CYPRESS 2008 ANNUAL REPORT AND 2009 PROXY STATEMENT TABLE OF CONTENTS Click on the section below that you would like to visit… 1. Front Cover—Taking a Bite Out of the 8-Bit Microcontroller Market 2. Inside Front Cover – PSoC: A Platform for Innovation 3. 2008 President’s Letter 4. 2008 Financial Statements 5. 2008 10-K 6. 2009 Proxy Statement 7. Inside Back Cover – Cypress Envirosystems 8. Back Cover – Driving the World’s Leading Products DRIVING THE WORLD’S LEADING PRODUCTS Cypress’s programmability is at the heart of some of the world’s most widely known brands, accelerating time-to-market and enhancing product differentiation. Sales of programmable and proprietary products—including PSoC devices and West Bridge peripheral controllers—accounted for more than 77% of Cypress’s 2008 revenues. Our programmable product customer base grew by 42% to more than 8,800 customers. 20082008 ANNUALANNUAL REPORTREPORT Cypress Semiconductor Corp. 2008 Annual Report and 2009 Proxy Statement “We can now see the ‘next level:’ Our 2008 plan calls for us to break the $2 billion revenue mark for the first time ever.”– T.J.Rodgers, 2007 Annual Report ACER ASPIRE- BLACKBERRY BOLD BTC MULTIMEDIA DARFON ELICA STAR COOKTOP CYPRESS PSOC TAKES SHARE IN 8-BIT MCU MARKET 8920G SMARTPHONE KEYBOARD WIRELESS MOUSE KITCHEN HOOD Rank 2003-2004 2005-2006 2007-2008 1 Freescale Microchip Microchip 2 Microchip Freescale NEC Electronics 3 Renesas Atmel Atmel 4 NEC Renesas Freescale 5 Atmel NEC Renesas 6 ST Micro ST Micro ST Micro 7 NXP Toshiba Panasonic 8 Toshiba NXP NXP ENDOR FANATEC PS3 FUJI-XEROX LG-KS360 LG-W53 MIDEA 9 Panasonic Fujitsu Toshiba RACING WHEEL SLIDER PHONE DOCUCENTRE COPIER SMART MONITOR MICROWAVE 10 Infineon Panasonic Fujitsu 11 Samsung Samsung Cypress (#11) 12 Sony Sony Infineon 13 Sanyo Infineon Samsung 14 Fujitsu Sanyo Datang Micro 15 Sunplus Cypress (#15) Beijing Huada 16 Micronas Aeroflex Aeroflex 17 Datang Micro Winbond Sony 18 Winbond Silicon Storage Silicon Labs MOTOROLA DSR530 PURE DIGITAL SAMSUNG SAMSUNG SAMSUNG P3 19 Hynix Datang Micro Tongfang Micro SET TOP BOX IPOD DOCK EPIX PHONE OMNIA PHONE PORTABLE MEDIA PLAYER 20 Aeroflex Beijing Huada Sanyo Electric 21 Holtek Tongfang Micro EM Micro 22 Zilog Holtek Holtek 23 Myson Century Sunplus Winbond 24 MagnaChip EM Micro Shanghai Huahong 25 EM Micro Micronas Silicon Storage 26 Ricoh National Semi Nuvoton 27 Sitronix Zilog Sitronix 28 Elan Micro Myson Century SONiX SOFTBANK SONY BLU-RAY WHIRLPOOL CARISMA FUJITSU DOCOMO BLACKBERRY 29 TI Silicon Labs Weltrend 931SH PHONE DISC PLAYER WASHING MACHINE PRIME F-01A PHONE PEARL 8220 PHONE 30+ Cypress (#41) Ricoh ABOV SOURCE: ISUPPLI AND CyPRESS Taking a Bite out of the 8-Bit Microcontroller Market • Nearly 9,000 PSoC® customers and more than 500 million units shipped. • Broad leadership in the touchscreen market, including mobile phones and MP3 players. • Two new PSoC families in 2009 with 7.5 to 25 times more computing power. Cypress Semiconductor Corporation 198 Champion Court, San Jose, CA 95134-1709 (408) 943-2600 www.cypress.com ©2009 Cypress Semiconductor Corporation. All Rights Reserved. All other trademarks are the property of their respective owners. Printed in the U.S.A. 1-0409 AR PSOC: A PLATFORM FOR INNOVATION CYPRESS ENVIROSYSTEMS Cypress’s PSoC® Programmable System-on-Chip is the world’s only programmable embedded-system design platform. It was the Cypress Envirosystems, a subsidiary of Cypress Semiconductor Corp., creates products and systems that save enough energy first chip to combine analog and digital peripherals with memory and a microcontroller on a single chip. A total system solution, to pay for themselves in one year. PSoC has been designed into a near-limitless range of end products. The original PSoC architecture—PSoC1—debuted in 2001. This year, Cypress will introduce two new PSoC families, PSoC3 and PSoC5. WIRELESS GAUGE READER WIRELESS STEAM TRAP MONITOR (WST) (WGR) allows for reading Steam traps collect condensation in a steam remote gauges in industrial environments. The heating line typically used for manufacturing and heating. This WGR contains a camera and radio to relay the condensation is then expelled with a mechanical valve to prevent The big winners for PSoC1 products information back to a central basestation. It eliminates damage to the steam system. The failure rate of steam traps is were touchscreen products such as the need for human “runners” who check the gauges and very high. A leak can cost $10,000 per year if undetected. The PSoC1: Our start in 2001. mobile phones and MP3 players. But serves as a safeguard against 11th-hour factory WST monitors for faults (unexpelled water and leaks) and radios 500 million units shipped PSoC is also an integral part of many manufacturing problems. the information back to a central station that can be a simple PC. to date. other systems, including