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Spansion Reports First Quarter Results | Cypress Semiconductor

Spansion Reports First Quarter Results

Last Updated: April 16, 2008

SUNNYVALE, Calif., April 16, 2008 -- Spansion Inc., the world's largest pure-play provider of Flash memory solutions, today announced results for the first quarter ended March 30, 2008. For the first quarter of 2008, the company reported net sales of $570 million compared to net sales of $653 million in the fourth quarter of 2007.

In the first quarter of 2008, blended ASPs were up 4% compared to the prior quarter on slightly lower average densities shipped. Combined net sales to the company's top five customers were up in the first quarter of 2008 compared to the prior quarter and included sales of 65-nanometer MirrorBit(R) products out of SP1, Spansion's new 300mm manufacturing facility in Japan. Net sales for the quarter in Greater China decreased by approximately $50 million compared to the prior quarter while net sales in other regions were in-line with the company's expectations and are believed to have resulted in share gains during the quarter, particularly in the wireless segment.

Improved operational execution minimized the impact of lower net sales on gross margin, resulting in 17% gross margin for the first quarter of 2008 compared to 19% in the prior quarter, and 14% in the first quarter of 2007. Including non-cash charges of $13 million from the Saifun acquisition, net loss for the first quarter of 2008 was $118 million, or $0.85 per share, compared to a net loss of $50 million, or $0.37 per share, in the fourth quarter of 2007.

"Despite the difficult seasonal quarter, our relentless focus on operational efficiency resulted in improved gross margins year over year," said Bertrand Cambou, president and CEO, Spansion Inc. "Looking forward, the production ramp of our SP1 facility and continued diligent cash management are expected to position us well for positive free cash flow in the second half of the year."

Operational Highlights

During the first quarter of 2008, Spansion reduced external foundry and subcontractor expenses by $52 million compared to the fourth quarter of 2007, principally due to manufacturing efficiencies and new testing capabilities. The SP1 facility reached a run rate of more than 25,000 wafer starts per quarter and the company recognized its first sales from that facility. During the quarter, Spansion began sampling SP1 65-nanometer MirrorBit Eclipse(TM) solutions to major wireless handset OEMs with production planned for the second half of 2008.

Division Highlights

The company's Wireless Solutions Division (WSD) reported net sales for the first quarter of 2008 of $296 million compared to $322 million for the fourth quarter of 2007. Net sales declined in Greater China during the quarter, but increased in North America and Northern Europe. Blended ASPs were up 7% from the prior quarter.

The company's Consumer, Set Top Box and Industrial Division (CSID) reported net sales of $274 million for the first quarter of 2008, compared to $324 million in net sales in the fourth quarter of 2007. The sequential decline in net sales resulted from softness in Greater China and expected lower sales into the Japanese gaming market due to typical cyclicality for that business. Outside of Greater China and Japan, net sales were strong and overall blended ASPs were up slightly from the prior quarter, exceeding expectations in a typically soft seasonal quarter.

    Additional Highlights

    -- Spansion closed the acquisition of Saifun Semiconductors Ltd., enabling
       immediate entry into the technology licensing business and added
       engineering resources to expand its product portfolio.
    -- Spansion and IBM signed a broad patent cross-license agreement with IBM
       taking an equity ownership position in Spansion.
    -- 65-nanometer MirrorBit Quad products were sampled to strategic
       customers.
    -- Discretix's CryptoFlash(TM) Security Platform was licensed by Spansion
       for integration with its MirrorBit HD-SIM(TM) solutions for the
       high-density SIM card market.
    -- Spansion was named strategic supplier for 2007 by UTStarcom and was the
       only NOR Flash memory supplier selected.


Spansion's outlook for the second quarter of 2008 and fiscal year 2008 is based on current expectations and subject to various factors including those set forth in the Cautionary Statement below.

    Second Quarter of 2008 Outlook

    -- Net sales for the second quarter of 2008 are expected to be slightly up
       from the prior quarter.
    -- Gross margin for the second quarter of 2008 is expected to be
       approximately flat compared to the prior quarter.
    -- Operating expenses for the second quarter of 2008 are expected to
       decline from the prior quarter to approximately $180 million.
    -- Capital expenditures for the second quarter of 2008 are expected to
       decline from the prior quarter and be in the range of $170-200 million.


