The deterioration in area of GAAP earnings and cash, interest income and expense are a direct consequence of bringing a new Fab online. Without SP1, both would have been much different.
That may very well be true but it is irrelevant because SP1 has also added significant amount of debt to SPSN's B/S and makes it harder for it to be profitable going forward! Valuation is based on generation of future CF's. They have 1.341B in LTD which is carrying interest, irrespective of whether SPSN makes money or not. They also have huge Short term liabilities (approx. 274MM: RC + Curr portion of LTD) which needs to be paid within a year and not to mention some of the operations that are financed by A/Payables! The difference between A/P and A/R is about 323MM! SPSNs CF's are being fed to their huge debt holders not to shareholders equity!!
Well, SP1 investment happened in order to insure long term viability for Spansion.
SPSN is trying to evolve themselves and that is a good thing but outlook for NOR business is not looking good to me. It is stagnant for SPSN and declining overall. The problem is SPSN is running out of Cash in the short term.
As far as competition, the competitive position of Numonyx is deteriorating from quarter to quarter. The last official stats show both Numonyx and Spansion at roughly 33%, with Numonyx maybe 1% higher. Their latest plan to use Elpida as a foundry with output at 65nm a year from now just shows their weakness. They have no cash to equip their empty fab shell.
Numonyx is a private company, so I have very little information about their capital structure. One thing I do remember is that they do not have the kind of debt that SPSN carries (from news items) although they may lack 300mm o/p and leading edge technology for NOR. In any case, SPSN's main competition in the future will be come from Samsung and not Numonyx. Samsung's product line is broad and they sell bundled products at competitive prices which are hard to ignore even for their competitors! They have the resources and the will to become a key player in NOR business and ample 200mm and 300mm capacity. NOR business in not a growth story and at times like the present one, being fabless is better than being fab owners with huge debts!
IMO, it is Numonyx who will die a slow painful death, with Spansion in position to pick up some of the pieces.
Numonyx may die too but that doesn't assure a bright future for SPSN. If Numonyx is feeding-off of legacy designs while they develop something new, their demise might be slower than you think. |
