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Article by DailyStocks_admin    (11-28-08 05:13 AM)

Cypress Semiconductor Corp. CEO THURMAN J RODGERS bought 1102000 shares on 11-20-2008 at $3.09

BUSINESS OVERVIEW

General

Our mission is to transform Cypress Semiconductor Corporation ("Cypress") from a traditional, broad-line semiconductor company to a leading supplier of programmable solutions in systems everywhere. We deliver high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and system value. Our offerings include the Programmable System-on-Chip™ ("PSoC®") products, universal serial bus ("USB") controllers, general-purpose programmable clocks and memories. Cypress also offers wired and wireless connectivity solutions that enhance connectivity and performance in multimedia handsets and other systems. Cypress serves numerous markets including consumer, computation, data communications, automotive and industrial.

In addition, we are a majority shareholder of SunPower Corporation ("SunPower"), a publicly traded solar products and services company which designs, manufactures and markets high-performance solar electric power technologies. As of the end of fiscal 2007, Cypress held 44.5 million shares of SunPower's class B common stock, representing approximately 56% of SunPower's outstanding capital stock, 51% of SunPower's outstanding capital stock on a fully diluted basis and 90% on a voting right basis. Please refer to SunPower's Annual Report on Form 10-K for the year ended December 30, 2007 for a complete review and discussion of SunPower's business, operations, financial condition and results of operations. The contents of SunPower's Annual Report on Form 10-K are expressly not incorporated by reference herein.

We were incorporated in California in December 1982. The initial public offering of our common stock took place in May 1986, at which time our common stock commenced trading on the Nasdaq National Market. In February 1987, we were reincorporated in Delaware and in October 1988, we began listing our common stock on the New York Stock Exchange under the symbol "CY." Our corporate headquarters are located at 198 Champion Court, San Jose, California 95134, and our main telephone number is (408) 943-2600. We maintain a website at www.cypress.com. The contents of our website are not incorporated into, or otherwise to be regarded as part of, this Annual Report on Form 10-K.

Our fiscal 2007 ended on December 30, 2007, fiscal 2006 ended on December 31, 2006 and fiscal 2005 ended on January 1, 2006. All three fiscal years contained 52 weeks.

Business Strategies

We have made substantial progress in our goal to become a leading programmable solutions company. In addition to building a comprehensive programmable product portfolio based on our PSoC platform, we have divested businesses that do not align with our long-term plans and have made a significant shift to flexible manufacturing. We have also added senior management with broad experience defining and bringing to market new generations of high-performance programmable and proprietary products.

We will continue to pursue the following key strategies:

•
Drive programmability —We believe our proprietary programmable technology and programmable product leadership, led by our PSoC family of devices, is an important competitive advantage. Driven by current and anticipated demand, we plan to continue to define, design and develop new programmable products and solutions that offer our customers increased flexibility and efficiency, higher performance, and higher levels of integration.

•
Extend technology leadership and drive "PSoC Everywhere" —The first and most important step of our programmability initiative is to drive "PSoC Everywhere," meaning in any possible application. PSoC devices can be used in a wide array of applications ranging from MP3 players and handsets to running shoes, appliances, laptops and fitness equipment. The product's easy-to-use PSoC Express™ programming software and broad range of development kits can facilitate rapid adoption across many different platforms.

•
Expand our customer base —Cypress's strategy is to grow its customer base through direct sales, independent sales representatives and distributors. Cypress, with its flagship PSoC products, is targeting tens of thousands of smaller customers who are looking to compete against larger competitors using the flexible, programmable PSoC platform.

•
Collaborate with customers to build system-level solutions —Cypress works closely with customers from initial product design through manufacturing and delivery. Our sales, customer and technical support, product marketing and development efforts are organized to maximize our customers' design efforts, helping them to speed time-to-market. Our engineering expertise is focused on developing whole product solutions, including software and reference designs.

•
Pursue flexible manufacturing —Our manufacturing strategy combines capacity from leading foundries with output from Cypress's internal manufacturing facilities. This initiative allows 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.

Implement "No More Moore" strategy —With many of our leading programmable products no longer requiring aggressive linewidth reductions, we abandoned our longstanding commitment to independent process technology development based on Moore's Law. We will continue to have access to leading-edge processes for our products that require world-class manufacturing processes through our foundry relationships.

•
Exit legacy or non-strategic, underperforming businesses —A focused business will allow us to better achieve our current objectives. Over the past two years, we have divested certain business units that were inconsistent with our future business initiatives and long-term plans. Exiting these businesses will allow us to focus our current resources and efforts on the core business model.

•
Pursue complementary strategic relationships —Complementary acquisitions can expand our markets and strengthen our competitive position. As part of our growth strategy, we continue to assess opportunities to develop strategic relationships, including acquisitions, investments and joint development projects with key partners and other businesses.

•
SunPower —We are the majority stockholder of SunPower and will continue to work with SunPower to maintain its technology advantage, expand manufacturing capacity while reducing manufacturing costs, drive efficiency improvements through relationships with suppliers and customers, and develop a leading brand name.

As we continue to implement our strategies, there are internal and external factors that could impact our ability to meet any or all of our objectives. Some of these factors are discussed under Item 1A.

Business Segments and Product / Service Overview

Consumer and Computation Division:

The Consumer and Computation Division designs and develops solutions for many of the world's leading manufacturers of consumer and computation end products. Its programmable product offerings are the linchpin of our programmable solutions strategy. This division's products include PSoC devices, the industry's broadest selection of USB controllers and WirelessUSB products, general-purpose programmable clocks and programmable-radio-on-a-c hip ("PRoC™") products. PSoC products are used in various consumer applications such as MP3 players, mass storage, household appliances, laptop computers and toys. USB is used primarily in PC applications and is finding increased adoption rates in consumer devices such as MP3 players, mobile handsets and set-top boxes.

PSoC. Our PSoC products are mixed-signal arrays with an on-board microcontroller, providing a low-cost, single-chip solution for a variety of consumer, industrial and control applications. The mixed-signal arrays integrate a microcontroller and the analog and digital components that typically surround it in an embedded system. A single PSoC device can integrate as many as 100 peripheral functions with a microcontroller, saving customers design time, board space, power consumption, and system costs. Our PSoC CapSense™ device replaces dozens of mechanical switches and controls with simple, touch-sensitive controls. CapSense-based "button" and slider controls are more reliable than their mechanical counterparts because they are not prone to the environmental wear-and-tear that affects exposed buttons and switches. PSoC allows customers to modify designs at any time, providing unmatched flexibility.

PRoC. PRoC includes two of our technologies—WirelessUSB and PSoC—in one integrated device. It offers access to a general-purpose mixed-signal array with four programmable analog and four programmable digital blocks, 8 Kbytes of flash programmable memory storage, 512 bytes of SRAM data storage, an 8-bit microcontroller, and a powerful direct sequence spread spectrum 2.4 GHz radio system. It is an ideal solution for quickly implementing highly integrated, space-saving, low-cost, wireless systems operating in the worldwide 2.4-GHz ISM band.

