UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

     (Mark One)

[X]                      Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000

[   ]                  Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.

Commission File Number: 1-10079

Cypress Semiconductor Corporation
(Exact name of registrant as specified in its charter)

3901 North First Street, San Jose, California 95134-1599
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (408) 943-2600

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this form 10-K. [X]

     At February 23, 2001, registrant had outstanding 126,534,000 shares of Common Stock.

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     The market value of voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on February 23, 2001 on the New York Stock Exchange, was approximately $2,703,000,000. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded from the foregoing calculation in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy Statement for Registrant’s 2001 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K.

INDEX

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PART I

ITEM I. BUSINESS

     This Item contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of the factors set forth in “Risk Factors” and elsewhere in this Report.

General

     Cypress Semiconductor Corporation (“Cypress”) designs, develops, manufactures and markets a broad line of high-performance digital and mixed-signal integrated circuits for a range of markets, including data communications, telecommunications, computers, and instrumentation systems. We currently offer approximately 420 products through a network of sales offices, distributors, and sales representative firms. In fiscal 2000, international sales accounted for 49% of our total sales. Our products are sold to a wide range of customers, including Alcatel Alsthom S.A., Cisco Systems, Inc., International Business Machines Corporation, Intel Corporation, Lucent Technologies, Inc., Motorola, Inc., NEC Corporation, Nortel Networks Corporation, 3Com Corporation, and Sony Corporation.

     Cypress was founded in 1982 and our initial strategy was to provide innovative high-performance complementary metal-oxide silicon (“CMOS”) integrated circuits to niche markets that were believed to be too small to be targeted by the established semiconductor manufacturers. In 1992, we modified our strategy to focus on selected high-volume commodity memory products, which could be brought to market quickly and cost-effectively. This strategy was successful until 1996 when the average selling prices of memory products began to decline. To offset the effects of declining selling prices and its impact on revenues from commodity products, we modified our strategy by diversifying our product mix to focus on more value added products. We directed our sales and marketing efforts and new product development resources, towards the data communication and telecommunication end markets.

     In fiscal 2000, Cypress formed four new divisions designed to enhance our focus on serving end markets. The WAN (Wide Area Networks) and SAN (Storage Area Networks) divisions are helping to provide product definition in the networking arena. Similarly, the WIN (Wireless Infrastructure) and WIT (Wireless Terminals) divisions help focus our efforts in the wireless space. We capture the balance of products in a computation and other category. Our current product lines continue to operate as they have in the past and are still the core internal reporting entities. This new market focus is expected to provide systems knowledge, cross-product-line product portfolio definition, early engagement with strategic accounts and added management of research and new product development resources.

     Because of the highly competitive nature of the semiconductor industry, its cyclicality and anticipated pressure on average selling prices over the life of any particular product, our ability to successfully implement this strategy and achieve our revenue, earnings and gross margin goals will depend upon a number of factors. These factors include, but are not limited to, our ability to:

     Cypress was incorporated in California in December 1982. The initial public offering of our common stock occurred in May 1986, at which time our common stock commenced trading on the Nasdaq National Market. In February 1987, we reincorporated in Delaware and on October 17, 1988 listed our common stock on the New York Stock Exchange.

Products

     We have traditionally organized our product offerings in two business segments, memory products and non-memory products. Our memory product segment includes integrated circuits on silicon wafers manufactured using leading edge process technology. A significant portion of the wafers we produce for memory products are manufactured at our technologically advanced, eight-inch wafer production facility located in Bloomington, Minnesota, which we refer to as Fab 4. Some of our products have high unit sales volume and experience significant shifts in supply and demand; these factors mean a potentially greater exposure to fluctuations in average selling price and gross margin. Sales of memory products are generally driven by higher volumes, and results of operations are improved through advancements in technology and attainment of lower manufacturing costs. With its focused communications strategy, Cypress has reduced its dependency on commodity memories.

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     A majority of the wafers we produce for non-memory products are manufactured at our six-inch fab located in Texas, which we refer to as Fab 2. For non-core technologies, we purchase wafers fabricated from other foundries in limited quantities. Unit sales volume of non-memory products are generally lower than memory products, but gross margins are typically higher. Future sales and results of operations of non-memory products are driven by the introduction of new products, design wins and improvements in technology. Because the semiconductor industry is characterized by rapid technological change, resulting in products with greater speed, densities and performance capabilities and by the continuing evolution of process technologies, our success will continue to depend upon the timely development, introduction and market acceptance of new products in the non-memory products business segment.

     Please refer to our Note 13 to our annual financial statements included in this Report for detailed information about the composition of revenues from our memory and non-memory product market segments.

Memory Products

     Our memory products primarily serve the networking, wireless communications and computation markets.

     Static RAM (Static Random Access Memory). Static RAMs are used for storage and retrieval of data in data communication, telecommunication, computers and other electronic systems. Common applications in the networking markets include hubs, switches, routers, test and measurement instrumentation, video and simulation. Applications in the wireless communication market include cellular phones, pagers, radios, global positioning satellite systems and cellular base stations.

     The overall static RAM market is characterized by the need for many different densities (number of bits per memory circuit), organizations (number of bits available to the user in a single access of the RAM) and levels of power consumption (low power and ultra-low-power devices are required for portable battery operated equipment). In addition, the market is divided into fast asynchronous, slow micro-power and synchronous sectors. This differentiation of the static RAM market when combined with the different RAM features incorporated by various manufacturers, the need for military, industrial and commercial grade products, the need for different package types, and the grading of product by speed and power, requires a complex product portfolio to serve the diverse needs of these specific markets. Cypress has products in each of the three static RAM sectors (fast asynchronous, slow micro-power and synchronous). We offer parts with densities including 64K, 256K, 512K, 1 Meg, 2 Meg, 3 Meg, 4 Meg, 8 Meg and 9 Meg. We also offer parts with organizations including x1, x4, x8, x16, x18, x24, x32 and x36. Synchronous architectures include NoBL, pipeline and flowthru.

Non-Memory Products

     Non-memory products include a variety of products that serve the data communications, telecommunications, personal computer, PC peripheral, military and consumer markets. Non-memory products include Physical Layer (“PHY”), data communication, clock and USB products. Key products in the portfolio include our HOTLink optical transceivers, the Roboclock family of clock buffers, our low skew and low jitter programmable clocks, our broad portfolio of specialty multi-port memories and our plug and play USB devices.

     PHY (PHYsical Layer) Our family of high-performance SONET/SDH (Synchronous Optical Network/Synchronous Digital Hierarchy) transceivers move SONET or SDH frames between equipment at the SONET/SDH data rates of 51.85Mbps (OC-1), 155.52Mbps (OC-3), and 2.488Gbps (OC-48). Our latest addition to this family was the world’s most integrated OC-48 SERDES, which meets the stringent requirements of WAN switches and routers by having Bellcore compliant jitter specifications.

     HOTLink (High-speed Optical Transceiver Link). Our HOTLink serial transceivers are the industry standard products for moving serial data at rates from 50-400 Mbps. These products support a variety of applications and industrial protocols including fibre channel, enterprise system connection, asynchronous transfer mode, digital video broadcast, Advanced Micro Devices, Inc.’s TAXI™ protocol, generic backplane and point-to-point applications.

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     RoboClock. Our RoboClock family of high-performance programmable clock buffers offer very high-performance specifications (i.e. zero propagation delay and 50/50 duty cycle) and programmable features (i.e. programmable skew and multiply/divide functions) allowing customers to compensate for clock skews arising from varying circuit board trace lengths and device set-up and hold times. We recently added the next generation of RoboClock devices by introducing the RoboClock IITM programmable clock skew buffer, which doubles the performance of the original family by operating up to 200-MHz, supporting 18 outputs, and adding more multiply, divide, and skew options.

     Multi-port Memories. Dual-port and QuadPort^TM RAMs are memories that can be accessed by two or four different processors or busses simultaneously. Multi-ports are designed to be memory solutions for shared-memory and switching applications, including networking switches and routers, cellular base stations, mass storage devices, and telecommunication equipment. Our family of synchronous and asynchronous multi-port RAMs range in density from 8 Kbit to 9 Mbit in x8, x9, x16, x18, and x36 configurations. We further enhanced our leadership position in multi-ports by introducing the world’s first 9 Mbit Dual-port and the world’s first high-density (1-megabit) / high-performance (10 Gbps) QuadPort RAM.

     First-in, First-out (“FIFOs”). FIFOs are used as an elasticity buffer between systems operating at different frequencies. We offer FIFO memories in a variety of high-bandwidth synchronous and asynchronous architectures with industry-standard pinouts. We have recently added 32 new x36 FIFOs and the world’s highest bandwidth FIFO (The Beast™ FIFO) to our portfolio.

     Programmable Clocks. We are a leader in the timing technology device market primarily due to our clocks and clock distribution circuits. Clocks, or Phase-Locked Loop (“PLL”) based frequency synthesizers, integrate essentially all frequency generation and timing control functions of a communications and/or microprocessor based system, thus reducing size, power consumption and cost. These devices are widely used in personal computers, disk drives, modems, some office/home office (“SOHO”) network routers and hubs, digital video disks, and home video games. We are the only supplier offering true field-programmable clocks, and all our clock outputs have the desired characteristics of high drive, low jitter, low electro-magnetic interference (“EMI”), and low skew.

     USB (Universal Serial Bus). USB is a four-wire connection between a PC and its peripherals (such as keyboards, mice, printers, joysticks, scanners and modems), facilitating an easy-to-use architecture known as “plug and play.” This new standard has been supported by Microsoft Corporation, Intel Corporation and other large original equipment manufacturers, referred to as OEMs. In 1997, we entered into a strategic alliance with Microsoft to produce our first USB product, an 8-bit, RISC-based microcontroller for Microsoft’s new Internet mouse. In 1999 we acquired Anchor Chips, Inc. to expand our high-performance USB product line. We now make USB microcontrollers for a broad range of peripherals from personal computers, mice and keyboards to high-performance devices such as DSL modems and digital cameras, giving us the broadest USB product portfolio in the industry.

     PLDs (Programmable Logic Devices). The logic in an electrical system performs the non-memory functions, such as floating-point mathematics or the organization and routing of signals throughout a computer system. This constitutes a significant portion of the circuitry in most systems. We manufacture several families of programmable logic circuits, which are programmable by the user. PLDs facilitate the replacement of many standard logic devices with a single device, thus reducing package count and cost, improving performance and allowing miniaturization. Our PLD portfolio consists of a wide variety of devices ranging from simple PLDs such as the Flash 22V10, to the very-high-density complex PLDs such as the Cypress Ultra37000™, Quantum38K™, and Delta39K™ CPLD families. We have recently added the Programmable Serial Interface (“PSI”) family to our portfolio, which integrates our serial link technology with our Delta39K CPLD products. All our products are supported by the Warp™ software tool set, which enables design description in either VHDL (very high-speed integrated circuit hardware description language), an industry standard developed by Cypress or in Verilog, another industry standard.

     PROMs (Programmable Read-Only Memories). Read-only memory, referred to as ROM, is a memory in which the data is fixed even when the power is off. ROMs are used to provide start up data to computers when they are turned on. PROMs are blank ROMs that can be customized by the customer to fit specific needs. They are used in computer-peripherals, telecommunications systems and instrumentation equipment which store fixed data that is not to be altered during normal machine operations. We have been a supplier of high-performance CMOS PROMs since 1984. These early devices were the first to combine the fast memory access of PROM with the low power consumption of CMOS technology. We offer a broad family of high-performance PROMs ranging in density from 4K to 256K bits, available in a variety of standard and proprietary user interfaces.

