With touch screens on smart phones, tablet computers, digital cameras and “smart” kiosks changing how we interact with the digital world, demand is exploding for specialized chips that translate those poking fingers and bouncing thumbs into meaningful electronic pulses.
And all those tap-tapping flesh-covered digits mean big numbers for one Minnesota manufacturing plant.
In January, California-based Cypress Semiconductor Corp. announced plans to triple manufacturing capacity at its Bloomingtonfactory and nearly triple capital spending to $70 million to meet exploding demand for its TrueTouch family of chips that manage touch-screen signals.
It’s a bet that is paying big dividends for the company.
.Last week, Cypress announced its second-quarter results, posting record revenue for its TrueTouch chips, which grew a “whopping” 52 percent from the first quarter and more than 350 percent from a year ago, according to company officials.
Controller chips are its biggest market
Controller chips for smart-phone handsets are the largest market for Cypress, representing 29 percent of the company’s total revenue of nearly $255 million in the quarter. Excluding stock compensation expenses and restructuring charges, the company also claimed its highest net income in more than a decade, nearly $63 million.
“TrueTouch is kind of like catnip. It’s huge volume, big wins, it’s a lot of fun,” Cypress CEO T.J. Rodgers told analysts and investors in a conference call last week discussing the financial results.
Chief Financial Officer Brad Buss also told Wall Street they have already booked an unprecedented 96 percent of customer orders for the third quarter and 50 percent for the fourth quarter. With that strong tailwind, the company upped its revenue forecast for TrueTouch products by $50 million to a range of $230 million to $250 million for fiscal 2011, more than double the 2010 results.
Cypress also bragged that it shipped its 1 billionth PSoC (programmable system-on-chip) device, driven by the growth of TrueTouch chips. With the first PSoC shipments begun in 2002, Cypress claims the milestone represents one of the fastest ramp-ups in the industry for this kind of device.
Traders and investors, though, haven’t yet decided if they like the company’s revised outlook.
On the day of the announcement, the stock shot up $1.64, near its 12-month high, but settled back to $21.04 just $0.04 above its previous close, on nearly three times the normal daily volume. On Friday, CY traded up $1.30 to $22.34 on nearly double the average trading volume, only to give it all back in after-hours trading.
The boom has been good for Cypress and has helped fuel the growth of Minnesota’s semiconductor exports. Along with about two dozen other manufacturers in the state, semiconductor exports enjoyed a robust 37 percent compounded annual growth rate between 2003 and 2010.
The exports went from a low of $185 million to $1.2 billion last year, swelling from 1.7 percent to nearly 7 percent of total state exports, according to trade data compiled by the Minnesota Department of Employment and Economic Development (DEED).
Despite that track record, however, it has not necessarily translated into robust job growth for Minnesota.
The semiconductor industry is highly automated with a skilled and well-paid workforce, but one that has been shrinking in absolute numbers. About 1,300 people were directly employed in semiconductor manufacturing in the state at the end of 2010, about half the number of a decade ago, according to the U.S. Bureau of Labor Statistics (BLS) database.
The city of Bloomington reported that 777 people worked at the Cypress plant in 2001, putting it among the top 10 employers in the city.
Cypress employee numbers shrinking
The Bloomington plant, which Cypress purchased from a Control Data spin-off for $14.7 million in 1990, survived a manufacturing restructuring in 2007, when the company closed its Round Rock, Texas, facility in favor of what it said was the more cost-efficient Minnesota site. In 2009, Cypress announced a layoff of 160 at the Bloomington plant. By the third quarter of 2010, the city estimated that about 450 people worked at the Bloomington plant.
While a company spokesman declined to say how many people currently work at the plant, CEO Rodgers told analysts that they made “substantial additions’ to the PSoC and TrueTouch business so far this year. A quick check of the Cypress website found postings for three technical positions at the Minnesota plant among the 23 job openings company-wide. Cypress’s total corporate-wide headcount has declined from a peak of 4,500 in 2004 to 3,500 at the end of last year,
In 2005, the company struck what it calls “a strategic foundry partnership” with Shanghai-based Grace Semiconductor Manufacturing Corp. Cypress ultimately expects to source half of its manufacturing needs from the Chinese company. Bloomington provided 65 percent of Cypresses total output in 2009, but that number dropped to 59 percent last year as the company heads to a target of 50-50 by 2012.
If the boom in touch screens doesn’t drive semiconductor employment growth, perhaps the demand for smarter cars will.
Just down the road from Cypress, Polar Semiconductor, a division of Japanese-based Sanken Electric, won approval from Bloomington last fall to construct a 98,000-square-foot building, which would increase its manufacturing footprint by 60 percent. The addition of 300 production jobs would bring total employment there to more than 800 once the build-out is fully up and running.
Polar, which specializes in motion-detecting chips used in high-end autos for fuel-injection systems and anti-lock brakes, has been waiting for a go-ahead from Japan to begin the build out.