    Fiscal Year 2008 Outlook

    -- Net sales for fiscal year 2008 are expected to be flat to slightly up
       compared to fiscal year 2007 and financial performance is expected to
       improve.
    -- Capital expenditures for fiscal year 2008 are expected to be less than
       $500M, a greater than 50% reduction from fiscal year 2007.
    -- Spansion expects to be free cash flow positive in the second half of
       2008.


Investor Conference Call

Spansion will host a conference call today, April 16, 2008, at 1:30 p.m. PT/ 4:30 p.m. ET to discuss the quarterly results. A live audio-only web cast of the call will be made available in the Investor Relations section of the company's web site at http://www.spansion.com. In addition, we are providing a slide presentation regarding our quarterly results and other financial information, which will be posted to the company's web site immediately prior to the conference call. The slide presentation will be available for viewing in the Investor Relations section of the company's web site at http://www.spansion.com although we reserve the right to discontinue that availability at any time. A replay of the call will be made available on the company's investor relations web site at http://www.spansion.com following the call.

Cautionary Statement

This release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the expectation that Spansion will have positive free cash flow in the second half of 2008; the planned production of 65-nanometer MirrorBit Eclipse solutions at Spansion's SP1 facility in the second half of 2008; the expectation of net sales for the second quarter of 2008 to be slightly up from the prior quarter and net sales for fiscal year 2008 to be flat to slightly up compared to fiscal year 2007 and financial performance is expected to improve; the expectation of gross margin for the second quarter of 2008 to be approximately flat compared to the prior quarter; the expectation of operating expenses for the second quarter of 2008 to decline from the prior quarter to approximately $180 million; and the expectation of capital expenditures for the second quarter of 2008 to decline from the prior quarter and be in the range of $170-200 million and capital expenditures for fiscal year 2008 to be less than $500M. Investors are cautioned that the forward-looking statements in this release involve risks and uncertainties that could cause actual results to differ materially from the company's current expectations. Risks that the company considers to be the important factors that could cause actual results to differ materially from those set forth in the forward-looking statements include the possibility that demand for the company's Flash memory products will be lower than currently expected; that average selling prices may decline; loss of key intellectual property arrangements creates a greatly increased risk of patent or other intellectual property infringement claims; the high cyclicality of the Flash memory market which has experienced severe downturns; that Spansion may not be effective in expense reduction efforts; the merger with Saifun may not result in benefits that Spansion anticipates as a result of integration or other challenges; that political, economic and military conditions in Israel may adversely affect Saifun's and Spansion's business; the acquisition of Saifun may result in a loss of Saifun's licensees or Spansion's customers; that Spansion may not realize the expected value of Saifun's NROM technology; that OEMs will increasingly choose NAND-based Flash memory products over the company's MirrorBit architecture-based Flash memory products for their applications; that the company has a significant amount of debt, and such debt could subject us to restrictive covenants; that the company may not achieve facilities and capacity implementation schedules as a result of factors such as insufficient cash flows and unavailable external financing; that the company may lose a key customer, or experience a reduction of demand from a key customer; that the company will not successfully develop, introduce and commercialize new products and technologies or to accelerate our product development cycle; that competitors may introduce new memory or other technologies that may make our Flash memory products uncompetitive or obsolete; that the company may fail to successfully develop next generation products; that the company may experience manufacturing constraints or fail to achieve manufacturing efficiencies; customers' ability to change booked orders may lead to excess inventory; that the company's investments in research and development may not lead to timely improvements in technology; and intellectual property claims or litigation could cause the company to incur substantial costs or pay substantial damages or prohibit sales of its products. The company urges investors to review in detail the risks and uncertainties in the company's Securities and Exchange Commission filings, including but not limited to the company's Annual Report on Form 10-K for the fiscal year ended December 30, 2007. The company assumes no obligation to update any forward-looking statements or information included in this press release.