USB Controllers. USB provides the primary connection between a PC and peripherals, including keyboards, mice, printers, joysticks, scanners and modems. It is also used to connect various non-PC systems, such as handheld games, digital still cameras and MP3 players. The USB standard facilitates a "plug-and-play" architecture that enables instant recognition and interoperability when a USB-compatible peripheral is connected to a system. We offer a full range of USB solutions, including low-speed (1.5 Mbps), full-speed (12 Mbps) and high-speed (480 Mbps) USB products. We also offer a variety of USB hubs, transceivers, serial interface engines and embedded-host products for a broad range of applications.

WirelessUSB. Designed for short-range wireless connectivity, WirelessUSB enables personal computer peripherals, gaming controllers, remote controls, toys, and other point-to-point or multipoint-to-point applications to "cut the cord" with a low-cost, 2.4-GHz wireless solution. The WirelessUSB system acts as a USB human interface device, so the connectivity is transparent to the designer at the operating system level. WirelessUSB also operates as a simple, cost-effective wireless link in a host of other applications including industrial, consumer, and medical markets.

Programmable Clocks. Programmable timing solutions such as Cypress's InstaClock device combine high performance with the flexibility and fast time to market of field-programmable devices at a cost that is competitive against custom clocks at equivalent volumes. Working with our easy-to-use CyberClocks software, designers can optimize device parameters such as drive strength, phased-lock loop bandwidth and crystal input capacitive loading. Cypress's programmable clocks are ideal for devices requiring multiple frequencies including Ethernet, PCI, USB, HDTV, and audio applications.

EZ-Color Controllers. Our EZ-Color family of devices offers the ideal control solution for high brightness ("HD") light-emitting diode ("LED") applications requiring intelligent dimming control. EZ-Color devices combine the power and flexibility of PSoC with Cypress's precise illumination signal modulation drive technology providing lighting designers a fully customizable and integrated lighting solution platform. EZ-Color devices support up to 16 independent LED channels with up to 32 bits of resolution per channel, enabling lighting designers the flexibility to choose the LED array size and color quality. PSoC Express software, with lighting-specific drivers, can significantly cut development time and simplify implementation of fixed color points through temperature and LED binning compensation. EZ-Color's virtually limitless analog and digital customization allow for simple integration of features in addition to intelligent lighting during the development process.

RoboClock Clock Buffers. Our RoboClock family of clock buffers feature programmable output skew, programmable multiply/divide factor, and user-selectable redundant reference clocks that provide fault tolerance. Designers can control output skew and multiply and divide factors to help accommodate last-minute changes. RoboClock offers a high-performance timing solution for designers of communications, computation and storage networking applications.

Data Communications Division:

The Data Communications Division focuses on communication products, peripheral controllers, dual-port interconnects, programmable logic devices and Power PSoC. Our communication products are primarily used in the networking and telecommunications market. This division also makes a line of switches, cable drivers and equalizers for the professional video market. Our specialty memory products consist of first-in, first-out and dual port memories. First-in, first-out memories are used for applications such as switches and routers, and dual port memories are used in switching applications and handsets, including networking switches and routers, cellular base stations, mass storage devices, mobile handsets, and telecommunication equipment.


CEO BACKGROUND

T.J. Rodgers is a co-founder of Cypress and has been the Company’s president and chief executive officer and a member of our Board of Directors since 1982. Mr. Rodgers also serves as a director of Bloom Energy (formerly Ion America), Silicon Light Machines, and SunPower Corporation. Mr. Rodgers is also a member of the board of trustees at Dartmouth College.

W. Steve Albrecht is the Associate Dean and Andersen Alumni Professor of Accounting at the Marriott School of Management at Brigham Young University (“BYU”). Mr. Albrecht, a certified public accountant, certified internal auditor, and certified fraud examiner, joined BYU in 1977 after teaching at Stanford University and the University of Illinois. Prior to BYU, he worked as an accountant for Deloitte & Touche. Mr. Albrecht is the past president of the American Accounting Association and the Association of Certified Fraud Examiners. He currently serves on the board of directors of Red Hat, SkyWest Airlines, and SunPower Corporation. He is currently a trustee of the Financial Accounting Foundation that provides oversight to Financial Accounting Standards Board (“FASB”) and Governmental Accounting Standards Board (“GASB”).

Eric A. Benhamou is the chairman of our Board of Directors and the chairman of the board of directors of 3Com Corporation. He served as chief executive officer of Palm, Inc. from October 2001 until October 2003 and chairman until October 2007, and was chief executive officer of 3Com from 1990 until the end of 2000. Mr. Benhamou co-founded Bridge Communications, an early networking pioneer, and was vice president of engineering until its merger with 3Com in 1987. He is also a member of the board of directors of RealNetworks, Inc., Silicon Valley Bank, and Voltaire, Inc. He serves on the executive committee of TechNet and the Computer Science and Technology Board (“CSTB”). He is the chief executive officer of Benhamou Global Ventures, an investment firm he established.

Lloyd Carney is the chief executive officer of Xsigo Systems, a venture funded IO Virtualization Platform. Prior to joining Xsigo, he was the general manager of IBM’s NetCool Division. Prior to his employment at IBM, he was the chairman and chief executive officer of Micromuse, before it was acquired by IBM in 2006. Prior to Micromuse, Mr. Carney was the chief operations officer and executive vice president at Juniper Networks where he oversaw the engineering, product management and manufacturing divisions. Prior to joining Juniper Networks, Mr. Carney was the president of the Core IP Division, the Wireless Internet Division and the Enterprise Data Division at Nortel Networks.

James R. Long has been an independent business consultant since 1999. He retired in 1999 as executive vice president of Nortel Networks Corporation and president of Nortel Enterprise Solutions. Between 1991 and 1999, Mr. Long was the president of various business units at Nortel Networks, including Asia Pacific, Nortel World Trade, and the Enterprise Solutions group. Prior to joining Nortel, Mr. Long held a variety of senior executive positions with IBM Corporation and Rolm Company, an IBM and Siemens joint venture. He currently serves on the board of directors of 3Com Corporation and the Polynesian Cultural Center.

J. Daniel McCranie currently serves as chairman of the board of directors of ON Semiconductor and Virage Logic. He is also a member of the board of directors of Actel Corporation. Mr. McCranie served as Cypress's executive vice president of sales and marketing from 1993-2001. Prior to his initial tenure with Cypress, Mr. McCranie was the chairman of the board, president and chief executive officer of SEEQ Technology, and held positions of increasing responsibility in management, engineering, and sales and marketing at Harris Corporation, Advanced Micro Devices, American Microsystems and Philips Corporation.

