Chapman Capital Recommends Reorganization of Cypress Semiconductor Corporation

Chapman Capital L.L.C. today announced that it has notified the Board of Directors of Cypress Semiconductor Corporation (NYSE: CY) of its recommendation that Cypress reorganize via a split-off and subsequent going-private LBO transaction. A letter dated today from Robert L. Chapman, Jr., Managing Member of Chapman Capital, has been sent to Cypress's full Board of Directors and is attached hereto.

Mr. Chapman commented, "Like other significant owners of Cypress Semiconductor, Chapman Capital has recommended that its Board of Directors re-engage Credit Suisse to effect a corporate reorganization that separates Cypress's core semiconductor operations from its controlling stake in SunPower Corporation." Regarding Chapman Capital's growing concerns regarding relatively immaterial Cypress share ownership by its Board of Directors, Mr. Chapman stated further, "Cypress's core semiconductor business, which Mr. Rodgers founded nearly 25 years ago, deserves a much higher valuation than what it was ascribed the day Mr. Rodgers took it public two decades ago. Mr. Rodgers has stated publicly, 'you and I are going to make as much money as fast as we can on this.' Cypress's Board of Directors, despite their insignificant percentage ownership of Cypress, should expect that we are going to hold Mr. Rodgers to this promise."

Chapman Capital L.L.C. is a Los Angeles, CA based investment advisor focusing on takeover and turnaround investing. The firm currently manages over $300 million as the registered investment advisor to Chap-Cap Partners II Master Fund, Ltd. and Chap-Cap Activist Partners Master Fund, Ltd., the combined owners of approximately 1% of Cypress Semiconductor Corporation's common shares. Over the past ten years, Chapman Capital has agitated successfully for the restructuring or sale of over twenty publicly-traded companies. Mr. Chapman previously was employed by Goldman Sachs & Co., Scudder Stephens, & Clark, and NatWest Bank USA. Related news releases, as well as additional information on Chapman Capital, may be found at http://www.chapmancapital.com.

Cypress Semiconductor Corporation designs, develops, manufactures, and markets a line of digital and mixed-signal integrated circuits. The Company's circuits are used in consumer, computation, data communications, automotive, industrial, and solar markets. Leveraging proprietary silicon processes, Cypress's product portfolio includes a broad selection of wired and wireless USB devices, CMOS image sensors, timing solutions, specialty memories, high-bandwidth synchronous and micropower memory products, optical solutions and reconfigurable mixed-signal arrays. Related news releases, as well as additional information on Cypress Semiconductor, may be found at http://www.cypress.com.

Robert L. Chapman, Jr.

Managing Member

December 28, 2006

Mr. Thurman J. Rodgers

CEO, President (58; <1% owner(1))

Cypress Semiconductor Corporation (1982)

3901 North First Street

San Jose, CA 95134

Phone #1: (408) 943-2611

Phone #2: (650) 839-0251

Director, SunPower Corporation

Director, Ion America Corporation

Fmr. Director, Solarflare Communications, Inc.

Fmr. Director, Infinera

E-Mail: tjr@cypress.com

Mr. Eric A. Benhamou (50; 1982)

Chairman, Cypress (~ 0% owner(2))

Ch./CEO, Benhamou Global Vent.(5)

540 Cowper Street, Suite 200

Palo Alto, CA 94301

Phone #: (650) 324-3680 (Ext. 2)

Chairman, 3Com Corporation

Chairman, Palm, Inc.

Director, RealNetworks, Inc.

Director, Silicon Valley Bank

E-Mail: eric@BenhamouGlobalVentures.com

Mr. J. Daniel McCranie (62; 2005)

Director, Cypress (~ 0 % owner(3))

1750 Vista del Sur

Gilroy, CA 95020

Chairman/ Fmr. CFO, Virage Logic

Chairman, ON Semiconductor Corp.

Director, Actel Corporation

Phone #1: (408) 848-3223

Phone #2: (408) 930-2048

E-Mail: dan@mccranie.biz

Mr. James R. Long (63; 2000)

Director, Cypress (~ 0% owner(4))

2348 S. Ocean Blvd.

Highland Beach, FL 33487

Phone #: (561) 278-6036

Fmr. EVP, Nortel Networks Corp.(6)

Director, 3Com Corporation

Fmr. Dir., Symon Communications(7)

E-Mail: jrlong42@yahoo.com

Mr. Lloyd A. Carney (44; 2005)

Director, Cypress (~ 0% owner(8))

Gen. Mgr., IBM's Netcool Division

68 Shearer Drive

Atherton, CA 94027-3957

Phone #1: (415) 568-9900

Phone #2: (650) 333-4995

Fmr. Ch./CEO, Micromuse Inc.

Fmr. COO, Juniper Networks, Inc.

Fmr. President, Nortel Core IP Div.

Fmr. Pres., Nortel Enter. Data Div.

Fmr. Pres., Nortel Wireless Internet

E-Mail: lloyd@carneyglobalventures.com

Mr. W. Steve Albrecht (59; 2003)

Director, Cypress (~ 0% owner(9))

Associate Dean, Brigham Young U.(11)

361 W. 310 North

Orem, UT 84057

Phone #: (801) 422-3154

Director, Red Hat, Inc.

