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Executives

T.J. Rodgers - President and CEO

Brad W. Buss – Chief Financial Officer

Christopher A. Seams – Executive Vice President, Worldwide Wafer Manufacturing

Dana Nazarian – Executive Vice President, Memory and Imaging Division

Norman Taffe - Executive Vice President, Consumer and Computation Division

Cathal Phelan - Executive Vice President, Chief Technical Officer

Analysts

Chris Stanley - JPMorgan

John Pitzer - Credit Suisse

Tim Luke - Barclays Capital

Adam Benjamin - Jefferies & Co

Douglas Freedman - Broadpoint AmTech

Glen Yeung - Citigroup

Steve Eliscu - UBS

Charles Anderson - Dougherty & Company

John Barton - Cowen & Company

Jeffrey Schreiner - CapStone Investments

Cypress Semiconductor Corporation, (CY) Q3 2010 Earnings Conference Call October 21, 1969 11:30 AM ET

Operator

Good morning and welcome to Cyprus Semiconductor Third Quarter Earnings Release Conference Call. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Robert Rodgers, President and CEO of Cyprus Semiconductor. Sir, you may begin.

T.J Rodgers

Good morning. We are reporting the third quarter in this meeting. We will start up with our CFO, Brad Buss, talking about the finance.

Brad Buss

Thanks TJ. Good morning everyone. Thanks for joining us, as usual just a quick reminder that we are going through our preliminary unaudited results. Our 10-Q gets filed in early November and we obviously encourage you to take a very good look through that. All of our statements today will be forward looking and we have no duty to update that as well. And just a quick housekeeping thing, we have our annual stay that is going to be held at our corporate offices here in on November ten and we look forward to hosting everybody, we are going to have a short product demo, and a lot of in-depth overview system of our strategic initiatives for 2011.

I will do my usual review of third quarter and then go through the fourth quarter guide. So, with third quarter, even with lower than expected revenue, we were able to report very strong growth margin earnings and cash flow, the revenue for third quarter was $232 million, slightly below our guide and there was an increase of 4% and nice strong 30% on the year over year basis. To put any contacts, this is the highest level of revenue we have seen since 2004 and I think reflect very well on not only on the strong, product line up that we have, but more importantly the focus is on price resolution, particularly in the touch screen analog and micro controller market.

In the quarter we saw strong sequential revenue growth in handset and various consumer and market and we saw some softness late in the quarter really on communication, some of the PC related areas and industrial real distribution. If you look at it on a division basis, MID decreased 6% from second quarter, driven by a one-time manufacturing limitation that is now behind us. And to a lesser extent, some weakness later in the quarter for distribution. CCD decreased 1%, driven by lower end of life communication field, and CCD increased a whopping 20% and our flagship P-SoC family which is the largest revenue component of CCD, we are adding a much faster rate in our total business units there. Our P-SoC family of products had an all-time record revenue and we also had another all-time record revenue for rapidly growing touch screen business unit. Our design activity continues to remain very strong, for P-SoC and P-SoC 3, 5 as well as our touch screen business. And we once again expect to see record revenues for P-SoC and True Touch. In fourth quarter, this again by the way is much better than normal seasonality that we have shortly seen in the P-SoC area. Our P-SoC based optical fingers nab sensors for cell phones continue to ramp in the production and it helps drive our emerging tax division to a 17% sequential revenue increase. Turning to the profit end of things, on a gap basis, we posted another strong quarter. We had a net income of 34.4 million which was 18% for deluded share, and that was an increase of 80% sequentially versus deluded earnings of 10%, 10 tens in second quarter and a lot for share in the order 13%

On a Non-GAAP basis, our net income was $53.4 million, an increase of 11% sequentially, and again up at highest levels since 2000. That year earnings deluded shares of 28% which again was at the high end of my guidance of 26 – 28, even with a lower revenue. I was very pleased with the leverage though we dropped through a quarter, our EPS has increased by 180% on the year on year basis and our operating income increased much faster than the rate of sale and we achieved a 25.6% PBC which was an increase of a full 14.4% point year on year and again as our highest Non-GAAP PBC s since 2000.

