Cypress Semiconductor Corporation
Annual Report 2014

Plain-text annual report

2014 ANNUAL REPORTCypress + Spansion = No. 3 in AutomotiveThe Cypress-Spansion merger opens doors at top new customers and positions New Cypress as the No. 3 provider of automotive MCUs and memories with $500 million in revenue and as a preferred supplier to the top 25 global OEMs.INFOTAINMENTVolkswagen Honda Mercedes Tesla Nissan BMW InfinitiHVAC CONTROLToyota Fiat Mitsubishi AudiGM Honda Subaru PeugeotHyundai Mazda Volvo Land RoverPOWERTRAINVolkswagen BMWAudiINSTRUMENT CLUSTERSToyota Ford Mercedes SubaruGM Nissan Mazda Peugeot Volkswagen Honda Mitsubishi DaihatsuHyundai Suzuki TATA LamborghiniEVENT DATA RECORDERSHyundai DIAGNOSTICS AND PERFORMANCE MONITORINGHyundaiBODY ELECTRONICSToyota GM BODY ELECTRONICS MODULES, LIGHTING AND PERIPHERAL ECUsToyota Nissan MazdaGM Honda MitsubishiHyundai Suzuki IsuzuFord Renault SmartEV/HEVToyotaHondaDRIVERASSISTANCEGMVolkswagenBMWAudi CYPRESS+SPANSION: 1+1 = 31ST IN SRAM, 1ST IN NOR FLASH AND 3RD IN AUTOMOTIVE MCUs & MEMORYThe First Annual Report of New...2014 ANNUAL REPORTYOU ARE AUTHORIZED TO READ THIS REPORT1010101001010100100010010101001000010100111101010100101101010011110101010010111010101001001011001010100001110110010010010010001001010011110101010010111010101001001001001010100001000110010010010010101001101010010111010101001001001100101000110010010010010001The FPG1 fingerprint reading system will enter the $460 million market in the second quarter.101000100101010010000101001111010101001010101010100100100100101010001001010100100001010011110101010010111010101001001001001000111010101001010100100010010101001000010100111101010100101101010011110101010010111010101001001001001010100001000110010010010010001001010011010101010010111010101001001001001010100001000110010010010010001001101010010111010101001001001100001000110010010010010001The TrueTouch® fingerprint reader chip is here!The Last Annual Report of Old...Cypress Semiconductor Corp. 2014 Annual Report and 2014 Proxy StatementCYPRESS + SPANSION: WORLDWIDE LEADER IN SRAM AND NOR FLASHThe merger will make New Cypress the industry’s high-performance memory leader with the broadest portfolio, as shown in the table below. Cypress is the worldwide leader in SRAMs and nonvolatile RAMs (NVRAMs) and Spansion is the worldwide leader in NOR flash. The typical embedded system includes flash, SRAM and DRAM memories, so New Cypress will have a leadership position in two of these three critical system memories. The table below also provides the parameters by which each Cypress memory type is judged to have best-in-class performance.Cypress offers a complete and growing portfolio of solutions that enable customers to design wearable electronics with integrated sensors. These solutions offer an intuitive user interface, ultra-low power and the industry’s smallest form factors. Cypress gained significant traction in the wearables market in 2014 with many new design wins, some of which are shown below.TrueTouch® and CapSense® touch controllers – The industry’s lowest power, smallest size and best waterproofing.PSoC® Bluetooth® Low Energy (BLE) solutions – Ultra-low-power wireless connectivity with low-power analog for biometrics.PRoC™ BLE solutions – Ultra-low-power wireless connectivity with CapSense for a natural UI.Low-Power (MoBL®) Asynchronous SRAMs – Memories that buffer data to reduce radio usage and extend battery life.F-RAMs™ – High-reliability memories that store the most vital data—“black box” data—with the lowest possible energy.CYPRESS + SPANSION: A LEADER IN SOLUTIONS FOR WEARABLESWearable electronics are everywhere: designer smartwatches, fitness and activity monitors, cameras, smart glasses and medical products such as hearing aids and wearable patches. The wearables market is expected to be $1.5 billion in 2015, growing to $19.0 billion in 2018 at a CAGR of 88.7%. With its ultra-low-power microcontrollers, memories and capacitive touch-sensing controllers, New Cypress is uniquely equipped to compete in this market, where performance = low power. New Cypress Has the Broadest Portfolio and the Highest-Performance Memories for Embedded SystemsNew Cypress’s Broad Portfolio of Wearables Solutions Enables