Director, SkyWest, Inc.

Director, SunPower Corporation

Director, ICON Health & Fitness Inc.

Fmr. Professor, Stanford University

Fmr. Accountant, Deloitte & Touche

E-Mail: steve_albrecht@byu.edu

Mr. Evert P.van de Ven (56; 2005)

Director, Cypress (~ 0% owner(10)

3411 Via Monteverde

Encinitas, CA 92024

Phone #: (858) 759-2218

Fmr. EVP/CFO, Novellus Systems

Fmr. Dir., Matrix Integrated Sys.

E-Mail: TBD

Via U.S. Postal Service & United Parcel Service

Dear Mr. Rodgers:

Chap-Cap Partners II and Chap-Cap Activist Partners (the "Chapman Funds"),

advised by Chapman Capital L.L.C., own 1.5 million common shares, or just

over 1%, of Cypress Semiconductor Corporation ("Cypress", the "Company").

According to Mr. Rodgers's own definition, this investment makes the

Chapman Funds collectively "a real big Cypress Shareholder."(12) To put

this ownership stake into perspective, the Chapman Funds' financial

interest in Cypress's common equity now appears to exceed Mr. Rodgers's

own,(13) despite his having founded Cypress and received millions of free

stock option grants over the past two and one half decades. Even more

disparate is the spread between our ownership and that of the balance of

Cypress's Board of Directors ("the Board"), which owns virtually no common

stock following either a) director resignations or b) exercise-and-sell

treatment of free stock option grants. Despite this asymmetry, it is our

sincere intention for this initial communication with Mr. Rodgers and the

balance of the Board to be considered amicable and productive, rather than

opprobrious or contumelious.(14) Hopefully, this letter will serve as the

first in a steady thread of constructive communications that cure the

needlessly protracted undervaluation placed by the market on Cypress's

core semiconductor operations ("Cypress Core").

Despite Cypress's senior management making numerous appearances at Wall

Street investment conferences this past year, investors appear unwilling

to believe that Mr. Rodgers finally is going to deliver long term,

permanent shareholder value for the Cypress Core business that Mr. Rodgers

founded in 1982. With the exception of Cypress CFO Brad Buss's jocular

intimations that certain Cypress shareholders' speculation is what led to

the Cypress Core LBO discussions being terminated, Cypress's consistent

message of "we have changed" should have resonated by this time with Wall

Street as a whole. The reasons underlying Wall Street's apparent refusal

to believe that T.J. Rodgers can deliver on these promises are a mystery.

This is the same T.J. Rodgers who two decades ago, before Cypress's stock

had underperformed the S&P 400 Semiconductor Index by 200 percentage

points over the last dozen years,(15) became a "high-tech celebrity

because of Cypress's early growth and, in part, because of his

high-profile criticism of what he termed wasteful government subsidies

sought by other chip makers."(16) Because Mr. Rodgers may be viewed as

this sort of "rabble-rouser" who operated as such on Cypress's behalf back

when I was just graduating from his alma mater's sworn rival, I am

confident Mr. Rodgers will not behave hypocritically by objecting to

Chapman Capital's public expression of its opinion regarding Cypress and

his management thereof.

At the outset, please let me congratulate and commend Mr. Rodgers for

spearheading Cypress's extraordinarily profitable and fortunately-timed

acquisition of SunPower Corporation (Nasdaq: SPWR; "SunPower"). As many

times as I have heard investors dismiss Mr. Rodgers's foresight, I

struggle to repose confidence in those who credit pure, random luck

(rather than his perspicacity), his hearty appetite, and his shared taste

with SunPower Corporation founder Dick Swanson for a certain Silicon

Valley coffee shop(17,18) for the SunPower masterstroke. When Mr. Swanson

told T.J. Rodgers that SunPower was two weeks away from laying-off half of

its employees, Mr. Rodgers didn't hesitate, reportedly cutting Swanson a

$750,000 check "on the spot to keep the company afloat until [Rodgers]

could convince the Cypress Board to acquire SunPower."(19) In the end,

Mr. Rodgers's pulling out his checkbook in December 2001 (reportedly

without doing material due diligence) to save his college buddy's company

from insolvency, while seemingly making the Nostradamus-like prediction

that oil prices were on the cusp of skyrocketing from $18/barrel to

$60/barrel(20), is what gave Cypress pole position on future rounds of

SPWR pre-IPO financing.

Yet, after listening to Mr. Rodgers prosthetize audiences on SunPower's

virtues, some have concluded that Mr. Rodgers may have an overriding

desire for his highly successful Silicon Valley peers to consider his

fortunate foray into solar cells (vs. SRAM chips) as his true business

legacy. In line with this theory, it has been argued that Mr. Rodgers

refuses to separate SunPower from Cypress Core because such reorganization

could remove from Cypress the only growth vehicle capable of vindicating

his career oversight of Cypress, once and for all, as Mr. Rodgers moves

into the late stages of his forty year career. The fact of the matter,

however, is that no matter how hard Mr. Rodgers may try to associate

himself with Wall Street's latest investment-theme-of-the-day,(21) the

name "T.J. Rodgers" will be synonymous with Cypress Semiconductor for

decades to come.