Non-GAAP close margin was a record, 60.2% up from 59.3% in second quarter and up from 48.3% points from third quarter of 2009, we continue to have a good factory absorption of the available products next and lower inventory reserves.

If you look at our core semiconductor business which excludes the impact of our emerging tax division, we have had an impressive 61%, again another record, utilization in our staff in Minnesota based of wafer stats for third quarter was 91% up slightly from 89% in second quarter, mainly the product led to increased revenue, I expect the fourth quarter utilization to decrease to about 85% as we balance inventory on demand. I continue to be very pleased with our ASP which means wireless even with a much higher proportion of consumer business and again as a remainder, our ASP’s are higher in almost a decade. Again another big consequence of having a very strong appraiser product line up.

Our Non-GAAP operating expenses as recorded shows that they increased by 5$.1 million sequentially and totally $83.1 million, if I remember that included a $2.1 million non cash accounting circulate to the deferred comp plan and the usual I don’t forecast any change in that plan since it is impossible to predict. You neutralize for the deferred comp, it really was $81 million, which was smack in the middle of my guidance of $80 - 82 and if you stripped it out in Q2 and Q3, and tried to compare it with quarters, we basically only went up a million dollars in the quarter which is very good considering the revenue increase we have had.

Question-and-Answer session

Operator

And thank you. We will begin the question-and-answer session. (Operator instructions). And the first question comes from Chris Stanley. Please state your company name

Go ahead Chris.

If its OK, give me one moment please. Your line is open Chris.

Chris Stanley - JPMorgan

Great. Can you guys hear me now?

Yes.

Chris Stanley - JPMorgan

OK. Sorry about that. TJ can you give us your best chance on how you think your products and various end markets will stand next year after we get through the (inaudible) lean time

T.J Rodgers

Sure. Our usual…We have a strong second quarter

This year it is going to be different, we are going to have normal seasonal fluctuations on many of our commodity products in our SRAM, however the touch screen called two touch is turning on hard and that's why we are going to have a nearly first quarter and fourth quarter and the way it looks right now

The one reason I waffle on it is that I remain worried about the US economy and the news and you know that which is booked can be unbooked but given that CR we think we are going to fly through the fourth and first quarter pretty much holding our ground and then go back into the high season in the second quarter next year ready to roll through the next walk.

And from my file it sounds like this SD channel is a little more impacted than the OM channel, can you just talk about why that would be happening and what you would see as the differences there and also would you expect the DC charted and recover quicker than the direct channel?

Chris Seams

Hi Chris, this is Chris as well. Ah what we are seeing in the end market segment this year as well as the industrial segment and we are seeing that slow down a little bit and you know I cant say exactly why that is but it probably has got a little bit to do with what TJ said in terms of the macro economic factors going on but expect to see that recover, we see that mostly in north America and Europe, frankly distribution for us in Asia is very very strong right now and they usually have a very strong second half of the year with their consumer orientation.

Chris Stanley - JPMorgan

Got it. And then as my last question, just to clarify, you guys said the lead times are back to normal now or you expect them to normal by the end of the quarter.

T.J Rodgers

We are back to normal now, what would you like?

Chris Stanley - JPMorgan

OK great thanks.

Operator

And our next question comes from John .., please state your company name.

John Pitzer - Credit Suisse

Yes, guys, Credit Suisse. Thanks for taking the questions. Just kind of curious now when you look at the CCD business, what percent should we think about for TrueTouch, for PSoC, and then within PSoC kind of the 3 & 5 family. And I guess as we continue to see the mix in that business, the shift, what's the margin implication? You guys are doing a great job on gross margin, but I suspect the mix probably still helps as you go forward.

Norm Taffe

Hi John, this is Norman, I run the CTB product language and primarily focus on our P-Soc business unit. You’re right, P-Soc is really a sum of several parts (inaudible) the touch screen business and of course the core business P-Soc 1, P-Soc 3 and P-Soc 5. Frankly all of them have very very strong (inaudible) margins. Good divisional margins (inaudible) the margins have increased over the years and into your point that you are making we see that trend continuing and frankly the touch product have a lot of value add and therefore command very good margins.. editions of the product itself and of course P-Soc 3 and 5 is very differentiated and not only highly value add but also serves a market place which see a higher growth margin. Over the time, we feel very good about maintaining high margins, in their business and I would expect (inaudible) over time.

