Cypress, Spansion Merger Prompts 1,600 Layoffs

Last December, chip makers Cypress Semiconductor (CY) and Spansion (CODE), both among Silicon Valley’s largest companies, said they planned to merge under the Cypress banner in an all stock deal now valued at some $5 billion.

Late last week, while shareholders were voting to approve the merger, the two companies already were laying off some 1,600 workers, or 20 percent of the combined entity’s workforce, according to an internal Cypress memo obtained by the San Jose Mercury News.

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In the memo, Cypress founder and chief executive T.J. Rodgers indicated plans to enact layoffs worldwide starting last Friday and extending over the next three weeks. Cypress is set to immediately let go about 50 percent of the pink-slipped workers while the remainder will be allowed to stay on for an as-yet undetermined amount of time.

“Please hang in there,” said Rodgers in the memo. “In just three weeks, we will be through this nerve-racking decision-making process and ready to move on to the extraordinarily exciting future ahead of us.”

Spansion chief executive John Kispert called the merger a “very creative financial deal that’s good for both sides,” in a video distributed by Cypress.

The Mercury News reported that the layoffs actually could amount to 22 percent of the merged company’s 7,243 workforce. About one-third of Cypress’ total 3,350 employees work in the U.S.

Spansion, spun off from AMD (AMD) as an independent company nine years ago, focuses on flash memory, microcontrollers and embedded systems, and, at $972 million in annual sales, is the larger of the two compared to Cypress’ $723 million in yearly revenue. Rodgers previously said the combined company will generate more than $2 billion in sales and save some $135 in cost synergies in the next three years.

Spansion shareholders will receive about 2.5 Cypress shares for each one currently owned.