About Spansion

Spansion (Nasdaq: SPSN) is a leading Flash memory solutions provider, dedicated to enabling, storing and protecting digital content in wireless, automotive, networking and consumer electronics applications. Spansion, previously a joint venture of AMD and Fujitsu, is the largest company in the world dedicated exclusively to designing, developing, manufacturing, marketing, selling and licensing Flash memory solutions. For more information, visit http://www.spansion.com.

Spansion(R), the Spansion logo, MirrorBit(R), MirrorBit(R) Eclipse(TM), ORNAND(TM), ORNAND2(TM), HD-SIM(TM) and combinations thereof, are trademarks of Spansion LLC in the U.S. and other countries. Other names used are for informational purposes only and may be trademarks of their respective owners.

    Spansion Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (In thousands, except per share amounts)

                                                      Quarter Ended
                                             Mar. 30     Dec. 30    Apr. 1
                                               2008        2007       2007
                                           (Unaudited) (Unaudited) (Unaudited)

    Net sales                                $570,272    $652,801   $627,771
    Cost of sales                             475,810     526,382    537,970

    Gross profit                               94,462     126,419     89,801
    Other expenses:

    Research and development                  120,321     112,646    101,991
    Sales, general and administrative          64,764      59,937     58,240
    Acquisition related in-process
     research and development                  10,800           -          -

    Operating loss                           (101,423)    (46,164)   (70,430)
    Interest and other income (expense),
     net                                        3,379       5,157      8,931
    Interest expense                          (20,991)    (15,487)   (24,146)

    Loss before income taxes                 (119,035)    (56,494)   (85,645)
    Benefit for income taxes                     (564)     (6,981)   (10,167)

    Net loss                                $(118,471)   $(49,513)  $(75,478)

    Net loss per common share

    Basic and diluted                          $(0.85)     $(0.37)    $(0.56)

    Shares used in per share calculation

     - Basic and diluted                      138,765     135,283    134,539



    Spansion Inc.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands)

                                                  Mar. 30           Dec. 30
                                                    2008              2007 *
    Assets                                       (Unaudited)

    Current assets:
      Cash and cash equivalents                   $333,051          $199,092
      Marketable securities                        121,900           216,650
      Accounts receivable, net                     340,431           379,962
      Inventories                                  633,102           583,869
      Deferred income taxes                         31,597            26,607
      Prepaid expenses and other current
       assets                                       51,181            46,452

             Total current assets                1,511,262         1,452,632

    Property, plant and equipment, net           2,488,538         2,271,964
    Deferred income taxes                           35,640            29,957
    Acquisition related intangible
     assets, net                                    63,113                -
    Goodwill                                        17,782                -
    Other assets                                    75,947            61,092

    Total Assets                                $4,192,282        $3,815,645


    Liabilities and Stockholders' Equity

    Current liabilities:
      Note payable to banks under
       revolving loans                            $130,418                $-
      Accounts payable and accrued
       liabilities                                 669,790           643,764
      Accrued compensation and benefits             71,698            60,778
      Income taxes payable                           4,267            13,818
      Deferred income on shipments to
       distributors                                 54,629            39,957
      Current portion of long-term debt
       and capital lease obligations               160,313           101,797
             Total current liabilities           1,091,115           860,114

    Deferred income taxes                            4,393               186
    Long-term debt and capital lease
     obligations                                 1,362,578         1,299,536
    Other long-term liabilities                     24,872            23,361

    Stockholders' equity                         1,709,324         1,632,448

    Total liabilities and stockholders'
     equity                                     $4,192,282        $3,815,645

    * Derived from the December 30, 2007 audited financial statements of
      Spansion Inc.



    Spansion Inc.
    Selected Cash Flow Information
    (In millions)
                                                  Quarter Ended
                                      Mar. 30        Dec. 30        Apr. 1
                                       2008            2007          2007

    Depreciation & Amortization        $142            $130          $131

    Amortization of intangibles
     and other acquisition-related
     costs                              $11              $-            $-

    Capital Additions                  $227 *          $151          $175

    * Capital additions for the quarter ended March 30, 2008 include non-cash
      equipment capital leases of $50M.

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