It is our understanding that this past fall, Cypress engaged Credit Suisse

to represent Cypress in LBO discussions that valued Cypress Core at

$1.8 - $2.0 billion, supported by $175-200 million in estimated 2007

EBITDA.(22) After subtracting the market value of the shares of SunPower

owned by Cypress from that of Cypress' consolidated market capitalization,

this $1.8 - 2.0 billion valuation appears to place a Cypress Core

valuation at over $12.00 per Cypress share,(23) for a total Cypress

valuation over $22/share. This compares to the current value of Cypress

Core and Cypress at $5.50 - $6.00 (a 50% discount) and $16.00 per Cypress

share respectively. With the exception of the momentary and speculative

inflation of Cypress Core's embedded market value to nearly $12.00 per

Cypress share in October 2006, Cypress Core's market value has not moved

materially or in a sustained manner above $7.00 per Cypress share since

the November 2005 IPO by Credit Suisse and Lehman Brothers of SunPower at

$18.00/SPWR share. In fact, one could argue that after taking into

account Cypress's existing cash balances,(24) Cypress Core now trades at

virtually the same valuation as the day Morgan Stanley took the Company

public some twenty years ago.(25) This same investment bank, which gushed

with praise for Mr. Rodgers and Cypress Core at the time of Cypress's IPO,

now has refused to recommend Mr. Rodgers's stock for over five years(26)

and has a top-rated analyst who recently portrayed his views in the

"confidence lower" category.(27)

Chapman Capital's investment in Cypress has not been made with short-term

fundamentals or immediate strategic plans in mind. To Mr. Rodgers's

stated satisfaction, we are "investors and not speculators associated with

Cypress."(28) Our long term investment in Cypress was made following

passive participation in over a dozen recent conference calls and

presentations, on top of countless inquiries to semiconductor and solar

cell industry experts. In fact, it is our view that Cypress may be

experiencing a slight, short-term order shortfall in line with others in

its industry, a condition with which we are comfortable given our long

term perspective. However, something with which we are not so comfortable

is market concerns that T.J. Rodgers may have fallen in love with SunPower

as a source not only of revenue growth but reputation redemption following

a history of false starts. Mr. Rodgers' emotional tie to SunPower shined

brightly when he beamed in May 2005, "For the first time in my life, I

actually make something that people care about!"(29) Indeed, Chapman

Capital has heard Mr. Rodgers' well rehearsed defense for keeping SunPower

from flying away from the nurturing nest of Cypress, but finds certain

arguments somewhat self-serving. While we present no argument to the

claims that the SunPower "asset is growing like a rocket," is "now making

20%," and has "got the best stuff in town ... ,"(30) there are five gaping

holes in Mr. Rodgers's logic that appear to be in need of being addressed

as follows:

T.J. Rodgers Non-Separation Excuse #1: The tax situation underlying the

separation of SunPower from Cypress is too complex; it is better to wait

until 2009 when it is easy.

Cypress Owner Rebuttal #1: An October 24, 2006, "Accounting & Tax Policy"

report by accredited tax expert Robert Willens of Lehman Brothers

expounded on several avenues that could be utilized by Cypress to

accomplish a tax-effective separation well before 2009. While the

Code(31) seems to restrict the simple, tax-free spin-off of an acquired

corporation (SunPower) anytime before the five year anniversary of

Cypress's "taxable acquisition of control," Lehman Brothers succinctly

describes a feasible scenario wherein CY could "create a new corporation

(Newco) to which it would contribute the stock of SPWR and the asset of a

small business that CY has actively conducted throughout the [preceding]

five years." Lehman Brothers concluded, "there is reason to believe that

the 'Newco strategy' could allow CY to overcome the fact that control of

SPWR was acquired as far as the active business test goes, in a 'tainted'

manner." In addition, we believe that Mr. Rodgers has reviewed a separate

academic study supporting the feasibility of Mr. Willens's tax strategy.

Alternatively, it has been discussed widely that Cypress, perhaps with the

assistance of Mr. Rodgers's friends at Silver Lake Partners, could utilize

Code Sec. 355(a)(1)(A) to formulate a plan of separation akin to the

highly profitable Seagate/Veritas transaction announced on

March 29, 2000.(32) The fact that it may be "easier" to sit and wait vs.

tackling a shareholder maximizing project (as did the management of

Seagate six years ago) is not an excuse acceptable to Cypress's long

suffering shareholders.

T.J. Rodgers Non-Separation Excuse #2: Spinning off SunPower would be

like selling off a controlling interest in Intel in early 1972. SunPower

is extremely valuable and Cypress should make sure that the Cypress

shareholders get the benefit of it.(33) Cypress, which created enormous

value with SunPower, gets nothing from a spin-off.

Cypress Owner Rebuttal #2: Chapman Capital does not believe that the

highly educated CEO of a $2.3 billion public company lacks a basic

understanding of portfolio theory. It seems impossible to me that Mr.