     Bluetooth. We have announced our entry into the fast-growing wireless PHY market by developing Bluetooth chips. Bluetooth is an industry standard technology that allows short range (3 to 100 meters) communication to take place without wires. Cell phones, PDA’s and PC’s are adopting this standard as a way to exchange data and to connect to the Internet. The technology is also appropriate for printers, scanners, digital cameras as well as mice, keyboards, joysticks, headsets and many other products. Our first Bluetooth chips are expected to be available in 2001. We are evaluating a number of other wireless markets where our low cost development can best be leveraged.

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     PSoC(Programmable System-on-Chip) Microcontrollers. PSoC Microcontrollers are microprocessors used in a wide variety of embedded applications such as communications, industrial control, and consumer products. The entire microprocessor system is implemented on a single chip, but most applications require additional components. The trend is toward increasing the amount of the application that can be placed on a single chip. The Cypress PSoC Microcontroller is the first entry in the marketplace to support both the addition of analog (non-digital) capability and the ability to configure each device to fit each application’s specific device requirements.

     GLV™ (Grating Light Valve™). The GLV™ technology represents a new approach to the challenge of high resolution, high contrast imaging. To create a GLV™ device, microelectromechanical systems (“MEMS”) techniques are used to form tiny picture elements, or pixels, on the surface of a silicon chip. Each of these pixels is made up of multiple ribbon-like structures, which can be moved up or down over a very small distance by controlling electrostatic forces. The ribbons are arranged such that each pixel is capable of either reflecting or diffracting light, which allows an array of pixels, when appropriately addressed by control signals, to form a pattern of light and dark points on the surface of the chip. An image is created by collecting the reflected or diffracted light with an appropriate lens system, either to be projected onto a front or rear screen system, or to be viewed directly by the eye. This technology has enabled new levels of performance for a variety of display and print applications including high definition television (“HDTV”), digital cinema, simulation and high-resolution digital photofinishing. In addition, the core MEMS technology is being applied in the fast growing optical networking segment.

Research and Development

     We place great emphasis on research and development (“R&D”). This is partially reflected by our commitment of significant management resources to continuously improve process and product design development cycle time. Our current product strategy requires rapid development of new products using emerging process technologies while minimizing R&D costs. We perform research and development at two levels: research and development related to process technology, and research and development related to new product design.

     The major focus of our process technology research is the continuous migration to smaller geometries. Currently, we are qualifying our 0.15-micron technology in manufacturing. We are simultaneously developing our 0.12-micron technology in our eight-inch R&D Fab in San Jose, California. This R&D Fab, which was converted from six-inch wafer to eight-inch wafer capability in fiscal 2000, is now compatible with our manufacturing Fab in Minnesota.

     In July 2000, Cypress entered into an agreement with Mosel Vitelic (“Mosel”) to jointly develop a 0.12-micron process technology, to be deployed initially in Cypress’s R&D Fab in San Jose. Under the agreement, Mosel engineers will work with Cypress’s existing Fab 1 research and development team on defining a 0.12-micron manufacturing process. Cypress and Mosel also agreed over time to share some of the costs of purchasing new equipment to facilitate tighter process geometries. The agreement will allow Cypress and Mosel to continue to offer cutting-edge process technology, which we expect will produce new high-performance, market-leading products more economically and quickly.

     We have a central design group that focuses on new product design and improvement of design methodologies. This group has ongoing efforts to reduce design cycle time and increase first pass yield through structured re-use of intellectual property (“IP”) blocks from a controlled IP library, development of computer-aided design tools and improved design business processes. We currently have 50 design teams in place working on new product designs. Design and related software development work primarily occurs at centers located in the United States, the United Kingdom, Ireland and India.

Manufacturing

     In fiscal 2000, we continued to manufacture our products at two sub-micron wafer fabrication facilities located in Minnesota and Texas. These fabrication facilities utilize our proprietary 0.25 through 0.8-micron CMOS, 0.25 and 0.8-micron BiCMOS, and 0.65-micron Flash technologies. To enhance our competitive position, we emphasized programs to reduce manufacturing cycle times, reduce die size, improve labor productivity, improve efficient use of capital resources, eliminate manufacturing steps, improve defect densities, improve yields and ultimately lower manufacturing costs. We invested $258 million in fiscal 2000 to increase the capacity and capability of our primary wafer fabrication plants, Fab 2 and Fab 4. We invested $20 million in fiscal 2000 to upgrade our San Jose Fab to eight-inch capability. We have continued to use various foundries to augment production on non-core technologies. We intend to focus on developing RAM and BiCMOS technologies in our own wafer fabrication plants.

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     Our semiconductor manufacturing operations require raw materials that must meet exacting standards. We generally have more than one source available for these materials; however, there are only a limited number of suppliers capable of delivering certain raw materials that meet our standards. New suppliers must go through a qualification process. Raw materials used are subject to testing and quality control inspections. The availability of raw materials used in the manufacture of semiconductors is subject to fluctuation as worldwide demand for semiconductors increases or decreases.

     A significant portion of our assembly and test operations is performed by our highly automated assembly and test facility in the Philippines, which accounted for over 40% of our fiscal 2000 output, the balance being performed by various offshore subcontractors. Our Philippines facility primarily manufactures high volume products and packages where our ability to significantly leverage manufacturing costs is high. The Philippines plant currently has capability for numerous types of packaging and testing and will be developing the capability for several other packages in the near future. In fiscal 2000, we invested $11 million in capital to expand our Philippines’ manufacturing capability with state-of-the-art equipment. When fully utilized, this plant is expected to provide approximately 57% of our assembly and test manufacturing capacity.

     The complicated nature of our wafer fabrication process often results in certain wafers being rejected or individual die on each wafer to be non-functional, adversely affecting manufacturing yields. Similar yield losses may be experienced in the assembly and test phase of manufacturing. Our philosophy is to prevent the yield loss and/or quality problems to the extent possible through analytical and statistical manufacturing controls. We test our products at various stages in the fabrication, assembly and test processes. We perform high temperature burn-in testing as well as continuous reliability monitoring on our products, and conduct numerous quality control inspections throughout the entire production flow using quality control analytic equipment. This combination of manufacturing controls, product testing and quality control inspections is intended to reduce costs while maintaining an uninterrupted supply of product.

     During fiscal 2000, Cypress began work on enterprise-wide order management, manufacturing planning and distribution information systems, in order to improve manufacturing cycle times, customer responsiveness and delivery. These projects will be completed in 2001.

Marketing and Sales

     We use four channels to sell our products: direct OEM sales by our sales force; sales by manufacturing representative firms; sales through domestic distributors; and sales through international trading companies and representative firms. Our marketing and sales efforts are organized around four regions: North America, Europe, Japan and Asia/Pacific. We also have a strategic accounts group and a contract manufacturing group, which are responsible for specific customers with worldwide operations. We augment our sales effort with field application engineers, who are specialists in our product portfolio and work with customers to “design in” our products for their systems. Field application engineers also help us identify emerging markets and new products.

     International revenues accounted for 49% of our total revenues in fiscal 2000 compared to 49% in 1999 and 43% in 1998, respectively. Please refer to Note 13 to our annual financial statements included with this Report for additional information on geographic distribution of our revenues. Sales to Motorola, Inc. accounted for 10.9% of total revenues in fiscal 2000. Sales to two distributors accounted for greater than 10% of total revenues in fiscal 2000; sales to one distributor accounted for greater than 10% of total revenues in 1999 and 1998. Sales to Arrow Electronics, Inc. were 18.0%, 19.1% and 29.4% in fiscal 2000, 1999 and 1998, respectively. Sales to Future Electronics Corporation were 14.1% of total revenues in fiscal 2000.

     We typically warrant our products against defects in materials and workmanship for a period of one year and that product warranty is generally limited to a refund of the original purchase price of the product.

Backlog

     Our sales are typically made using standard purchase orders for delivery of catalog products. Customer relationships are generally not subject to long-term contracts. However, Cypress has entered into long-term supply agreements with Alcatel Alsthom S.A., Cisco Systems, Inc., Flextronics International Ltd., Intel Corporation, Lucent Technologies, Inc., Motorola, Inc., Nortel Networks Corporation, Koninklijke Philips Electronics N.V., Solectron Corporation and ST Microelectronics N.V. Products to be delivered and the related delivery schedules are frequently revised to reflect changes in customer needs. For these reasons, our backlog at any particular date is not representative of actual sales for any succeeding period, and we believe that our backlog is not a meaningful indicator of future revenues.

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Competition

     We face competition from other domestic and foreign high-performance integrated circuit manufacturers, many of which have advanced technological capabilities and have increased their participation in the markets in which we operate. We compete with a large number of companies primarily in the telecommunications, data communications, personal computer, personal computer peripheral and military markets. Our competitors, including Altera Corporation, Applied Micro Circuits Corporation, Hitachi Ltd., Integrated Device Technology, Inc., Integrated Circuit Systems, Inc., Integrated Silicon Solutions, Inc., Motorola, Inc., National Semiconductor Corporation, PMC-Sierra, Inc., Samsung Corporation, Texas Instruments Incorporated, Vitesse Semiconductor Corporation, and Xilinx, Inc., target certain markets and compete directly with our products. Competition is based on various factors that can vary among products and markets. These factors include design and quality of the products, product performance, price and service.

     The semiconductor industry is intensely competitive. This intense competition results in a difficult operating environment for most companies in the industry, including Cypress. This environment is characterized by potential erosion of product sale prices over the lives of each product, rapid technological change, limited product life cycles and strong domestic and foreign competition in many markets. Our ability to compete successfully in a rapidly evolving high-performance end of the semiconductor technology spectrum depends on many factors, including:

     We believe that we currently compete effectively in the above areas to the extent they are within our control; however, given the pace at which events change in the industry, our current abilities are not a guarantee of future success. If we are not able to compete successfully in this environment, our business, operating results and financial condition will be harmed.

Patents and Licenses

     We currently have over 500 patents and approximately 400 additional patent applications on file with the United States Patent and Trademark Office. We are preparing to file more than 120 new patent applications. In addition to factors such as innovation, technological expertise and experienced personnel, we believe that patents are increasingly important to remaining competitive in our industry. We have an active program to acquire additional patent and other intellectual property protection.

     We have, and in the future may continue to, enter into technology license agreements with third parties that give those parties the right to use patents and other technology developed by us. Some of these agreements also give us the right to use patents and other technologies developed by such other parties, some of which involve payment of royalties.

     The patents owned by us may be invalidated, circumvented or challenged, and the rights granted under these patents may in any case not provide competitive advantage to us. We are, and may in the future be, involved in litigation with respect to alleged infringement or involved in litigation to enforce our intellectual property rights. To the extent we rely on technology developed by other companies in our product, we cannot be certain that license agreements will continue to be available to us on commercially reasonable terms in the future.

Mergers and Acquisitions

     During fiscal 2000 we completed acquisitions of four companies: Silicon Light Machines (“SLM”), RadioCom Corporation (“RadioCom”), Alation Systems, Inc. (“Alation”), and Galvantech, Inc. (“Galvantech”).

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     SLM is a supplier of MEMS technology applicable to fiber-optic networks and other applications. SLM licensed its MEMS-based Grating Light Valve™ (GLV™) technology to Sony Corporation for state-of-the-art display applications. Cypress aims to leverage SLM technology to complement its product and intellectual property portfolio targeted at the optical networking business and to accelerate its penetration of the market for pure optical and optoelectronic networking components. The acquisition also aligns Cypress’s product development roadmap with those of its strategic networking customers.

