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Spansion Reports Fourth Quarter and Fiscal Year 2006 Results | Cypress Semiconductor

Spansion Reports Fourth Quarter and Fiscal Year 2006 Results

Last Updated: January 28, 2007

SUNNYVALE, Calif., Jan 29, 2007 -- Spansion Inc. (Nasdaq: SPSN), the world's largest pure-play provider of Flash memory solutions, today announced fourth quarter and fiscal year 2006 results. For the quarter ended December 31, 2006, the company reported net sales of $687 million, an increase of 16 percent over net sales of $592 million for the fourth quarter of 2005 and the fifth straight quarter of year-over-year quarterly revenue growth.

MirrorBit(R) sales reached $435 million, or 63% of net sales, in the fourth quarter of 2006 compared to $180 million, or 30% of net sales, in the fourth quarter of 2005. Gross margin rose to 19 percent compared to 16 percent in the year ago period and the company significantly reduced its net loss for the fourth quarter of 2006 to $25 million, or $0.19 per share, compared with a net loss of $48 million, or $0.63 per share, in the fourth quarter of 2005.

In the fourth quarter of 2006, net sales and gross margin were lower than expected primarily due to reduced demand for mid-range wireless handsets that incorporate custom high density Spansion(R) NOR-based Flash memory. The reduced demand for these higher density MirrorBit NOR products resulted in an overall lower margin product mix in the wireless segment. However, the company has demand for these custom products in the first quarter of 2007.

During the fourth quarter, Spansion successfully ramped its 90nm MirrorBit ORNAND solutions for the high-end multimedia wireless segment, including shipments of over $60 million to wireless OEMs in Japan where the most advanced high-end wireless handsets in the world are designed and produced. With the acceptance of 90nm MirrorBit ORNAND, the sampling of 65nm MirrorBit ORNAND, and its deployment into new regions such as Korea, Spansion is now well positioned to serve the high-end, higher margin wireless segment.

"2006 was a pivotal year in properly structuring Spansion for future growth," said Bertrand Cambou, president and CEO, Spansion Inc. "We gained considerable market share, completed a number of strategic transactions and significantly improved the company's financials, including strong cash management. The momentum from 2006 positions us well for strong performance in 2007."

For the fiscal year ended December 31, 2006, the company increased net sales by 29% to $2.6 billion, compared with net sales of $2.0 billion for the prior fiscal year, driven by MirrorBit sales which rose to $1.3 billion in 2006 compared to $462 million in 2005. As a result of the strong revenue growth, the company estimates that its NOR segment market share increased to approximately 30 percent in 2006, up approximately 4 percentage points from 2005.

Operating loss for fiscal year 2006 was $91 million, a reduction of $194 million or a 68 percent improvement, when compared to an operating loss of $285 million in fiscal year 2005. Net loss for the 2006 fiscal year also declined significantly to $148 million, or $1.15 per share, compared with a net loss of $304 million, or $4.15 per share, for the year ended December 25, 2005. Results for the fiscal year 2006 include $17 million in pre-tax stock-based compensation charges that are not included in fiscal 2005 results.

During 2006 Spansion delivered on its strategy to structure the company for future growth with a successful convertible bond offering and continued focus on capital efficiency. In addition, the company received its first wafers from its foundry relationship with TSMC and entered into an agreement to sell its older JV1 and JV2 manufacturing facilities in Aizu-Wakamatsu, Japan, in order to accelerate its leading edge technology development. With the necessary financing now in place and strong forecasted demand, Spansion plans to be the first major NOR Flash memory company to be in volume production on 300mm wafers, with 65nm production planned in late 2007 and 45nm production scheduled for mid-2008.

Current Outlook

Spansion's outlook for the first quarter of 2007 and fiscal year of 2007 is based on current expectations. The following statements are forward looking, and actual results could differ materially depending on market conditions and other factors, including those set forth in the Cautionary Statement below.

    -- Spansion expects revenue and financial performance in the first quarter
       of 2007 to be flat sequentially with an opportunity to be slightly up
       by leveraging a richer mix of higher margin products.
    -- For the fiscal year 2007, the company expects net sales growth of
       10 percent to 15 percent over fiscal year 2006, higher than what the
       company believes the NOR industry will grow in 2007.
    -- Capital expenditures for 2007 are forecasted to be approximately $1.0
       billion as the company plans to accelerate the ramp of its new 300mm,
       45nm SP1 fabrication facility in Japan.

    Investor Conference Call
Spansion will host a conference call today, January 29, 2007, 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 . A replay of the call will be made available for seven days following the call by dialing (888) 203-1112 using the passcode 4341667 and will also be accessible on the company's investor relations web site at .