Rodgers does not understand that the spun or split off shares of SunPower

would end up in the portfolios of the same Cypress shareholders who

own(ed) (indirectly) these shares before such spin/split off. Chapman

Capital and the dozens of long term Cypress shareholders have not demanded

that Mr. Rodgers "monetize [emphasis added] at the current point the

exceptional $2 billion plus value SunPower has."(34) Post spin/split off,

should SunPower prove to be a 100 bagger as has been Intel since the year

after its October 1971 IPO,(35) today's Cypress shareholders who decide,

on their own volition, to keep spun/split-off SunPower shares for the next

34 years will "get the benefit of it." Contrary to Mr. Rodgers's

protests, by spinning/splitting off SunPower from Cypress, he would not be

"tak[ing] a precipitous action to terminate Cypress ownership in

[SunPower] ... "(36) because, once again, the very same Cypress

shareholders who indirectly owned SunPower (via their Cypress

shareholdings) still would own, post spin/split, "a chunk of an extremely

important company,"(37) in addition to a stake in the smaller "new"

Cypress. In fact, such a spin/split off would solve perfectly the very

dilemma cited by T.J. Rodgers himself -- "We're just not passing ...

strategic value [in SunPower] to investors."(38) Spinning/splitting off

Cypress's ownership of SunPower to Cypress's owners does nothing but "pass

it to investors."

T.J. Rodgers Non-Separation Excuse #3: There would be lawsuits thrown at

Cypress and SunPower if they were to attempt a separation.

Cypress Owner Rebuttal #3: First and foremost, despite the perfunctory

litigation that attends nearly every major financial transaction involving

a public company,(39) successful split offs have been accomplished of

Chipolte Mexican Grill, Inc. from McDonald's Corporation, Hughes

Electronics tracking shares from General Motors Corporation, Blockbuster

Inc. from Viacom Inc., and proximately Liberty Media Corporation

from News Corporation (though a bit different with only

one shareholder, Liberty, participating). Should it be required, a

shareholder vote, like those used regularly in corporate reorganizations,

would cripple any prospective legal complaints by "minority shareholders."

Moreover, Cypress Semiconductor is no stranger to litigation, with T.J.

Rodgers himself reportedly a most worthy opponent when defending spurious

claims against him or "his" company.(40) In reality, if fear of

litigation were an impediment in today's business world, a catatonic,

transaction-free state would be the end result, which it is not. Mr.

Rodgers simply needs to pick up his phone, call Cypress's outside

counselor Larry Sonsini, and tell him to "just get it done," as I suspect

Mr. Rodgers has done countless times in the past.

T.J. Rodgers Non-Separation Excuse #4: Cypress provides SunPower with

expertise in the areas of management,(41) engineering, manufacturing and

facilities(42) that is instrumental to SunPower's growth and success.

Cypress Owner Rebuttal #4: If there is such enormous intellectual value

being transferred from Cypress to SunPower, from which Cypress

shareholders are deriving gain via a higher price of SPWR shares in the

market, there is no reason why a separated Cypress and SunPower cannot be

served by a new, related legal entity employing these highly talented

individuals and compensated (to cover their salaries) by each of Cypress

and SunPower. Each of the individuals who currently serve both Cypress

and SunPower would continue to do so in exactly the same fashion as

before, with the only difference being the name of the new legal entity on

their paycheck. The same talented Cypress employees would drive to the

same work locations, work the same hours, and accomplish the same

professional goals as they have for years. Mr. Rodgers still could "get

automated processing in the back end of SunPower," "work with them on

improving their manufacturing, reducing the number of steps, reducing

their cycle time, all the stuff Cypress knows how to do."(43) If this

third party entity concept seems too complicated, Cypress can negotiate an

arms-length agreement(44) to provide all services mentioned above at a

fair market rate. Simply stated, co-ownership is neither required nor

potentially advisable given the potential conflict of interest wherein

SunPower, only 65% owned by Cypress, is favored over the latter. To argue

otherwise would be akin to arguing against the very wafer fabrication

outsourcing model that Cypress increasingly has embraced.(45) Cypress

clearly sees the benefit of Grace Semiconductor, using its own wafer

management, engineering and manufacturing expertise, serving a variety of

clients and being compensated therefore.(46) In summary, Cypress "can

create value faster inside of SunPower"(47) using the same automation

team, same engineers and financiers just as it has before a split off. To

think otherwise gives far too little credit to both Cypress's lawyers and

those SunPower employees who have learned at the feet of a master like

T.J. Rodgers.

T.J. Rodgers Non-Separation Excuse #5: Cypress Core, having embraced "No

more Moore," is on the cusp of significant revenue and margin expansion,

making an LBO thereof a poorly-timed for current Cypress shareholders.

Cypress Owner Rebuttal #5: Every week, private equity firms are paying

enormous premiums to capture these very operational improvements of public

companies like Cypress. When taking into account Cypress's net cash

(assuming full conversion of its convertible bonds), Cypress Core trades

at an enterprise valuation less than one times highly profitable revenues

despite a) the comparables(48) trading at nearly two times revenues and b)

Cypress's potential for "hockey stick" free cash flow in 2007 and beyond.