     RadioCom is a corporation specializing in the design and development of semiconductor radio frequency (“RF”) integrated circuits. The acquisition was made to further accelerate our penetration of the exploding wireless handset market, where we currently offer our ultra-low-power MoBL™ (More Battery Life™) static RAMs and our low-noise Radio Frequency Phase-Locked Loop (“RF PLL”) product family used in cellular handsets.

     Alation is engaged in the design, development and marketing of wireless home networking products and technologies. Alation has a deep portfolio of intellectual property in analog, DSP and RF baseband technology, as well as software and systems expertise in the fast-growing wireless arena. We believe the Alation acquisition will accelerate Cypress’s ongoing penetration of wireless environments, positioning us for success in emerging mobile computing markets.

     Cypress combined the capabilities of RadioCom, Alation and its own highly successful USB business to focus on providing integrated, cost-effective solutions for Bluetooth, wireless LAN and other wireless protocols, along with microcontroller solutions for current and future iterations of USB.

     Galvantech specializes in ultra-high performance memories for data communications applications. Galvantech had important design wins at strategic Cypress communications accounts, such as Lucent Technologies Inc. and Cisco Systems, Inc., and at startup communications companies, such as Redback Networks, Inc. and Extreme Networks, Inc. Galvantech’s products target specialized applications that require ultra-fast memories at the highest densities with maximum bandwidth. The acquisition marks a milestone in Cypress’s strategy to focus on specialized memories for data communication markets.

Employees

     As of December 31, 2000, we and our subsidiaries had 4,435 employees, compared to 3,859 at the end of fiscal 1999. Headcount growth in fiscal 2000 occurred mostly in the engineering and manufacturing disciplines. None of our employees is represented by a collective bargaining agreement, nor have we ever experienced work stoppages.

Risk Factors

     The discussion in this 10-K report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, statements as to the future operating results and business plans, that involve risks and uncertainties. We use such words as “anticipated,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for any reason, including the risks described below and elsewhere in this Form 10-K. If any of the following risks actually occur, our business, financial condition and operating results could be seriously harmed.

Our future operating results are unusually likely to fluctuate and therefore may fail to meet expectations.

     Our operating results have varied widely in the past and may continue to fluctuate in the future. In addition, our operating results may not follow any past trends. Our future operating results will depend on many factors and may fluctuate and fail to meet our expectations or those of others for a variety of reasons, including the following:

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     As a result of these or other factors we could fail to achieve our expectations as to future revenues, gross profit and income from operations. Any downward fluctuation or failure to meet expectations will likely adversely affect the value of your investment in Cypress.

     In addition, because we recognize revenues from sales to our domestic distributors and consignment customers only when sales are made to end customers, we are highly dependent on the accuracy of their resale estimates. The occurrence of inaccurate estimates also contributes to the difficulty in predicting our quarterly revenue and results of operations.

We face periods of industry-wide semiconductor over-supply that harm our results.

     The semiconductor industry has historically been characterized by wide fluctuations in the demand for, and supply of, semiconductors. These fluctuations have helped produce many occasions when supply and demand for semiconductors have not been in balance. In the past, these industry-wide fluctuations in demand, which have resulted in under-utilization of our manufacturing capacity, have harmed our operating results. In some cases, industry downturns with these characteristics have lasted more than a year. If these cycles continue, they will seriously harm our business, financial condition and results of operations.

Our financial results could be seriously harmed if the markets in which we sell our products do not grow.

     Our continued success depends in large part on the continued growth of various electronics industries that use our semiconductors, including the following industries:

     A significant portion of our products are incorporated into data communications and telecommunications end-products. Any decline in the demand for networking applications, mass storage, telecommunications, cellular base stations, cellular handsets and other personal communication devices that incorporate our products could seriously harm our business, financial condition and operating results. In addition, certain of our products, including USB microcontrollers and high-frequency clocks are incorporated into computer and computer-related products, which have historically and may in the future experience significant fluctuations in demand. We may also be seriously harmed by slower growth in the other markets in which we sell our products.

We are affected by a general pattern of product price decline and fluctuations, which can harm our business.

     Even in the absence of an industry downturn, the average selling prices of our products have historically decreased during the products’ lives, and we expect this trend to continue. In order to offset selling price decreases, we attempt to decrease manufacturing costs of our products, and to introduce new, higher priced products that incorporate advanced features. If these efforts are not successful or do not occur in a timely manner, or if our newly introduced products do not gain market acceptance, our business, financial condition and results of operations could be seriously harmed.

     In addition to following the general pattern of decreasing average selling prices, the selling prices for certain products, particularly commodity products, fluctuate significantly with real and perceived changes in the balance of supply and demand for these products. In the event we are unable to decrease per unit manufacturing costs at a rate equal to or faster than the rate at which selling prices continue to decline, our business, financial condition and results of operations will be seriously harmed. Furthermore, we expect our competitors to invest in new manufacturing capacity and achieve significant manufacturing yield improvements in the future. These developments could dramatically increase the worldwide supply of competitive products and result in associated downward pressure on prices.

We may be unable to protect our intellectual property rights adequately, and may face significant expenses as a result of ongoing or future litigation.

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     Protection of our intellectual property rights is essential to keep others from copying the innovations that are central to our existing and future products. Consequently, we may become involved in litigation to enforce our patents or other intellectual property rights, to protect our trade secrets and know-how, to determine the validity or scope of the proprietary rights of others, or to defend against claims of invalidity. This type of litigation can be expensive, regardless of whether we win or lose.

     We are now and may again become involved in litigation relating to alleged infringement by us of others’ patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and could take up significant amounts of management’s time and attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business, financial condition and results of operations. Also, although we may seek to obtain a license under a third party’s intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all.

     For a variety of reasons, we have entered into technology license agreements with third parties that give those parties the right to use patents and other technology developed by us, and that give us the right to use patents and other technology developed by them. We anticipate that we will continue to enter into these kinds of licensing arrangements in the future. It is possible however, that licenses we want will not be available to us on commercially reasonable terms or at all. If we lose existing licenses to key technology, or are unable to enter into new licenses, which we deem important, our business, financial condition and results of operations could be seriously harmed.

     It is critical to our success that we be able to prevent competitors from copying our innovations. We therefore intend to continue to seek patent, trade secret and mask work protection for our semiconductor manufacturing technologies. The process of seeking patent protection can be long and expensive, and we cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around the patents we own.

     We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these parties may breach these agreements, and we may not have adequate remedies for any breach. Also, others may come to know about or determine our trade secrets through a variety of methods. In addition, the laws of certain territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States.

Our financial results could be adversely impacted if we fail to develop, introduce and sell new products or fail to develop and implement new manufacturing technologies.

     Like many semiconductor companies, which frequently operate in a highly competitive, quickly changing environment marked by rapid obsolescence of existing products, our future success depends on our ability to develop and introduce new products that customers choose to buy. We introduce significant numbers of products each year, which are an important source of revenue for us. If we fail to introduce new product designs in a timely manner or are unable to manufacture products according to the requirements of these designs (discussed more below), or if our customers do not successfully introduce new systems or products incorporating ours, or market demand for our new products does not exist as anticipated, our business, financial condition and results of operations could be seriously harmed.

     For Cypress and many other semiconductor companies, introduction of new products is a major manufacturing challenge. The new products the market requires tend to be increasingly complex, incorporating more functions and operating at faster speeds than previous products. Increasing complexity generally requires smaller features on a chip. This makes manufacturing new generations of products substantially more difficult than prior generations. Ultimately, our ability to successfully introduce these and other new products depends on developing and implementing new methods of manufacturing semiconductors. If we are unable to design, develop, manufacture, market and sell new products successfully, our business, financial condition and results of operations could be seriously harmed.

Interruptions in the availability of raw materials can seriously harm our financial performance.

     Our semiconductor manufacturing operations require raw materials that must meet exacting standards. We generally have more than one source available for these materials, but there are only a limited number of suppliers capable of delivering certain raw materials that meet our standards. If we need to use other companies as suppliers, they must go through a qualification process. In addition, the raw materials we need for our business could become more scarce as worldwide demand for semiconductors increases. Interruption of our sources of raw materials could seriously harm our business, financial condition and results of operations.

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Problems in the performance of other companies we hire to perform certain manufacturing tasks can seriously harm our financial performance.

     A high percentage of our products are assembled, packaged and tested at our manufacturing facility located in the Philippines. We rely on independent subcontractors to assemble, package and test the balance of our products. This reliance involves certain risks, because we have less control over manufacturing quality and delivery schedules, whether these companies have adequate capacity to meet our needs and whether or not they discontinue or phase-out assembly processes we require. We cannot be certain that these subcontractors will continue to assemble, package and test products for us, and it might be difficult for us to find alternatives if they do not do so.

The complex nature of our manufacturing activities makes us highly susceptible to manufacturing problems and these problems can have substantial negative impact on us when they occur.

     Making semiconductors is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Very small impurities in our manufacturing materials, difficulties in the wafer fabrication process, defects in the masks used to print circuits on a wafer, and other factors, can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. We may experience problems in achieving an acceptable success rate in the manufacture of wafers, and the likelihood of facing such difficulties is higher in connection with the transition to new manufacturing methods. The interruption of wafer fabrication or the failure to achieve acceptable manufacturing yields at any of our facilities would seriously harm our business, financial condition and results of operations. We may also experience manufacturing problems in our assembly and test operations and in the introduction of new packaging materials.

We may not be able to use all of our existing or future manufacturing capacity, which can negatively impact our business.

     We have spent, and expect to continue to spend, significant amounts of money to upgrade and increase our wafer fabrication, assembly and test manufacturing capability and capacity. If we do not need some of this capacity and capability for any of a variety of reasons, including inadequate demand or a significant shift in the mix of product orders that makes our existing capacity and capability inadequate or in excess of our actual needs, our fixed cost per semiconductor produced will increase, which will harm us. In addition, if the need for more advanced products requires accelerated conversion to technologies capable of manufacturing semiconductors having smaller features, or requires the use of larger wafers, we are likely to face higher operating expenses and may need to write-off capital equipment made obsolete by the technology conversion, either of which could seriously harm our business and results of operations.

Our operations and financial results could be severely harmed by certain natural disasters.

     Our headquarters and some manufacturing facilities and some of our major vendors’ facilities are located near major earthquake faults. If a major earthquake or other natural disaster occurs, we could suffer damages that could seriously harm our business, financial condition and results of operations.

Prolonged electrical power outages or shortages, or increased costs of energy could harm our business

     Our process R&D facility and our corporate offices are located in California, which is currently susceptible to power outages and shortages as well as increased energy costs. To limit downtime exposure, Cypress uses back-up generators and power supplies in its main California facilities. While the majority of our production and design R&D facilities are not located in California, more extensive power shortages in the state could delay our process research development as well as increase our operating costs.

Our business, results of operations and financial condition will be seriously harmed if we fail to successfully compete in our highly competitive industry and markets.

     The semiconductor industry is intensely competitive. This intense competition results in a difficult operating environment for us and most other semiconductor companies that is marked by erosion of average selling prices over the lives of each product, rapid technological change, limited product life cycles and strong domestic and foreign competition in many markets. A primary cause of this highly competitive environment is the strength of our competitors. The industry consists of major domestic and international semiconductor companies, many of which have substantially greater financial, technical, marketing, distribution and other resources than we do. We face competition from other domestic and foreign high-performance integrated circuit manufacturers, many of which have advanced technological capabilities and have increased their participation in markets that are important to us. If we are unable to compete successfully in this environment, our business, operating results and financial condition will be seriously harmed.