Next-Generation End ProductsProduct Category New Competitors Performance Advantage Cypress Renesas ISSI Micron FujitsuQDR®-IV synchronous SRAM Highest RTR (random transaction rate) 2.1 GT/sAsynchronous SRAM with ECC1 Highest-reliability fast SRAM <0.1 FIT3MicroPower SRAM Lowest-power SRAM (standby current) 1.5 µASerial F-RAM™2 Lowest-power F-RAM (standby current) 100 µAParallel nvSRAM Fastest NVRAM 20 ns AGIGARAM® Highest-density NVRAM 16 GBHyperFlash™ memory Highest-read-throughput NOR flash 333 MBpsSerial NOR flash Fastest read, program and erase 160 MBps high-density SPI flash Parallel NOR flash Fastest parallel NOR flash read 90 MBps SLC NAND flash Fastest low-density NAND flash read 25 nse.MMC NAND flash Highest-reliability high-density 0 FIT3 NAND flash (data loss) SRAMNVRAMNORFlashNANDFlashCYPRESSSPANSION Product Category Smartwatches Activity Hearing Wearable Smart Monitors Aids Patches GlassesAnalog Front End PSoC® 4 PSoC® 3System-on-Chip PSoC 4 BLE PSoC 5LPWireless PSoC BLECapacitive-Sensing CapSense® controllersController Touch Controller TrueTouch® touchscreen controllersTrackpad Trackpad moduleExternal Memory MicroPower SRAM Nonvolatile F-RAMExternal Memory Nonvolatile NOR flashMicrocontroller FM0+ FM3Power Management Energy-harvesting power supplyCYPRESSSPANSIONMetrics1. Error-Correcting Code. 2. Ferroelectric RAMs. 3. Failures In Time (billion hours)WINNING IN THE WEARABLE ELECTRONICS REVOLUTIONENABLING THE USB TYPE-C STANDARD: POWER & DATA FROM A SINGLE PLUGHow convenient would it be to have a standard port to connect your laptop, smartphone, tablet and peripherals that provided them all with power and data regardless of the product brands you choose? New USB Type-C standard connectors deliver just that. Backed by Apple and Intel, the standard is gaining rapid support among top-tier PC makers, enabling slim industrial designs, easy-to-use connectors and cables, and the ability to transmit protocols other than USB. Type-C also integrates USB Power Delivery (USB-PD), a new USB standard that increases power delivery from 7.5 W to 100 W.The second-generation EZ-PD™ CCG2 is the world’s smallest integrated USB Type-C port controller, measuring only 3.3 mm2 in its chip-scale package.The communications port determines the thickness of a laptop PC, as shown in the image above of a standard 4.5-mm-high USB Type-A connector. The 2.4-mm USB Type-C connector is not only half as thick, but it also eliminates the need for the power and DisplayPort plugs.Basis PeakSmartwatchBM Innnovations’ Under Armour Fitness WatchFitbit SurgeFitness WatchSamsung Gear SSmartwatchCasio Exilim EX-FR10Wearable CameraSamsung Gear Live SmartwatchMicrosoft Band Fitness BandSamsung SimbandFitness WatchCypress’s EZ-PD™ CCG1 controller, part of the EZ-PD controller family, is the industry’s first integrated, programmable Type-C port controller. The Type-C port controller market is expected to be $65 million in 2015, growing to $350 million in 2019 at a CAGR of 40%.Driving Smaller Form FactorsUSB Type-C replaces multiple ports and is 47% thinner than current Type-A connectors.2.4 mmUSB Type-CUSB Type-A4.5 mmFELLOW SHAREHOLDERS: As the cover of this report clearly shows, the automobile has gone electronic, with as many as 150 microcontrollers (MCUs) embedded in luxury models today. New Cypress—Cypress plus Spansion—is No. 3 in MCUs & memories for automotive systems worldwide with a huge growth opportunity ahead. Embedded systems control the engines in modern cars. They raise horsepower to that of the 1960s “muscle cars,” while providing three times the gas mileage and reducing pollution by a factor of 10. Without electronic engine controls, we would still be getting 10 miles per gallon and breathing the reddish-brown air that hung over Silicon Valley when I arrived here in 1970. The old-fashioned “cruise control” has evolved into a sophisticated digital control system. When I set my digital cruise control at 70 mph, my car will maintain its speed, but also engage forward-looking radar. If I come up behind a slower-moving vehicle, my car will automatically track that vehicle at a safe distance that I can also control digitally. And in the event that the car in front of me slams on its brakes, my car