Ignoring the value of a Net Operating Loss (NOL) carry forward valued at

approximately $0.30-0.50/Cypress share (10-15% of each NOL dollar/share),

Cypress Core trades for under 10 times its 2007 projected EPS (vs.

comparables at over 15 times). Cypress has made no secret of in-process

operational and financial improvements, with CFO Brad Buss having gotten

wired his "this is not your father's Cypress" speech after numerous

conference appearances this year. Few investors remain who have not heard

about Cypress soon owning a stabilized, steady-profit SRAM business

following Samsung and Toshiba EoL'ing competitive products, how Cypress's

R&D department is becoming a profit (vs. cost) center, or how Brad Buss

himself was able to design a usable product with Cypress's innovative new

PSoC software. However, given Cypress's long history of setbacks under

certain top officer(s),(49) Wall Street public equity, lacking the ability

to take control of Cypress Core's management, appears unwilling to give

Cypress the credit that private equity reportedly was able and willing to

provide just a few months back. Just as the CEO's of Freescale

Semiconductor, Inc., Agere Systems Inc., and Phillips Semiconductor have

orchestrated this past year, in exchange for Cypress control and these

synergies, Cypress can obtain a healthy premium from, and transfer the

execution risk to, a private equity firm with billons of investor capital

burning a hole in its pocket.

While Cypress' cooperative efforts with subsidiary SunPower indisputably

have been accretive to both companies' shareholders, nobody should be more

aware of the risks of pressing one's luck than T.J. Rodgers. By the end

of the dot-com boom year of 2000, Cypress found itself at a nearly

$1.5 billion annual revenue run rate,(50) down streaming into nearly $3.00

in annualized EPS. On November 30, 2000, with Cypress shares trading just

under $25/share, Mr. Rodgers announced a $125 million share repurchase

program,(51) citing "undervaluation as the reason for the buy-back."(52)

On this date, Mr. Rodgers exuded confidence in Cypress's future, stating,

"Demand is robust, but they're just slowing down a little bit. They're

using inventory rather than buying new products."(53) Yet, exemplifying

the difficulty in forecasting the perpetuation of a healthy environment

for semiconductors, within a mere nine months Cypress's revenue run rate

had fallen by over 50%,(54) with Cypress's "undervalued" stock having

fallen by nearly 50%(55) as well. The "undervaluation" of Cypress's

shares did not end there, with its common stock just one year later having

fallen another 75% to $3.60/share,(56) a price some 20% below Cypress'

1986 IPO price of $4.50/share. Clearly, the $110 million investment made

into SunPower at around this same time was a far more astute investment

than this one announced in November 2000. Needless to say, given the

salubrious environment for private equity capital and relatively healthy

state of the Cypress Core business, there is a strong argument to be made

that striking while the iron is hot is readily applicable to a Cypress

Core LBO.

While cyclical semiconductor risk is no stranger of Mr. Rodgers, the

technological risk accompanying Cypress's SunPower investment may be

worthy of further study by Cypress's Board. Last month, First Solar,

Inc., a Phoenix, AZ based designer and manufacturer of solar modules with

estimated 2006 net sales of $125 million,(57) came public in an IPO led by

Mr. Rodgers's friends at Credit Suisse and Morgan Stanley & Co. Valued at

over $1.5 billion at its IPO price of $20/share, FSLR's technology is

viewed as a potential "game changer"(58) in the global solar power

industry. FSLR currently(59) produces solar cells with approximately half

the energy conversion efficiency as those photovoltaic cells manufactured

by SunPower (reportedly lab tested as high as 28%; commercially now at

22%). However, FSLR's Cadmium Telluride cells generate power at a

cost/watt that is substantially lower at approximately $1.40(60) vs. SPWR

(using Crystalline Silicon) at $2.25-2.50/watt.(61) For the time being,

SPWR's higher efficiency ratio allows it to target customers limited by

smaller surface areas (e.g., a home's roof), while a commercial solar

power generation customer (e.g., a warehouse) may be more likely to use a

FSLR solution. However, this lead by SPWR in efficiency has a reasonable

probability of eroding over time, given SPWR's potential scientific

maximum of approximately 30% efficiency vs. 15-16% for FLSR. It has been

argued that as soon as FSLR can generate 13-14% efficiency,(62) it should

be in a strong position to take share from SPWR in the residential

marketplace. Thus, no matter how accretive SunPower's recent PowerLight

Corporation acquisition may be, it may not be prudent to consider

permanent the current ebullience surrounding alternative energy that has

given SPWR a 40+ price earnings ratio on 2007 earnings estimates. Another

alternative energy play once in high favor on Wall Street, Evergreen

Solar, Inc., now finds itself trading more than 50% below its market value

of just nine months ago, yet still trades at over five times projected

2006 sales and over 50 x estimated 2008 earnings per share. As we all

have learned the hard way on Wall Street, it appears that there really is

nothing new under the sun.

