Spansion Reports Second Quarter 2007 Results | Cypress Semiconductor
Spansion Reports Second Quarter 2007 Results
Gross Margin Increases and Positive Second Half Outlook
SUNNYVALE, Calif., July 19, 2007 -- Spansion Inc., the world's largest pure-play provider of Flash memory solutions, today announced results for the quarter ended July 1, 2007. For the second quarter of 2007, the company reported gross margin increased to 17 percent, compared to 14 percent in the first quarter of 2007, on relatively flat net sales. As a result of the gross margin growth, Spansion reduced its operating loss to $65 million in the second quarter of 2007, an 8 percent improvement over the first quarter of 2007, and reduced its net loss to $67 million, or $0.50 cents per share compared to a net loss of $75 million, or $0.56 per share in the first quarter of 2007.
Gross margin growth for the second quarter of 2007 reflected the improved manufacturability and increased output of 90-nanometer MirrorBit(R) technology at Spansion's Fab 25 wafer fabrication facility, higher Spansion Flash memory content shipped in multi-chip packages (MCPs), initial savings realized from the $50-100 million annual cost savings program announced earlier this year, and the cost savings and gain associated with the sale of Spansion's older JV1/JV2 manufacturing facilities to Fujitsu.
For the second quarter of 2007, the company reported net sales of $609 million, a 3 percent decrease over net sales of $628 million in the first quarter of 2007. In the second quarter of 2007, Spansion reduced the overall density and dollars shipped of bundled RAM in MCPs, and increased the dollar value of Flash memory content quarter over quarter, demonstrating the continued demand for Spansion Flash memory.
In the second quarter of 2007, the company was particularly successful migrating to higher density MirrorBit products in both the Wireless Solutions Division (WSD) and Consumer, Smart Card and Industrial Division (CSID). As a result, total bits shipped during the second quarter of 2007 increased approximately 66 percent compared to the second quarter of 2006, and increased 19 percent compared to the first quarter of 2007.
"During the second quarter, Spansion achieved significant gross margin improvement in an environment of greater than usual ASP reduction," said Bertrand Cambou, president and CEO, Spansion Inc. "We had a strong operational quarter with the ramp of 90nm technology, and commercially achieved further growth of MirrorBit ORNAND(TM) and other high density MirrorBit sales."
In the consumer, industrial and automotive sectors, CSID had a strong quarter, with net sales up 13 percent over first quarter of 2007 to $271 million, and unit shipments increasing 14 percent with relatively stable blended ASPs. MirrorBit products grew to approximately half of net sales, up 28 percent from the previous quarter with a 21 percent sequential increase in average density. Serial Peripheral Interface (SPI) product sales doubled in the second quarter of 2007 compared to the prior quarter.
In the wireless division, net sales declined 13 percent sequentially to $338 million in the second quarter of 2007, due to the shipment of lower densities of RAM bundled with Spansion Flash memory products in MCPs, as well as continued ASP pressure. Units for WSD in the second quarter of 2007 were relatively flat. Average density in WSD rose sequentially by 11 percent, due in part to increased sales of MirrorBit ORNAND solutions for feature-rich wireless handsets, which increased 40 percent to $83 million and represented 25 percent of WSD net sales.
-- The company completed the sale of its older JV1 and JV2 facilities for
approximately $200 million.
-- The company signed a joint development agreement with TSMC to begin
development of MirrorBit technologies at 40nm and below.
-- Spansion announced plans for its new MirrorBit Eclipse(TM) product
family, combining MirrorBit NOR, ORNAND and Quad on a single die and
reducing handset memory bill of materials (BOM) by up to 30 percent.
-- Spansion started volume deployment of its first wafers with increased
Wafer Level Test, improving overall test productivity.
-- The company produced its first 300mm, 65nm wafers at its SP1 facility,
and is on track to ship volume production out of SP1 at the end of the
Spansion's outlook for the third quarter 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.
-- While the overall pricing environment in the third quarter of 2007
remains uncertain, the company expects sequential net sales to increase
in the third quarter due to positive seasonal trends and continued
growth in CSID.
-- Due to the current pricing environment, the gross margin outlook for
the third quarter 2007 remains uncertain.
-- The company remains committed to its long-term financial model.