Evert van de Ven has more than thirty (30) years of experience in the semiconductor industry, including engineering and advisory positions at Philips Semiconductor, Matsushita Electronics Corporation and Applied Materials. Mr. van de Ven retired as executive vice president and chief technology officer of Novellus Systems in 1995. Mr. van de Ven previously served on the board of directors at Matrix Integrated Systems.

MANAGEMENT DISCUSSION FROM LATEST 10K

The Management's Discussion and Analysis of Financial Condition and Results of Operations contain 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 under Item 1A.

Adjustments to Previously Announced Preliminary Annual Results

On January 24, 2008, we issued a press release announcing our preliminary annual results for the year ended December 30, 2007. In the press release, we reported net income of $399.2 million in the Consolidated Statements of Operations for the year ended December 30, 2007. Subsequent to the issuance of our press release, we recorded certain adjustments to our reported results relating to: (1) stock-based compensation, (2) the impact of a foreign currency remeasurement of a long-term tax liability, and (3) a reduction in the tax provision. These adjustments totaled $4.9 million, which reduced our net income to $394.3 million for the year ended December 30, 2007.

Stock-based compensation: The additional stock-based compensation expense was primarily a result of the achievement of certain performance-based restricted stock units granted in fiscal 2007 that was contingent upon our performance relative to a pre-determined peer group. At the time of the press release, management was unable to determine whether the achievement had been met as certain companies in the peer group had not publicly reported their financial results. Since the issuance of our press release, these companies have reported their results and we were able to determine that the milestone related to these performance-based restricted stock units has been achieved. As a result, we recorded an additional $2.1 million of stock-based compensation for the year ended December 30, 2007. Additionally, on February 20, 2008, the Compensation Committee of the Board of Directors made a discretionary award of 40,000 fully vested restricted stock units to T.J. Rodgers, our President and Chief Executive Officer. As this grant was based upon his performance in fiscal 2007, stock-based compensation expense of $0.9 million related to the restricted stock units was recorded for the year ended December 30, 2007.

Foreign currency remeasurement: We recorded an additional foreign currency exchange loss of $4.8 million due to the remeasurement of a long-term tax liability, which was denominated in a foreign currency, into the United States dollar at the end of fiscal 2007.

Reduction in tax provision: We recorded a $2.9 million reduction in our tax provision as a result of recalculating certain available foreign tax credits recorded during fiscal 2007.


Executive Summary

General:

Our mission is to transform Cypress Semiconductor Corporation ("Cypress") from a traditional, broad-line semiconductor company to a leading supplier of programmable solutions in systems everywhere. We deliver high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and system value. Our offerings include the Programmable System-on-Chip™ ("PSoC®") products, universal serial bus ("USB") controllers, general-purpose programmable clocks and memories. Cypress also offers wired and wireless connectivity solutions that enhance connectivity and performance in multimedia handsets and other systems. Cypress serves numerous markets including consumer, computation, data communications, automotive and industrial.

In addition, we are a majority shareholder of SunPower Corporation ("SunPower"), a publicly traded company which designs, manufactures and delivers high-performance solar electric systems worldwide for residential, commercial and utility-scale power plant customers.

Only Cypress, its successors in interest and its subsidiaries may hold shares of SunPower's class B common stock unless Cypress distributes the shares to its stockholders in a tax-free distribution. Cypress currently does not have any plans to distribute to its stockholders shares of SunPower's class B common stock, although Cypress may elect to do so in the future. Cypress is continuing to explore ways in which to allow its stockholders to fully realize the value of its investment in SunPower. There can be no assurance that Cypress will commence or conclude a transaction, or take any other actions, in the short term, or at all.

Acquisition and Divestitures:

During fiscal 2007, SunPower completed the acquisition of PowerLight Corporation ("PowerLight"), a privately held leading provider of large-scale solar power systems for residential, commercial, government and utility customers worldwide. The purchase consideration and future stock-based compensation totaled approximately $334.4 million. The acquisition enables SunPower to extend its leadership and participation in more diversified applications and markets, develop the next generation of solar products and solutions that will accelerate solar system cost reductions to compete with retail electric rates without incentives, and simplify and improve customer experience. In June 2007, SunPower changed PowerLight's name to SunPower Corporation, Systems ("SP Systems") to capitalize on SunPower's name recognition.

As part of our ongoing corporate strategy, we have divested businesses that do not align with our long-term business plan to transform Cypress from a traditional, broad-line semiconductor company to a leading supplier of programmable system solutions. During fiscal 2007, we completed the following divestitures: Silicon Valley Technology Center ("SVTC"), a portion of the image sensor product families, and a portion of the network search engine ("NSE") product families. We recorded total gains of $18.0 million that resulted from these divestitures.

We continue to evaluate our business strategies and may complete additional acquisitions and/or divestitures in future periods.

Manufacturing Strategy:

Our core manufacturing strategy—"flexible manufacturing"—combines capacity from leading foundries with output from Cypress's internal manufacturing facilities. This initiative allows 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.

Consistent with this strategy, our Board of Directors approved a plan in December 2007 to exit our manufacturing facility in Texas and transfer production to our more cost-competitive facility in Minnesota and outside foundries. Since all of Cypress's newer products are being designed on more advanced process technologies, management believes that it is more cost effective to shift manufacturing elsewhere than to retool the facility in Texas. Cypress's manufacturing facility in Minnesota offers state-of-the-art technology and there is currently sufficient cost-competitive foundry capacity in Asia enabling Cypress to achieve lower manufacturing costs. Cypress expects to complete the exit plan by the end of fiscal 2008.

Agreements with Distributors:

In fiscal 2007, Cypress had sales agreements with certain independent distributors in Asia, including Japan, using the "sell-in" revenue recognition model. Sales to these distributors were made under arrangements which did not provide these distributors with allowances such as price protection or rights of return. As such, revenues were recognized upon shipment.

Beginning in the first quarter of fiscal 2008, Cypress intends to negotiate new terms with these distributors. Under these new terms, these distributors will be provided with price protection and stock rotation rights. Given the uncertainties associated with the rights provided to these distributors, revenues and costs relating to sales to these distributors will be deferred until the products are sold by the distributors to the end customers.

We expect this conversion will enable us in the long term to achieve higher gross margin dollars in Asia as we will now be able to manage the end customer sales. In addition, we will be able to provide design registration for our rapidly growing proprietary businesses and align our distribution and revenue recognition policies consistently across the world.

Changing the terms of these distributor agreements will require us to change from recognizing revenues at the time of shipment to recognizing revenues upon sales to the ultimate end customers. As a result, our revenues in the first quarter of fiscal 2008 will be negatively impacted. We currently estimate that the revenue impact of this one-time event will be in the range of approximately $18.0 million to $23.0 million.