Once again, T.J., the SunPower iron is hot, and is best used in that state

before it grows cold. A split-off of Cypress's SunPower shares ("buy[ing]

back Cypress shares swapped for SunPower shares"(63)) would a) capitalize

on SunPower's potentially fleeting relative valuation, b) put SunPower

shares into the hands of today's Cypress shareholders who indirectly (via

CY share ownership) "own" SunPower today (refuting Mr. Rodgers's "we'd be

giving away/selling SunPower in Inning 2" argument), and c) "dramatically

increase the earnings per share" of the residual/reorganized Cypress Core

due to "dramatically declining the number of Cypress shares in the

market."(64) I must emphasize that when Cypress's investment bankers at

Credit Suisse walked Mr. Rodgers (and his eminent CFO Brad Buss) through

the math underlying this transaction in October,(65) the relative

valuation between what would be Cypress's selling currency (SPWR stock)

and acquired one (CY stock) was far less attractive than it is today.(66)

Specifically, in a split-off/swap transaction, today each share of

SunPower has the purchasing power to buy approximately 30% more shares(67)

of Cypress than one SPWR share could at the time Cypress's Board rejected

such a transaction's feasibility.

Chapman Capital, on behalf of what it believes is a significant percentage

of Cypress's owners, strongly recommends that the Company re-engage its

investment advisors to utilize of one the Lehman solutions to reorganizing

Cypress Semiconductor. Mr. Rodgers has acknowledged publicly that the

"extraordinary value of SunPower is not showing up in our shares."(68)

Sure, regarding the reorganization alternatives, "they're all complicated

... they've all got legal impacts of hair hanging all over them,"(69) but

Cypress has "spen[t] a quarter doing it," "ha[s] a complete update right

now", is "now at the speed and understanding it ... [and] can look at it

real time."(70) Cypress's investment bankers at Credit Suisse have

"do[ne] the math"(71) showing Mr. Rodgers how Cypress's EPS potentially

would double via a split-off of SunPower, should Mr. Rodgers decide to

maximize long term shareholder value. Lehman Brothers has provided

Cypress with a tax roadmap to accomplish this goal, should Mr. Rodgers

decide to maximize long term shareholder value. Cypress's outside counsel

at Wilson Sonsini Goodrich & Rosati has defined the legal hurdles that his

partners and associates have been trained to jump, should Mr. Rodgers

decide to maximize long term shareholder value. Silicon Valley legend and

Cypress Chairman Eric Benhamou surely has described to Mr. Rodgers how

3Com maximized long term shareholder value by spinning off its stake in

Palm, Inc. into strong year 2000 market sentiment for anything wireless.

Via a SunPower split-off, Cypress shareholders can get an initial premium

capital gain; thereafter, the reorganized Cypress can go private at yet

another premium valuation. Once again, this is all subject to Mr. Rodgers

deciding to maximize long term shareholder value.

In conclusion, although Chapman Capital appreciates that Mr. Rodgers may

consider SunPower "his baby," the DNA trail of Cypress's 65%(72) ownership

stake leads back to the other 99% of Cypress's shareholder base, and not

to that 1% "real big Cypress shareholder" T.J. Rodgers. On October 19,

2006, Mr. Rodgers stated publicly he "couldn't imagine things changing in

a quarter that would cause the analysis [he'd] done to change in a

quarter."(73) Well, Mr. Rodgers, things changed in a quarter, with

Cypress Core's valuation dropping by 50% to its $5.50-$6.00 value today.

On October 19, 2006, Mr. Rodgers stated, "Cypress can go up or down"(74);

Cypress did in fact go down.(75) On October 19, 2006, Mr. Rodgers stated,

"The relative values of the two can go up or down"(76); SunPower's

relative value did in fact go up.(77) If Mr. Rodgers's prediction proves

accurate that "in a year time frame ... SunPower will be a lot bigger,

worth a lot more,"(78) then the Cypress shareholders to whom SunPower's

"strategic value" shall have been "passed" (via a spin/split-off) will

benefit directly (vs. under the status quo), with no risk of SunPower's

value failing to be reflected. Should Mr. Rodgers desire to attach his

own legacy to Dick Swanson's dream, then instead of the recommended

split-off, then Cypress's Board should negotiate the going private of

Cypress Core without Mr. Rodgers's participation, allowing Mr. Rodgers to

continue to apply his much heralded PhD and decades of manufacturing

expertise with Messrs. Werner and. Swanson. Cypress Core, the business

Mr. Rodgers founded nearly 25 years ago, deserves a much higher valuation

than what it was ascribed the day Mr. Rodgers took it public two decades

ago. Mr. Rodgers has stated publicly, "you and I are going to make as

much money as fast as we can on this."(79) He should expect we are going

to hold him to this promise.

Sincerely,

/s/ Robert L. Chapman, Jr.

Robert L. Chapman, Jr.

(1) Thurman J. Rodgers ownership stake: 1,411,652 shares per Cypress 2006

Proxy Statement dated March 30, 2006; total Cypress outstanding share

count was 143,900,672 as of November 1, 2006, per Cypress Form 10-Q

dated October 1, 2006.

(2) Eric A. Benhamou ownership stake: zero shares per Cypress 2006 Proxy

Statement.

(3) J. Daniel McCranie ownership stake: 1,239 shares per Cypress 2006

Proxy Statement.

