Spansion to sell Suzhou final manufacturing facility to Powertech

SUNNYVALE, USA: In a move designed to lower fixed costs over the long-term, enhance its manufacturing flexibility, and further its restructuring efforts, Spansion Inc. announced its wholly owned subsidiary Spansion LLC has signed a definitive agreement with Powertech Technology Inc. (PTI) to sell to PTI its final manufacturing facility located in Suzhou, China, and certain related equipment.

Under the terms of the agreement and subject to US bankruptcy court approval, PTI will pay Spansion LLC approximately $31 million in cash, subject to certain adjustments, over the six months following the closing and Spansion LLC will transfer 100 percent of its shares in its subsidiary Spansion Holdings (Singapore) Pte. Ltd., which is the holding company of the Suzhou facility.

Also following the closing, PTI will provide final manufacturing services to Spansion at the Suzhou facility pursuant to a Supply Agreement between Spansion LLC and PTI.

The planned sale is another step in Spansion's strategy to focus on its own core competencies and efficiently utilize its assets by shifting to a more variable, outsourced manufacturing model.

It also demonstrates further progress in Spansion's corporate reorganization, which is designed to create an operating model to support a leaner, more competitive company that has greater operational efficiencies and is positioned for positive free cash flow and profitability.

"As an industry-leading final assembly and test service company, we believe PTI is an ideal final manufacturing resource for Spansion," said John Kispert, Spansion President and CEO.

"Spansion is executing on our strategy to refine our business model and focus on our core competencies. We believe this agreement will help Spansion emerge from the Chapter 11 process a stronger and more focused company."

The Spansion Suzhou facility is one of four factories in Spansion's final manufacturing network, with approximately 565 employees. Operating in China since 1998, the Suzhou facility is certified to ISO 9001:2000 and ISO/TS 16949:2002 as well as ISO 14001 and OHSAS 18001 standards.

Operations at Spansion Suzhou include: multi-chip-package (MCP) development; high-volume manufacturing of MCP, FBGA, and TSOP packages; assembly, test, mark and pack; and customer support.

"We expect an uninterrupted supply of products to our customers after the transfer of ownership of the Suzhou facility," said Ajit Manocha, executive vice president, operations. "In addition, we fully expect to maintain Spansion's high quality standards for customers as we transition to becoming a customer of PTI in the future."

The transaction and its final terms are subject to US bankruptcy court approval.

Spansion positioned for Chapter 11 emergence

SUNNYVALE, USA: Spansion Inc. announced select financial results for its second quarter ended June 28, 2009 that demonstrate the ongoing progress the company is making in its restructuring efforts.

Spansion Japan Ltd, a subsidiary of Spansion Inc., commenced corporate reorganization proceedings in Japan on March 3, 2009. As a result, Spansion Inc. is no longer able to consolidate the financial results of Spansion Japan Ltd in accordance with US GAAP. Financial information presented here represents GAAP-based information for Spansion Inc. and excludes Spansion Japan Ltd.

In the second quarter of 2009, net sales were $376 million, down slightly from the prior quarter. Net sales for the second quarter reflect continued strong support for the company's products and is reflective of its strategy to focus on the embedded solutions market.

Target applications in the embedded solutions market include automotive, consumer, mobility, networking, personal computers and peripherals, and telecommunications.

"Spansion is executing well against its plan and these results are evidence of our strong performance. The company delivered higher than forecasted net sales, decreased operating expenses and significantly improved its cash balances, providing solid momentum for emergence from Chapter 11 in the fourth quarter," said John Kispert,
Spansion president and CEO.

"As a result of a focus on cost reductions, efficiencies and asset management we increased our cash position to $220 million at the end of our second quarter, which is a great improvement from Spansion's cash-challenged position earlier this year."

The new operating model is designed to support a leaner, more competitive company that has greater operational efficiencies and is positioned to lead to positive free cash flow and profitability.

Spansion continued to focus on efficiencies and cost reductions in all three major operating expense categories: Research and Development (R&D); Sales and Marketing; and General and Administrative. Investment in R&D continues at a rate slightly greater than 10% of net sales, supporting Spansion's ongoing development of industry-leading products and technologies.

Total operating expenses, excluding restructuring charges, dropped more than 20 percent in the second quarter of 2009 compared to the first quarter of 2009.

Spansion ended the second quarter of 2009 with a cash balance of approximately $220 million, reflecting the continued strong market position with its customers, stable pricing and reduced operating expenses.

The second quarter of 2009 cash balance represents an increase of approximately $125 million compared to the first quarter of 2009 ending cash balance of $95 million.

Spansion Japan Limited's cash balances are excluded from these financial results due to the deconsolidation.

"Spansion and its creditors are managing the bankruptcy process very well," said John Brincko, Spansion's lead restructuring advisor. "Over the next few months, I anticipate Spansion will file a plan of reorganization and successfully emerge from Chapter 11 bankruptcy in the fourth quarter as a strong, focused company and a formidable competitor in the Flash memory marketplace."

