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Spansion's Expanding Losses

By Rich Duprey – Updated Nov 16, 2016 at 1:07PM

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Pre-IPO flash memory unit of AMD reports that it will have larger fourth-quarter loss.

When flash memory maker Spansion finally goes public, trading under the ticker symbol SPSN, it will mark the third stage of its evolution from joint venture between chip maker Advanced Micro Devices (NYSE:AMD) and Japanese tech company Fujitsu to stand-alone public company. While it filed for the IPO in April, no timetable has been set, and AMD reported that losses at the unit continue to mount.

Flash memory, the sort that you find in digital cameras, cell phones, and PDAs, has been a hot, growing segment of the overall memory market. Apple's (NASDAQ:AAPL) iPod devices have been a particular source for demand for flash memory, consuming as much as 40% of Samsung's total flash output.

Yet not all flash memory is made alike. NAND flash is a low-cost memory option permitting larger amounts of storage, as well as faster write and erase times, which explains why Apple prefers it for its devices. NOR memory, on the other hand, reliably stores small amounts of executable code that can be accessed quickly and is used in mobile phones and PDAs.

Until recently, NOR was the dominant form of flash memory, accounting for more than 58% of sales in 2004, according to industry research group iSuppli. For the first six months of 2005, however, NAND flash overtook NOR and accounted for nearly 54% of flash memory sales. NAND is expected to grow 40% in 2005 and then at a compounded rate of 13% each year until 2009. Meanwhile NOR sales are anticipated to decline by 16% this year and grow at a compound rate of 4% annually.

In its share registration forms filed with the SEC, Spansion reported that it lost $128 million in 2003, $19 million in 2004, and $257 million through the first nine months of 2005. In the latest filing, it did not disclose the fourth-quarter loss that it anticipates, noting only that it cannot operate at full capacity because of testing equipment constraints it was seeking to address. Further, because of the glut of flash chips, Spansion has witnessed a 3% drop in the average selling price for its memory.

Spansion's not alone in trying to exploit the need for flash memory. Intel (NASDAQ:INTC) is joining with Micron (NYSE:MU) to form a joint venture that will provide flash memory for various consumer products, while chip maker Infineon (NYSE:IFX) is thinking about spinning off its memory unit next year. Flash memory has also been a boon to FormFactor (NASDAQ:FORM), a small-cap memory chip-testing company that was recommended in the pages of Motley Fool Hidden Gems last year. Flash represents the second-largest but fastest-growing segment of its business, behind dynamic random access memory. As FormFactor's products can test both NAND and NOR flash, it wins regardless of which architecture comes out on top.

Spansion is not so lucky and will have to contend with more competition, greater supply, and lower prices. It's no flash in the pan, to be sure, but with industry conditions as they are, one wonders how long it will be before it actually comes to market.

If memory serves correctly, you can read more about Spansion in these related Foolish articles:

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Fool contributor Rich Duprey owns shares of FormFactor. He recommended the company to Hidden Gems subscribers. Rich does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.

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Apple Inc. Stock Quote
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Intel Corporation
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MU
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