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 demand for certain custom products in the first quarter of 2007, positioning for strong performance in 2007 and future growth, plans for volume production on 300mm wafers at 65 nm in late 2007 and 45 nm in mid-2008, expectation that revenue and financial performance in the first quarter of 2007 to be flat with an opportunity to be slightly up, expectation of net sales growth of 10 percent to 15 percent in fiscal year 2007, and plans for capital expenditures for 2007 to be approximately $1.0 billion. 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 the company will lose rights to key intellectual property arrangements and be subject to intellectual property infringement claims; that customer acceptance of MirrorBit technology will not continue to increase; that OEMs will increasingly choose NAND-based Flash memory products over NOR- and MirrorBit ORNAND-based Flash memory products for their applications; that competitors may introduce new memory or other technologies that may make our Flash memory products uncompetitive or obsolete; that there will be a lack of customer acceptance of MirrorBit ORNAND- or MirrorBit Quad- based Flash memory products; that the company will lose a significant customer; that the company will be adversely affected by its substantial indebtedness; that the company will not be able to raise sufficient capital to enable it to establish leading-edge capacity to meet product demand and maintain market share; that the company may not achieve facilities and capacity implementation schedules; that the company will not be able to reduce expenses; that the company will not successfully develop, introduce and commercialize new products and technologies or to accelerate our product development cycle; that the company will not be able to meet customer demand during cyclical industry or economic downturns; that our reliance on third-party manufacturers may harm us; that industry overcapacity may affect our prices and our manufacturing capacity; that average selling prices may decline; and that the company's operations in foreign countries may be subject to economic and geopolitical risks. 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 Quarterly Report on Form 10-Q for the quarter ended October 1, 2006 and the company's Registration Statement on Form S-1/A dated November 3, 2006. The company assumes no obligation to update any forward-looking statements or information included in this press release.

About Spansion

Spansion is the world's largest pure-play provider of Flash memory solutions, dedicated to enabling, storing and protecting digital content in the wireless, automotive, networking and consumer electronics applications. Spansion, previously a joint venture of Advanced Micro Devices, Inc. and Fujitsu Limited, is the largest company in the world dedicated exclusively to developing, designing, and manufacturing Flash memory products and systems. For more information, visit .

NOTE: Spansion(R), the Spansion Logo(R), MirrorBit(R), ORNAND(TM), HD-SIM(TM) and combinations thereof, are trademarks of Spansion LLC. Spansion, the Spansion Logo and MirrorBit are registered in the US and other countries. Other names used are for informational purposes only and may be trademarks of their respective owners.

    Spansion Inc.
    (In thousands, except per share amounts)

                                Quarter Ended               Year Ended
                      Dec. 31,    Oct. 01,   Dec. 25,   Dec. 31,   Dec. 25,
                        2006        2006       2005       2006      2005 *
                    (Unaudited) (Unaudited) (Unaudited)

    Net sales         $687,274    $674,718   $591,596 $2,579,274 $2,002,805
    Cost of sales      557,793     532,563    497,459  2,066,642  1,809,929

    Gross profit       129,481     142,155     94,137    512,632    192,876
    Other expenses:
    Research and
     development        81,123      90,259     75,749    347,740    295,849
    Marketing, general
     and administrative 64,058      61,866     55,127    255,648    181,910

    Operating loss     (15,700)     (9,970)   (36,739)   (90,756)  (284,883)
    Interest and
     other income
     (expense), net      7,940       3,888        677     28,992      3,173
    Interest expense   (20,698)    (13,020)   (11,458)   (88,214)   (45,032)

    Loss before
     income taxes      (28,458)    (19,102)   (47,520)  (149,978)  (326,742)
    Provision (benefit)
     for income taxes   (3,445)      3,013          8     (2,215)   (22,626)

    Net loss          $(25,013)   $(22,115)  $(47,528) $(147,763) $(304,116)

    Net loss per
     common share

    Income (loss) before
     extraordinary item
    Basic and diluted   $(0.19)     $(0.17)    $(0.63)    $(1.15)    $(4.15)

    Shares used in per
     share calculation

        -Basic and
          diluted      130,489     128,800     75,604    128,965     73,311

    *  Derived from the December 25, 2005 audited financial statements of
       Spansion Inc.

    Spansion Inc.
    (In thousands)

                                   Dec. 31,        Oct. 1,       Dec. 25,
                                     2006           2006           2005*
    Assets                       (Unaudited)     (Unaudited)

    Current assets:
      Cash, cash equivalents
       and marketable securities   $885,769        $378,187      $725,816
      Accounts receivable, net      395,903         413,427       418,642
      Inventories                   455,840         466,885       460,143
      Deferred income taxes           1,395           2,466        34,452
      Prepaid expenses and
       other current assets          36,163          44,308        33,789
         Total current assets     1,775,070       1,305,273     1,672,842

    Property, plant and
     equipment, net               1,735,694       1,630,073     1,587,763
    Deferred income taxes            13,556           9,479         7,128
    Other assets                     25,397          31,883        34,232

    Total Assets                 $3,549,717      $2,976,708    $3,301,965

    Liabilities and
     Stockholders' Equity

    Current liabilities:
      Note payable to banks
       under revolving loans            $--             $--       $43,020
      Accounts payable and
       accrued liabilities          493,242         450,834       460,892
      Accrued compensation
       and benefits                  51,598          49,363        51,534
      Income taxes payable            4,333           1,683        13,058
      Deferred income on shipments
       to distributors               32,496          35,759        31,901
      Current portion of long-term
       debt and capital lease
       obligations                  108,374          89,888       190,535
         Total current liabilities  690,043         627,527       790,940

    Deferred income taxes               188           1,265        29,498
    Long-term debt and capital
     lease obligations            1,009,673         514,641       526,058
    Other long-term liabilities       4,053          22,900        33,492

    Stockholders' equity          1,845,760       1,810,375     1,921,977

    Total liabilities and
     stockholders' equity        $3,549,717      $2,976,708    $3,301,965

    *  Derived from the December 25, 2005 audited financial statements of
       Spansion Inc.