Spansion Inc. (CODE)

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Article in The Statesman:

http://www.statesman.com/business/content/business/stories/technology/06/08/0608plugged.html

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Spansion finds bankruptcy helps focus its plans
Company's fabrication plant here 'very important,' exec says

By Kirk Ladendorf
AMERICAN-STATESMAN STAFF
Monday, June 08, 2009

As President Barack Obama said recently about a couple of car companies, a bankruptcy filing can be a new beginning.

That's how Spansion Inc. describes its Chapter 11 filing on Feb. 28.

Unlike General Motors Corp., the chipmaker won't be looking for a handout from the U.S. government. But it will be looking for the bankruptcy court to approve its plans to reorganize its business and, probably, dump some problematic assets, including one or more of its Japanese chip factories.

All of this might be fairly good news for the company's Austin operations, which employ about 1,000 people.

Spansion executives are sending strong signals that Fab 25, its workhorse 14-year-old chip factory in Southeast Austin, will play an important role in its new postbankruptcy game plan as a downsized company with about $1 billion in annual revenue, which is less than half of what Spansion took in last year.

"We see Fab 25 as very important," John Nation, Spansion's vice president of marketing, said in a recent interview.

The Austin fab, he said, employs a manufacturing technology that is "the sweet spot" of what Spansion's most prized customers need.

Spansion, which is a leading maker of nonvolatile flash memory chips, has decided to drop out of what formerly was its largest market, supplying cell phone makers.

Cell phone makers buy a lot of chips, but the field is packed with competitors all trying to undercut one another. Profitability is nearly nonexistent in that market, analysts say.

Instead, the company will concentrate on what it calls the "embedded market," where its chips go into things such as telecommunications equipment, consumer electronics, gaming equipment, TV set-top control boxes, automotive electronics, personal computer peripherals, data center servers and networking gear.

Fab 25 is well-suited to make chips for those markets. Spansion officials have repeatedly praised the factory for its efficiency, its adoption of key new technologies and its adaptable, veteran work force.

Spansion does far more business than other flash makers in those market niches, partly because the company has been willing to tweak its products to meet customers' needs.

Even after the bankruptcy filing, customers still loved the company. Stack International, an international association of electronics manufacturers, gave the company its top supplier award in late April, eight weeks after the bankruptcy filing.

The feelings aren't quite as warm among former workers. In February, Spansion laid off 3,500 workers worldwide — including 163 in Austin — and didn't pay them severance. That's primarily because the company was squeezed for cash and wanted to hold onto every nickel in anticipation of the bankruptcy filing.

Since then, things have improved. Spansion had $203 million in cash in early May, up $83 million from the end of the first quarter in March. It has cut its operating costs in half and is generating cash from operations.

"It is amazing how much we have accomplished in such a short time in terms of generating cash and focusing the business," Nation said.

Spansion , which spun off from Advanced Micro Devices Inc. in 2005, invested heavily in a new factory in Japan in order to compete more effectively for cell phone customers, who demand cutting-edge memory chips.

Analyst Jim Handy with Objective Analysis in San Jose, Calif., says getting out of the cell phone supply market is the right move. And once Spansion does that, Handy thinks it will sell the Japanese factory, which was completed in 2007 at an estimated cost of $1.2 billion.

The embedded business sounds like a better bet to Handy, because competition is far less fierce and Spansion has longstanding customer ties.

"That is a stable business. It is a place where Spansion has a lot of very loyal customers," Handy said.

Top executives are hopeful that Spansion will emerge from bankruptcy before the end of this year as a smaller but profitable business — one that remains a substantial employer in Austin.

Of course, the scenario that management is proposing is subject to the vicissitudes of bankruptcy court.

Last week, a bankrupcty judge in Delaware rejected the proposed settlement of a patent lawsuit that Spansion brought against industry giant Samsung Electronics Co. Inc. A creditors' committee contended that the proposed $70 million settlement was too broad and too generous to Samsung, though Spansion said it could use the cash and didn't want to spend the money on a trial with an uncertain outcome.

[e-mail]; 445-3622

Kirk Ladendorf covers computers and semiconductors for the

American-Statesman.