John Pitzer - Credit Suisse

Can you give us any sense on how big the different buckets are within the CCD now?

Brad Buss

These are the biggest buy ward and smaller by a factor.

John Pitzer - Credit Suisse

And Brad, any guidance on TrueTouch as a percent of overall revenue?

Brad Buss

Taking (inaudible) you know P-Soc you know is right up there, you know probably our second biggest product in point by revenues (inaudible) and obviously growing much faster which you know the S-RAMS are the only thing that had it this great

John Pitzer - Credit Suisse

Then T.J., as a followup, on the MID, the manufacturing issue, can you just elaborate on that and why you feel like that's behind you. And I guess, is there catch up in that division in Q4?

T.J Rodgers

It is pretty simple, we had a machine in the Philippines, a tester, overall it started putting -13 little segments on the skin, which is not good it screwed up a bunch of products and therefore before we could recover and make it stop, (inaudible) the customers (inaudible) $4 million, (inaudible) behind us, it is that simple. I don’t expect we would have forecasted it.

John Pitzer - Credit Suisse

And then, guys, just my last question. Brad, you talked about utilization for the quarter at about 91%. 85% next quarter. Do you think relative to how you're seeing the business trend, Q4, Q1, that the 85% is kind of the trough and that gets you to where you need production to be to keep inventory across the business lines at the desired levels?

Brad Buss

Yeah I think based on you know looking at the bookings, backlogs, new products rams, you know we expect that being an area, we are not seeing much need to go below that you know anything that probably increase because we want to make sure we have the right profile in all line and especially in a proprietary staff and varies specially in True Touch and we have been proud that we have not you know let down any customer in that area which some of our other competitors have and we are doing everything we can to keep up with that ... we have the profile that’s the reason you saw inventory go up a little bit which basically backed all of that

John Pitzer - Credit Suisse

Great. Thanks guys

Brad Buss

Thanks John

Operator

And our next question comes from Tim Luke, please state you company name

Tim Luke - Barclays Capital

Hi, thank you very much. With respect to the gross margin staying up at $0.59 despite the slightly lower sales, Brad, can you give us some framework about how you would anticipate that trending and what some of the different puts and takes may be as you move forward. Also, with T.J. saying he would expect based off what he sees in bookings a flattish beginning of next ¬2010 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by year and the first quarter, is that with -- should we be assuming that the mid-business would continue to ebb a bit lower and that's balanced by growth in the CCD area? Thank you.

Brad Buss

Let me touch on the gross margin part of it so a couple of elements, I mean your TV emerging fact business though remaining small but you know starting to grow, it went from negative margins to positive margins so we are going to continue to grow it might take a few quarters to get into that model so that will put a little downward side on it we get a benefitting fourth quarter of more mix in CCD again and you know obviously that’s one of our higher growth margin groups especially in the touch products so that helps we have a little bit of a downward side on (inaudible) very high growth margin (inaudible) wave. That way TJ said other than a little absorption a little bit of mix, I think the margin within a relatively high end for a while. I don’t expect any real change in that area you should not be surprised if it goes up a point or down a point one quarter. But I think we are in kind of new disc code on growth margin there.

Tim Luke - Barclays Capital

Do you think on the OpEx side, as well? It looks like you're guiding that to be slightly lower even in the fourth quarter. That you can hold it in that kind of range? How should we think about the OpEx level?

Brad Buss

Yet I don’t forget our little preamble I (inaudible). So if you neutralize the quarters (inaudible) we act went up a million (inaudible). We are obviously funding a lot of resources in the True Touch area not only for handsets but also you know large screen tab work etc We are strong and full in that area as well.

Yeah, I (inaudible) your point. Fantastic job. And that is not going to wane going forward, we got to lot of new opportunities that we continue to invest in $85 - 90 million dollars any time soon.

Tim Luke - Barclays Capital

Do you have any color on the first quarter?