Consumer and Computation Division:

Revenues from the Consumer and Computation Division increased $23.4 million in fiscal 2007, or approximately 7%, compared to fiscal 2006. The increase was primarily attributable to an increase of $44.6 million in sales of our PSoC solutions, driven by new design wins, expansion of our customer base and continued market penetration in a variety of end-market applications. In addition, the increase was attributable to the continued adoption of our family of USB products in PC applications and consumer devices, which contributed an increase of $17.8 million in revenues. These increases were partially offset by a decrease of $23.3 million in sales of our general-purpose clock products primarily due to slowing demand in the base-station and gaming market and increased competition, and $15.7 million in sales of our PC clock products as we divested the product families in the fourth quarter of fiscal 2006.

Revenues from the Consumer and Computation Division increased $30.7 million in fiscal 2006, or approximately 10%, compared to fiscal 2005. This increase was primarily attributable to an increase of $47.3 million in sales of our PSoC products, driven by increased demand and market penetration in consumer applications. The increase in revenues was partially offset by a decline of $7.2 million in sales of our communications-based, general-purpose clock business, primarily due to slowing demand in the base-station market. In addition, sales of our PC clock products declined $6.0 million year-over-year, primarily because we divested the product family during the fourth quarter of fiscal 2006.

Data Communications Division:

Revenues from the Data Communications Division decreased $14.2 million in fiscal 2007, or approximately 11%, compared to fiscal 2006. The decrease was primarily attributable to a decrease of $27.2 million in sales of (1) our NSE products as we divested the remaining product families in fiscal 2007 and (2) our specialty memory products due to the continued slowdown in demand in the base-station market. The decrease was partially offset by an increase of $10.1 million in sales of our new West Bridge controllers due to production ramps and shipments to cell phone manufacturers.

Revenues from the Data Communications Division decreased $24.6 million in fiscal 2006, or approximately 16%, compared to fiscal 2005. The decrease was primarily attributable to a decline of $13.9 million in sales of our NSE products as we sold a portion of the product families in fiscal 2006. In addition, the decrease was partially attributable to a decline of $11.6 million in sales of our specialty memory products primarily due to a greater-than-expected slowdown in the base-station market.

Memory and Imaging Division:

Revenues from the Memory and Imaging Division decreased $12.0 million in fiscal 2007, or approximately 3%, compared to fiscal 2006. The decrease was primarily attributable to a decrease of $19.2 million in sales of our pseudo-SRAM product families as these products were discontinued in fiscal 2007. The decrease was partially offset by an increase of $7.6 million in sales of other memory products due to increased demand for networking and communications applications.

Revenues from the Memory and Imaging Division increased $31.0 million in fiscal 2006, or approximately 10%, compared to fiscal 2005. This increase was attributable to an increase of $33.8 million in sales of our memory products primarily due to increased demand for networking and communications applications.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

The Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report of 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

Our mission is to transform Cypress Semiconductor Corporation (“Cypress”) from a traditional, broad-line semiconductor company to a leading supplier of programmable solutions in systems everywhere. We deliver high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and system value. Our offerings include the Programmable System-on-Chip™ (“PSoC ® ”) products, universal serial bus (“USB”) controllers, general-purpose programmable clocks and memories. Cypress also offers wired and wireless connectivity solutions, including the West Bridge™ controllers, that enhance connectivity and performance in multimedia handsets. Cypress serves numerous markets including consumer, computation, data communications, automotive and industrial.

Spin-Off of SunPower

In August 2008, Cypress sold 2.5 million shares of Class A common stock of SunPower (which were converted from Class B) on the open market for $89 per share and received net proceeds of $222.5 million.

On September 5, 2008, a committee of Cypress’s Board of Directors (the “Board”) approved the distribution of the SunPower Class B common stock held by Cypress to Cypress’s stockholders. On September 29, 2008, the first day of Cypress’s fourth quarter of fiscal 2008, Cypress completed the distribution of 42.0 million shares of SunPower Class B common stock to Cypress’s stockholders (the “Spin-Off”). The distribution was made pro rata to Cypress’s stockholders of record as of the close of trading on the New York Stock Exchange (“NYSE”) on September 17, 2008 (the “Record Date”). As a result of the Spin-Off, each Cypress stockholder received 0.27427234997709 of a share of SunPower Class B common stock for each share of Cypress’s common stock held as of the Record Date. Cypress’s stockholders received cash in lieu of fractional shares for amounts of less than one SunPower share.

Cypress received a favorable ruling from the Internal Revenue Service (“IRS”) in April 2008 with respect to certain tax issues arising under Section 355 of the Internal Revenue Code in connection with the Spin-Off. The distribution was structured to be tax-free to Cypress and its stockholders for U.S. federal income tax purposes, except in respect to cash received in lieu of fractional shares.

As the majority shareholder of SunPower prior to the Spin-Off, Cypress consolidated SunPower’s financial results. Following the Spin-Off, Cypress does not own any shares of SunPower and will no longer consolidate SunPower’s financial results beginning in the fourth quarter of fiscal 2008. Cypress will account for SunPower as a discontinued operation in its historical financial statements for periods prior to the Spin-Off, beginning with the filing of Cypress’s Annual Report on Form 10-K for the year ending December 28, 2008.

Adjustments to Cypress’s Stock Plans:

On August 1, 2008, the Board approved certain adjustments to Cypress’s 1994 and 1999 Stock Plans (together, the “Plans”) and outstanding employee equity awards in anticipation of the Spin-Off. These adjustments were consistent with and similar to the provisions in the Plans providing for automatic adjustment of service provider equity awards and share pools pursuant to a Cypress stock split or similar change in capitalization effected without receipt of consideration by Cypress. Specifically, the Board approved amendments to make proportionate adjustments effective immediately following the Spin-Off to: (a) the number of authorized but unissued shares reserved for issuance under the Plans, (b) the numerical provisions under the Plans’ annual grant limits and automatic option grant sections, including automatic grants to Board members, and (c) outstanding employee equity awards, including stock options, restricted stock units and restricted stock awards, under the Plans to preserve the intrinsic value of the awards before and after the Spin-Off. The Board further approved the amendment of outstanding options under the Plans to permit, subject to timing limitations and management discretion, both net exercise (a portion of the shares subject to options surrendered as payment of the aggregate exercise price) and early exercise (exercise of unvested shares subject to a stock restriction agreement).

In addition, the Board approved certain adjustments with respect to its Employee Stock Purchase Plan (the “ESPP”) to offset the decrease in Cypress’s common stock price resulting from the Spin-Off. These changes included a proportionate adjustment in the offering date price per share of Cypress’s common stock and maximum number of shares participants may purchase under the ESPP.

