"This agreement marks our first step in the implementation of a new flexible manufacturing strategy that will enable Cypress to leverage its proprietary process technologies while achieving significant foundry capacity to support the rapid growth of our leading products," said T.J. Rodgers, president and CEO of Cypress. "In addition, we will be able to decrease the ongoing capital requirements needed to support our growth needs while maintaining a consistently high level of utilization in our own fabs - making this a winning strategy for our customers, our shareholders and Grace."

Qualification of the first product is scheduled for the beginning of the third quarter of 2006 in Grace's 8-inch facility in Shanghai. Grace will start production with the PSoC mixed-signal array on Cypress's proprietary S4 technology. Following the ramp-up at Grace, Cypress expects to increase its overall capacity by an additional 15,000 wafer starts per month by the fourth quarter of 2007.

"After conducting an exhaustive audit, we are confident that Grace can provide not only the product quality but also the technology capability that our customer base has come to expect from Cypress," said Shahin Sharifzadeh, executive vice president of Manufacturing and R&D at Cypress. "Our partnership with Grace will provide Cypress the agility and flexibility to meet our manufacturing requirements while providing world-class service to our customers in terms of lead-time and cost."

Grace had been suffering from poor fab utilization throughout 2005, which prompted iSuppli researchers to question whether Grace would be able to survive as a pure play foundry as it believed the foundry had been unsuccessful in attracting or acquiring the mainstream process technologies required to be competitive. Cypress is planning to transfer its necessary process technology to Grace to enable the foundry to fabricate the selected range of products.