Thursday, May 15, 2008

Cypress Semiconductor Annual Shareholder Meeting (2008)

Cypress Semiconductor (CY) runs its meeting professionally. Doors are closed after the meeting time, although a security guard allowed me to enter. Two employees check your proxy card, along with your ID, and write out a name tag before letting you in. CY gave away a nice bag this year to all attending shareholders. Also, the food spread was more than your typical coffee and cut fruit--it was a smallish buffet, with some shish kabob and several selections of cheese and whole fruits. In the back of the room, there are several displays about how CY's technology is used in applications as diverse as timers and solar panels.

CY has one billion dollars in cash-that's the first thing I noticed from its presentation. CY is headed by an engineer (T.J. Rodgers), and he gave us a lecture on how CY's technology is more efficient and creative than its competitors. For example, his PSoC, or Programmable System on a Chip, allows companies to move components on a reference design board to get the result they want. In addition, the PCBs do not require the use of a Cypress proprietary IC chip, allowing more flexibility. By being more flexible about the chips necessary for its software and design boards, CY may be able to charge for its boards and software at some point in the future. In contrast, its competitors typically give away their boards and software because they are only functional with the companies' own IC chip, where the company plans on making sales and profits. CY, however, works with several different companies, including NOK and MOT, which use Cypress chips in some of their phones. With respect to "sideloading," which includes the task of uploading movies or content onto a phone using a USB device, I thought it was interesting that the RIMM and MOT phones were currently among the fastest, while the Sony ERIC phone was the slowest. Apple's iPhone speed was in between.

CY's PSoC design may also be more environmentally friendly, because fewer boards and components are necessary to accomplish several different tasks. The presentation included showing us how one such board could create several different kinds of light in different intensities, all from one board. (We were treated to a fun, small-scale Disney Fantasia show, where the CEO, who was holding a rectangular 8 watts LED light, would tell an associate across the room, "Blue! Now turn it up [in intensity]. Now green. Now white." You get the picture.)

This is where it gets interesting. CY's technology encourages the use of LED lights, which last longer and use less power, and are therefore more environmentally friendly. There are three types of lights: LED, CFL (compact fluorescent), and INCAND (incandescent), in order of most environmentally friendly to least. The LED light required the most upfront investment--around 12 to 20 dollars--but over its life of multiple years, sometimes even as long as 17 years, the buyer would spend less because electricity bills would be lower. Therefore, while the INCAND bulb only cost around 4 dollars initially, it actually cost 300 dollars more than the LED light over the same period of time because of the extra "juice" it requires. The CFL was in between, but the LED light was clearly superior when lifetime costs, not just initial costs, were factored in. The lesson I took was to try to find LED lights whenever possible, despite the higher upfront cost.

However, despite this new angle and method of designing semiconductors, the charts showed that semiconductor sales were decreasing and have been declining for quite some time. Most of CY's growth comes from its earlier acquisition of Sunpower, a solar panel technology company. [Update: CY has spun off Sunpower.] CY focused on the fact that its solar panels are far more efficient than its competitors, especially those using "thin film" or "conventional" solar panels. CY also mentioned that it was going to present the tax consequences of spinning off its Sunpower company to shareholders to the Board that same day.

I was very impressed with the presentation and this company. Few companies present themselves so professionally and are on the cutting edge of innovation.

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