On September 30, 2008, following the Spin-Off, outstanding employee equity awards under the Plans were adjusted by a conversion ratio of 4.12022 (the “Conversion Ratio”). Specifically, the number of shares issuable pursuant to the outstanding awards was multiplied by the Conversion Ratio, rounded down to the nearest whole share. In addition, the per-share exercise price of options was divided by the Conversion Ratio, rounded up to the nearest whole cent. Also, the number of authorized but unissued shares reserved for issuance under the Plans and the ESPP and the numerical provisions under the Plans’ annual grant limits and automatic option grant provisions, including automatic grants to Board members, were multiplied by the Conversion Ratio, rounded down to the nearest whole share.

The ESPP offering date price for the current offering period was divided by the Conversion Ratio, rounded up to the nearest whole cent and the maximum number of shares participants may purchase under the ESPP was multiplied by the Conversion Ratio, rounded down to the nearest whole share.

Stock-Based Compensation:

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” the modification of the outstanding employee equity awards and the ESPP approved by the Board on August 1, 2008 resulted in additional non-cash stock-based compensation of $164.9 million. The amount was measured based upon the difference between the fair value of the awards immediately before and after the modification. Of the total additional non-cash stock-based compensation, $40.9 million was recognized in the third quarter of fiscal 2008 and $124.0 million will be recognized over the remaining vesting periods on an accelerated basis.

Employee Loan Program:

In conjunction with the Spin-Off, the Board approved a limited loan program to qualified employees (excluding executive officers) that will assist holders of options in paying the exercise price for options including the ability to convert unvested options into unvested restricted shares. Since the loan proceeds will be used to fund payment to Cypress for option exercises, the loan program will not require any cash outlays on the part of Cypress. Options with exercise prices greater than $3.65 are not eligible and the loans cannot be used to pay for taxes. The loan program is limited to $50.0 million in aggregate loans. The loans have a maturity date of December 28, 2013 and Cypress has the option to call the loans at any time. The loans will bear interest equal to the greater of 4.0% or 0.5% over the applicable federal rate required by the Internal Revenue Code. 100% of the stock acquired using the loans will be held by Cypress as collateral. The offering period for the loan program will end on December 28, 2008, unless extended by management. To date, no employees have participated in the program.

Restricted Stock Unit Exchange Offer

In conjunction with the Spin-Off, the Board authorized an exchange offer for all outstanding restricted stock units, including performance-based restricted stock units, granted under the 1994 Stock Plan and held by U.S. employees to provide holders with an opportunity to exchange their restricted stock units for an equal number of restricted stock awards of Cypress’s common stock with an identical vesting schedule, which would allow such holders to make an election under Section 83(b) of the Internal Revenue Code to accelerate their recognition and measurement of ordinary income and to commence their long-term capital gains holding period. The exchange offer expired on September 25, 2008, and 29 employees participated in the program and exchanged 1.0 million shares.

Convertible Debt Tender Offer

In September 2008, Cypress completed a tender offer to purchase for cash up to $531.3 million aggregate principal amount of the outstanding 1.00% Convertible Senior Notes (“Cypress 1.00% Notes”). Based on the final results by the depositary for the tender offer, $582.4 million aggregate principal amount of the Cypress 1.00% Notes were validly tendered and not properly withdrawn. In accordance with the terms of the tender offer, Cypress accepted $531.3 million of the validly tendered Cypress 1.00% Notes at a purchase price of $1,321.22 per $1,000 principal amount, plus accrued and unpaid interest. Because more than $531.3 million principal amount was tendered, Cypress purchased the Cypress 1.00% Notes on a pro rata basis. The pro-ration was based on the ratio of the principal amount of the Cypress 1.00% Notes validly tendered and not properly withdrawn by a holder to the total principal amount of the Cypress 1.00% Notes validly tendered and not properly withdrawn by all the holders. As a result of the tender offer, Cypress paid $701.9 million in cash and recorded a debt extinguishment loss of $170.7 million in the third quarter of fiscal 2008. As of September 28, 2008, the outstanding principal amount of the Cypress 1.00% Notes was $68.7 million.

Acquisition

In September 2008, Cypress completed the acquisition of Simtek Corporation (“Simtek”), a publicly traded manufacturer of non-volatile static random access memory (“nvSRAM”) integrated circuits used in a variety of systems. Simtek’s nvSRAM products provide the high-speed memory access of standard SRAMs, but retain data when power is turned off – a feature critical to applications where secure data storage is essential to system functionality. The acquisition will enable Cypress to integrate Simtek’s nvSRAM technology into many of Cypress’s products, providing a highly integrated control and power failure solution for complex analog and digital systems and accelerating acceptance of Cypress’s products in various applications and markets. The total purchase consideration of the acquisition was $48.5 million.

Manufacturing Strategy

Our core manufacturing strategy—“flexible manufacturing”—combines capacity from leading foundries with output from Cypress’s internal manufacturing facilities. This initiative allows 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.

Consistent with this strategy, our Board approved a plan in December 2007 to exit our manufacturing facility in Texas and transfer production to our more cost-competitive facility in Minnesota and outside foundries. Since all of Cypress’s newer products are being designed on more advanced process technologies, management believes that it is more cost effective to shift manufacturing elsewhere than to retool the facility in Texas. In addition, management believes that there is currently sufficient cost-competitive foundry capacity in Asia enabling Cypress to achieve lower manufacturing costs. Cypress expects to substantially complete the exit plan by the end of fiscal 2008.

Conversion of Distributors

Prior to fiscal 2008, Cypress had sales agreements with certain independent distributors in Asia, including Japan, that did not provide these distributors with price protection or rights of return. As such, revenues were recognized upon shipment. During the first quarter of fiscal 2008, Cypress negotiated new terms with these distributors. Under the new terms, these distributors are now provided with allowances such as price protection and stock rotation rights. Given the uncertainties associated with the rights provided to these distributors, revenues and costs relating to sales to these distributors are deferred until the products are sold by the distributors to the end customers.

The objective of this conversion is to enable us in the long term to achieve higher gross margin dollars in Asia as we will now be able to manage the end customer sales. In addition, we will be able to provide design registration for our rapidly growing proprietary businesses and align our distribution and revenue recognition policies consistently across the world.

As a result of changing the terms of these distributor agreements, we were required to change from recognizing revenues at the time of shipment to recognizing revenues upon sales to the ultimate end customers. The impact of this change resulted in: (1) the deferral of approximately $20.8 million of revenues that would have been recognized under the previous sales terms, and (2) an increase in our net loss of approximately $10.8 million for the first quarter of fiscal 2008. In addition, this change also increased our days sales outstanding as we recognize receivables from the distributors but not the related revenues until the products are sold to the end customers.

CONF CALL

T.J. Rodgers - President and Chief Executive Officer

Good morning. We're here to give the Q3 '08 report. We'll do it in the usual style. First, we have Brad, CFO on finances. Brad?

Brad W. Buss - Executive Vice President, Finance and Administration and Chief Financial Officer

Thanks, T.J. Thanks everyone for attending. This was a very interesting quarter and probably one of the most memorable I'll even have as a CFO.