Brad Buss

From I mean TJ kind of said it right so normally quarters we go down.. you know we are getting decent sensibility we are getting a lot of products ram and again the True Touch area I think your comment on MIB we still expect that to go down a little bit recently in first quarter net then (inaudible) looks pretty good but we know can change.

Tim Luke - Barclays Capital

Thank you very much guys.

Operator

And our next question comes from Adam Benjamin, please state your company name.

Adam Benjamin - Jefferies & Co

Jefferies. Guys, just a followup on the SRAM front. It seems like, T.J., you had a $4 million shortfall of product in Q3 But then the bookings do seem like they're falling off into Q4. So I'm just curious if you can kind of elaborate a little bit on that. It would seem more like an end demand issue into fourth quarter, while third quarter was just more of a product shortfall for you guys. Is that right?

Dana Nazarian

Hi this is Dana. It’s sort of a broad happening in the market right now not major but just a slight decrease probably a combination of china build out slowing down slightly and distributors returning to normal and then try levels

Adam Benjamin - Jefferies & Co

Got it. And then Norm, just on the TrueTouch, is there any way you can quantify in terms of into Q4 increase as well as the Q1 flat, in terms of percentage of units you're going to ship, how many are going to be new models versus existing models you've already been shipping to earlier in the year?

Norm Taffe

Hi Adam… when we think about ...

T.J. Rodgers

Let me answer for Norm. That he doesn’t want to talk about markets here and the reason is this like being in an open radio during ww2 and the Germans are listening so you really don’t want to talk about that.. Its growing rapidly and the reason is going to be flat in fourth quarter when we talk about the flatter few ones.. The one time turn on ... slow quarters.

Brad Buss

(Inaudible)

Adam Benjamin - Jefferies & Co

I got it.

T.J. Rodgers

Adam one thing I like to specific question we think the ... is fueled by some significant new customers mentioned in the last call we had our first .. New hand suppliers, they really have a meaningful impact in third quarter and even more impact in fourth quarter. So it is added to customers not just I mean..

Adam Benjamin - Jefferies & Co

No, I assume that. And everybody's trying to chart the progress of your TrueTouch business, so I understand you don't want to give specific customers. In terms of throwing out a number in Q4 of the units you expect to ship, 20% are going to be models you haven't shipped previously. Or 30% or 40%. Whatever that number is, roughly, I think it would give people better perspective of kind of the ramp you have ahead there.

T.J. Rodgers

Yes. Another reason diff technique to answer that question ... is that normally we have a ramp going up and down.. And True Touch the way you guys talk about it is not...

Adam Benjamin - Jefferies & Co

I hear you. Thanks guys

Operator

And our next question comes from Douglas Freedman, your line is open

Douglas Freedman - Broadpoint AmTech

Thanks, guys, for taking my question. I guess, Norm, can I start with you and since we're talking about tablets, can you talk about the dollar content that you guys can address in the new tablet product.

Norm Taffe

Sure the tablet market is adding (inaudible). $2 to 12.

Douglas Freedman - Broadpoint AmTech

Okay. Terrific. And when we look at the PSoC 3 and PSoC 5 families, can you give an update on how the developing kits are going or downloads and what type of growth you're seeing year-on-year? Any way you want to characterize it would be helpful.

Norm Taffe

Oh great, I m glad you asked that question because it (Inaudible) important milestone in P-Soc at this quarter and (inaudible)

Douglas Freedman - Broadpoint AmTech

Terrific. And congrats on the success. If I could move on and ask a question, Brad. When we look at the emerging tech group, can you help us understand the OpEx that's related to that group and maybe if you could, when there might be a coming out party for any of the business units in that group, meaning that they're now a material piece of the revenue stream.

Brad Buss

I m still laughing so... I mean, let me give you a different perspective, that group.. Last year or so. it has been $0.03 this year on the bottom line so you can kind of figure them out there right and down to about $0.02 this year now I would expect to get into a you know a break even level by the second quarter of next year, and then start become re-creative. From that perspective and I think revenue wise, that whole group did just under $10 million (inaudible)you are looking at it probably doubling this year, and I would expect the potential to double plus next year. And you know the big (inaudible)in that being the one really the one big area a co of the other groups are starting ... start turning in revenue and that would be really the big one we have got one more start up test in there but its still in shelf now and it will not give you any revenue next year.. And OpEx wise I think it will put (inaudible) pressure on us because we are all growing ... sales and marketing etc. but ...hence the reason you will see break even in re-creative.

