Cypress Gains Despite Lowered Outlook

Cypress Semiconductor (NYSE: CY) moved up to US$19.54, gaining 68 cents, in morning trading Monday as investors shrugged offthe semiconductor maker’s announcement that revenue and earnings for thefirst quarter will be lower than previously thought.

Because of “the continued softening of business conditions” and changes tobusiness policies, revenue will likely be 24 percent below the fourthquarter’s $370 million, Cypress said. The San Jose, California-based companyhad previously estimated a 4 percent to 9 percent sequential drop.

“Business conditions have not improved in the market segments that weserve,” said chief executive officer T.J. Rodgers. “Average selling pricesare reasonable, but our unit volume has dropped as our customers burn uptheir excess inventories.”

Cypress currently projects revenue of $280 million for the first quarter, ending March 31, with earnings before goodwill of 30 to 34 cents per share.Revenue for the year-earlier quarter was $264 million.

An agreement allowing a “large strategic customer” to convert to an inventoryprogram that keeps unused products in the customer’s warehouse under Cypress’ ownership will cut revenue for the quarter by $9 million, Cypress said.

In addition, a change in distribution policy for Europe and Asia will resultin a $25 million revenue reduction, the company said.

“We expect to benefitfrom this change in the current, robust European markets and overall whenthe current business cycle turns,” said Rodgers.

Rodgers said his company is taking “prudent actions” to respond to thedownturn in the technology markets, including slowing spending growth and deferring merit salary increases, while continuing to hire for key positions.

“We expect to emerge from this downturn as a stronger, more competitivecompany,” Rodgers said. “We also expect to endure this downturn withoutlosses.”

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