Updated from 12:39 p.m. EDT

In a surprise announcement,

Cypress Semiconductor

(CY) - Get Report

said it will pursue an initial public offering for its SunPower unit. Also, Manny Hernandez, the longtime chief financial officer at Cypress, will become SunPower's CFO and Cypress will begin a search for a new top financial executive.

Shares spiked on the news, advancing 13% to $13.03. Cypress made the announcements during its first-quarter financial conference call on Thursday during the trading session.

"We've decided that we are going to begin investigating an IPO for SunPower," says Cypress CEO T.J. Rodgers. He said SunPower needs funds to build out its manufacturing capabilities and that Cypress can accommodate the expansion, but that an IPO for SunPower would be the best way for its unit to grow.

IPO plans for the unit overshadowed a disappointing first quarter. Cypress reported a loss of $65.1 million, or 50 cents a share, on sales of $200.3 million. Excluding charges, the chipmaker posted a loss of 19 cents a share. Analysts had expected a loss excluding charges of 13 cents a share and sales of $210 million, on average, according to Thomson First Call.

However, Rodgers said the results represent the bottom of the current slowdown. The company predicted second-quarter sales between $210 million and $235 million with a loss between 8 cents a share and earnings of 2 cents a share. "Our aspiration is to break even this quarter," says Rodgers.

Analysts had expected a loss of 1 cent a share and sales of $224 million.

Cypress reported separate results for its SunPower unit for the first time in its just-completed first quarter. The subsidiary reported a loss of $5 million on sales of $11 million. Sales at the unit were expected to be $10 million.

"We need money to fund SunPower's growth," says Rodgers. "We don't want SunPower to be limited by money." He said Cypress could fund the expansion, but that the growth potential of the silicon solar industry will likely yield a better valuation -- and thus more money -- for SunPower through an IPO.

SunPower makes silicon solar cells that transform sunlight into electricity. The unit was bought by Cypress in 2002.

Although young, the unit

is growing fast. Its order book is full through next year and the company is working to expand its production capabilities. Earlier this week, SunPower announced a five-year, $300 million supply deal with Solon AG, a German-based photovoltaic module manufacturer.

SunPower sales are expected to be as much as $15.5 million in the second quarter, with a loss of $2 million. Included in the first-quarter loss and expected second-quarter loss are quarterly interest payments to Cypress of $1 million. The unit is expected to lose $500,000 in the third quarter, or a $500,000 profit when excluding the interest payment.

As for the departure of Hernandez from Cypress, Rodgers noted that Hernandez is from the Philippines, where SunPower has its manufacturing factory, and he comes from a manufacturing background, which will be instrumental to SunPower as it grows.

Rodgers said the decisions about SunPower and Hernandez were made Wednesday during a three-hour debate at Cypress' board meeting.

The timing for the IPO likely won't be until the fourth quarter. Rodgers said it will take about a quarter to get all of the paperwork together for the IPO and then he wants it to be making money when he takes the unit public. "We would rather have a profitable quarter in the bank and be forecasting a nicely profitable quarter when we take this thing out," he said.

It's unclear what the financial benefits to Cypress will be of SunPower's IPO. "That is the question and we don't pretend to have that figured out," Rodgers said.

However, he did posit that SunPower could have two classes of stock and that Cypress would control 80% of its board but would appoint only one or two current Cypress directors, one of them being Rodgers. "We want to consolidate them for growth but we do not want to dominate the company," he said.