will automat- ically brake to prevent a collision. Embedded systems like this, pointing forward, backwards and into the blind spots, are at the heart of Google’s autonomously driven vehicle, which can be seen driving around Silicon Valley—driverless. My car also has a night-vision safety system, which includes a high-beam infrared headlight that illumi- nates farther down the road than my standard headlights, but bothers no one since infrared light is invisible to humans. The dashboard display of the infrared image sensor shows pedestrians in an eerie green and black reminiscent of night-vision goggles. When I turn on my safety system, this display replaces my speedometer, which is just an image, not a gauge. The only improvement I would make to this system is for the display to be projected “heads-up” on my windshield, a reality that is only a few years away. These sophisticated systems are exactly where New Cypress automotive products fit. HIGH-CAGR AUTOMOTIVE SYSTEMS CYPRESS SPANSION NEW CYPRESS INFOTAINMENT CAGR: 8.0% INCLUDES CAR AUDIO NAVIGATION HUMAN MACHINE INTERFACE (HMI) ADVANCED DRIVER ASSISTANCE SYSTEMS (ADAS) INSTRUMENT CLUSTER & HEADS UP DISPLAY (HUD) CAGR: 15.4% INCLUDES BLINDSPOT DISTANCE WARNING NIGHT VISION PARKING/REVERSE DROWSINESS MONITORING CAGR: 7.0% INCLUDES HEADS-UP DISPLAY HYBRID INSTRUM. SECONDARY DISPLAY SOLID-STATE DISPLAY ELECTROMECH. INSTRUMENTATION AUTOMOTIVE SEGMENTS CAGR: 8.0% INFOTAINMENT ADAS 15.4% INST. CLUSTER 7.0% COMPARED TO: SEMI MARKET AUTOMOTIVE 3.7% 5.0% = PRODUCTS CAPSENSE TRUETOUCH TRACKPAD F-RAM PRODUCTS PRODUCTS AUTO 6CH PMIC TRAVEO SERIES MCU FM4 SERIES MCU FCR4 SERIES MCU 16FX SERIES MCU FR81S SERIES MCU Source: 2014-2020 compound annual growth rate calculations by Strategy Analytics Figure 1. New Cypress is a preferred supplier with multiple design wins at each of the Top 25 global automotive OEMs, as listed on the front cover. A majority of these design wins are in the automotive segments with the highest growth rates: Infotainment (8.0%), ADAS (15.4%) and Instrument Clusters (7.0%). Even better news for New Cypress is that these systems, which are currently offered only in luxury automobiles, will soon begin to show up in the mass market. The automotive market is thus our single greatest opportunity. Our design wins at the Top 25 OEMs are biased heavily toward the Infotainment, Advanced Driver Assistance Systems (ADAS) and Instrument Cluster segments of the automotive market—the segments that are growing twice as fast as the general automotive market, which, itself, is growing 35% faster than the semiconductor market. More good news is that the MCUs in these advanced systems need SRAM and NOR flash memories—two products in which New Cypress is No. 1 worldwide. CYPRESS+SPANSION: 1+1=3 REVENUE RANKING IN $ MILLIONS (TOP 5) 2009 2010 2011 2012 2013 No.1 SRAM No.1 NOR FLASH 1 CYPRESS 2 SAMSUNG 3 RENESAS 4 GSI 5 NEC 1 SPANSION 2 NUMONYX 3 MACRONIX 4 SST 5 WINBOND 238 CYPRESS 237 RENESAS 198 SAMSUNG 91 GSI 85 ISSI 342 CYPRESS 289 RENESAS 149 GSI 100 ISSI 76 SAMSUNG 304 CYPRESS 210 RENESAS 86 ISSI 85 GSI 68 SAMSUNG 249 CYPRESS 173 RENESAS 81 ISSI 69 GSI 63 IDT 855 SPANSION 510 MICRON 386 MACRONIX 157 WINBOND 97 EON (ESSI) 940 SPANSION 630 MICRON 483 MACRONIX 228 WINBOND 142 EON (ESSI) 869 SPANSION 499 MICRON 449 MACRONIX 279 WINBOND 123 MICROCHIP 812 SPANSION 450 MICRON 397 MACRONIX 300 WINBOND 92 MICROCHIP 218 113 83 61 22 611 430 388 315 64 Even my side rearview mirrors are sophisticated systems with side-looking radar that turns on a red light-emitting diode embedded in the rearview mirror to warn me when a vehicle is in my blind spot. No. 3 AUTOMOTIVE MCU+MEMORY NEW CYPRESS 1,693 RENESAS 824 RENESAS 692 FREESCALE 1,027 FREESCALE 1,059 FREESCALE 669 CYPRESS 381 TOSHIBA 274 TI 1 RENESAS 2 FREESCALE 3 NEC 4 CYPRESS* 5 TOSHIBA * New Cypress Sources: Gartner, WSTS, Cypress and Spansion earnings reports 530 CYPRESS 320 TI 284 STMICRO 468 CYPRESS 324 TI 304 TOSHIBA 2,197 RENESAS 2,096 RENESAS 1,928 966 FREESCALE 1,063 528 486 CYPRESS 316 TI 358 353 297 STMICRO My stereo, satellite radio and movie screens are all controlled by menus on a second liquid crystal display in the spot where the radio used to be. This display controls “infotainment,” heating & air conditioning and the hands-free telephone, which also serves as an emergency beacon in the event of a crash. Figure 2. Over the last five years, Cypress has been No. 1 in worldwide market share in SRAM memories, and Spansion has been No. 1 in NOR Flash memories. Both companies are also No. 1 in the automotive segment of those memory markets because they meet stringent automotive temperature quality and reliability requirements. New Cypress is No. 3 overall in market share in automotive MCUs & memories. Our new company is thus a “one- stop shop” for MCUs & memories in automotive embedded systems. 