Investor Conference Call
Spansion will host a conference call today, July 19, 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 http://www.spansion.com. 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.
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 net sales will increase in the third quarter due to positive seasonal trends and continued growth in CSID. 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; the highly cyclicality of the Flash memory market which has experienced severe downturns; that average selling prices may decline; that the company will not be able to reduce expenses; that OEMs will increasingly choose NAND-based Flash memory products over NOR- and MirrorBit ORNAND architecture- 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 the company will fail to develop, or there will be a lack of customer acceptance of, MirrorBit ORNAND, MirrorBit Eclipse or MirrorBit Quad architecture-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 successfully develop, introduce and commercialize new products and technologies or to accelerate our product development cycle; that the company may experience manufacturing constraints; the company's reliance on third-party manufacturers may harm it; that industry overcapacity may affect the company's prices and manufacturing capacity; intense competition in the Flash memory market could harm the company; that the company may be unable to diversify its customer base; that the company's investments in research and development may not lead to timely improvements in technology; that the company may not maintain manufacturing efficiency; the company may not adequately protect its intellectual property; intellectual property claims or litigation could cause the company to incur substantial costs or pay substantial damages or prohibit sales of its products; the lack of essential equipment or adequate supplies of satisfactory materials; the company's operations in foreign countries may be subject to economic and geopolitical risks; the company's and its suppliers' worldwide operations could be subject to natural disasters and other business disruptions. 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 31, 2006 and Quarterly Report on Form 10-Q/A for the fiscal quarter ended April 1, 2007. The company assumes no obligation to update any forward-looking statements or information included in this press release.
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 and selling Flash memory solutions. For more information, visit http://www.spansion.com.
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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Jul. 1, Apr. 1, Jul. 2,
2007 2007 2006
(Unaudited) (Unaudited) (Unaudited)
Net sales $609,172 $627,771 $655,352
Cost of sales 502,052 538,567 523,295
Gross profit 107,120 89,204 132,057
Research and development 110,815 101,846 90,037
Sales, general and administrative 61,012 57,789 69,068
Operating loss (64,707) (70,431) (27,048)
Interest income and other income
(expense), net 11,672 8,931 (6,126)
Interest expense (17,542) (24,146) (18,391)
Loss before income taxes (70,577) (85,646) (51,565)
Benefit for income taxes (3,676) (10,167) (2,806)
Net loss $(66,901) $(75,479) $(48,759)
Net loss per common share
Basic and diluted $(0.50) $(0.56) $(0.38)
Shares used in per share calculation
Basic and diluted 134,827 134,539 128,464
CONDENSED CONSOLIDATED BALANCE SHEETS
Jul. 1, Apr. 1, Dec. 31,
2007 2007 2006*
Cash, cash equivalents and marketable
securities $716,923 $701,500 $885,769
Accounts receivable, net 386,367 369,094 395,903
Inventories 478,245 475,859 455,840
Deferred income taxes 34,093 13,128 1,395
Prepaid expenses and other
current assets 63,748 36,616 36,163
Total current assets 1,679,376 1,596,197 1,775,070
Property, plant and equipment, net 2,116,223 1,782,941 1,735,694
Deferred income taxes 17,646 17,675 13,556
Other assets 44,556 30,551 25,397
Total Assets $3,857,801 $3,427,364 $3,549,717
Liabilities and Stockholders' Equity
Note payable to banks under revolving
loans $-- $25,500 $33,608
Accounts payable and accrued
liabilities 840,456 441,196 493,242
Accrued compensation and benefits 60,148 56,150 51,598
Income taxes payable 25,130 9,645 4,333
Deferred income on shipments to
distributors 36,865 37,382 32,496
Current portion of long-term debt and
capital lease obligations 51,438 74,358 74,766
Total current liabilities 1,014,037 644,231 690,043
Deferred income taxes 67 193 188
Long-term debt and capital lease
obligations 1,121,817 1,000,495 1,009,673
Other long-term liabilities 37,893 11,941 4,053
Stockholders' equity 1,683,987 1,770,504 1,845,760
Total liabilities and
stockholders' equity $3,857,801 $3,427,364 $3,549,717
*Derived from the December 31, 2006 audited financial statements of