So, I just want to remind everybody we'll be making a fair bit of forward-looking statements. They obviously infill [ph] a lot of risks, especially under this current market situation. So please ensure you take a look at our risk factors that are in our filings and also in our press release and everything is available on our website.

I'll go through Q3 first, and then I'll get into the Q4 guidance. I was really pleased with the solid financial results that we had in the semi business as well as SunPower, who again turned in stellar results and this will be our last quarter that we will be reporting on a consolidated basis with them.

So our consolidated revenue for Q3 was a record. It was $600 million, and it exceeded our consolidated revenue guidance. We grew 1% sequentially and a whopping 34% on a year-over-year basis.

The semiconductor revenue was strong at $222.7 million. That was an increase of 6% sequentially. And remember, we had a very strong 11% sequential increase in Q2 as well. So I was pretty pleased with what is going on there. We ended up the quarter at the lower end of our guidance. Really in the last week of the quarter, we saw business mainly in distribution and mainly impacting SRAM slowdown pretty strong. And I think that's pretty consistent with what we've been hearing from other people so far.

On the positive front, we set quarterly revenue records in PSoC and West Bridge, which was consistent with our guidance. And CCD grew a strong 21% sequentially, DCD grew 9% sequentially, and PSoC actually became the largest business unit based on revenue in Q3. MID decreased 5% sequentially, but more importantly it achieved its gross margin in 3% [ph] target and continues to generate strong cash flow. I've been very pleased how that division has been performing.

On a consolidated GAAP basis, we posted a net loss of $23.6 million. There is a lot of things that went on this quarter, especially in the semi business and I'll briefly walk you through them and they're explained in very good detail in the rethought [ph], so I'd encourage you to take a look at that.

So we had $192 million gain on the sale of the SunPower shares. We had $171 million loss on the convert tender offer. We also had non-cash FAS 123(R) charges of about $58 million; of which $41 million is due to the modification to adjust the intrinsic value due to the spend and the balance is the standard quarterly charges that go on.

We had a gain of $10 million related to the sale of SLM, which is now gone. We had about $8 million in restructuring cost. We had about $1.8 million in SunPower related spend cost and we had various tax charges related to a bunch of that stuff.

On the SunPower side of it, they have their pretty much standard stuff. $4 millionish related to intangible amortization. Their FAS 123R charges of $19 million and around $5 million in tax related charges, okay.

On a non-GAAP consolidated net income, we hit $52 million, which was our highest quarter since Q1 of 2000 and that led to diluted earnings per share of $0.30, which was at the high end of our guidance. This is an increase of 7% from last quarter and an increase of 15% on a year-on-year basis. So, I was really pleased with where the earnings ended up for the quarter.

The consolidated non-GAAP gross margin for the quarter was 37.3%. That was up 2.3% from last quarter, mainly due to SunPower's mix of the revenue and their ability to achieve higher margins, which they'll go through later.

Our non-GAAP gross margin for just the semi business was 50.5%, consistent with our prior quarter and within the guidance. Our product margins continue to remain strong and we're continuing to make solid gains in our manufacturing strategies and low-cost cost efforts. More importantly, it's our third straight quarter of GM greater than 50%, which is our current corporate model and we still remain comfortable that over time, we'll be able to increase that up on the back of our proprietary and programmable solutions as we go forward.

However, I do expect the gross margins to trend down in Q4, solely due to the decreased factory loadings [ph] as we continue to balance inventory with a much lower demand environment, and I'll take you through that in the guidance.

Non-GAAP consolidated operating expenses increased by only $2 million compared to last quarter. Most of that was in SunPower. About $5 million increase there, and we are down approximately $3 million in the semi business. A good portion of the decrease in the semi side was due to the valuation of our deferred comp plan, which unfortunately went down as the equity markets went down hard as well.

Remember, there is no impact in net income for us because the benefit that we received on the OpEx line is offset by a hit in OIE. So, net-net, it's just a geography issue. So make sure you take that in consideration in your modeling.

Okay, we continue to review our cost structures and we're still pretty confident that we'll be able to maintain flattish to potentially slightly down OpEx next year even as we continue to invest and grow in a wide range of new products and solutions.

Our semiconductor operating income was $23.9 million, again the highest level since Q2 of '04 and that was an increase of 60% sequentially and 15% year-on-year. Our non-GAAP semiconductor tax rate in Q3 was 3.5%. It was down from our usual 10%, due to a couple of discrete items. We had a favorable resolution of two international tax events and like everybody else we are seeing a refundable R&D credits available under the newly enacted Housing and Economy Recovery Act of 2008. And we do thank the IRS for that benefit.

If we whip over the balance sheet now, consolidated cash, cash equivalents and investments totaled $628 million. The semiconductor business has cash and short term investments down to the $333 million or $371 million, if you include the auction rate securities that we currently have classified as long-term investments due to the current liquidity issue.

We've maintained our investment portfolio at a very conservative allocation to ensure capital preservation and liquidity. If you look at our total investment portfolio including short term and long-term, we're 61% in U.S. treasuries, with 10% in AAA money market fund, none of which broke the buck by the way. We've 17% in corporate bonds and 12% in the auction rate securities. So we're pretty happy with where the portfolio is, we've very limited financial corporate bond exposure.

And the only unfortunate thing is like everyone else we've seen our OIE decrease in the quarter as the yield came down pretty dramatically.

Turning to inventory, consolidated inventory was $223 million, was down $6 million. The semiconductor business increased $4 million. However, $8 million of that was due to the planned last time inventory rebuilds related to closure of our Texas fab and we also had FAS 123(R) charges of $2 million that impacted that.

If you really adjust for the last time buying and 123(R) charge, our net inventory actually decreased $6 billion and I was very pleased with that progress.

Our lead times continue to remain very low and people are expecting they get product when they see it. I do think that inventory will be flat to down again in Q4, again absent the last time bills and 123(R) charges.

Accounts receivable was $335 million. It was down $20 million from the prior quarter. SunPower decreased $54 million and the semiconductor business increased $34 million. The consolidated DSO increased four days to 51 and the semi business increased to 57 days. And that was solely due to linearity in the quarter, as 60% of our business goes through distribution in which we don't recognize the revenue until the product is resold.

If you look at the collection effort in the first week of the month, we had over $25 million of that increase get collected in the first week.

More importantly, our aging is actually the best that I've seen since I've been here. We're about 96-97% current, and we don't have any major customer issues and obviously like everybody else, we are watching everybody pretty closely.

If you look at CapEx, it was $68 million for the quarter; $55 million from our friends at SunPower and 13 in the semi business.

Depreciation was 30.5; of which SunPower was 13.7 and the semiconductor business was 16.9.