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     Our ability to compete successfully in the rapidly evolving high-performance portion of the semiconductor technology industry depends on many factors, including:

     Although we believe we currently compete effectively in the above areas to the extent they are within our control, given the pace of change in the industry, our current abilities are not a guarantee of future success.

We must build semiconductors based on our forecasts of demand, and if our forecasts are inaccurate, we may have large amounts of unsold products or we may not be able to fill all orders.

     We order materials and build semiconductors based primarily on our internal forecasts, and secondarily on existing orders, which may be cancelled under many circumstances. Consequently, we depend on our forecasts to determine inventory levels for our products and the amount of manufacturing capacity that we need. Because our markets are volatile and subject to rapid technological and price changes, our forecasts may be wrong, and we may make too many or too few of certain products or have too much or too little manufacturing capacity. Also, our customers frequently place orders requesting product delivery almost immediately after the order is made, which makes forecasting customer demand even more difficult. The above factors also make it difficult to forecast quarterly operating results. If we are unable to predict accurately the appropriate amount of product required to meet customer demand, our business, financial condition and results of operations could be seriously harmed.

We must spend heavily on equipment to stay competitive, and will be adversely impacted if we are unable to secure financing for such investments.

     In order to remain competitive, semiconductor manufacturers generally must spend heavily on equipment to maintain or increase manufacturing capacity and capability. We have budgeted for approximately $280.9 million in expenditures on equipment in fiscal 2001 and anticipate significant continuing capital expenditures in subsequent years. In the past, we have reinvested a substantial portion of our cash flow from operations in capacity expansion and improvement programs. However, our cash flows from operations depend primarily on average selling prices, which generally decline over time, and on the per-unit cost of our products.

     If we are unable to decrease costs for our products at a rate at commensurate with the decline in selling prices for such products, we may not be able to generate enough cash flow from operations to maintain or increase manufacturing capability and capacity as necessary. In such a situation we would need to seek financing from external sources to satisfy our needs for manufacturing equipment and, potentially for operational cash needs as well. Such financing, however, may not be available on terms that are satisfactory to us or at all, in which case our business, financial condition and results of operations would be seriously harmed.

We compete with others to attract and retain key personnel, and any loss of, or inability to attract such personnel would harm us.

     To a greater degree than most non-technology companies, we depend on the efforts and abilities of certain key management and technical personnel. Our future success depends, in part, upon our ability to retain such personnel, and to attract and retain other highly qualified personnel, particularly product and process engineers. We compete for these individuals with other companies, academic institutions, government entities and other organizations. Competition for such personnel is intense, and we may not be successful in hiring or retaining new or existing qualified personnel. If we lose existing qualified personnel or are unable to hire new qualified personnel as needed, our business, financial condition and results of operations could be seriously harmed.

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We face additional problems and uncertainties associated with international operations that could seriously harm us.

     International sales represented approximately 49% of our revenues during fiscal 2000. Our offshore assembly and test operations, as well as our international sales, face risks frequently associated with foreign operations, including:

     To the extent any such risks materialize, our business, financial condition and results of operations could be seriously harmed.

We are subject to many different environmental regulations, and compliance with them may be costly.

     We are subject to many different governmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. Compliance with these regulations can be costly. In addition, over the last several years, the public has paid a great deal of attention to the potentially negative environmental impact of semiconductor manufacturing operations. This attention and other factors may lead to changes in environmental regulations that could force us to purchase additional equipment or comply with other potentially costly requirements. If we fail to control the use of, or to adequately restrict the discharge of, hazardous substances under present or future regulations, we could face substantial liability or suspension of our manufacturing operations, which could seriously harm our business, financial condition and results of operations.

We depend on third parties to transport our products and could be harmed if these parties experience problems.

     We rely on independent carriers and freight haulers to move our products between manufacturing plants and our customers. We have limited control over these parties; however, any transport or delivery problems because of their errors, or because of unforeseen interruptions in their activities due to factors such as strikes, political instability, natural disasters and accidents, could seriously harm our business, financial condition and results of operations and ultimately impact our relationship with our customers.

We may fail to integrate our business and technologies with those of companies that we have recently acquired and that we may acquire in the future.

     We completed four acquisitions in calendar 2000, completed in 2001 the acquisition of International Microcircuits, Inc. (“IMI”), announced the pending acquisition of HiBand Semiconductors, Inc. (“HiBand”), and may pursue additional acquisitions in the future. If we fail to successfully or properly integrate these businesses, our quarterly and annual results may be seriously harmed. Integrating additional businesses, products and services could be expensive, time-consuming and a strain on our resources. Specific issues that we face with regard to prior and future acquisitions include:

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Executive Officers of the Registrant

     Certain information regarding each of Cypress’s current executive officers is set forth below:

     Except as set forth below, each of Cypress’s executive officers has been engaged in his principal occupation described above during the past five years. There is no family relationship between any director or executive officer of Cypress.

     T.J. Rodgers is a co-founder of Cypress Semiconductor Corporation and has been its president and chief executive officer since 1982. Mr. Rodgers serves as a director of C-Cube Microsystems Inc.

     Antonio R. Alvarez joined Cypress in May 1987 as a senior technical engineer. Mr. Alvarez was transferred to Cypress’s former subsidiary, Aspen Semiconductor Corporation, in April 1988 as the manager of BiCMOS technology. In October 1989, Mr. Alvarez returned to the corporate office as Vice President, Research and Development. In February 1993, Mr. Alvarez became responsible for Fab 1 when it was merged with the research and development department. In 1998, Mr. Alvarez also became responsible for the Memory Products Division.

     Emmanuel Hernandez joined Cypress in June 1993 as Corporate Controller. In January 1994, Mr. Hernandez was promoted to Senior Vice President, Finance and Administration, and Chief Financial Officer. Prior to joining Cypress, Mr. Hernandez held various financial positions with National Semiconductor Corporation from 1976 through 1993. Mr. Hernandez serves as a board member of Xicor, Inc.

     Ralph Schmitt joined Cypress in 1987 and held a variety of sales and marketing positions. In 1995 Mr. Schmitt left Cypress to found GroupTec LLC, an organization that sold silicon-based solutions. Mr. Schmitt rejoined Cypress in January 1998 as Sales Director with responsibility for transitioning the sales and marketing organization to align with Cypress’s shift to a market-based strategy. He was appointed Vice President of Strategic Accounts in September 1999 and named Vice President, Sales and Marketing in June 2000.

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ITEM 2. PROPERTIES

     Our executive offices are located in an approximately 60,000 square-foot building at 195 Champion Court, San Jose, California, under a lease that will expire in 2004. Located immediately adjacent to our executive offices is one of our wafer fabrication facilities (Fab 1), which is primarily utilized for R&D operations. This facility is located in an approximately 61,000 square-foot leased building at 3901 North First Street, San Jose, California. The current lease expires in 2004. The lease rates for these facilities are subject to variations based on the London interbank offering rate (LIBOR) and a requirement to sell, extend the lease, or acquire the property at the end of the lease term (see Note 11 of the Consolidated Financial Statements).

     Research and development and other Cypress staff functions are also located at the San Jose building complex. This office space is composed of approximately 150,000 square feet in buildings located at 3939 North First Street and 4001 North First Street, San Jose, California under leases which expire in May 2001. As described above, the lease rates for these facilities are subject to variations based on LIBOR, and we are required to sell, extend the lease or acquire the property at the end of the lease term (see Note 11 of the Consolidated Financial Statements). Cypress plans to continue leasing these properties.

     We also have a 36,000 square foot office facility located at 101 Nicholson Lane, San Jose, California under a lease that expires in 2003. We have the option to extend the lease for three additional years after the original lease term expires. The lease rate increases 3% to 4% each year over the life of the lease.

     An additional 18,000 square foot facility located at 385 Moffet Park Drive, Sunnyvale, California is leased by Cypress (SLM) with a lease term that will expire in 2006.

     In December 1988, we purchased the two undeveloped industrial lots on either side of our headquarters building. These similarly sized lots, comprising a total of approximately 8.5 acres, were purchased for future expansion of the San Jose building complex.

     In the third quarter of 1996, we began operations in a new 162,000 square foot highly automated assembly and test manufacturing plant in Cavite, the Philippines. We own an approximately 100,000 square foot wafer fabrication facility, referred to as Fab 2 in Round Rock, Texas. In addition, we also own an approximately 170,000 square foot wafer fabrication facility, and we lease an approximately 100,000 square foot wafer fabrication facility, together these two facilities are referred to as Fab 4, on 18 acres of land in Bloomington, Minnesota. The lease rate for the leased portion of Fab 4 is subject to variations based on LIBOR and a requirement to sell, extend the lease, or acquire the property at the end of the lease term in December 2004 (see Note 11 of the Consolidated Financial Statements).

     In November 1997, we purchased real estate comprised of approximately 3.5 acres of land and 58,000-square feet of building in Woodinville, Washington. The property is the primary location of our interface products organization, previously located in a leased facility in Kirkland, Washington.

     We lease additional space for sales and design centers in the United States, Belgium, Canada, China, Finland, France, Germany, India, Ireland, Israel, Italy, Japan, Korea, Singapore, Sweden, Taiwan and the United Kingdom.

     As of the end of fiscal year 2000, current properties are suitable for immediate needs. During fiscal 2001 we have entered into a lease agreement in relation to a new office facility to be constructed on the northeast lot of Champion Court, adjacent to the current executive offices. This 111,000 square-foot building will provide additional space to support planned growth and the integration of personnel from our acquisitions. The remaining undeveloped industrial lot at our headquarters is available for future expansion.

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ITEM 3. LEGAL PROCEEDINGS

     The semiconductor industry has experienced a substantial amount of litigation regarding patent and other intellectual property rights. From time to time, we have received, and may receive in the future, communications alleging that our products or our processes may infringe on product or process technology rights held by others. We are currently, and may in the future be, involved in litigation with respect to alleged infringement by us of another party’s patents. In the future, we may be involved with litigation to:

     Such litigation has in the past and could in the future result in substantial costs and diversion of management resources. Such litigation could also result in payment of substantial damages and/or royalties or prohibitions against utilization of essential technologies, and could have a material adverse effect on our business, financial condition and results of operations.

     On November 16, 2000, Momentum, Inc. filed a complaint in the Santa Clara County Superior Court against Cypress for breach of warranty and deceit, in which it seeks consequential, indirect and punitive damages. We have reviewed and are investigating the allegations in the complaint. Based on the information available at this time, we believe that the suit against us is without merit. In February 2001, the Momentum complaint was dismissed, but they were given thirty days to refile. As of March 22, 2001, we had not been informed that Momentum had amended and/or refiled its complaint. Cypress will continue to vigorously defend this matter. While no assurance can be given regarding the outcome of this action, we believe that the final outcome of the matter will not have a material effect on our consolidated financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of this action be unfavorable, we may be required to pay damages and other expenses, which could have a material adverse effect on our financial position and results of operations.

     On October 3, 2000, U.S. Philips Corp. filed a complaint in the Federal Court for the Southern District of New York against Cypress and five codefendants for infringement of a U.S. patent. We have reviewed and investigated the allegations in the complaint and believe that we have meritorious defenses to these allegations. Cypress will vigorously defend itself in this matter. While no assurance can be given regarding the outcome of this action, we believe that the final outcome of the matter will not have a material effect on our consolidated financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of this action be unfavorable, we may be required to pay damages and other expenses, which could have a material adverse effect on our financial position and results of operations.