1 As leaders in nonvolatile technologies, Spansion and Cypress both can sell not only chips, but also licenses to their design and process technologies. IP LICENSING DEALS 2012 2013 Spansion Cypress Total 3 1 4 4 2 6 2014 6 4 10 2015 6 7 13 Spansion (technology node in nm) Samsung Panasonic Macronix 90 nm 90 nm 110/90 nm XMC 90/65 nm ISSI XMC 65/45 nm 45 nm Cypress HH-Grace 130 nm Microsemi 28 nm UMC HLMC 55 nm 55 nm UMC 40 nm Figure 3. New Cypress has signed 11 licensing deals so far with two more coming in 2015. Six of the licensing deals are with major silicon foundries in China and Taiwan. These deals will generate long-term, high-profit revenue. , In the time-to-market crunch faced by our customers, programmable technology wins, because it provides them with the flexibility to make changes at any point in the design or production cycle. New Cypress is focused on programmable products. REVENUE FROM PROGRAMMABLE PRODUCTS $ MILLIONS $135 MILLION/YEAR IN SYNERGIES $ MILLIONS/YEAR EPS = $0.35 EPS = $0.35 EPS = $0.35 $135 million/yr = $0.35 EPS/yr  EPS = EPS equivalent of synergies EPS= $0.21  EPS = $0.21 EPS = $0.07  135 108 81 54 27 0 2015 2015 (Q3 + Q4) 2016 2017 Figure 5. The Cypress-Spansion merger will generate $135 million in annualized synergies by 2017. Without any other improvements, these synergies will increase New Cypress’s annual EPS by $0.35. The benefits of the merger synergies will begin to show up in Q3’15, since our cost cutting began in Q2’15. New Cypress was launched in a very shareholder- friendly way by closing the merger quickly to be able to include Spansion shareholders in the $0.11 first-quarter 2015 dividend (equivalent to about 3% interest). 782 455 DIVIDEND RETURN TO SHAREHOLDERS 900 800 700 600 500 400 300 200 100 0 563 Touchscreen revenue peak 414 340 337 357 293 304 270 352 337 327 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E Figure 4. Both Cypress and Spansion have developed field- programmable products since inception—currently New Cypress derives two-thirds of its revenue and spends 90% of its R&D dollars on programmable products. FINANCES While our merger with Spansion provides us with a huge growth opportunity in automotive electronics, there is a more mundane, yet very compelling, force driving the merger—synergies. 2 125 63 65 69 $ MILLIONS 29 140 120 100 80 60 40 20 0 2011 2012 2013 2014 2015E Figure 6. New Cypress will continue to focus on returning capital to its shareholders by paying out an approximate $125 million in dividends to shareholders in 2015 and thereafter. (See our capital return history in Part II of this report.) Our dividend—combined with the limited share-price downside described in Part II of this report and our tremendous automotive market upside—should make New Cypress a consistently attractive investment in the years to come. T.J. Rodgers President and CEO 2014 ANNUAL REPORTCypress + Spansion = No. 3 in AutomotiveThe Cypress-Spansion merger opens doors at top new customers and positions New Cypress as the No. 3 provider of automotive MCUs and memories with $500 million in revenue and as a preferred supplier to the top 25 global OEMs.INFOTAINMENTVolkswagen Honda Mercedes Tesla Nissan BMW InfinitiHVAC CONTROLToyota Fiat Mitsubishi AudiGM Honda Subaru PeugeotHyundai Mazda Volvo Land RoverPOWERTRAINVolkswagen BMWAudiINSTRUMENT CLUSTERSToyota Ford Mercedes SubaruGM Nissan Mazda Peugeot Volkswagen Honda Mitsubishi DaihatsuHyundai Suzuki TATA LamborghiniEVENT DATA RECORDERSHyundai DIAGNOSTICS AND PERFORMANCE MONITORINGHyundaiBODY ELECTRONICSToyota GM BODY ELECTRONICS MODULES, LIGHTING