high-definition • 0.35-micron televisions, digital cameras, computer • 4 MIPS/24 MHz peripherals, and lighting applications. • 2,000 gates WIRELESS PNEUMATIC THERMOSTAT (WPT) is a low-cost retrofit for the 60 million thermostats that control • 8-bit ADC @ 31 KSPS* the heating and air conditioning in most American commercial buildings. The old-style thermostats are not Innovative PSoC1 software allows electronic and cannot be controlled remotely—to turn down the heat at night, for example. The WPT designers to “roll their own” microcontroller contains an old-style thermostat that is controlled by a radio to automate old buildings, immediately saving in less than one hour, including creating a significant amount of energy. A typical WPT pays for itself with reduced energy consumption and lower samples on a USB-based programmer. maintenance labor in 12 months. Cypress’s PSoC3 device features WIRELESS GAUGE READER INSTALLATION 30 MIPS of performance. But PSoC3: Our new 8-bit more than that, it’s about precision San Jose-based semiconductor maker, Micrel, installed Cypress Envirosystems’s Wireless Gauge microcontroller that’s analog—analog as good as that Readers and Wireless Transducer Readers at one of its plants to automate monitoring of 7.5x faster. coming from analog-only companies critical process gases. The installation did not disrupt plant operations and its cost was • 0.13-micron but integrated into a complete system- 70% less than competitive transducer solutions. • 30 MIPS/67 MHz on-chip. Products within the reach of • 20,000 gates PSoC3 include medical electronics, Micrel estimates annual savings to be in the range of $215,000, including $95,000 in • 8-bit ADC @ 384 KSPS such as glucose meters, and precision labor, $80,000 from the quick detection of gas leaks, and $40,000 in reduced system • 12-bit ADC @ 192 KSPS metering applications, such as this downtime. The investment is expected to pay for itself in seven months. Revolutionary PSoC3 and PSoC5 software— power meter. the first graphics-based embedded systems solution in the world—represents a break- through in design methodology. CYPRESS UNIVERSITY ALLIANCE Over the past two years, Cypress’s University Alliance Program has Cypress’s 100 MIPS PSoC5 device made PSoC available to nearly 40,000 engineering students at 336 combines precision analog and 32 bits universities worldwide for academic courses and research activities. PSoC5: PSoC technology of performance, enabling penetration on a 100-MIPS, 32-bit into complete system products. In this Here, students at Argentina’s National University of Patagonia are processor. POS terminal, the touchscreen display, using PSoC to study how electricity from alternative energy sources is produced, stored, and used at remote sites. PSoC’s reconfigurable • 0.13-micron mechanical buttons, and data manage- architecture enables students to acquire data from sensor networks • 100 MIPS/80 MHz ment and reporting are all controlled by at these sites and quickly improve their system designs. • 20,000 gates a single PSoC chip. • 8-bit ADC @ 1,000 KSPS • 12-bit ADC @ 1,000 KSPS *8-bits accuracy (256 levels), and samples data at the rate of 31,000 samples per second (KSPS). FELLOW SHAREHOLDERS: INTRODUCTION* Thus—after its SRAM company phase and its diversified electronics company phase—the “new” Cypress will In the last sentence of the 2007 Annual Report, I wrote enter the third phase of its existence as a very lean that “our 2008 plan calls for us to break the $2 billion programmable products company. revenue mark for the first time ever.” Since we were at the $1.6-billion mark by the end of the third quarter, we FINANCIALS would have achieved that objective easily if a favorable IRS tax ruling had not allowed us to spin out SunPower Cypress spun out SunPower to its shareholders on to our shareholders in September 2008, earlier than we September 29, 2008. However, in accordance with planned. The spinout was valued at $2.6 billion overall, accounting rules, the financials in this report are or $16.42 per share—tax-free. Cypress-only, as if SunPower had been divested for the full year. Cypress is now a $766 million semiconductor company, enthusiastic about hurdling the $1-billion revenue barrier Cypress’s 2008 revenue was $766 million, down 7% again, this time as a completely transformed program- year-on-year from $822 million, as shown in Figure 1. mable products company. As the cover of this report The drop in revenue is due almost exclusively to a very indicates, we have been taking market share rapidly with weak fourth quarter in which our revenue dropped $58 our PSoC® Programmable System-on-Chip solution, a million from the third quarter. We are expecting our revolutionary product that has begun to reshape the revenue to bottom out in Q1 2009 and then to begin a embedded systems industry. recovery in Q2 2009.