     On June 12, 2000, Cypress filed a complaint in the Superior Court of California, against Altera Corporation for tortious interference with existing contractual relations, tortious interference with prospective economic relations, misappropriation of trade secrets and unfair competition. The complaint arises from Altera’s interference with a multi-year agreement to collaborate on research and development between Cypress and Right Track CAD Corporation. In February 2001, we amended our complaint to add a cause of action based on fraud. We believe that we will ultimately prevail in this matter. While no assurance can be given regarding the outcome of this action, we believe that the final outcome of the matter will not have a material effect on Cypress’s consolidated financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of this action be unfavorable, Cypress may be required to pay legal fees and other expenses that are not expected to have a material adverse effect on Cypress’s financial position and results of operations.

     During 1998, EMI Group of North America, Inc. (“EMI”) filed suit against Cypress in the Federal Court in Delaware, claiming that Cypress infringed on four patents owned by EMI. Cypress and EMI entered into a license agreement in February 1999, for one of the four patents in the lawsuit. EMI withdrew two of the four patents from the lawsuit, including the patent related to the licensing agreement. The case involving the two remaining patents went to trial in October 1999. The jury ruled in favor of us finding that we infringed none of the patents and that each asserted claim was invalid due to prior art and physical impossibility (i.e. the patents require a step that is physically impossible to perform). EMI has filed an appeal, and we intend to defend ourselves vigorously. However, should the outcome of this action be unfavorable, our business, financial condition and results of operations could be materially and adversely affected.

     In January 1998, an attorney representing the estate of Mr. Jerome Lemelson contacted us and charged that we infringed certain patents owned by Mr. Lemelson and /or a foundation controlled by Mr. Lemelson’s estate. On February 26, 1999, the Lemelson attorneys sued us and 87 other companies in United States District Court for District of Arizona for infringement of 16 patents. In May 2000, the Court stayed litigation on 14 of the 16 patents in view of concurrent litigation in Nevada on the same 14 patents, brought against the Lemelson Partnership by manufacturers of machine vision and bar coding equipment. We have reviewed and investigated the allegations in the complaint, and we believe that the suits against us are without merit. We will vigorously defend ourselves in this matter. While no assurance can be given regarding the outcome of this action, we believe that the final outcome of the matter will not have a material effect on our consolidated financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of this action be unfavorable, we may be required to pay damages and other expenses, which could have a material adverse effect on our financial position and results of operations.

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     In June 1997, we commenced a declaratory judgment action in the United States District Court for the District of Nevada against the Li Second Family Trust (“the Trust”). In this action, we asked for declaratory relief to the effect that an U.S. patent relating to a part of the process for manufacturing semiconductors is unenforceable, invalid and not infringed by us. The Trust has counter-claimed for patent infringement on the same patent, alleging such patent covers oxide-isolated integrated circuits. In May 1999, in a related case, the United States District Court for the Eastern District of Virginia ruled that the patent is unenforceable due to inequitable conduct by Dr. Li and his attorneys in obtaining the patent. The Li Second Family Trust appealed, and the Virginia court’s ruling was upheld by the United States Court of Appeals for the Federal Circuit in November 2000. We therefore believe that our defenses to the counter-claim are meritorious and we intend to continue to defend ourselves vigorously. While no assurance can be given regarding the final outcome of this action, we believe that the final outcome of the matter will not have a material effect on our consolidated financial position or results of operations. However, should the outcome of this action be unfavorable, our business, financial condition and results of operations could be materially and adversely affected.

     On October 2, 1997, we filed an action against Kevin Yourman, Joseph Weiss, and their associated law offices in the Superior Court of California (“Superior Court”) in Santa Clara County for malicious civil prosecution in the underlying securities fraud actions initiated by Messrs. Yourman and Weiss in 1992. The underlying securities fraud actions were dismissed because the court found that none of our officers made any actionable false or misleading statements or omissions. An appeal affirmed the lower court’s finding that Messrs. Yourman and Weiss failed to put forth evidence showing a genuine issue of fact with regard to any statements by our officers. On May 4, 1999, the Superior Court granted a summary judgment motion by Messrs. Yourman and Weiss, holding that Messrs. Yourman and Weiss had probable cause to bring the underlying litigation. We are appealing the decision. Even though the results of litigation are unpredictable, we believe that this action, regardless of its outcome, will have little, if any, effect on our consolidated financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the security holders during the quarter ended December 31, 2000.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     Our Common Stock is listed on the New York Stock Exchange under the trading symbol “CY”. The following table sets forth, for the periods indicated, the low, high and closing price for the common stock. We have not paid cash dividends during our two preceding fiscal years and have no present plans to do so. At December 31, 2000 there were approximately 88,000 holders of record of our Common Stock.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This report may contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, about the prospects for Cypress as well as the semiconductor industry more generally, including without limitation, statements about increases in gross margin, rate of growth of research and development expenditures as a percent of revenues, rate of growth of selling, general and administrative expenses, profitability goals, revenue goals, growth rate goals, market share goals, market size and growth projections, new product introductions, planned manufacturing capacity, and efficiency and cost goals. Actual results could differ materially from those described in the forward-looking statements as a result of various factors including, but not limited to, the factors identified in Risk Factors.

Overview

     Cypress achieved record annual revenues of approximately $1.3 billion for fiscal year 2000, the first billion-dollar year in the company’s history. In addition, Cypress reached another long standing goal by exceeding $250 million in pre-tax profits. Cypress is proud to have grown revenue at a rate of 72.8% in 2000, twice the semiconductor industry growth rate of 36%.

     On November 30, 2000, the Board of Directors of Cypress authorized the repurchase of 5 million shares of Cypress’s outstanding common stock, which is listed on the New York Stock Exchange under the symbol CY. On December 21, 2000, the Board of Directors of Cypress authorized the repurchase of an additional 5 million shares of Cypress’s outstanding common stock, bringing the total shares authorized in the repurchase program to 10 million. As of December 31, 2000, 6.3 million shares had been repurchased at an average cost of $22.90 per share. In conjunction with the stock repurchase program, the Board of Directors authorized the sale of up to 2.5 million put warrants. As of December 31, 2000, Cypress had sold put warrants through private placements for which Cypress received $6.3 million. Cypress has a maximum potential obligation to purchase 1.5 million shares of its common stock at an aggregate price of $35.5 million as of December 31, 2000. The put warrants have various expiration periods from March 2001 through September 2001. Cypress has the right to settle the put warrants with cash or settle the difference between the exercise price and the fair market value at the exercise date with stock or cash. No amount was classified out of stockholders’ equity in the accompanying consolidated balance sheet.

     On September 7, 2000, Cypress called for the redemption of all its 6.0% Convertible Subordinated Notes (“Notes”) due in 2002. The aggregate amount of principal outstanding at the time of the call was approximately $160 million. Holders of the Notes could convert their Notes into shares of Cypress’s common stock at a conversion rate of approximately 42.33 shares of stock per $1,000 principal amount of the Notes. Substantially all of the Notes were converted prior to the redemption deadline of October 2, 2000, increasing the amount of common stock outstanding by 6.8 million shares.

     On August 30, 2000, Cypress acquired all of the outstanding capital stock of Silicon Light Machines (“SLM”). SLM is a supplier of microelectromechanical systems (“MEMS”) technology applicable to fiber-optic networks and other applications. The acquisition was accounted for using purchase accounting. Accordingly, the estimated fair value of assets acquired and liabilities assumed were included in Cypress’s consolidated balance sheet as of August 30, 2000, the effective date of the purchase. There were no significant differences between the accounting policies of Cypress and SLM. Cypress acquired SLM for a total consideration of $164.0 million, including $161.2 in stock, an existing $2.2 million investment, and direct acquisition costs of $0.6 million for legal and accounting fees.

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     On July 7, 2000, Cypress entered into an agreement with Mosel Vitelic (“Mosel”) to jointly develop a 0.12-micron process technology, to be deployed initially in Cypress’s R&D Fab in San Jose. Under the agreement, Mosel engineers will work with Cypress’s existing Fab 1 research and development team on defining a 0.12-micron manufacturing process. Cypress and Mosel also agreed over time to share some of the costs of purchasing new equipment to facilitate tighter process geometries. The agreement will allow Cypress and Mosel to continue to offer cutting-edge process technology, which we expect will produce new high-performance, market-leading products more economically and quickly.

     On June 29, 2000, Cypress acquired all of the outstanding capital stock of RadioCom Corporation (“RadioCom”), a corporation specializing in the design and development of semiconductor radio frequency (“RF”) integrated circuits. The acquisition was accounted for using purchase accounting, and the fair value of assets acquired and liabilities assumed were included in Cypress’s consolidated financial statements as of June 29, 2000, the effective date of the purchase. Cypress acquired RadioCom for total consideration of $10.2 million in stock.

     On June 26, 2000, Cypress completed a $287.5 million registered-placement of 5-year convertible subordinated notes. The notes are due in the year 2005, with a coupon rate of 3.75% and an initial conversion premium of 27%. The notes are convertible into approximately 4.6 million shares of common stock and are callable by Cypress no earlier than July 5, 2003. Net proceeds were $279.6 million, after issuance costs of $7.9 million.

     On May 24, 2000, Cypress completed its merger with Alation Systems, Inc. (“Alation”) a corporation engaged in the design, development and marketing of wireless home networking products and technologies. Cypress issued 0.5 million shares of its common stock plus options in exchange for all outstanding stock and options of Alation. The transaction was accounted for as a pooling of interests. The fiscal years of Cypress and Alation were different, and Alation has changed its fiscal periods to coincide with that of Cypress.

     On March 2, 2000, Cypress completed its merger with Galvantech, Inc. (“Galvantech”), which was accounted for as a pooling of interests. Cypress issued 3.0 million shares of common stock plus options in exchange for all outstanding stock and options of Galvantech. The fiscal years of Cypress and Galvantech were different, and Galvantech has changed its fiscal periods to coincide with that of Cypress. Galvantech specializes in ultra-high performance memories for data communications applications.

     On February 25, 2000, Cypress sold its Fast CMOS Technology (“FCT”) business including inventories, product software, all technical data, and a license for the related intellectual property. Total proceeds from the sale were $7.5 million and Cypress recorded a gain of $5.0 million from the sale. In conjunction with this sale, Cypress entered into a supply agreement for the related existing inventories and future requirements, based on historical run rates. Cypress has continued to supply product through the end of fiscal 2000, and completed its obligations under the supply agreement during the fourth quarter of fiscal 2000. Revenues from FCT products were approximately 1% of our 1999 revenues.

     On January 31, 2000, Cypress filed a universal shelf registration statement with the Securities and Exchange Commission. The registration statement, which was effective February 8, 2000, allows Cypress to market and sell up to $400.0 million of its securities. The shelf registration statement allows Cypress flexibility to raise funds from the offering of debt securities, common stock, preferred stock or a combination thereof, subject to market conditions and Cypress’s capital needs. In June 2000, Cypress completed a $287.5 million registered-placement of 5-year convertible subordinated notes. At December 31, 2000, the balance remaining related to the shelf registration statement is $112.5 million.

     On January 19, 2000, Cypress completed a $283.0 million registered-placement of 5-year convertible subordinated notes. The notes are due in the year 2005, with a coupon rate of 4.00% and an initial conversion premium of 28.5%. The notes are convertible into approximately 6.1 million shares of common stock and are callable by Cypress no earlier than February 5, 2003. Net proceeds were $275.2 million, after issuance costs of $7.8 million.