AND PERIPHERAL ECUsToyota Nissan MazdaGM Honda MitsubishiHyundai Suzuki IsuzuFord Renault SmartEV/HEVToyotaHondaDRIVERASSISTANCEGMVolkswagenBMWAudi CYPRESS+SPANSION: 1+1 = 31ST IN SRAM, 1ST IN NOR FLASH AND 3RD IN AUTOMOTIVE MCUs & MEMORYThe First Annual Report of New...2014 ANNUAL REPORTYOU ARE AUTHORIZED TO READ THIS REPORT1010101001010100100010010101001000010100111101010100101101010011110101010010111010101001001011001010100001110110010010010010001001010011110101010010111010101001001001001010100001000110010010010010101001101010010111010101001001001100101000110010010010010001The FPG1 fingerprint reading system will enter the $460 million market in the second quarter.101000100101010010000101001111010101001010101010100100100100101010001001010100100001010011110101010010111010101001001001001000111010101001010100100010010101001000010100111101010100101101010011110101010010111010101001001001001010100001000110010010010010001001010011010101010010111010101001001001001010100001000110010010010010001001101010010111010101001001001100001000110010010010010001The TrueTouch® fingerprint reader chip is here!The Last Annual Report of Old...Cypress Semiconductor Corp. 2014 Annual Report and 2014 Proxy StatementCYPRESS + SPANSION: WORLDWIDE LEADER IN SRAM AND NOR FLASHThe merger will make New Cypress the industry’s high-performance memory leader with the broadest portfolio, as shown in the table below. Cypress is the worldwide leader in SRAMs and nonvolatile RAMs (NVRAMs) and Spansion is the worldwide leader in NOR flash. The typical embedded system includes flash, SRAM and DRAM memories, so New Cypress will have a leadership position in two of these three critical system memories. The table below also provides the parameters by which each Cypress memory type is judged to have best-in-class performance.Cypress offers a complete and growing portfolio of solutions that enable customers to design wearable electronics with integrated sensors. These solutions offer an intuitive user interface, ultra-low power and the industry’s smallest form factors. Cypress gained significant traction in the wearables market in 2014 with many new design wins, some of which are shown below.TrueTouch® and CapSense® touch controllers – The industry’s lowest power, smallest size and best waterproofing.PSoC® Bluetooth® Low Energy (BLE) solutions – Ultra-low-power wireless connectivity with low-power analog for biometrics.PRoC™ BLE solutions – Ultra-low-power wireless connectivity with CapSense for a natural UI.Low-Power (MoBL®) Asynchronous SRAMs – Memories that buffer data to reduce radio usage and extend battery life.F-RAMs™ – High-reliability memories that store the most vital data—“black box” data—with the lowest possible energy.CYPRESS + SPANSION: A LEADER IN SOLUTIONS FOR WEARABLESWearable electronics are everywhere: designer smartwatches, fitness and activity monitors, cameras, smart glasses and medical products such as hearing aids and wearable patches. The wearables market is expected to be $1.5 billion in 2015, growing to $19.0 billion in 2018 at a CAGR of 88.7%. With its ultra-low-power microcontrollers, memories and capacitive touch-sensing controllers, New Cypress is uniquely equipped to compete in this market, where performance = low power. New Cypress Has the Broadest Portfolio and the Highest-Performance Memories for Embedded SystemsNew Cypress’s Broad Portfolio of Wearables Solutions Enables Next-Generation End ProductsProduct Category New Competitors Performance Advantage Cypress Renesas ISSI Micron FujitsuQDR®-IV synchronous SRAM Highest RTR (random transaction rate) 2.1 GT/sAsynchronous SRAM with ECC1 Highest-reliability fast SRAM <0.1 FIT3MicroPower SRAM Lowest-power SRAM (standby current) 1.5 µASerial F-RAM™2 Lowest-power F-RAM (standby current) 100 µAParallel nvSRAM Fastest NVRAM 20 ns AGIGARAM® Highest-density NVRAM 16 GBHyperFlash™ memory Highest-read-throughput NOR flash 333 MBpsSerial NOR flash Fastest read, program and erase 160 MBps high-density SPI flash Parallel NOR flash Fastest parallel NOR flash read 90 MBps SLC NAND flash Fastest low-density NAND flash read 25 nse.MMC NAND flash Highest-reliability high-density 0 FIT3 NAND flash (data loss) SRAMNVRAMNORFlashNANDFlashCYPRESSSPANSION