I am pleased both the area something you guys need to pay attention to and start valuing we cud get a co of doubles or triples and hoping the ... in that group over the next couple of years. Will give some more color at the end of the day. And we are hoping that one of them will have it sweet 16 parties probably early next year...

Douglas Freedman - Broadpoint AmTech

Great thank you.

Operator

And our next question comes from Glenn young... please state your company.

Glen Yeung - Citigroup

From Citi. T.J., question for you. You guys have acknowledged that, lead times are obviously contracting. We see that for the whole industry. And yet, you're suggesting that customer expedites and pushouts have remained relatively normal. Things seem to be reasonably orderly here. I wonder if you can give us your insight as to why that is this time. Why isn't it more chaotic like we've seen in past cycles?

T.J Rodgers

Ours ... is maturing I remember the cowboy days in 2000 a step up.. then 2001 happens and probably .. Talked but a glitch a word glitch .. The reason ... 140 days of inventory if you build they will become.. obsolete, if you want to keep the charge... so in this downturn and ... very careful by the inventory one of the ways you can get the trouble is people talk but ...the channel.. I don’t think can do that ... distribution if you let them order too... ..Some guys order too less some guys order too much .. .. so we have an active process we monitor distributor inventory and we act call him up and say we don’t think you should buy this or we don’t monitor that order so we are all over the inventory thing.

Glen Yeung – Citigroup

Necessarily... consumers than the big bosses..... I think ... on the internet... 2000 the reason is something that is written or voice consumes very little bandwidth people are now scanning pictures and motion pictures over the internet ... master consumer bandwidth and you know as soon as that limits and plugging on the industry there is going to be another communication... I m glad that one of them rite now.. Older hand professional co switch to..

T.J Rodgers

Industrial and strategic and S-RAMS and you know you wind back Five or ten years back we small limited pretty much have a lot of opened up just a P-Soc one is 15+.

Glen Yeung – Citigroup

That begs one more question. Just in terms of your revenue that are specifically geared toward that internet expansion that you're talking about, what would you characterize that portion of your revenue to be right now?

T.J Rodgers

Primarily very high performance memories and memory related products that are requested to more available I guarantee you that my voice is going to (inaudible)chip as we speak..

Glen Yeung – Citigroup

Very good. Thank you very much. I appreciate it.

Operator

And next question comes from Stephen, list your company name.

Steve Eliscu - UBS

Yes, UBS. First question's for Norm. Just thinking about TrueTouch and specifically into the Android handsets, and soon tablets, is there a technical reason with regard to TrueTouch that we haven't seen you in the current batch of Android handsets? And then what are you doing in term of thinking about Gingerbread and Honeycomb, both on smartphones, and tablets to intercept that?

Norm Taffe

Well, I don’t agree multiple android handsets they are shipping there’s actually no technical issue related to that. Multiple vendors androids production with our chip set I in fact actually android is in a tablet space is quite significant upside opportunity for Cypress because new lessons are moving and you mentioned honeycomb they are moving to a four or five finger min required and allows the suppliers today in the touch pad space or even in the laptop space.. Really two finger solution and there is only a couple of suppliers that have today tech that allows and supports the next gen android's requirement of five fingers and above and we are one of those suppliers.. So we are actually very well positioned in those tablets as well. Now I think we few of those tablets have actually come out we have actively designed a dozens of tablets many of them android some of that stuff was actually shipped a little bit some of the OS stuff so you have seen a little push up but I can tell you that we will have meaningful contributions in the coming quarters in tablets design.

I think one reason you know even though the consumer

Steve Eliscu - UBS

That's helpful. And just as a followup. Specifically to that, earlier in the year you talked about $100 million goal. It sounds like you backed away from that after Q2 didn't ramp as quickly as you were hoping, but it sounds like you're back on stride for Q3 and Q4. How close do you think you'll get to that goal?