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Results of Operations

Revenues

     Revenues for fiscal 2000 were $1,287.8 million, an increase of $542.7 million or 72.8% compared to revenues for fiscal 1999, and an increase of $698.9 million or 118.7% compared to revenues for fiscal 1998. Cypress derives its revenues from the sale of Memory Products and Non-memory Products, which are primarily targeted to the data communications and computation markets.

     Revenues from the sale of Memory Products for fiscal 2000 increased $329.1 million or 106.5% over revenues from the sale of these products for fiscal 1999 and increased $408.5 million, or 177.9% compared to fiscal 1998. The increase in Memory Product revenues, as compared to fiscal 1999, resulted from both higher average selling prices (“ASPs”) and an increase in unit sales. ASPs grew 47.9% from fiscal 1999 to fiscal 2000 and unit sa1es increased 39.6% over the same period. When comparing fiscal 2000 to fiscal 1998, unit sales volume of Memory Products increased 68.5%, and ASPs increased 65.0%. The increase in unit sales in fiscal 2000 can be attributed primarily to new product revenues, particularly in the 4 Meg synchronous family, which includes the No Bus Latency (“NoBL”) static random access memories (“RAM”s), the 2 and 4 Meg More Battery Life (“MoBL”) and the 1 Meg micro-power family of products. The synchronous demand was driven by the surge in the networking market, while sales for MoBL and other micro-power devices were driven by growth in the cellular phone market. High ASPs are a result of strong demand for static RAMs and the continuing increase in the average density (Mbits/unit) of static RAM products sold.

     Revenues in 2000 from the sale of Non-memory products increased $213.6 million or 49.0% from 1999 and grew $290.4 million or 80.8% from 1998. The growth was predominantly unit related and can be attributed to the market acceptance of Cypress’ Physical Layer (“PHY”), data communication, clock and USB products. Key products in the portfolio include our HOTLink optical transceivers, the Roboclock family of clock buffers, our low skew and low jitter programmable clocks, our broad portfolio of specialty multi-port memories and our plug and play USB devices.

     As is typical in the semiconductor industry, ASPs of products generally decline over the lifetime of the products. To increase revenues, Cypress seeks to expand its market share in the markets it currently serves and to introduce and sell new products with higher ASPs. Cypress will seek to remain competitive with respect to its pricing to prevent a further decline in sales.

Cost of Revenues

     Cost of revenues for fiscal 2000 were 43.9% of revenues, compared to 54.9% of revenues for fiscal 1999 and 72.9% of revenues for fiscal 1998. The decrease in cost of revenues as a percent of revenues was primarily due to a significant increase in unit sales, resulting in a lower fixed cost per unit sold and to the introduction of new products with higher margins.

     Cost of revenues for fiscal 1998 included one-time non-recurring charges totaling $21.7 million. These charges included $15.8 million related to the write-down of inventory, $3.8 million for the write-off of pre-operating costs and $2.1 million for the write-off of certain equipment. The $15.8 million charge for incremental inventory reserves arose due to market conditions resulting in the ongoing, over-supply and continued inventory corrections by end-user customers.

     The write-off of pre-operating costs included $2.9 million related to Cypress’s wafer fabrication operation in Bloomington, Minnesota and $0.9 million related to its assembly and test operations in the Philippines. As a result of the restructuring activities, Cypress wrote off its previously capitalized pre-operating costs as an impaired asset due to uncertainties surrounding their future economic benefits.

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     The write-off of equipment was related to equipment identified as obsolete during Cypress’s periodic review of equipment and no longer considered usable. Excluding these one-time non-recurring charges, cost of revenues as a percent of revenues for fiscal 1998 would have been 69.8%.

     Cypress continues to introduce new products and find new methods of reducing manufacturing costs in order to mitigate the effects of typically declining ASPs on its gross margin. In March 1998, Cypress announced restructuring activities for its domestic wafer fabrication facilities and offshore back-end manufacturing operations. Activities completed to date have increased Cypress’s manufacturing efficiencies and as a result, its gross margin has been increasing since the first quarter of fiscal 1998. Cypress completed these restructuring activities in fiscal year 2000.

Research and Development

     Research and development (“R&D”) expenditures increased from fiscal 1998 through fiscal 2000 as Cypress continued its effort to accelerate the development of new products and migrate to more advanced process technologies. In fiscal 2000, spending in Cypress’s design centers grew due to increased headcount and capital spending. R&D efforts associated with the acquisitions of Alation, RadioCom and SLM also contributed to the increase in fiscal 2000. During fiscal 2000, Cypress began utilizing the 0.15-micron process technology for manufacturing purposes, and started development of 0.12-micron process technologies. Cypress believes that its future success will depend on its ability to develop and introduce new products that will compete effectively on the basis of price, performance, and ability to address customer needs. In fiscal 2000, Cypress completed the conversion of its San Jose R&D wafer fab from a six-inch facility into an eight-inch facility; therefore, the R&D facility is compatible with its technologically advanced wafer fab in Minnesota. This conversion has helped speed the pace of advanced technology transfers to production.

Selling, General and Administrative

     Selling, general and administrative (“SG&A”) spending increases from fiscal 1998 to fiscal 2000 have been driven primarily by increased selling and marketing expenses. The increase in selling expenses is primarily due to commission expenses, which have risen in proportion to our revenue growth. In addition, the marketing area has increased expenditures due to building a worldwide infrastructure that can support a multi-billion dollar corporation. Legal and professional costs related to patent infringement litigation (including the successful defense of the EMI lawsuit in 1999), patent filing and our tax-rate optimization program have contributed to increases in administrative costs over the three-year period.

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Acquisition, Restructuring and Other Non-Recurring Costs

     During fiscal 2000, Cypress recorded acquisition and merger-related costs of $54.3 million. Costs of $39.9 million were incurred in relation to the acquisition of Silicon Light Machines, which was completed on August 30, 2000. SLM acquisition costs consisted of $30.5 million for in-process research and development, and $9.4 million for the amortization of intangible assets. Additional costs related to the amortization of intangible assets from the previous acquisitions of Anchor Chips, Inc. (“Anchor”), Arcus Technology (USA) and Arcus Technology (India) Limited (referred to as “Arcus” on a combined basis), the MAX 5000 Programmable Logic Device (“PLD”) product line from Altera, and RadioCom were $8.9 million. Acquisition costs of $3.5 million were incurred in relation to the acquisitions of Galvantech, Alation, and RadioCom, which consist primarily of non-cash deferred compensation charges, legal, accounting and investment banking fees. In addition, Cypress recorded $2.0 million for in-process research and development due to the acquisition of RadioCom.

     Cypress incurred a one-time charge of $2.0 million in the second quarter of fiscal 2000 due to the acceleration of contractual obligations related to the Arcus acquisition.

     During fiscal 2000, Cypress reversed $0.5 million of previously provided restructuring costs related to the decision to close down the Cypress (ICW) wafer fab located in San Jose, California. Cypress determined in the second quarter of fiscal 2000 that no outstanding commitments related to this restructuring existed.

     During fiscal 1999, Cypress recorded a net $34.1 million in restructuring, merger and acquisition, and other non-recurring costs. These one-time, non-recurring costs included a $12.3 million write-off of a manufacturing asset that was not being used and was subsequently scrapped, and an $11.9 million one-time compensation charge. In the first quarter of fiscal 1999, Cypress recorded one-time charges of $3.7 million associated with the merger with IC WORKS. These charges were for investment banking fees and other professional fees. Cypress also recorded $8.8 million in costs associated with the purchase of Anchor and Arcus consisting of $4.0 million for in-process technology, $1.6 million for transaction costs and $3.2 million in amortization of intangible assets. During the fourth quarter of fiscal 1999, Cypress acquired Altera’s MAX 5000 Programmable Logic Device product line and its equity interest in Cypress’s wafer fabrication facility in Round Rock, Texas. As part of the transaction, Cypress recorded intangible assets associated with the product rights and incurred a charge of $0.3 million for the amortization of these intangibles. Transaction costs and non-cash compensation costs incurred for other acquisitions were $0.8 million. These non-recurring charges were offset by a reversal of $3.0 million of the 1998 restructuring reserve. The reversed charges related to $2.2 million of severance and other employee related charges and $0.3 million for the provision for phase-down and completion of the Alphatec restructuring activities. Cypress also reversed $0.5 million of the 1998 restructuring reserve for other fixed asset related charges that were no longer considered necessary. During fiscal 1999, Cypress reversed $0.7 million of the 1996 restructuring reserve related to fixed asset de-installation charges that were no longer required.

     During 1998, Cypress implemented an overall cost reduction plan and recorded a $58.9 million restructuring reserve. The restructuring entailed:

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     FAB 3 — The charge related to the shutdown of Fab 3 was $30.2 million. Of this amount, $26.0 million related to the write-down of equipment held for sale, $1.7 million of other fixed asset related charges for incremental third party costs expected to be incurred in the eventual physical removal of the written down assets, $1.1 million related to severance and other employee related costs and $1.4 million related to inventory.

     Fab 3 assets, which were not upgradable to eight-inch capability, were written down based on the estimated useful lives of the assets and the salvage value of the assets. The estimated useful lives were generally two months as a result of the decision to discontinue production in Fab 3 and the salvage value was determined based on the estimated sales value of used semiconductor equipment. Non-upgradable Fab 3 assets were depreciated down to their salvage value during the production phase-down period. Fab 3 assets, which were upgradable to eight-inch capability, were transferred to Fab 4 production during the third quarter of 1998.

     In accordance with the restructuring plan, Fab 3 production was phased down beginning in the second quarter of 1998 and ceased operations in July 1998. From this time, Cypress has held the non-upgradable equipment for sale. As of December 31, 2000, no equipment remains on hand. Cypress recorded a gain of $2.4 million in fiscal 2000 on the disposal of the equipment, as the proceeds from the sale of the equipment exceeded the originally determined salvage value.

     FAB 2 — The decision to discontinue manufacturing static RAM products on Cypress’s 0.6 micron 256K static RAM process in Texas resulted in excess equipment and employee redundancy. Charges incurred in connection with this discountinuance totaled $21.3 million, of which $18.0 million related to the write-down of equipment, $0.3 million related to the write-down of inventory, $1.7 million related to severance and other employee related costs and $1.3 million of other fixed asset related charges for incremental third party costs for the physical removal of the written down assets and the resolution of certain related tax matters.

     Excess equipment in Fab 2 was written down based on the useful lives of the assets and the estimated salvage value of the assets. Cypress had the ability and intention to sell all the equipment immediately, but due to the semiconductor industry slow-down, Cypress recognized immediate sale of the equipment would be difficult. The equipment was kept in the fab, ready for demonstration and testing by a willing buyer. Cypress used the equipment during the production phase-down period through May 1998. As of December 31, 2000, no equipment remains on hand. Cypress recorded a gain of $4.2 million in fiscal 2000 on the disposal of the equipment, as the proceeds from the sale of the equipment exceeded the originally determined salvage value.

