accounted for 33% of the company's first-quarter revenue. The segment posted a gross margin of 47% and contributed to our adjusted-GAAP net income with $0.01(2) per share. Strong USB sales helped to drive growth for the division. We expect another strong quarter for CCD in Q205, based on broad, accelerated customer acceptance of Cypress's PSoC(TM) (Programmable-System-On-Chip(TM)) mixed-signal arrays, increased sales of PC clocks, and the continued adoption of WirelessUSB(TM), Cypress's 2.4-Gigahertz radio system-on-a-chip technology. Segment highlights for the first-quarter include:
+ Cypress introduced PSoC Express(TM), the first software tool that allows system engineers to develop microcontroller-based designs without having to program any complex assembly language or C code. The new tool enables design engineers to import peripherals such as temperature sensors, switches and fans into their designs with the click of a mouse, reducing design time from months to days. PSoC Express works with Cypress's PSoC mixed-signal array, a single-chip solution that integrates programmable analog and digital blocks with a microcontroller and flash. The PSoC array can take the place of multiple digital and analog components in a design, shrinking the board size and reducing system costs.
+ Cypress announced that its 2.4-GHz WirelessUSB radio system-on-a-chip has been designed into a presentation device manufactured by Logitech(R), a leading designer of webcams and other PC-peripherals. The new device is a handheld, wireless controller that enables multimedia presenters to manage images onscreen from up to 10 meters away. Logitech selected WirelessUSB because of its unique combination of robust performance, low power, low latency and outstanding immunity to interference from cordless phones, wireless networking devices and other sources. (The FCC was gracious enough to create an unlicensed RF band at 2.4 GHz, the same frequency used by microwave ovens.)
+ Cypress introduced a family of flash-based, wired USB controllers, reducing component count, design time and system cost in PC peripheral applications such as mice, keyboards and wireless dongles. Based on Cypress's popular eight-bit microcontroller architecture, the second-generation enCoRe(TM) II (Enhanced Component Reduction) family integrates a crystalless oscillator and other system components, eliminating the need for an external frequency source and accelerating time to market.
+ Cypress and Conexant Systems Inc. announced a low-cost, bus-powered reference design that will enable PC users to plug a television into their system with a single USB 2.0 connection. The solution, the first of its kind in the electronics industry, eliminates the need to use multiple audio/video wires to hook up these components and allows users either to watch downloaded programs on their TV screens or to save TV programs to their PC hard drives.
Data Communications Division (DCD)
Revenue from the Data Communications Division was $41.4 million, down 8% from the prior quarter. DCD accounted for 21% of the company's first-quarter revenue. The segment posted a gross margin of 61% and broke even(2) on an adjusted-GAAP per share basis. Improved demand for NSEs in IP-based systems and for specialty memories in wireless basestations was offset by a decline in sales of legacy VME, physical-layer and programmable logic products into wireline systems. We do not expect a significant improvement in the data communications market during the second quarter. Segment highlights for the first quarter include:
+ Cypress sampled its Sahasra(TM) 50000 Network Search Engine (NSE) -- the industry's first single-chip algorithmic search engine. Sahasra NSEs offer three times the look-up capacity of the highest-density 18-Mbit products available on the market. "We're sampling a product that will revolutionize the NSE market," said T.J. Rodgers. "This is a big deal."
Memory and Imaging Division (MID)
Revenue from the Memory and Imaging Division was $74.0 million, a 16% decline from the prior quarter, accounting for 37% of the company's first-quarter revenue. The segment posted a gross margin of 18% for the quarter and accounted for an adjusted-GAAP net loss of $0.13(2) per share. Increased sales of CMOS image sensors and synchronous SRAMs were offset by a decline in handset revenue, the result of continued ASP pressure on Cypress's MicroPower(TM) and Psuedo-SRAM (PSRAM) products. Margins and revenue for the division are expected to improve in the second quarter, based on an increase in factory utilization and a mix shift among customers to 90-nanometer SRAM products. Highlights for the first quarter include:
+ Cypress acquired SMaL Camera Technologies, a leader in CMOS image sensor solutions for business and consumer applications such as ultra-slim digital cameras, automotive vision systems, and cell phone cameras. SMaL products will accelerate Cypress's penetration of the high-volume CMOS image sensor business, initially targeting the market for automotive imaging systems and 3- and 5-megapixel cell phone cameras. The deal complements Cypress's 2004 acquisition of Belgium-based FillFactory NV, which provides products for a broad array of markets and also has cell phone sensors under development. Combined, the FillFactory and SMaL acquisitions are expected to provide Cypress with the industry's broadest line of CMOS image sensors.