Product Category Smartwatches Activity Hearing Wearable Smart Monitors Aids Patches GlassesAnalog Front End PSoC® 4 PSoC® 3System-on-Chip PSoC 4 BLE PSoC 5LPWireless PSoC BLECapacitive-Sensing CapSense® controllersController Touch Controller TrueTouch® touchscreen controllersTrackpad Trackpad moduleExternal Memory MicroPower SRAM Nonvolatile F-RAMExternal Memory Nonvolatile NOR flashMicrocontroller FM0+ FM3Power Management Energy-harvesting power supplyCYPRESSSPANSIONMetrics1. Error-Correcting Code. 2. Ferroelectric RAMs. 3. Failures In Time (billion hours)WINNING IN THE WEARABLE ELECTRONICS REVOLUTIONENABLING THE USB TYPE-C STANDARD: POWER & DATA FROM A SINGLE PLUGHow convenient would it be to have a standard port to connect your laptop, smartphone, tablet and peripherals that provided them all with power and data regardless of the product brands you choose? New USB Type-C standard connectors deliver just that. Backed by Apple and Intel, the standard is gaining rapid support among top-tier PC makers, enabling slim industrial designs, easy-to-use connectors and cables, and the ability to transmit protocols other than USB. Type-C also integrates USB Power Delivery (USB-PD), a new USB standard that increases power delivery from 7.5 W to 100 W.The second-generation EZ-PD™ CCG2 is the world’s smallest integrated USB Type-C port controller, measuring only 3.3 mm2 in its chip-scale package.The communications port determines the thickness of a laptop PC, as shown in the image above of a standard 4.5-mm-high USB Type-A connector. The 2.4-mm USB Type-C connector is not only half as thick, but it also eliminates the need for the power and DisplayPort plugs.Basis PeakSmartwatchBM Innnovations’ Under Armour Fitness WatchFitbit SurgeFitness WatchSamsung Gear SSmartwatchCasio Exilim EX-FR10Wearable CameraSamsung Gear Live SmartwatchMicrosoft Band Fitness BandSamsung SimbandFitness WatchCypress’s EZ-PD™ CCG1 controller, part of the EZ-PD controller family, is the industry’s first integrated, programmable Type-C port controller. The Type-C port controller market is expected to be $65 million in 2015, growing to $350 million in 2019 at a CAGR of 40%.Driving Smaller Form FactorsUSB Type-C replaces multiple ports and is 47% thinner than current Type-A connectors.2.4 mmUSB Type-CUSB Type-A4.5 mmFELLOW SHAREHOLDERS: In the 2008 Annual Report, I wrote about life after the “SunPower era,” because Cypress had just returned to being a semiconductor-only company after spinning out its subsidiary, SunPower, in a $2.55 billion stock dividend to shareholders in September 2008. Today, SunPower is the No. 2 solar company in the world, with $3.0 billion in revenue. Cypress has now entered the “Spansion era,” the topic of Part I of this two-part Annual Report (following the automobile portfolio cover). This is Part II, the final Annual Report of “Old Cypress,” covering the period from the 2008 SunPower spinout through year-end 2014. Cypress employees see the fingerprint image on the cover of this part of the report—generated by our new TrueTouch fingerprint reader chip—as a symbol of the most fundamental change in the DNA of Old Cypress over the last decade. In 2008, we were in the midst of designing the PSoC 5 Programmable System-on- Chip, the replacement for our highly successful PSoC 1 family. PSoC 5 was our first PSoC with a 32- bit processor—and a huge, new technical challenge for us. We completed the definition of the product in September 2007 and made our sixth and final “tapeout” to wafer manufacturing in October 2012. It took us six years to develop our first PSoC world- class computer system on a chip, which included not only the processor, but also 81 other “IP blocks,” self- contained blocks of circuitry, each as complicated as a typical Cypress chip was just 15 years ago. The TrueTouch fingerprint reader chip is the most sensitive and highest-resolution capacitive sensing chip we have ever attempted, despite having previ- ously shipped over one billion chips of this type. Like PSoC 5, it also contains a 32-bit computer and many IP blocks—40 to be specific. In this case, the time from the specification signing to manufacturing tapeout took nine weeks, not six years. Furthermore, the