     FAB 1 and San Jose Operations — The restructuring plan included the upgrade of Fab 1 to an eight-inch facility to ensure compatibility with Cypress’s Fab 4 manufacturing facility in Minnesota. Fab 1 is used for research and development purposes. The plan assumed commencement of Fab 1 restructuring activities during the middle of 1998 with completion by the end of January 1999. The plan included the disposal and write-down of six-inch manufacturing equipment that was not upgradable to eight-inch capability. The remaining net book value of such assets was written off over the estimated useful life through January 1999. Incremental depreciation charges, to reflect the revised useful lives of this equipment, were included in research and development costs for 1998 and January 1999. Cypress also reserved $1.0 million to write-down the value of certain other equipment and reserved $1.3 million related to severance and other employee related costs. In fiscal 2000, Cypress completed the conversion of its San Jose R&D wafer fab from a six-inch facility into an eight-inch facility.

     ALPHATEC — Cypress reserved $5.1 million to provide for the consolidation of Thailand test activities from Alphatec, Cypress’s subcontractor, with Cypress’s Philippines facility. Of this $5.1 million reserve, $1.5 million was related to production inventories which were no longer useable as a result of this consolidation, $1.3 million was related to severance costs at the subcontractor and $2.3 million was related to excess equipment and leasehold improvements which were no longer used. The assets were considered held for sale and were written down to their revised carrying value. The transfer of production from Alphatec to the Philippines facility began during the second quarter of 1998 and was completed in January 1999, one month later than originally planned.

     OTHER — Separate from the restructuring charge, Cypress recorded an additional charge of $27.3 million, which was recorded as operating expenses. The charges were for inventory reserves ($15.8 million), the write-off of pre-operating costs ($3.8 million), the write-off of an equity investment ($3.1 million), costs incurred to reimburse a customer for expenses incurred as a consequence of Cypress’s defective products ($2.5 million) and the write-off of obsolete equipment in Fab 4 ($2.1 million). The write-down of inventory was made to establish incremental reserves for excess inventory and was recorded as cost of revenues.

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     The write-off of pre-operating costs included $2.9 million related to Cypress’s wafer fabrication operation in Bloomington, Minnesota and $0.9 million related to its assembly and test operation in the Philippines. As a result of restructuring activities, Cypress wrote off its previously capitalized pre-operating costs as an impaired asset due to uncertainties surrounding their future economic benefits and accordingly the costs were written off to cost of sales. There were no capitalized pre-operating costs subsequent to the first quarter of 1998.

     The $3.1 million write-off of the investment was recorded against net interest and other income to reflect the decline in the value of an investment. Selling, general and administrative costs included the write-off of $2.5 million in costs incurred to reimburse a customer for certain product expenses incurred. During Cypress’s periodic review of equipment, some equipment was identified as obsolete and $2.1 million was charged to cost of sales to write-off the obsolete equipment.

Interest Expense

     Interest expense was $23.6 million for fiscal 2000, compared to $9.6 million for fiscal 1999 and $11.3 million for fiscal 1998. Interest expense in fiscal 2000 is primarily associated with the 6.0% Convertible Subordinated Notes, issued in September 1997 and due in 2002, the 4.0% Convertible Subordinated Notes, issued in January 2000 and due in 2005, and the 3.75% Convertible Subordinated Notes, issued in June 2000 and due in 2005. The increase in fiscal 2000 of $14.0 million from fiscal 1999 relates primarily to the increase in interest due under the 4.0% and 3.75% Convertible Subordinated Notes. This increase is offset by a reduction in interest expense due to the conversion of substantially all of the outstanding 6.0% Convertible Subordinated Notes on October 2, 2000, and the retirement of $15.0 million of these Notes toward the end of 1998. The increase in fiscal 2000 of $12.3 million as compared to fiscal 1998 relates primarily to the increase in interest due under the 4.0% and 3.75% Convertible Subordinated Notes. This increase is offset by a reduction in interest expense due to the conversion of substantially all of the outstanding 6.0% Convertible Subordinated Notes on October 2, 2000.

     Interest expense incurred during fiscal 1998 and fiscal 1999 is primarily associated with the 6.0% Convertible Subordinated Notes. The decrease in interest expense from fiscal 1998 to fiscal 1999 is primarily attributable to the retirement of $15.0 million of these notes toward the end of 1998.

Interest Income and Other, Net

     Interest income and other, net, was $64.9 million for fiscal 2000 compared to $53.2 million for fiscal 1999 and $14.1 million for fiscal 1998. Interest income and other, net, includes interest income, amortization of bond issuance costs, foreign exchange gains and losses and other non-recurring items.

     Interest income increased $40.9 million or 223.3% when comparing fiscal 1999 to 2000, and $43.2 million or 270.7% when comparing fiscal 1998 to 2000. These increases in interest income are primarily due to increased cash balances in fiscal year 2000, following the issuances of the convertible notes in January and June 2000, and higher investment yields.

     Other income, net, for fiscal 2000 primarily reflects a $5.0 million gain on the sale of the FCT product line and a $4.5 million gain on the disposal of assets partially offset by other items. Other income, net, for fiscal 1999 included a $36.2 million gain from the sale of a certain investment. Offsetting other income was $1.0 million related to the amortization of bond issuance costs, and $0.2 million in foreign exchange gains. In fiscal 1998, other income, net, included a $1.7 million pre-tax net gain related to the retirement of $15.0 million of Cypress’s 6.0% Convertible Subordinated Notes and foreign exchange gains of $0.5 million. The 1998 other income, net, is offset by a non-recurring, pre-tax charge of $3.1 million recorded to reflect the decline in value of a certain investment and $1.0 million in amortization of bond issuance costs.

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Taxes

     Cypress’s effective tax rates for fiscal years 2000, 1999 and 1998 were 25.0%, 7.4% and 9.9%, respectively. A tax benefit of $11.1 million was realized during fiscal 1998 compared to expenses of $92.9 million and $7.0 million during fiscal 2000 and fiscal 1999, respectively. The benefit was attributable primarily to the utilization of loss carrybacks, the utilization of research and development tax credits and non-U.S. income taxed at lower tax rates compared to U.S. tax rates, principally related to Cypress’s operations in the Philippines. The increase in the effective tax rate from fiscal 1999 to 2000 can be attributed to non-deductible in-process research and development charges and merger costs offset by utilization of loss carryovers, earnings of foreign subsidiaries taxed at lower rates and tax credits. Cypress’s effective tax rates for the fiscal years 2000, 1999 and 1998, excluding non-deductible in-process research and development charges and merger costs, were 22.0 %, 5.0% and 0.0 %, respectively. Cypress’s effective rate varies from the U.S. statutory rate primarily due to utilization of loss carryovers, earnings of foreign subsidiaries taxed at lower rates and tax credits. The valuation allowance against net deferred tax assets decreased from $42.6 million to zero from fiscal 1999 to 2000, as Cypress believes it will realize all of its deferred tax assets.

Earnings Before Goodwill

     Cypress reported basic earnings before goodwill (“EBG”) of $2.72 per share and diluted EBG of $2.39 per share for the year ended December 31, 2000. EBG refers to earnings excluding goodwill and acquisition costs, restructuring related charges and credits, and non-recurring items. Goodwill and acquisition costs consist of the amortization of intangible assets, non-cash deferred compensation expenses, in-process research and development costs, and transaction costs, net of tax. Non-recurring costs (gains) consist primarily of gains on sales of assets, net of tax. These types of charges and credits are excluded from the computation of EBG and are collectively referred to as goodwill by Cypress. Cypress has presented EBG as a measure of our operating results; however, EBG is not intended to replace operating income or net income as an indicator of operating performance or to replace cash flow as a measure of liquidity because EBG is not a concept under generally accepted accounting principles. Also, our calculation of EBG may not be comparable to EBG as calculated by other companies. The table below reconciles basic and diluted net income (loss) per share to basic and diluted earnings (loss) before goodwill per share, respectively.

Reconciliation of basic net income (loss) per share to basic earnings (loss) per share before goodwill:

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Liquidity and Capital Resources

     Cypress’s cash, cash equivalents and short-term investments totaled $884.6 million at the end of fiscal year 2000, a $603.7 million increase from the end of fiscal 1999. Working capital increased $622.7 million during the same period. These increases are attributed primarily to net cash flows from Cypress’s operating activities.

     Operating cash flows increased 230.6% and 371.3% from 1999 and 1998, respectively, to $521.1 million in fiscal 2000. For the year ended December 31, 2000, cash provided by operating activities of $521.1 million was primarily attributable to earnings of $277.3 million, tax benefits from stock options of $56.7 million, acquired in-process research and development of $32.4 million, depreciation and amortization of $145.4 million and changes in working capital of $2.0 million. For the year ended January 2, 2000, cash provided by operating activities of $157.6 million was primarily attributable to earnings of $88.1 million, depreciation and amortization of $108.9 million, gain on sale of investment of $36.2 million, loss on write down of assets of $11.0 million, tax benefits from stock options of $13.7 million and changes in working capital of $15.2 million. For the year ended January 3, 1999, cash provided by operating activities of $110.6 million was primarily due to a net loss of $101.6 million offset by depreciation and amortization of $117.2 million, restructuring costs of $69.6 million, and changes in working capital of $27.2 million. Purchases of investments totaled $492.9 million during fiscal 2000, while investments which were sold or matured totaled $181.0 million.

     On November 30, 2000, the Board of Directors of Cypress authorized the repurchase of 5 million shares of Cypress’s outstanding common stock, which is listed on the New York Stock Exchange under the symbol CY. On December 21, 2000, the Board of Directors of Cypress authorized the repurchase of an additional 5 million shares of Cypress’s outstanding common stock, bringing the total shares authorized in the repurchase program to 10 million. As of December 31, 2000, 6.3 million shares were repurchased at an average cost of $22.90 per share. In conjunction with the stock repurchase program, the Board of Directors authorized the sale of up to 2.5 million put warrants. As of December 31, 2000, Cypress sold put warrants through private placements for which it received $6.3 million. Cypress had a maximum potential obligation to purchase 1.5 million shares of its common stock at an aggregate price of $35.5 million as of December 31, 2000. The put warrants have various expiration periods from March 2001 through September 2001. Cypress has the right to settle the put warrants with cash or settle the difference between the exercise price and the fair market value at the exercise date with stock or cash. No amount was classified out of stockholders’ equity in the accompanying consolidated balance sheet.

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     In October 2000, Cypress entered into a financing and supply agreement with ST Microelectronics, Inc. (“ST Micro”). The agreement called for ST Micro to provide funding to Cypress for the purpose of purchasing equipment and increasing fabrication capacity in order to supply ST Micro with product at future dates according to the supply agreement. ST Micro will maintain a security interest in the equipment purchased. Cypress has recorded the repayment obligation as a customer advance showing $20.2 million in current liabilities and $51.8 million as a long-term liability. The supply agreement calls for Cypress to make available to ST Micro a minimum quantity of wafers each year from 2001 through 2003.

     On September 7, 2000, Cypress called for the redemption of all its 6.0% Convertible Subordinated Notes (“6.0% Notes”) due in 2002. The aggregate amount of principal outstanding at the time of the call was approximately $160 million. Holders of the 6.0% Notes could convert their 6.0% Notes into shares of Cypress’s common stock at a conversion rate of approximately 42.33 shares of stock per $1,000 principal amount of the 6.0% Notes. Substantially all of the 6.0% Notes were converted prior to the redemption deadline of October 2, 2000 increasing the amount of common stock outstanding by 6.8 million shares.