(4) James R. Long ownership stake: 4,300 shares per Cypress 2006 Proxy

Statement.

(5) Benhamou Global Ventures (BGV):

http://web.benhamouglobalventures.com.

(6) In a December 8, 1999, Globe and Mail article entitled, "Nortel

Insiders cashed in during stock's recent surge; Selloff came as

firm's head prepared to lobby for tax cuts on options," Mr. Long was

highlighted as having made "a $18.6 million profit from the exercise

of options and the sale of a total of 346,176 shares worth $21.2

million" as president of Nortel's Enterprise Solutions unit, before

being replaced by Bill Conner (17 years his junior) in December 1999.

(7) Symon Communications Incorporated: http://www.symon.com

(8) Lloyd Carney ownership stake: zero shares per Cypress 2006 Proxy

Statement.

(9) W. Steve Albrecht ownership stake: 16,000 shares per Cypress 2006

Proxy Statement.

(10) Evert van de Ven ownership stake: 6,000 shares per Cypress 2006 Proxy

Statement.

(11) W. Steve Albrecht: http://marriottschool.byu.edu/deans/#albrecht.

(12) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

Mr. Rodgers, owning less Cypress shares than the Chapman Funds,

referred to himself as "a real big Cypress shareholder."

(13) Source: Cypress 2006 Proxy Statement dated March 30, 2006; Form 4

filed with S.E.C. on October 31, 2006, shows Mr. Rodgers having

exercised 300,000 free stock options on October 27, 2006, at a 35%

discount to Cypress' closing price on that date.

(14) See New York Times, DealBook, "Writer Wanted at Chapman Capital";

http://dealbook.blogs.nytimes.com/category/hedge-funds/

(15) Since December 1994, the S&P 400 Semiconductor Index has appreciated

over 250% while Cypress less-than-treasury bill compounded return of

just over 50%, including all dividends reinvested; Source: Bloomberg

Comparative Returns (COMP).

(16) Source: Wall Street Journal, May 19, 2006, "Cypress Cashes in with

Solar Chips."

(17) Source: "The Daily Deal, "Will SunPower's Cameo Boost Its IPO,"

May 8, 2005; http://techconfidential.thedealblogs.com/2005/05/will_sunpowers_cameo_boost _it s.php

(18) T.J. Rodgers' initial $750,000 investment in SunPower Corporation has

been reported to be the product of Mr. Rodgers' serendipitous

decision to eat at a Silicon Valley coffee shop, coincidentally being

patronized by SunPower founder and Rodger's Stanford University

classmate Richard Swanson, who confessed SunPower's need for rescue

financing at that time; arguably, had Mr. Rodgers not been hungry or

been out of town at that particular hour, Cypress's eventual

$110 million investment never may have been made. The Wall Street

Journal qualified this meeting as Mr. Rodgers' having "chanced to

meet a classmate from Stanford University."

(19) Source: "The Daily Deal, "Will SunPower's Cameo Boost Its IPO,"

May 8, 2005.

(20) Chapman Capital also dismisses the theory that Mr. Rodgers also owes

his good luck in SunPower to 1.5 billion Chinese natives for driving

up the price of oil more than threefold in as many years.

(21) Wall Street has brought public two solar power generation companies

in the last month alone.

(22) Chapman Capital is assuming 7-8% operating margin for 2007, though

CFO Brad Buss has spoken of the potential for 10% on the back of a

more proprietary product mix from PSoC, programmable clocks, the

USB/Westbridge handset line, and others.

(23) Cypress Core = (Cypress Semiconductor[CY] - (~ 0.29 *

SunPower[SPWR])).

(24) Net cash balance assumes Cypress's $600 million, in-the-money 1-1/4%

bonds convertible at $12.69/share are in fact converted before the

June 15, 2008, deadline; each $1,000 face value bond converts into

55.172 shares plus $300 in cash or stock.

(25) Cypress went public in May 1986 at split adjusted $4.50/share,

raising over $65 million via lead manager Morgan Stanley & Co.

(26) Morgan Stanley semiconductor analyst Mark Edelstone last recommended

Cypress shares in April 2001 with an "Outperform" rating.

(27) Source: Morgan Stanley reported dated October 19, 2006, entitled,

"Cypress Semiconductor: No Change to EPS but Confidence Lower."

(28) During Cypress's 3Q2006 earnings conference call, in response to a

question regarding outstanding strategic alternatives from Merrill

Lynch analyst Srini Pajjuri, T.J. Rodgers commented, "We're

interested in investors not speculators being associated with

Cypress."

(29) Source: "Will SunPower's Cameo Boost Its IPO", The Daily Deal,

May 8, 2005.

(30) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote are by Mr. Rodgers.

(31) Section 355 - Distributions of Stock and Securities of a Controlled

Corporation; For more information, on Section 355(b)(2)(D), please

see http://www.irs.gov/pub/irs-drop/rr-04-23.pdf and

http://edocket.access.gpo.gov/cfr_2004/aprqtr/26cfr1.355-3.htm

(32) Seagate Technology announced on March 29, 2000, that it would be

bought by Veritas Software and an investment group including Silver

Lake Partners in a complex $20 billion deal that left Seagate, which

owned a 34% non-controlling stake in Veritas itself.

