Case Study For Valuing Cypress Semiconductor Corporation (CY) via CSInvesting

Cypress Semiconductor

A good overview of the business circa 2002 with price/sales graphs and industry statistics placed into context: http://www.cypress.com/?rID=34960

Cypress Semiconductor President T.J. Rodgers Communicates to Shareholders and Employees Regarding Cypress Share Price

Last Updated: 05/24/2012

Contact:

Joe McCarthy

VP Communications

(408) 943-2902

jmy@cypress.com

For Immediate Release

Cypress Semiconductor President T.J. Rodgers Communicates to Shareholders and Employees Regarding Cypress Share Price

SAN JOSE, Calif., October 8, 2002 – Cypress Semiconductor President and CEO T. J. Rodgers today released a communication to Cypress shareholders and employees providing details about the recent fluctuations in Cypress’ share price. A copy of that communication follows.

A Special Letter To Cypress Semiconductor Shareholders And Employees

To Our Shareholders:

Last Friday, Cypress Semiconductor shares dropped to an unprecedented $4 per share. As you might imagine we had numerous phone calls and emails. I have decided that this unprecedented event warrants a special shareholder letter. I have enclosed two emails I received along with my response to them. The first email is from an investor whose retirement fund contains Cypress stock.

Subject: Concerned Shareholder

Dear Mr. Rodgers, I own 10,000 shares of Cypress Semiconductor in my retirement account. The shares were purchased at $11/share. Having the vast majority of my IRA invested in Cypress, I’m naturally concerned with the huge drop in the stock price. What is your level of confidence that the shares will recover in value over the next few years? Does Cypress have the financial strength to survive until the economy recovers?

You have always struck me as an honest business leader. In fact that is one of the main reasons why I invested in Cypress Semiconductor. Your candor would be greatly appreciated.

Many thanks for your response, Shelley S

Dear Shelley: Thank you for your dignified message. Your worries are shared by most Cypress Semiconductor shareholders and employees. Here’s an email I received from an employee on the same day as yours.

Subject: Why?

TJ, Sorry, I never thought that I would actually email you, but what does the street know that we don’t? The stock price is $4.36 and going down. I just want to understand.

Thanks,

Sherif H

New England Design Center

What follows are my answers to the questions posed in these emails, including the following:

Cypress Semiconductor

Cypress Semiconductor

  1. What has caused Cypress’s share price to drop to the $4 range?
  2. What’s the near-term outlook for Cypress?
  3. Does Cypress have the “staying power” to make it to the next upturn?
  4. Will Cypress shares recover in value?

Currently, Cypress’s performance is good, much better than it was during the downturns of 1991-1992 and 1996-1998. The collapse of shipments to our customers in the communications industry cut Cypress’s revenue in half from a peak of $370 million in the fourth quarter of 2000 to $180 million in the third quarter of 2001, causing our first quarterly loss in the current downturn. Since then, our finances have improved every quarter for a year, as underscored by the following table. We are now near breakeven, as shown below: Thus, the current low share price exists at a time when Cypress has just posted its best results in a year. Obviously, factors other than just quarterly performance must be responsible for the recent share price decline.

One factor was our September 6, 2002 “pre-announcement” for the third quarter in which we said we would improve less in third-quarter revenue and earnings than we had previously expected. (Our first forecast was for revenue of $208-$213 million and proforma breakeven earnings. The actual results were $205 million in revenue with a $0.03 loss, up from $202 million and a $0.05 loss in the prior quarter.) Obviously, this pre-announcement alone cannot rationally explain the recent share price decline.

See full PDF below.