     On January 31, 2000, Cypress filed a registration statement on Form S-3 with the Securities and Exchange Commission. Under this shelf registration, which was effective February 8, 2000, as amended by a post-effective amendment thereto effective March 7, 2000, Cypress can, through January 2002, sell any combination of debt securities, preferred stock and common stock in one or more offerings up to a total amount of $400.0 million. The shelf registration statement allows Cypress flexibility to raise funds from the offering of debt securities, common stock, preferred stock or a combination thereof, subject to market conditions and Cypress’s capital needs. Pursuant to this shelf registration statement, on June 26, 2000, Cypress completed a $287.5 million registered-placement of 5-year convertible subordinated notes. The notes are due in the year 2005, with a coupon rate 3.75% and an initial conversion premium of 27.0%. The notes are convertible into approximately 4.6 million shares of common stock and are callable by Cypress no earlier than July 5, 2003. Net proceeds were $279.6 million, after issuance costs of $7.9 million. As of December 31, 2000, the balance remaining related to the shelf registration statement is $112.5 million.

     During fiscal 1999, Cypress filed a registration statement on Form S-3 with the Securities and Exchange Commission. Under this shelf registration, Cypress could through March 2001 sell any combination of debt securities, preferred stock and common stock in one or more offerings up to a total amount of $300.0 million dollars. The full amount of this shelf registration statement has been used by the transactions described in this paragraph. On January 19, 2000, Cypress completed a $283.0 million registered-placement of 5-year convertible subordinated notes. The notes are due in the year 2005, with a coupon rate of 4.0% and an initial conversion premium of 28.5%. The notes are convertible into approximately 6.1 million shares of common stock and are callable by Cypress no earlier than February 5, 2003. Net proceeds were $275.2 million, after issuance costs of $7.8 million. Pursuant to the shelf registration, on March 29, 1999, Cypress sold 7.2 million shares of common stock, 2.5 million shares of which were sold by selling stockholders. Cypress received approximately $33.8 million in proceeds, net of issuance costs, and did not receive any proceeds from the shares sold by the selling stockholders.

     During fiscal 2000, Cypress purchased $338.7 million in capital equipment, a $224.3 million increase from the $114.4 million purchased in 1999, and a $255.1 million increase from the $83.6 million purchased in 1998. Cypress purchased equipment for its domestic wafer fabrication plants, its test and assembly facility in the Philippines, its back-end manufacturing subcontractors and its design and technology groups. Equipment purchased for the fabs is expected to improve wafer manufacturing capacity and capabilities as Cypress implements new technologies, including its 0.15 and 0.25 micron processes. A majority of the equipment purchased was for Fab 4 located in Minnesota to increase its capacity and capability. Equipment purchased for the Philippines and for use by its subcontractors was used to increase manufacturing capacity and tool certain packaging capabilities. Capital equipment purchases for the technology group are expected to enhance and accelerate research and development capabilities. Capital expenditures in 2001 are expected to be lower when compared to 2000, as Cypress is now realizing the effects of fiscal 2000 efforts to increase wafer manufacturing capabilities and capacity. Cypress completed its upgrade of the research and development fab in San Jose from six-inch to eight-inch during fiscal 2000, ensuring compatibility with Cypress’s wafer manufacturing facilities in Minnesota. Cypress will also continue to purchase new software and equipment to enhance its research and development capabilities. In fiscal 2001, Cypress expects to purchase approximately $280.9 million in capital equipment.

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     Employees of Cypress Microsystems (“CMS”), a subsidiary of Cypress, purchasing stock through the Restricted Stock Plan, were offered loans to enable them to purchase their shares. This program started in February 2000, and continues to be available. The loans bear interest at a rate of 6.45%, and are secured by CMS common shares. The loans, including interest, are due at the earlier of three days following the sale of the shares, within thirty days of the date the individual ceases to be an employee of Cypress Microsystems or Cypress Semiconductor, or three years from the grant date of the loan. At December 31, 2000, amounts receivable under this program totaled $0.1 million.

     In May 2000, a similar offering was made to the employees of Alation just prior to merger. The program offered loans bearing interest at an annual rate of 7.0% to enable the employees to exercise their options to purchase Alation stock. Upon merger, using the pooling of interests method, all Alation shares were converted into Cypress common shares. The loans, including interest, are due at the earlier of three days following the sale of the shares, within thirty days of the date the individual ceases to be an employee of Cypress, or a Cypress subsidiary, or three years from the grant date of the loan. At December 31, 2000, amounts receivable under this program totaled $0.2 million.

     In March 1999, Cypress announced a program whereby all U.S. employees were offered loans to facilitate the exercise of vested stock options. Under the terms of the program, only options which were vested as of March 1, 1999 and whose exercise price was less than or equal to $9.75 could qualify for a loan. The loans, including interest, are due at the earlier of three days following the sale of the shares, within thirty days of the date the individual ceases to be an employee of Cypress or 3 years from the grant date of the loan. The loans bear interest at a rate of 4.71% and are secured by Cypress common shares. At December 31, 2000, amounts receivable under this program totaled $1.8 million.

     In 1998, Cypress retired a total of $15.0 million principal of its $175.0 million, 6.0% Convertible Subordinated Notes which were issued in September 1997, for $12.9 million, resulting in a pre-tax net gain of $1.7 million. The net gain was recorded as other income. The remaining outstanding 6.0% Notes were called by Cypress effective October 2, 2000. A portion of the proceeds from the 6.0% Notes were used to repay the $49.0 million balance outstanding under a revolving credit facility, acquire equipment, purchase a building in Woodinville, Washington and for stock repurchases in 1998.

     In fiscal years 1997 and 1998, the Board of Directors authorized the repurchase of up to 14.0 million shares of Cypress’s common stock. Through January 3, 1999, 8.1 million shares had been repurchased under this entire program for $67.5 million. On February 25, 1999, the Board of Directors terminated the stock repurchase program. The unsold repurchased shares were used for option exercises under Cypress’s 1994 Stock Option Plan and stock purchases under the Employee Stock Purchase Plan. During 1998, Cypress reissued 1.8 million shares of common stock under such plans. During fiscal 1999, Cypress reissued a total of 8.3 million shares in relation to the stock offering described above and in conjunction with the 1994 Stock Option Plan and Employee Stock Purchase Plan. Such shares had been repurchased under the 1997/1998 plan and repurchase programs prior to 1997.

     In 1994 and 1995, Cypress entered into two operating lease agreements with respect to its office and manufacturing facilities in San Jose, which expired in 1999, and Minnesota, which expires in 2004. In October 1999, Cypress re-entered into a new operating lease agreement for the San Jose office, which expires in 2004 with the same lessor for the same facilities. In April 1996, Cypress entered into an additional lease agreement, which expires in 2001 for two office facilities in San Jose. These agreements require that Cypress maintain a specific level of restricted cash or investments to serve as collateral for these leases and maintain compliance with certain financial covenants. Cypress’s restricted investment balance as of December 31, 2000 and January 2, 2000 was $60.7 million and $61.2 million, respectively, and is recorded as other assets on the Balance Sheet. Cypress was in compliance with its covenants at December 31, 2000.

     Cypress believes that existing cash and cash equivalents and cash from operations will be sufficient to meet present and anticipated working capital requirements and other cash needs for at least the next twelve months. Beyond twelve months, changes in market demand and the possible need to increase manufacturing capacity and capability, may cause Cypress to raise additional capital through debt or equity financing. Although additional financing may be required, there can be no assurance that it would be available to Cypress or available at terms Cypress deems satisfactory.

Subsequent Events

     On March 22, 2001, Cypress completed an agreement with a lessor in relation to the construction of an approximate 111,000 square foot general purpose office building on the northeast lot of Champion Court, adjacent to the current executive offices. The arrangement will include a 34.5-year ground lease granted by Cypress to the lessor. The lessor will construct the building on the lot, with Cypress acting as its construction agent. The agreement allows for an eighteen-month construction period followed by a five-year lease term. During the lease term payments due vary based on LIBOR, plus a spread based on a total lease balance of up to approximately $21 million. Cypress is obligated to provide collateral equivalent to 86.2% of the then existing lease balance. At the end of the lease term, Cypress shall have the option to purchase the building.

     On March 22, 2001, Cypress employees were offered the opportunity to exchange their stock options for a promise to issue new options. The offer to exchange options expires on April 4, 2001. The new options will be granted on October 8, 2001 with an exercise price equal to the NYSE closing price on the same day. Any grant issued prior to March 20, 2001 will be eligible for this program. The new option will be issued with 12 months vested as of October 8, 2001 and the balance will vest 1/60th per month regardless of how many options were vested at the time of the cancellation election.

     On March 16, 2001, the Board of Directors of Cypress authorized the repurchase of an additional 5 million shares of Cypress’s outstanding common stock, bringing the total shares authorized in the repurchase program to 15 million. Since December 31, 2000, 1.0 million shares were repurchased at an average cost of $21.01 per share. In conjunction with the stock repurchase, the Board of Directors authorized the additional sale of put warrants. Cypress sold put warrants through private placements for which Cypress received $8.1 million between January 1, 2001 and March 22, 2001. Cypress had a maximum potential obligation to purchase 3.3 million shares of its common stock at an aggregate price of $68.1 million as of March 22, 2001. The put warrants have various expiration periods through October 2001. Cypress has the right to settle the put warrants with cash or settle the difference between the exercise price and the fair market value at the exercise date with stock or cash. No amount was classified out of stockholders’ equity in the accompanying consolidated balance sheet.

     On February 23, 2001, Cypress completed its acquisition of International Microcircuits Inc. (“IMI”), a company specializing in timing technology integrated circuits. IMI’s product portfolio includes programmable clocks, clock distribution products, electromagnetic interference suppression devices and application-specific products. Cypress paid approximately $126 million in cash and options to acquire Cypress common stock. Cypress will account for the transaction by the purchase accounting method.

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     On February 5, 2001, Cypress announced the signing of a definitive agreement to acquire HiBand Semiconductors, Inc., a provider of mixed-signal integrated circuits for high-speed communications markets. The acquisition, which has an estimated value of $32 million, is expected to close during March 2001 and will be accounted for by the purchase accounting method. Closing is subject to regulatory approvals and other customary conditions.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivatives and Hedging Activities.“SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities —Deferral of the Effective Date of FASB Statement No. 133,“which deferred the effective date until the first fiscal year beginning after June 15, 2000. In June 2000, the FASB issued SFAS Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — an Amendment of SFAS No. 133.” SFAS No. 138 amends certain terms and conditions of SFAS No. 133. SFAS No. 133 requires that all derivative instruments be recognized at fair value as either assets or liabilities in the statement of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. Cypress will adopt SFAS No. 133, as amended, in its first quarter of 2001. The adoption of SFAS No. 133 will not have a material impact on its financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Cypress is exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. To mitigate these risks, Cypress utilizes derivative financial instruments. Cypress does not use derivative financial instruments for speculative or trading purposes.

     The fair value of Cypress’s investment portfolio or related income would not be significantly impacted by either a 100 basis point increase or decrease in interest rates due mainly to the short-term nature of the major portion of Cypress’s investment portfolio. An increase in interest rates would not significantly increase interest expense due to the fixed nature of Cypress’s debt obligation.

     A majority of Cypress’s revenue and capital spending is transacted in U.S. dollars. However, Cypress does enter into these transactions in other currencies, primarily Japanese yen and certain other European currencies. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, Cypress has established revenue and balance sheet hedging programs. Cypress’s hedging programs reduce, but do not always eliminate, the impact of foreign currency rate movements. Based on Cypress’s overall currency rate exposure at December 31, 2000, a near-term 10% appreciation or depreciation in the U.S. dollar would have an immaterial effect on Cypress’s financial position, results of operations and cash flows over the next fiscal year.

     All of the potential changes noted above are based on sensitivity analyses performed on Cypress’s balances as of December 31, 2000.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share amounts)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)