I think you all know in September we completed the tender offer for the majority portion of our convertible bond. We retired $532 million of the $600 million and thus, we have approximately $68 million left. We're very comfortable of the debt level and the new conversion price is $5.64 and is currently out at the money. Any dilution that may arise in the remaining portion of the convert is generally expected to be minor and I want to remind you that we still have a call spread in place for that last little bit of piece and that pushes up the economic dilution to $6.37.

And since everybody is kind of wanting to know what's going on with counterparties, our call spread is with Credit Suisse and the Deutsche Bank, and they are the two strongest banks currently out there. We have no share lending agreement with anybody, and we do not have any other major counterparty risk on any other type of derivative with anyone else.

We have no need to refinance or raise any debt around our business. We have ample cash. As we stated in the press release, we have a net cash position of $302 million that we can obviously use to run the business, repurchase shares, or pursue any other strategic event that we'd see. As I talked about, we divested the MEMS businesses of SLM, which if you remember, that was part of our other bucket from a reporting perspective. We netted $11 million on that.

We also closed the acquisitions of Simtek. In mid September, we paid $44 million there. So we had about two weeks of their results, which were very immaterial in our financials in Q3, and of the full quarter. Going forward, they will be part of the non-volatile product line, which is in MID from a reporting perspective.

In Q3, we sold 2.5 million shares of SunPower at $88.99, which netted $222 million in cash. Our ownership... our basic ownership was 51%, 47 on a diluted basis and we obviously had minority interest in Q3, which will go away in Q4.

On the 29th of September, which was the first day of our fiscal Q4, we completed the distribution to our shareholders and that was worth approximately $2.6 billion and we currently own zero shares of SunPower. Okay, and as I mentioned it's the last earnings call, where we will discuss any consolidated results, and going forward you'll see all the SunPower stuff reported on a single line item as a discontinued operation.

So I think going forward, all of our results, all of my guidance, anything that T.J., I or anyone else would talk about will be purely Cypress Semiconductor.

Okay, just a quick comment on the valuation. The markets went haywire; I think semis have been overly punished. I think we have been overly punished personally and I think there's very few metrics where you can say that we're undervalued. Our net cash is equal to about 50% of our market cap, our enterprise value to sales ratio is around 0.4. And again, more importantly, have very strong free cash flow yield that I expect to grow over the next few years as we continue to grow and increase our operating leverage.

Share count, we have a fully diluted non-GAAP share count in Q3 of 164.4, which was basically flat with Q2. And again, this was all before we did the adjustment to the options related to the spent, and we repurchased no shares in Q3.

We did file the 8-K on October 3rd that took you through the adjustments to the employee equity and that's where [ph] I think most of you have seen that. We dealt with a lot of questions there. I don't think there's anything we need to go through there other than to let you know that we will obviously proactively be managing that dilution as much as we can.

So if I go turn over to guidance right now; for Q4, on a non-GAAP and again it has none of SunPower in itself, I think like everybody else, we are concerned on the economic environment discussed there. And that includes really the majority of all the end markets and in particular consumer spending. Our book-to-bill was a lot lower than we've seen in the past. And we are seeing customers being very cautious on planning backlog, albeit they are not significantly lowering their forecast, we do expect that to happen.

Compounding that is the fact that our lead times are actually very low. So it's been very challenging from a visibility perspective.

We've normally been down four to about 5 or 6% the last couple of quarters, and we expect to see that calm down a bit. The good thing is that we don't see anything from a competitive position that's impacting us other than the general economic environment and we actually have very strong design win penetration and we're adding new customers, and we have some tremendous new products that the team will talk on related to TrueTouch and our next gen products in all the other divisions, that we're very comfortable are going to continue to drive growth once the economic cloud clears.

So based on this, we're giving revenues in the range of $194 million to $204 million, which is down 8% to 13%. And again it's very hard to judge and I think it could vary widely. We're expecting all divisions and most product lines to decrease sequentially. And I just want to remind you that Q1 is also normally a seasonally down quarter and I'd expect that to continue at this point in time. If things change materially, we'll give the market an update accordingly.

On gross margins, purely due to factory utilization and phasing inventory down, I'd expect them to be around 47% to 48%, and we are very confident that as we balance the inventory and the demand level stabilize, we'll be back above our 50% target once that happens.

OpEx will trend down slightly and I think will be around $86 million to $87 million. I'd look at OIE of approximately 1.1 million, which reflects the current low yield environment we're in. And that's also net of 200k in foreign interest that we'd pay on the stub of the converted swap [ph]. And again, all of that assumes no major swings in our deferred comp plan that I mentioned before.

I think the tax rate should be back up around our 10%, basic shares of around 155 to 157 and then probably 175 to 180 on a fully diluted basis. And again, that's going to vary with the price of the stock, any stock repurchases that we do, the exercises, and currently the bond in the call spread are not diluted because they are out of the money and if that changes, they could go into the number.

Q4 semi CapEx is about $9 million and depreciation is about $15 million. So if you blend all that together, that looks like non-GAAP EPS in a range of about $0.04 to$0.07. And again, it's really just a factor of the reduced demand that we see out there.

In summary, I think we had a very strong Q3. We're making a very good progress in all of our strategic fronts, in a lot of the new product and design wins. So I'm very comfortable that when the cloud clears we're going to continue to grow and generate a lot of cash on a going forward basis.

And more importantly, we have a very strong balance sheet that's going to allow us to have a lot of flexibility going forward. So that's it for my remarks.

I'll turn it over to Chris for a brief review of some of the end markets.

Chris Seams - Executive Vice President of Sales and Marketing

Thanks, Brad. Let me go through some of the normal indices and maybe add just a little more color to what Brad said about the market. In terms of revenue splits by geography, normal Q3 trend, Asia was the number one in the geography for us, 54% of sales. North America declined to 22%. That's really the consumer build in Asia happening. Europe and Japan were 15% and 9% of sales.

With the traditional Q3 consumer build, units increased 20 million in the quarter up to 174 million units. The pricing environment remained fairly stable in the quarter. Part for part [ph] we had fairly small ASP declines. With the larger consumer mix, our corporate ASP declined to $1.28. That was from the second quarter to $1.34.

As Brad said, our designing activity remained very strong. We set again new records for both PSoC customers, eclipsing the 80-200 mark [ph] and design wins as well for PSoC and overall design wins for the company's proprietary products were a record as well.

In terms of end markets, it was the September month when we started to see a slowing in the booking patterns. It was across all end markets. The consumer segment was the most pronounced out of those, that's because of the traditional seasonality that does happen going into the fourth quarter.

Our end market checks tell us that so far this is really end customer demand for their products, on top of the normal seasonality in consumer. We have not seen significant cancellations to this point and we know that we haven't had any major design win or share losses.

Our book-to-bill with all that said, declined below unity to 0.87. That was true for all of our divisions and our backlog for semiconductors decreased to $169 million. Versus our guidance, we do enter the quarter over 80% booked, but we are cautious with the end market outlook.

