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Technology Stocks : Spansion Inc.

CY 23.82

0.0%

Apr 16 5:00 PM EST

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To: bobs10 who wrote (3061)	1/17/2008 9:04:49 AM
From: Pam	Read Replies (3) of 4590

SPSN has guided 640-700mm for 4Q and flat GMs (18%). Even if I take the high end of this range, I have COGS of 574mm leaving GP of 126mm. Now if I look at the Operating Expenses, they had 169.5mm in 3Q. In 4Q some of R&D expenses could go into COGS if they are done with 65nm feasibility and move into production. If they remain flat with 3Q, the company would still have an Operating loss of (126-169.5)= 43.5mm. It doesn't really get over yet because they have some interest income but far larger interest expense from servicing of huge debt! If you take the net amount to remain flat at 16.8mm (this is very conservative estimate because in all likelihood it will actually go up as they spend on 300mm ramp. As they spend, and I assume it will be partly financed by debt and partly cash, interest income falls and interest expense goes up!) the loss now becomes (43.5+16.8)= 60.3mm! Once they enter 1Q09, things get even worse. They have higher R&D costs (SFUN merger, higher R&D headcount) but Revs essentially flat to lower (seasonality) unless they are able to gain market share. There will not be much help on the pricing front but they could brings down their costs with 300mm production. Does anyone know what is the ratio of 300mm to 200mm capacity for SPSN? So, the key to SPSN's future in short-to-medium term is improving their GPMs and increase their market share in an otherwise declining market. If they are able to make good progress on those two fronts they can survive for a while but long-term outlook is still bleak considering where the NOR market is headed as well as the capital structure of Spandion. Stock has come down a lot and could bounce a bit but it is unlikely to go back to the levels from 6 months ago for a while unless NOR prices move up for a few Q's (unlikely considering the capacity available and fight for survival from Numonyx). I also noticed that 1/3rd of their sales are to Fujitsu. Is this a long-term commitment after the company was divested by AMD+Fujitsu?

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