first lot of silicon wafers—not the sixth—worked perfectly. Cypress can now develop state-of-the-art systems-on- chip in record time. That game-changing new DNA (now embedded in 105 Cypress design specifications) is the R&D core of New Cypress. FINANCIAL METRICS CYPRESS P&Ls (POST-SPWR) (IN MILLIONS, EXCEPT PER-SHARE DATA) Revenue Gross profit Cost of R&D Cost of SG&A OPEX Operating income Earnings after tax 2008 $766 373 153 192 345 28 33 2009 $668 315 145 153 297 18 18 2010 a $884 519 154 163 317 201 186 2011 a $995 570 166 168 334 237 238 2012 $770 427 166 164 330 97 91 2013 $723 377 162 143 305 72 63 2014 $725 382 147 138 285 97 87 Earnings per share $ 0.20 $ 0.10 b $ 0.94 b $ 1.25 $ 0.55 $ 0.39 $ 0.52 Shares Share price: Year-end Max Min c 166.2 183.2 198.0 190.7 165.3 161.5 c 168.4 d $4.47 5.73 f 2.72 $10.56 $16.89 $18.58 11.27 b 18.58 b 23.64 14.08 9.94 3.87 $10.50 19.15 8.89 $10.29 d $14.60 13.10 e 14.61 8.29 8.97 e Figure 1. Cypress’s P&L statements from 2008 (SunPower spinout year) through 2014 (the last year of Old Cypress before the Spansion merger). The major events are labeled with letters. a. Despite relatively flat revenue during the period, we experi- enced a significant touchscreen revenue peak in 2010 and 2011. b. The touchscreen revenue peak led to peak EPS ($0.94-$1.25) and peak share prices ($18-$23) in 2010 and 2011. c. Despite the severe dilution caused by the SunPower spinout, the number of outstanding shares was ultimately held constant at about 168 million using buybacks. d. The year-end share price rose to $14.60 in 2014 from $4.47 in 2008 over the six-year period (21.8% CAGR). e. In 2014 the share price rose to $14.61 from $8.29 due to news of the Spansion merger. f. The low share price for the period was $2.72, in 2008, when I disclosed my open market purchase of one million shares (my current holding is 8.7 million shares). Cypress’s 2008-2014 non-GAAP P&L statements are shown in Figure 1. During the 2008-2014 period, Cypress’s revenue was flat at about $800 million due to strong growth in our PSoC business offset by a rapid decline in the SRAM market. The revenue peak in 2010 and 2011 was driven by the broad worldwide accep- tance of capacitive touchscreens on cell phones at a relatively high chip price ($1.20), a peak that will never be repeated because touchscreen chips now sell for $0.50 or less. The good news is that the SRAM market contraction appears to be over. With all factors included, Old Cypress’s board-approved, standalone 2015 annual plan—now obsolete—was to grow to $756 million in revenue in 2015 from $725 million in 2014. Taking the Spansion merger into account, we’re going to do a lot better than that. This is the 29th Annual Report I've written for our public shareholders. I thank the Cypress employees who helped to create the report, often after-hours and over the weekends. We tell our own story without the use of ad agencies or PR firms. TJR All figures are based on non-GAAP financial measures. Refer to our current and prior annual reports for a reconciliation of GAAP to non-GAAP financial measures. The letter to Stockholders and “Management Discussion and Analysis” contain a number of forward-looking statements about the prospects for Cypress and its subsidiaries as well as the semiconductor industry more generally, which are based on our current information and expectations and could be affected by uncertainties and risk factors, including but not limited to those described in our Annual Report on Form 10-K, filed February 17, 2015. Our actual results may differ materially. We use words such as, “anticipates”, believes”, “expects”, “future”, “planning”, “intends” and similar expressions to identify forward-looking statements which include statements related to our prices, growth, supply, operations, shipments, our current and future products, profit and revenue. Cypress, the Cypress logo, Spansion, the Spansion logo, and combinations thereof, PSoC, CapSense, MoBL and TrueTouch are registered trademarks of Cypress Semiconductor Corp. HyperFlash, PRoC, F-RAM and EZ-PD are trademarks of Cypress Semiconductor Corp. AgigA and AGIGARAM are registered trademarks of AgigA Tech. Inc. SunPower is a registered trademark of SunPower Corp. All other trademarks are the properties of their respective owners. 