Spansion Reports Second Quarter Fiscal 2008 Results

SUNNYVALE, Calif., July 15 /PRNewswire-FirstCall/ -- Spansion Inc., the world's largest pure-play provider of Flash memory solutions, today announced results for the second quarter ended June 29, 2008.

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Net sales for the second quarter of 2008 were $613 million, up 7 percent compared to net sales of $570 million in the first quarter of 2008 and up from net sales of $609 million in the second quarter of 2007. Spansion MirrorBit(R) solutions as a percentage of net sales reached an all time high at approximately 80 percent.

Gross margin increased to 17.8 percent in the second quarter of 2008 compared to 16.6 percent in the first quarter of 2008. The improved gross margin was primarily a result of increased sales of higher margin Spansion MirrorBit solutions, growth of 90nm product sales, continued improvement of the company's internal manufacturing, and a reduction of external foundry purchases. The manufacturing improvements more than offset incremental start-up costs associated with SP1. A decrease in non-SP1 inventory offset the increase of 65nm SP1 inventory, resulting in a decline in days of inventory compared to the first quarter of 2008. Blended average selling prices decreased two percent in the second quarter of 2008 compared to the prior quarter.

During the second quarter, Spansion engaged in restructuring activities which resulted in a $10 million charge. Including the restructuring charge, the operating loss was $77 million in the second quarter of 2008, representing a 24 percent improvement compared to the operating loss of $101 million in the prior quarter. Net loss for the second quarter of 2008 was $101 million, or $0.63 per share, compared to a net loss of $118 million, or $0.85 per share, in the first quarter of 2008. EBITDA for the second quarter of 2008 improved to $88 million, or 14 percent of net sales, compared to 9 percent of net sales in the first quarter of 2008. Refer to accompanying table for a reconciliation of non-GAAP measures to their related GAAP measures.

"The company's results were above our expectations, mainly driven by strong performance in the consumer segment. We also held our position in the wireless segment, despite the difficult business environment," said Bertrand Cambou, president and CEO, Spansion Inc. "With the continued ramp to production of multiple product families at SP1, we are reaffirming our full-year business outlook."

Division Highlights

The company's Consumer, Set Top Box and Industrial Division (CSID) reported an increase in net sales of 14 percent to $312 million for the second quarter of 2008, compared to $274 million in the first quarter of 2008 resulting in segment share gains. Acceleration of high density MirrorBit sales was the driving force for growth in CSID with MirrorBit solutions accounting for the total sequential net sales increase.

The company's Wireless Solutions Division (WSD) reported flat sequential net sales for the second quarter of 2008 of $296 million. Increased sales of 65nm solutions from SP1 resulted in higher average densities compared to the prior quarter. The company continued sampling MirrorBit Eclipse solutions into multiple key accounts with customer qualification expected in the third quarter of 2008.

  Additional Highlights
  -- A heightened focus on the alignment and restructuring of the company to
     improve operating efficiencies and cost structure by:
      - accelerating the transfer of positions to more cost effective
        regions including China and Malaysia
      - establishing strategic partnerships in technology development and
        manufacturing
      - reducing approximately 500 regular and contract positions globally
  -- A revolutionary new memory solution, called Spansion EcoRAM(TM), that
     extends the applicability of the company's technology beyond
     traditional Flash memory segments into higher margin markets:
      - enabling high performance instant search capability in Internet
        servers
      - significantly reducing energy consumption and total cost of Internet
        data centers
  -- Successful integration of Saifun Semiconductors Ltd., now operating as
     wholly owned subsidiary of Spansion:
      - leveraging Spansion's large IP portfolio to drive new licensing
        revenue streams
      - significantly expanding design expertise for MirrorBit-based product
        development
  -- Approximately $75 million of second quarter planned capital equipment
     will be delivered in the second half of 2008. Total capital
     expenditures in the second quarter of 2008 were $110 million

Spansion's outlook for the third 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.

  Third Quarter of 2008 Outlook
  -- Net sales for the third quarter of 2008 are expected to increase
     slightly from the prior quarter
  -- Gross margin for the third quarter of 2008 is expected to increase one
     to two percentage points from the prior quarter
  -- SG&A and R&D expenses are expected to be flat compared to the prior
     quarter
  -- Capital expenditures for the third quarter of 2008 are expected to be
     relatively flat compared to the prior quarter



  Spansion's outlook for full year fiscal 2008
  -- 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
     $500 million, a greater than 50% reduction from fiscal year 2007
  -- Spansion expects to be free cash flow positive during the second half
     of the 2008 fiscal year (Note: free cash flow positive, an alternative
     non-GAAP measure of liquidity, is defined as net cash provided by
     operating activities minus capital expenditures)


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