Let me turn it over to T.J. now for more details on the quarter.

T.J. Rodgers - President and Chief Executive Officer

What we, grind on more detail when we go to questions. We'll hear the last time from SunPower. Tom Werner is here, the CEO of SunPower. Brad mentioned that we distributed to our shareholders 42 million shares which were worth $2.6 billion. SunPower has been a homerun, immense help [ph] for us.

So we'd like to thank Tom and SunPower for their extraordinarily hard work and the economic balance sheet they brought to save our shareholders. Thank you very much.

They finished pretty strong, the market-to-market. And that's not strong right now, but basically in the last two quarters, they had back-to-back record quarters of about $380 million and in this quarter $0.61 a share, so they are doing extraordinarily well. And the market for alternative energy is not cyclical right now, at least in the semiconductor industry.

So I am going to turn Tom loose because I know he has got to get ready for his talk a little later this morning and go on back into semiconductors.

I want to reiterate a couple of points that Brad made. We had record quarterly revenues for PSoC. Again, the PSoC business unit became our largest business unit. We also had record quarterly revenue for West Bridge which are our peripheral controllers that feature side loading, putting data into another cell phone at high speed.

We had our programmable solutions segment of our business grow to over half of our business in the quarter. And if you look at proprietary and programmable solutions, which includes some fixed functions of the proprietary products, that's up to about three quarters of our business. So we've managed to move our business in a direction we said over the last couple of years to the point that the majority of our business is where we want it to be.

Our balance sheet is strong and we ended up with $371 million in cash and we are cash flow positive. So we're not going to need to fund ourselves during hard time in the market.

Our gross margins were 50.5% and I'll brag a little bit that in the old Cypress, the memory dominated Cypress never ever would have achieved the same gross margins in a fairly tough quarter. And we achieved an all-time record of $600 million in revenue for the quarter and exactly the quarter before, we'll get cut by back to three and go back to $200 million and see if we can start over again and build something back.

We have been attempting to get a broader base of customers for PSoC. And we track customers that we're fairly stringent when we say how many customers we have. And we define that as being those that have given us revenue on PSoC in the last twelve months. They fall off the list if they don't renew in within 12 months. And we're now up to 8256 customers, that's a growth of 5.2% quarter-on-quarter and 57% year-on-year.

We introduced the new line of integrated design tool software, we call it PSoC Designer 5.0. It allows for code-free designs, which is a big deal. You don't have to write sequel [ph] in order to get the system level of solution. I am starting to realize more and more that our business is more about software than about hardware.

We have a large and very powerful software organization in Portland, Oregon, and I'm realizing that the excellent software coming out of that group and our group in Washington as well is what makes Cypress more and more attractive to customers even more so sometimes than our chips.

We are partnering with our distributor, Avnet and Xilinx who created the Spartan-3 FPGA evaluation kits, basically we put PSoC on board and USB, USB allows for fast upload and download of program in the FPGA. And PSoC provides some programmable functions that can get with your programmable gateways very powerful boards. We expect to do more partnerships like that in the future.

One more thing that looks far forward and I realized people aren't interested right now looking far forward but I haven't taken my eye off that. And we partnered with a group called Europractice. They are basically an organization that looks at the curriculum in education in Europe and 38 countries and we've got the PSoC to be part of on their horizon. We have an active university program and I checked this morning, as we speak there are 376 courses being taught to the future customers in universities, at 302 universities.

We are in the process of revamping our sales force. And we've brought in the new EVP, our Senior Vice President of Worldwide Sales. His name is Ben Lee and he's been in the business for 20 years. His most important prior job from our perspective was the VP of Sales in Asia in the Shanghai office for Altera. And therefore understands programmable systems and how to sell in the designing business. And he will make a difference for us.

And finally, we renamed a subsidiary Cypress Systems to Cypress Envirosystems. It's not an opportunistic renaming in the green environment. The fact is after we looked at all the products they make, we realized that every one of them is about energy saving and efficiency in the plants.

They have introduced some new products; I'll just mention two of them. And these products now are getting in sort of the work today [ph] world that the Cypress has not been, in routers and all kinds of hi-tech stuff.

We've introduced a wireless pneumatic thermostat and why does it matter? Pneumatic thermostat is a thing that you all have to mount it on your wall and a distance [ph] and when you put your finger on the knob and it actually uses air pressure to power the thing and change the temperature in the room.

These thermostats are deployed in 98, 99% of the buildings in the world. The problem with them is that either you must train your employees to shut down every thermostat in every time, in every floor, in every building, everyday or you'll be air conditioning your building all night longer or heating them all night long. And therefore they are big money wasters.

And the other problem is that to go and redo them is incredibly expensive because they are wired with pneumatics, they are powered to set that air. There is a compressor and is added to every building that press a little tube with compressed air that is doing it's best to run. So, to wire them up connecting to your computer and then program the computer to turn things on and off or up or down during the day to save energy is incredibly expensive as you're rewiring your entire building.

The solution to this problem is I thought was very innovative is to create a mechanical wireless phone. So, as your thumb goes on the wheel and moves it back and forth to turn the temperature up and down, we've actually created a small battery powered actuator that moves the temperature up and down on an existing pneumatic system the way your thumb move. And then since there are no wires to that pneumatic actuator, it's wireless. So basically on every floor you put in a little wireless controller which we make with the wireless new P chip [ph] and plus actuators named PSoC and another wireless USB chip; so at night computer can send a message to the wireless hub on the floor which sends a message to each of the pneumatic thermostats and then the thumb turns the temperature down.

So there is a massive replacement market, these things are a couple of hundred bucks each and where we can go in and in fact retrofit buildings that are not computer controlled for energy and put our products into those buildings with a ASP a 100 times higher than our chip ASP.

One last comment, this one is even more 1950s vintage. We now have a wireless steam trap. I became aware of stream traps in my job as a trustee of Dartmouth College where I approved capital to redo the heating system at Dartmouth, which contains a bunch of steam traps. Steam traps are just after laying the trap in your sink and they are all over in miles and miles of pipes where water collects because water in steam pipes proves harmful.

Sometimes steam traps don't work and they don't let the water up; sometimes they start leaking to let out steam. In either case, they can cost a huge amount of money in central steam heating systems which almost all universities and other companies in the world. Here in California, we heated pretty much with natural gas but in rest of the U.S. that's not true. So this is the steam trap that measures if you got water in it or if it is leaking, puts in on a wireless signal with battery powered transmitter goes through a hub, stage [ph] thermostat and can come back to the central PCE very cheaply and then somebody lets the status of their mile steam pipe.

Again, it sound kind of 1950s but the fact is that infrastructure in America's heating and we are developing products to save energy in that area. I apologize for the long description, but there is no short description of what is a steam trap. So we're ready now for questions.

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