T.J Rodgers

How do I answer the question without giving the info I really don’t want to but I can tell that we will do what we have said we have more than doubled every year we have come pretty close we will certainly end the year well above that rate..

Steve Eliscu - UBS

Got it. And just switching gears here, thinking about gross margin and SRAMs, one of the things that was impressive was in MID the non-gap gross margin declined only 20 bips sequentially. Is the best way to think about that just the fact that you largely maintain capacity utilization and you swap SRAM wafers for PSoC wafers or is there more -- and just as a second part to that, just as you go to more outsourcing and more greater mix of synchronous SRAM should we expect it to remain fairly resilient as we look further out beyond Q1?

Brad Buss

20 bits in a division is..I think,,,

T.J Rodgers

And a higher level.. S-RAM margins are sustainable...

Steve Eliscu - UBS

Great. That’s really helpful thank you.

Operator

And next is Charlie Anderson. State your company name.

Charles Anderson - Dougherty & Company

Yes, Dougherty & Company. Thanks for taking my questions, guys, good afternoon. You've given a static the last couple of quarters, which was the amount of revenue especially with handsets and the growth rate there. Wonder if you could update us there. And then also if you could give us more specific book-to-bill ratios for each of the divisions.

Chris Seams

(Inaudible) guys I wanted to stay with S-RAM real quick you know when you talk about the margins the great margins you delivered in MID through the S-RAM, based on our info, our checks, it suggested this is being driven by a lot higher end S-RAM products today, if this is true, how are we going to see margin react may be the four opportunity may move from mid to lower range S-RAM product and within that range, one competitor who can do of products, who has not participated in high end and will be participating, so can you give us a look out of transition from high end to low end and if not if you help margins in MID going forward.

Hi this is Dorian again. No, I don’t know why you think there will be more of a shift to lower end S-RAM, act the % mix going forward for the next two or three years, will shift to more and more higher speed S-RAMs. so I don’t agree with that premise. Both of the projects that TJ mentioned, both have rel have high margins for diff reasons and we also continue to develop tech, so we have a cost reduction path that continues that’s the name of the game in S-RAM.

T.J Rodgers

I think I mean the conversion of $65 million you know we still are converting customers ts going to take a full year to even you know fully convert it, so you know there is marginal opportunity for another good year.

Charles Anderson - Dougherty & Company

And brad thank you for pipping in with the answer, can you (inaudible) give an idea where you are with the transition, I (inaudible)may be before you would have expected to complete it by the year end 2011 are you guys still on the track, and may what % of customers are using the $65 million now?

Unidentified Company Representative

High performance type of products, i do expect to by the end of 2011.

Charles Anderson - Dougherty & Company

Thank you, shifting over to the touch screen, I remember six to seven years ago when Cypress decided to put its tell into the water in a low cost product called the iPod and the quick wheel, and major component supplier to a large troupe company, recently you guys have found a way back into some types of those media player type designs and trying to end if this is a one time opportunity is that being communicated to you any way or may be its kind of opportunity for Cypress to come in and gain a foot hold and move forward.

Unidentified Company Representative

Alright, norm will answer to that one.

Thanks for the question. Customers and products, surprised to say we are very proud of the successes we had in that market place significant win for us and the performance is based on the application.

Its capable of doing the touch screen, it cannot do the high end multiple finger, but it can be simple gestures. it can e a rock fellow part with ram like quality to it, so you know you want to command my market, you got to do that. we feel that customers make changes all the time, we are shifting from touch screen and we feel from that product & can also run your system.. we have got the product phase of the touch screen product going. one of our competitors of or touch screen sells primarily module products, so they wont sell you the whole thing, you just have to plug it in and you are done.  you know the consumer standing is going up, we  will (unaudible) shift because it implies the consumers are going to move faster than the big boxes, and I think we have had a fuller growth on the internet, I think the excess capacity we put in place for 2000, the reason is if there is something that is written or voice, it consumes very little bandwidth, people are now

Charles Anderson - Dougherty & Company

OK always like to highlight the amount of opportunities outside the handset in the, can you share with us some data in 2011.

