Cypress beats estimates, cuts outlook for first quarter

Cypress Semiconductor Corp. (NYSE: CY) said Tuesday earnings for its fourth quarter were 74 cents a share, two pennies above Wall Street's consensus estimate. But the company also sees a slowdown ahead.

Shares in the communications chipmaker closed down 1.31 to 26.44 Monday, up from its 52-week low of 18.25, hit in late December.

Net income for the fourth quarter, excluding goodwill, was $105.3 million, or 74 cents a share, up from 1999's fourth quarter earnings of 30 cents a share. Earnings tracking firm First Call Corp. projected earnings of 72 cents a share.

Revenue for the fourth quarter was $370 million, up 68 percent from revenue of $219.9 million in the fourth quarter of 1999.

The fourth quarter results are likely to be overshadowed by Cypress' outlook. Cypress said it expects a 4 percent to 9 percent decline in revenue for the first quarter. Earnings are expected to be 58 cents a share in the first quarter. Wall Street was expecting earnings of 65 cents a share, according to First Call.

Despite the warning, Cypress had a strong year. The company reported year-end results in which it exceeded its goal of reaching $1 billion in revenue with $250 million in pre-tax profits. It also grew at a rate of 73 percent in 2000, twice the semiconductor industry growth rate of 36 percent, the company said.

"Ironically, in this record quarter, we witnessed the beginning of a slowdown in demand in our predominantly communications-oriented end markets. This was exacerbated by a slowdown in the PC market, which typically achieves a strong showing in the December quarter," Cypress CEO T.J. Rodgers said in a statement.

Cypress announced in November that it had surpassed $1 billion in revenues for the year. But when Altera (Nasdaq: ALTR) said its fourth quarter results would be lower-than expected based on an inventory correction, the company fell along with other chipmakers.

On Nov. 30, Cypress re-forecasted to 4 to 5 percent quarter-on-quarter revenue growth and earnings of 72 cents per share for the fourth quarter. The company hit these targets and realized a book-to-bill ratio of 1.05 during the quarter, despite weak bookings, Rodgers said.

For fiscal 2000, net income excluding goodwill (acquisition-related costs and non-recurring items) was $329.2 million -- more than three times 1999's net income of $88.1 million. Earnings, diluted earnings before goodwill, were $2.39 per share, triple that of 1999's 76 cents per share.

Revenue for fiscal 2000 was $1.29 billion, up 73 percent from last year's revenue of $745.0 million.

However, Cypress said it expects slowdown in its wireless and computer segments for the next quarter.

Cypress saw strongest growth in its wide area network (WAN) and storage attached network (SAN) divisions, and expects these segments will grow 5 percent during the first quarter of 2001, despite demand softening in the communications market. In the fourth quarter, sales of the WAN/SAN divisions rose 13 percent quarter-over-quarter and accounted for 44 percent of revenue.

Sales of the wireless infrastructure (WIN) and the wireless terminal (WIT) divisions are expected to decline 10 to 12 percent in the first quarter due to slower mobile phone sales. The WIN/WIT divisions made up about 38 percent of revenue in the fourth quarter, growing 3 percent from the previous quarter despite a significant inventory correction.

Sales of the company's computation division are expected to be further affected by the PC market's continuing deterioration, and decline another 15 to 17 percent. The division represented 19 percent of revenue and declined 7 percent sequentially. The decline was caused by overall softening in the PC market and its effect on the PC clocks and USB businesses, Cypress said.

"It appears likely that we will be faced with a couple of challenging quarters due to continued softening of demand and poor visibility," said Rodgers, who nevertheless remained confident that the company could continue to grow at a rate faster than the industry.

Analysts have reduced industry growth rate estimates twice -- to a 15 percent to 18 percent year-on-year figure for 2001. "If that reduced expectation proves out, we currently expect Cypress to outgrow the industry and set records for revenue and earnings of $1.6 billion and $2.46 per share, respectively,'' Rodgers said.