Reduction in force and aggressive waferstart ramp indicate improved fundamentals
[research note, institutional research from Stonehenge Research LLC, Friday September 28, 2007]
We reiterate our positive thesis on Spansion due to indications that an aggressive waferstart ramp has been initiated and that a Reduction in Force (RIF) is imminent. Our updated Materials Resource Planning (MRP) data and forecasts indicate a waferstart increase of approximately 9% in September, a first quarter 2008 increase targeted for up to 15% from current levels and another 19% increase from current levels during the third quarter of 2008. We believe Spansion´s increased capacity utilization signals improved near-term visibility. Also, we are hearing that the company has initiated a RIF in their North American operations which we believe is an incremental positive for Spansion´s drive for profitability. We continue to recommend investors look for inflection points in the name as we believe the Street is unaware of the progressive waferstart trend and the RIF currently in progress.
- Waferstarts are on an agressive ramp going forward
- US$40 million approved for additional semi-equipment
- North-American integration group is being eliminated
Following our August waferstart update that Spansion had increased production by approximately 8.5%, our data indicates that the company has continued the upward trend during September. Based on our proprietary MRP metric, waferstarts at Fab 25 have been ramped to as much as 8500 wpw from 7800 wpw. Coming from our semiconductor network, we understand that Spansion´s plan is to increase weekly waferstarts to 9000 by the first quarter of 2008 followed by an increase to 9300 wpw by the third quarter of 2008. Current waferstarts by node are divided into 1500 wpw at 65nm with the remainder at 90nm. We also understand that the planned production increases will require in increase in tool capacity and Spansion has approved a SemiCapex budget of $20 million for each waferstart increase in 2008.
Also coming from our semiconductor network, we are hearing that Spansion is eliminating their North American integration group. The integration function will now operated from Spansion´s SP1 Fab in Japan. The RIF targets approximately 300 employees at both the California and Texas facilities. We believe this is a material near-term positive for Spansion´s bottom line and that the company´s cost cutting crusade continues unabated.
In summary, we believe that Spansion´s waferstart increases and RIF indicate that the company´s business environment is improving and that the company is executing on their improved profitability model. We believe that the stock price has reached a support level and that the recent upside will continue to gain momentum going forward. We suggest investors consider that Spansion is trading below book value, that the stock is coming off a six month low, and that a significant production ramp has been initiated.
[usual disclaimer]
[phew, this thing didn´t allow copy and paste]
Shouldn´t this rather be "coming off all-time lows"? |
