Looks like flash memory manufacturer Spansion (NASDAQ:SPSN) may not be a flash in the pan after all. As fellow Fool contributor Dan Bloom reported last week, the maker of memory chips like those most commonly found in cell phones flashed a big jump in second-quarter sales, while also narrowing its losses.

A spinoff from a joint venture of Advanced Micro Devices (NYSE:AMD) and Japanese chip maker Fujitsu, Spansion had been facing growing losses before its IPO, as the type of flash memory it specializes in -- NOR -- lost ground to the more popular NAND flash memory. Both types of memory are used to store data on cell phones, digital cameras, PDAs, and MP3 players, but unlike DRAM memory (the kind commonly found in personal computers), flash memory doesn't lose the information once you turn the device off.

NOR memory, however, has been losing out to NAND because the latter is both cheaper and writes data to memory much faster, making it popular in devices like USB drives, medical devices, and Apple's (NASDAQ:AAPL) ubiquitous iPod, which has been consuming as much as 40% of Samsung's total flash output. NAND memory is even making inroads into NOR's cell phone stronghold.

With cell phones increasingly becoming multimedia devices capable of handling pictures, music, and other multimedia data, the need for memory that can quickly write the data is growing. According to market researchers IC Insights, the NAND flash market will grow by 40% in 2006 and have a compounded growth rate of 31% through 2010, when it will reach $33 billion. More companies like Intel (NASDAQ:INTC), Micron (NYSE:MU), SanDisk (NASDAQ:SNDK), and Infineon (NYSE:IFX) are making NAND flash now, which is increasing capacity and helping drive down prices, making it more economical for component manufacturers to incorporate NAND flash into their devices.

For that reason, Spansion's NOR memory was seen as a losing proposition when it was spun off last year. The market hasn't been kind to the company's stock, either, pricing it at around $12 at the IPO but driving it quickly below the offering price. Today the stock stands at only $14 a share.

However, Spansion has sought to increase its presence by adding value to its memory. As average selling prices declined, Spansion announced that it was adding security features to its memory chip to make it more valuable to cell phone makers; the enhanced chip will create hardware-protected zones of memory, making it harder for hackers to crack than a software-driven system. It also could allow a cell phone to be used as a mobile terminal, encouraging consumers to use their phones to make more financial transactions.

While Spansion's net loss narrowed to $49 million (or $0.38 per share), compared to $86 million (or $1.19 per share), investors also saw their shares diluted by 77% in the intervening year, primarily because of its IPO. Yet as Dan noted, the current quarter's loss included a $6 million charge for stock-based compensation that wasn't present last year, and a $17.3 million charge for early retirement of debt.

Although the sales comparison between this year and last looks robust, Spansion now sells its product directly to AMD's former customers and potential customers not served by Fujitsu; last year, it sold its products exclusively to its parents, who were its distributors. Though total shipments are on the rise, NOR flash faces a declining market. If it's able to deliver on its multichip ORNAND memory package -- a chip said to combine the best features of NOR and NAND flash -- Spansion may yet make an interesting investment.

Despite NAND memory's growing dominance, there does still appear to be a niche for NOR flash, and as the largest provider of such memory, Spansion may be more than just a flash in the pan.

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Fool contributor Rich Duprey owns shares of Intel but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.