As a result of the commencement of corporate reorganization proceedings in Japan, Spansion Inc. and Spansion Japan must negotiate new third-party agreements, which are subject to the approval of various parties, including the creditors of each company. Therefore, it is not possible to announce full operating results and balance sheet information at this time.

IC update: Shortages persist and lawsuits divide semiconductor market

USA: According to Converge Market Insights, as we head into the middle of summer, we have started to track significant increases in the amount of shortage requirements.

As reported in last month’s Market Insights, lead times have begun to stretch for many different manufacturers due to limited inventories and reduced capacity at the manufacturing fabs. TI, Altera, Freescale and Xilinx are some of the manufacturers that have been affected.

It is rumored that Xilinx is having some major delivery issues on its Virtex-5 due to lower yields at UMC. This has caused some major shortages of certain Virtex-5 chips that are in high demand. Ultimately, this supply tightness might not correct itself until September.

Another potential issue that could affect more than just the IC market is the Tessera ITC patent ruling. This ruling will affect the importation of certain BGA packages from particular suppliers: Freescale, AMD, ST Micro, Motorola and Spansion.

Supply and pricing in the United States of these particular chips could be affected, and companies building with chips in the US need to make sure they have taken the necessary steps to ensure adequate supply and firm pricing on these devices.

It will be interesting to see how this unfolds going forward and how much of an impact this will have on manufacturers.

SST appoints ex-Spansion CEO Bertrand F. Cambou as president

SUNNYVALE, USA: SST (Silicon Storage Technology Inc.), a leader in flash memory technology, announced the appointment of Dr. Bertrand F. Cambou as its president, reporting to Bing Yeh, executive chairman and CEO, effective June 8, 2009.

Cambou will be in charge of SST's core NOR flash memory business, including its technology development, product design, manufacturing operations, sales, customer services and marketing.

Cambou comes to SST with more than 29 years of semiconductor industry experience. He was previously president and chief executive officer of Spansion Inc., from its inception as a joint venture between AMD and Fujitsu in 2003, until January of 2009.

Prior to Spansion, he was senior vice president of AMD's memory group. From 1999 to 2001, Cambou was chief operating officer at Gemplus International S.A. He also held various senior level positions at Motorola, Inc., including senior vice president and general manager of the Computing and Networking Systems Group and chief technical officer of the Semiconductor Product Group.

Cambou has a doctorate degree in physics and electrical engineering from Paris XI University, an engineering degree from SUPELEC in Paris, France and a master's degree in physics from Toulouse University.

"We are very pleased to welcome Bertrand to the company in the middle of the worst downturn of the semiconductor industry," said Bing Yeh. "He brings a wealth of semiconductor experience, as well as strong flash memory market knowledge and a successful track record of managing significant growth at companies in the semiconductor industry. Bertrand joins us at an important time as the company is repositioning for a return to profitability and renewed growth by investing in strategically important technology and product advancements that will strengthen our position when the global economy begins to recover. Bertrand's appointment strengthens our management team and allows us additional bandwidth in reviving our core NOR flash business while aggressively developing new business for diversification."

"I am very excited to have the opportunity to join SST at this time," said Dr. Cambou. "The company has established itself as a leading embedded flash licensor, a technological leader in low-density NOR flash, and as a true innovator in complementary NAND controller-based solid-state storage products. I am very pleased to be a part of such a strong and dedicated team and look forward to contributing my own experience to assist and prepare the company for its continued growth and development."

ITC rules Tessera patents valid and infringed

SAN JOSE, USA: Tessera Technologies Inc. announced that the International Trade Commission (ITC) issued a final determination in the action brought by Tessera against certain wireless manufacturers, Investigation No. 337-TA-605 (Wireless ITC action), finding Tessera’s asserted patents are valid and infringed.

The ITC issued a Limited Exclusion Order that prohibits the importation of certain infringing electronic devices that use Tessera’s patented technology, which are imported by or on behalf of the named respondents.

The Commission also issued a Cease and Desist Order against Motorola, Qualcomm, Freescale and Spansion, directing them to cease their unfair acts, including selling infringing articles out of their US inventories.

"This is a powerful victory for Tessera and the rights of patent holders everywhere," said Henry R. Nothhaft, president and CEO of Tessera. "The ITC’s decision establishes that the patents in this case are valid and enforceable, and sends a positive message to other innovators that depend on their patent rights to protect their inventions against would-be infringers."

The respondents in the Wireless ITC action were ATI Technologies, Freescale Semiconductor, Motorola, Qualcomm, Spansion, Spansion LLC and ST Microelectronics NV. Tessera asserted infringement of two Tessera patents, U.S. Patent No. 6,433,419 (‘419) and U.S. Patent No. 5,852,326 (‘326).

Global semiconductor industry could well see revival in 2010?

