Spansion Under Chapter XI
The market share leader in NOR
This is a Press Release edited by StorageNewsletter.com on March 4, 2009 at 3:44 pmSpansion Inc., the world’s largest pure-play provider of Flash memory solutions, filed a voluntary petition for reorganization under chapter 11 of the U.S. Bankruptcy Code as part of its strategy to strengthen its financial position and focus its business for long-term success. The company’s strategic plan is designed to restructure its burdensome debt obligations and intensify its focus on market segments with greater profit potential. Each of Spansion’s domestic subsidiaries also simultaneously filed chapter 11 petitions.
"Given our focus on Spansion’s future, management and the Board have concluded that chapter 11 provides the most effective means for Spansion to preserve its business, meet its post-petition obligations and maintain customer confidence and continuity while we complete this restructuring," said President and CEO John Kispert. "At the same time we will continue to explore opportunities for a strategic transaction to ensure that we are doing all we can to maximize value for our stakeholders."
The decision to seek chapter 11 protection was made in consultation with an ad hoc consortium of holders of Spansion’s $625 million Senior Secured Floating Rate Notes due 2013. Spansion continues to be actively engaged in constructive discussions with this ad hoc consortium for the development of a plan of reorganization that would permit Spansion to emerge quickly from chapter 11 in a stronger financial and competitive position and for the continued exploration of multiple proposals from multiple parties seeking a strategic transaction.
The company believes that its current and anticipated cash resources will be sufficient to pay its expenses and maintain its business operations while it explores and implements options to address its long-term cash needs. Among other things, the company is in discussion with the ad hoc consortium about providing a debtor-in-possession (DIP) credit facility, while also simultaneously pursuing other options intended to provide the company with additional liquidity for its long-term cash needs.
Spansion emphasized that it intends to maintain customer service throughout the reorganization. "We will be intensely focused on continuing to provide our customers with superior engineering and world-class customer support," Kispert said.
As previously announced, on February 9, 2009, Spansion’s Japanese subsidiary, Spansion Japan Ltd., voluntarily entered into a proceeding under the Corporate Reorganization Law (Kaisha Kosei Ho) of Japan to obtain protection from its creditors as part of the company’s restructuring efforts. None of Spansion’s subsidiaries in countries other than the United States and Japan are included in the U.S. or Japan filings.
Spansion Intensifies Focus on Profitable Segments
Spansion also said it plans to align its business to focus on products and segments in the embedded, IP solutions and wireless markets that have the highest profit potential.
"With our valuable portfolio of industry leading products and technology, we believe Spansion has a promising future," Kispert said. "By focusing on embedded Flash memory products, IP solutions, and the profitable portions of the wireless segment, we believe Spansion can leverage its diverse product portfolio and customer relationships while we continue our restructuring process and explore opportunities for a strategic transaction."
Spansion, Spansion LLC, Spansion Technology LLC, Spansion International, Inc. and Cerium Laboratories LLC filed their voluntary petitions for relief under chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. The chapter 11 filings by Spansion and its domestic subsidiaries are events of default under Spansion’s debt instruments.
Comments
The comment of Jim Handy of Objective Analysis
Spansion Files Chapter 11
On March 1st Spansion announced that it has filed for Chapter 11 bankruptcy protection with a plan that is: "designed to restructure its burdensome debt obligations and intensify its focus on market segments with greater profit potential."
Those who read our Alert dated February 2 understood that this step was likely to come. The company announced in mid-January that certain debts were not to be paid on time, triggering a 30-day 'Cure Period' that should have ended mid-February. We are told that one possible outcome of this would be the company's filing for bankruptcy protection
How Did They Get Here?
Spansion's woes can be blamed more upon the current memory market overcapacity than upon the global economic meltdown. Oddly enough, the leading NOR makers are suffering because of an oversupply of a completely different technology: NAND flash.
How does NAND compete with NOR? Camera phones are the key market for high-density NOR flash. Camera phones can be designed either to use a large NOR to store both the phone's firmware and the camera's pictures, or to use a small NOR for firmware teamed up with a NAND for pictures. Some designs are even converting to NAND alone. Unless the high-density NOR is sold at a very low price, today's cheap NAND is likely to capture the bulk of the design's flash revenues.
Starting in 2007, a very significant NAND oversupply developed and NAND prices began a steep slide. One gigabyte of NAND today sells for only about 10% of the price it commanded in the middle of 2007. NAND's price slide is dragging down high-density NOR prices, vacuuming all the profit out of the market for the two leaders.
Then, something worse happened. In the fourth quarter a decline in end-user demand caused NOR unit shipments to plunge. In all prior years NOR unit shipments have followed a cycle, with quarterly increases from Q1-Q4 before a seasonal drop-off in the first quarter. Last year NOR unit shipments collapsed in the fourth quarter to a level not seen since early 2005.
The combination of oversupply-driven price pressure with a demand fall-off caused a 'Perfect Storm' for a NOR manufacturer, driving Spansion into an untenable position.
What is Likely to Happen from Here?
Spansion tells us that the company is examining three basic alternatives.
- A merger with another company. Likely candidates could be a memory chip maker, some other kind of semiconductor company (like, perhaps, a cell phone chip maker), or even an OEM.
- Re-working the company into a new Spansion with: "a sustainable and financially viable business model"
- Getting additional financing options. This would be a stepping stone to render Spansion more appealing for either of the two above alternatives.
The company believes that it has passed the most difficult part of this process with the restructuring that resulted in a reduction in force (or lay-off) of 3,000 of Spansion's employees. Spansion tells us that this step allows the company to continue to satisfy their customers' needs while conserving cash.
Spansion has eliminated or postponed projects that have no near-term return, directing their focus on the 'here and now' rather than the long term. The company tells us that it is now groomed to survive the current downturn even if it lasts into 2010.
"Wait and See"
Spansion has not given any time table indicating when the company hopes to emerge from the protection of its Chapter 11 filing. We will have to wait and see how this will turn out. Objective Analysis believes that the timing and the
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