(33) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

(34) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

(35) Intel Corporation went public in October 1971 at a split adjusted

price of $0.24/share vs. today's valuation of over $20/share;

however, it should be noted that following this IPO, holders of Intel

who did not apply risk management to their portfolio's by holding

Intel (despite its pricey 1971-1972 valuation) lost over 80% of their

IPO investment when INTC reached $0.04/share during the 1973-1974

bear market.

(36) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

(37) Ibid.

(38) Ibid.

(39) The litigation surrounding the Seagate/Veritas transaction was

voluminous yet surmountable by Seagate's shareholder friendly CEO.

(40) For example, Cypress reportedly defended itself vigorously and

successfully (paying out nothing) against a class action suit

involving a lead plaintiff that pointed at the college fund stake in

Cypress indirectly owned by of the daughter of the plaintiff's

attorney.

(41) T.J. Rodgers has taken credit for reviewing "any solar project" and

"adding value on the technical side" using Rodgers PhD.

(42) Cypress allows for SunPower to utilize its manufacturing facility in

the Philippines and communications systems, for example.

(43) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

(44) During the Cypress 3Q2006 earnings conference call on

October 19, 2006; Mr. Rodgers himself referred to "a lot of value"

that comes from "arms length" agreements between SunPower and

Cypress's "back end automation team in the Philippines."

(45) Cypress has been moving an increasing percentage of its chip

manufacturing to Grace Semiconductor Manufacturing's Shanghai, China

facility.

(46) On December 20, 2006, Cypress entered into a Guaranty with CIT

Technologies Corporation for the benefit of Grace Semiconductor USA,

Inc., following Cypress and Grace entering into a strategic foundry

partnership in December 2005 involving Cypress's transfer of certain

of its proprietary process technologies to Grace.

(47) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

(48) Comparables include Integrated Device Technology, Inc., Atmel

Corporation, LSI Logic Corporation and Agere Systems and for SRAM

exposure Micron Technology, Inc..

(49) For every SunPower, there have been numerous gambles that did not pay

off, including MRAM (magnetic memory) which Freescale Semiconductor

Inc. was able to transition into a successful product.

(50) Cypress reported 4Q2000 revenues of approximately $370 million.

(51) Cypress announced that its Board had authorized the repurchase of

five million of Cypress's outstanding shares; $125 million estimate

assumes the Board considered the approximate $25/share market value

the level at which it would be making the repurchase.

(52) Source: Cypress press release dated November 30, 2000.

(53) Source: Bloomberg, News, "Cypress Semiconductor Lowers 4th-Qtr

Sales Forecast," November 30, 2000.

(54) Cypress reported 3Q2001 revenues of approximately $180 million.

(55) Cypress's stock was trading near $14/share at the conclusion on the

3Q2001.

(56) Cypress's stock was trading at $3.60/share during the week of

October 4, 2002.

(57) Source: Morgan Stanley & Co. research report dated

December 27, 2006.

(58) Ibid.

(59) Pun intended

(60) Source: Morgan Stanley & Co.; conventional electric generators

create electricity at a cost of around $3/watt, unsubsidized.

(61) As a point of reference, thirty years ago the cost was approximately

$30/watt.

(62) Morgan Stanley estimates this will occur by 2010-2012 timeframe.

(63) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

(64) Ibid.

(65) On October 6, 2006, Cypress confirmed a disclosure in its Form 10-Q

filed July 2, 2006, that it had "been exploring ways in which to

more fully realize the value of [its] investment in SunPower

Corporation for the benefit of [its] stockholders." Moreover,

Cypress announced therein that it had "expanded the scope of [its]

review to include a variety of strategic alternatives involving the

Company as well as its investment in SunPower."

(66) On October 19, 2006, Cypress announced that its Board had

"terminated its process of evaluating a possible buyout of the

Company and determined that continuing with its standalone strategy

at this time [was] in the best interests of its stockholders."

(67) On October 18, 2006, the day before the disclosure cited in footnote

30 below, one share of SPWR trading at approximately $32 had the

purchasing power to buy approximately 1.7 shares of CY trading at

approximately $19 each. On December 29, 2006, that same share of

SPWR has the purchasing power to buy nearly 30% more shares

(2.2 shares).

(68) Source: Cypress 3Q2006 earnings conference call on October 19, 2006.

(69) Ibid.

(70) Ibid.

(71) Ibid; quote by Mr. Rodgers.

(72) Cypress's ownership of SunPower shall be diluted down to

approximately 65% from 75% following the PowerLight merger.

(73) Source: Cypress 3Q2006 earnings conference call on October 19, 2006.

(74) Ibid.

(75) Cypress common stock fell from approximately $19/share

October 18, 2006 to approximately $16/share today.

(76) Source: Cypress 3Q2006 earnings conference call on October 19, 2006.

(77) SunPower common stock rose from approximately $32/share

October 18, 2006 to approximately $36/share today.

(78) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

(79) Source: Cypress 3Q2006 earnings conference call on October 19, 2006;

quote by Mr. Rodgers.

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