Unidentified Company Representative

We have had a lot of success outside first meaningful contribution in the GPS market, still camera mark, mp3 market as ell. Touch screen printer designed to show up, we became number one in capacitor buttons a couple of years back that expands to a lot of market, what we see happening is the markets go to competitive buttons and touch when broader penetration possibilities. I can get back with you with kind of specifics the whole touch revolution we find on every market to see great expansion opportunity if you see call into out annual conference we will get our act together and talk about the market opportunity for touch sense and true sense two buttons in screen by segment in the meeting.

Operator

One last question gentlemen.

John Barton - Cowen & Co

Hey Brad on the cash flow, given that inventory went up a bit and receivables went up a bit. I was just wondering what made the difference, you generated $100 million and the net income was about $50 million. just trying to reconfirm.

Brad

You are back to depreciation but we also had the deferred income went up a lot and we are on the gypsy stuff we went thru. that offset the arcs of it and the tables were up little more than normal, your G&A have 13 + differentiations and a good thing to look at and then cash flow and again we get option exercises and there is a big spool of options that will be expiring over the next year or so, so a little cash in the kitty as well.

John Barton - Cowen & Co

OK and under receivables based on what you said about things softening towards the end of the quarter, I would have expected the receivables to come down a bit and I am just wondering why they went up and then what you are thinking about the next quarter.

Brad

Same thing deferred income is up, the other side of that receivables, re-shipments through the end of the channel, and you know if you look at it, close to yesterday, about $50 million receivables was collected yesterday, just finding the shipment. The agent act perfect.

John Barton - Cowen & Co

Got it, just thinking about the buy backs, what’s the minimum cash balance you would like to have at any given time.

Brad

I think it depends, if you ask Neil, me or the board, i would say a 100 to 125 and probably keep on hand and you got to band onshore and offshore we don’t have a big offshore issue but as we continue to grow and become more profitable, that creeps up a little bit surprisingly we have plenty of buyers between what we ended, what we are going to add, say a couple of $100 million in cash flow by now the next few quarters. Economically like TJ said you know we want to return our cash back you know is not something you r going to do in a week, but is not something that’s going to take three years. In my opinion valuation remains ridiculously well for the industry, I think our prospect was very good, we are going to take advantage of volatility whether through a derivative or the market in balance as we see fit.

John Barton - Cowen & Co

S-RAM, TJ if you look at S-RAM you r just starting to find nanometer, what is the risk in that cell phone market like we saw two years before in networking, thank you.

T.J Rodgers

Last time we discussed that question for about 45 minutes S-RAM ops review, the overall operating principles, the d-ram are smaller than S-RAM and any time you can do a job, having said that, our S-RAMs operating on 550 MHz with a random access capability, simply we don’t see tech how you can avoid it. into personal computers, made a lot of money, Intel (inaudible) the cash, the (inaudible) cash and integrated it and the dram guys figured out how to replace the drams, they called it pseudo static S-RAM and the deficiencies they had related to S-RAM, I got rid of it, there is no boom right now, we are enjoying big business, there is a technical strategy that we r not going to take away. We don’t know where it is going. Good thing about tech you don’t know were its going. I think we have a baseline established today and anything that’s going to change, S-RAMs are very easy to use, very low cost, goo d high speed product and we might look into something, right now I don’t see a threat.

John Barton - Cowen & Co

Brad follow up on the repurchase, if you wanted to, can you go out today and start repurchasing or is there any block up related to the earnings release,

Brad Buss

Just to und the blackout, we are on a black out tomorrow, and you got your normal back out and you may entertain mb5 to go through. On the toolset commentary you made, 1000 toolsets going up a quarter, existing Cypress customers to bringing new customers to Cypress?

Rather than mix, it s quite substantial to get new customers, part in the two segments, the industrial segment and the medical segment. Specifically we see a lot of opportunities for P-Soc 3 and 5. That’s very new.

John Barton - Cowen & Co

Last question, commentary rank communication in china, was that sort of wobbled weakness that you r seeing, or was it concentrated to your China customers.