"Let's start from the very beginning! A very good place to start!!"

Hope you all remember this lovely song sung by Julie Andrews in The Sound of Music!! So, what's the connection?

Right! Last week, I blogged about how the global semiconductor industry is likely to drop by 28 percent in 2009, while the Indian industry should grow by 13.4 percent during the same period, and that, we should not get carried away by these statistics!

A moment to ponder: isn't this drop of 28 percent too high for the global semicon industry? Or, is the situation really that bad? So, let's start from the very beginning, and go straight to the source -- Malcolm Penn!

Revival likely by 2010?
Here's what Malcolm Penn, CEO and founder of Future Horizons, had to say: "Fraid not! It could even be lower, but remember that this is a year on year number. It is based on the following assumptions: Q4-08 down 22.5 percent vs. Q3-08; Q1-09 down 20 percent vs Q4-08; Q2 down 2 percent vs Q1; and Q3 up 12 percent vs Q2, and Q4 up 3 percent vs Q3! And, if this pattern runs true, 2010 will be up 28 percent vs 2009!"

Voila! The global semiconductor industry could well be in for a major revival next year itself! Why, even Bill McClean, president of IC Insights, took a more optimistic look at the state of the industry in light of the current global economic situation at the recently concluded SEMI ISS 2009 conference!!

Continues Penn, "The actual Q4 results (released this Sunday) were down 24.2 percent, slightly worse than our estimate."

How to get the buzz back in semicon?
It has been said that the current situation the global semiconductor industry finds itself in was fueled by greed and short-term business goals. So, who were the culprits? Weren't they warned earlier?

Adds Penn: "It was more complex that that! The woeful state-of-the-world economy was a consequence of debt, greed and irresponsibility; political self interests and short-term business goals, aided and abetted by compliant governments; ineffective regulators; imprudent institutions; incompetent management; irrational self delusion and vested self-interests! No one is blameless for this crisis! Concerns were raised, but the human nature is often irrational, and the 'easy option' always the one of choice."

So true! Perhaps, the 'easy option' factor seems to be affecting the Indian semiconductor industry as well, but more of that later!

The key issue today is: what needs to be done to get the buzz back in the global semiconductor industry? The answer probably lies in the following: in the short-term, it involves rebuilding the industry confidence, and in longer term, it involves a radical return to 'old fashioned' business and political values.

On another note, I was curious to know how the EDA segment is doing? Penn said, "No better, no worse than normal, technology marches on, new designs accelerate in a downturn."

Tricky memory!
Memory is another segment that's been hit hard. In fact, the other day, someone asked me why Qimonda's story was so important!

Another could not understand what Spansion really did, and why it had announced this January 15 that the company was exploring strategic alternatives for a sale or a merger! Doesn't matter! Memory is a very tricky business, and semiconductors is the mother of all such tricky businesses! Perhaps, isn't that why they once said in jest: "Real men have fabs!" Anyhow!

Coming back to memory, when can the industry expect some recovery in NAND? More importantly, will the various government interventions help? Qimonda also recently petitioned for the opening of the insolvency proceedings.

Penn is clear: "NAND will recover when the excess capacity abates, and that will take several more quarters. The government intervention won't help, rather the opposite, and it will exacerbate the excess capacity issue."

Fab spends to move up only by Q1-2010
Earlier, Penn predicted a recovery in 2010 with the resumption of growth in Q3 2009. What will make this happen? He says, "A recovering world GDP growth, plus a return in business confidence."

However, those keen on fabs, do not expect the fab spends to look up any time soon! In fact, Penn estimates fab spends to start moving north not until Q1-2010 at the earliest.

The Chinese impact!
Interestingly, China is set to see negative growth of 5.8 percent during 2009. It will be worth noting how much of this this impact the global semiconductor industry.

Point one, compared to a global semicon fall of 28 percent in 2009, Penn considers a fall in China's semicon fortunes of 5.8 percent to be 'darned sight better!' So, China should still be a high growth market (relatively speaking).

And India?
Like I mentioned earlier, the Indian semiconductor industry is perhaps getting affected by the 'easy option.' Design services continue to do well, hopefully, but when it comes to real semiconductor product companies, those are far and few.

And, I haven't seen any real activity in the recent past that could tell me more such initiatives are in the pipeline. Nor do I think there are many attempts to even incubate such companies. On the contrary, there's a mad rush toward solar!

No harm there! Solar is great for India and the need of the hour. However, India should not forget its semiconductor priorities as well! Indian simply cannot bank on chip design services and solar gains, and then proclaim that it has a very successful semiconductor industry! Real action is still quite far away.

I think, India needs to rethink its semiconductor strategy! It cannot survive on chip design alone.

"When you know the notes to sing, you can sing most anything," concludes the song from The Sound of Music!

So, is the Indian semiconductor industry hitting the right notes? That's going to be my next blog post, friends.