1 OPERATING EXPENSES AND EPS CAPITAL RETURN TO SHAREHOLDERS $ MILLIONS $ DOLLARS 388 383 354 374 358 357 326 345 334 330 317 297 305 285 1.25 0.94 0.65 0.28 0.48 0.37 0.20 0.10 0.55 0.52 0.39 500 450 400 350 300 250 200 150 100 50 0 (0.07) (0.30) (0.62) 1.50 1.25 1.00 0.75 0.50 0.25 0 (0.25) (0.50) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Figure 2. Since the 2001 dot-com crash, Cypress has relentlessly driven down opex at the rate of $6.7 million (about $0.039 EPS equivalent) per year for 13 years, accounting for approximately half of our average EPS improvement of $0.073 per year. The other half of the EPS improvement was due to increased gross margin. CYPRESS RELATIVE SHARE PRICE 400 % GAIN VS. 9/30/08 (6¼ YRS, 1,572 TRADING DAYS) 350 300 250 200 150 100 50 0 Touchscreen revenue peak Spansion merger CY +180% 17.9% CAGR SOX +127% 14.0% CAGR DJIA 63% 8.5% CAGR NASDAQ -50 Aug 14 Sep 11 Dec 09 Dec 10 Dec 11 Dec 12 Sep 08Dec 08 Sep 08Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 13 Sep 10 Sep 13 Sep 12 Sep 08 Sep 09 Dec 14 Figure 3. In the six years since the SunPower spinout, Cypress shares have appreciated 180% (CAGR 17.9%) vs. the SOX semiconductor index, which appreciated 127% (CAGR 14.0%). The large spike and decline in the 2010-2013 timeframe are due to the rise and fall of our touchscreen revenue, while the last spike is due to the Spansion merger. Cypress’s DNA has also evolved due to a 12-year diet of Japanese Lean Methodology, the process of identi- fying and understanding the value customers will pay for and grinding down non-value-added costs. As Figure 2 shows, our EPS has increased an average of $0.073 per year for 13 years, and we have not had a loss since 2005, when we said “No More Moore” and stopped building new wafer fabrication plants to chase Moore’s Law. The rise in EPS over the 2008-2014 period and the initiation of a dividend in 2011 enabled Cypress shares to outperform the SOX index on 1,428 of the 1,572 trading days during that period, as shown in Figure 3. Despite the 17.9% share-price CAGR over that period, the stock underperformed badly in 2012 and 2013. COST (MILLIONS) DIVIDEND (MILLIONS) SHARES BOUGHT (MILLIONS) 0.0 0.4 18.0 36.0 12.6 7.7 25.1 99.8 YEAR 2014 2013 2012 2011 2010 2009 2008 TOTAL COST/ SHARE $10.16 $10.47 $12.88 $18.08 $12.29 $8.03 $4.17 $0 $5 $232 $651 $155 $62 $105 $69 $65 $63 $29 N/A N/A $2,554 $2,780 $12.12 $1,210 Figure 4. Cypress is committed to returning capital to share- holders. We returned $3.99 billion to shareholders in the 6¼-year post-SunPower era in the form of share buybacks ($1.21 billion), cash dividends ($226 million) and the SunPower stock dividend ($2.55 billion). Cypress intends to be a shareholder-friendly company. That focus started in earnest in 2008 when we had to make the tough choice of whether to keep our hard- won SunPower revenue or spin out SunPower to shareholders. We chose to distribute $2.55 billion in SunPower stock to our shareholders. And in March 2015, we accelerated the closing of the Spansion merger to get the first dividend to Spansion share- holders one quarter early. P/S RATIO (FULLY DILUTED SHARES x SHARE PRICE) / (LAST QTR REVENUE x4) 7.67 6.96 4.92 4.23 4.13 4.22 5.20 4.52 90% = 3.58 50% = 2.45 10% = 2.18 3.39 2.81 1.96 90% = 3.76 50% = 2.35 2.41 10% = 1.48 1.52 1.25 1.11 1.08 0.68 0.67 BLACK TUESDAY (10/20/87) DIVIDEND (6/22/11) 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Figure 5. Cypress’s price-to-sales (P/S) ratio fluctuated between 1.48 (10%-ile) and 3.76 (90%-ile) between October 1987 and June 2011, the month when we began to pay a quarterly dividend. Since then, the downside risk (10%-ile) of the stock has risen from 37% below the median to just 11% below the median, while the upside potential (90%-ile) remains at 46% above the median. Investors who buy Cypress shares at the median P/S ratio now see signifi- cantly higher upside than downside. We are proud of our accomplishments in the 2008- 2014 be proud entering the Spansion era as a better company. era. And we SunPower post- to are T.J. Rodgers President and CEO 2 

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