Brad Buss

Its not a major decrease right now, we enjoyed increase in back log for about five or six quarters straight now.

John Barton - Cowen & Co

Got it, ok thank you

T.J Rodgers

On S-RAM business, you mentioned business has grown cons for the past six quarters, are you seeing any of your major customers networking side kind of reducing on the S-RAM side, looking out into 2011, how do you see the S-RAM growth with the key competitors exist,

Norm Taffe

we will continue, first question - customer inventory levels are reducing, they are stable, they have get and back to normal times nw. our lead times coming down the are also starting to order , instead of ordering one or two quarters in adv. in terms of next year, our big competitor, there has been a shift of censures thro cypress any announcement of particular customer accident would not have an immediate impact the fact is it is wide n known in the last couple of years, and when you look at it and say who has got the blocks portfolio who is investing in next generation tech. continuous market sharing over time, that will continue with or without any announcement.

T.J Rodgers

True Touch side and the galaxy front, there is kind of deviation from previous competitor with same of the first innovations of that party skew, may be we can get a little more color on the design, one of the reasons why you wanted the design was it lower power, or Samsung kind of diversifying its consumer base.

Norm Taffe

We have had lot of success with that customer, Samsung, but the reality is diversification, we got a big supplier there and that is going up, part of it be going up, and these two announcements are good examples of Smartphone features being brought to kind of higher value application space.

Any update in terms of the production schedule for white spread as we look out 2011, I know last time we take about a little bit differentiate customer into integration into the handset market, just an update on the strategy there as well.

Dinesh Ramanathan

We are in continuing demand as to what we are going to push thru the marketing space, we are trying to come up with USB three solution, we have some designs that are doing on right now, and we are hoping that USB three adoption in the market place will spur more further growth in there

Operator

Here we got time for a couple of more questions

In the alternative businesses, do we pick up any new science prod, planning to add any new science projects you are going to talk to us about --- conference?

T.J Rodgers

Hopefully we are not adding any more..

Tech based manufacturing play right now we have a meeting every month where we review start you opportunities, we look at several companies a month and I m not interested in batteries, batteries are not good enough, I am interested in saving energy and usually the most exciting things that come along are the things I am not anticipating or looking for. $0.02 a quarter from $0.03 a quarter. You got to manage it, its not easy from a bandwidth pt of view, right now, flow, we will do it.

We obviously got a lot of fiber going, we don’t have to buy a lot like the other guys are doing you know even though the consumer standing is going up, we will necessarily deploy consumers, because it implies the consumer.

Look forward to hearing about it in couple of weeks

Operator

And our last question comes from Jeffrey Schreiner with CapStone Investments

Jeffrey Schreiner - CapStone Investments

Good Morning, thank you so much for taking my question

TJ, you mentioned that could you remind us as to the normal season on first quarter?

T.J Rodgers

Kind of three to six, if you want to look at

Jeffrey Schreiner - CapStone Investments

Thanks Brad. When you are looking at the asp's thy are basically flat quarter on quarter, can you give us a little bit more info on was it net driven asps being flat

Brad Buss

It was the ladders the mix of change, frankly given all that at the end of the day, on a power to power basis, pricing was relatively poor from quarter.

Jeffrey Schreiner - CapStone Investments

When you are looking at the returns now, back to normal times back to 45 weeks, can you see any pricing pressure?

Brad Buss

Any time the market goes down, we got to worry about pricing pressure one of the advantage of the rams becoming more, performances, only a few companies can deliver. And P-Soc you can hold it back, I remember the commodity rams when they hold on to 10% per quarter. Those phases are over. Its really in the proprietorship. We no longer have on our mindsets that we provide more value than the prices we raise from both directions now. And the net result is new products flowing in, decline on products that you are under contract, the net result is reviewing flat high level for the last three quarters, if we can hold that, we can make plenty of money, that’s 25% pre tax this quarter. That’s part of the strategy.

Jeffrey Schreiner - CapStone Investments

Thank you that was we helpful, thank you very much.

Dana Nazarian

Thanks. Thank you very much for attending our conference, we have reported excellent results.

Operator

And that concludes the conference call; please discontinue the line at this time.

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