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Spansion Reports Second Quarter 2007 Results | Cypress Semiconductor

Spansion Reports Second Quarter 2007 Results

Last Updated: July 18, 2007

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.

    Additional Highlights

    -- 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

Current Outlook

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 A replay of the call will be made available on the company's investor relations web site at 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 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.

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 and selling Flash memory solutions. For more information, visit

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
                                            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
    Other expenses:
    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


    Spansion Inc.
    (In thousands)

                                                Jul. 1,    Apr. 1,   Dec. 31,
                                                 2007       2007       2006*

    Current assets:
      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

    Current liabilities:
      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
     Spansion Inc.