AMD takes Spansion memory unit public

Sunnyvale (CA) - Spansion today announced that it intends to raise $506.4 million through its initial public offering (IPO). The joint venture, founded by AMD and Fujitsu, will need the funds to expand its Flash production capabilities to be able to compete with Intel, Samsung, Toshiba and Sharp.

AMD first announced plans to take Spansion public in April of this year, in the midst of climbing losses of its memory products group. In the first quarter of this year, the memory unit faced rapidly falling revenues and losses that topped 110 million in Q1 2005. Focused on a currently declining NOR Flash market, AMD’s losses from its memory business more recently fell to $50 million in the third quarter. However, revenues are still declining on a year-over-year basis down to $516 million from $538 million in Q3. In the first nine months of 2005, AMD’s memory unit lost $248 million.

The IPO is expected to provide Spansion a much needed cash infusion which it will need to boost research and manufacturing capabilities to not only meet demand of NOR and ORNAND Flash devices, but also to keep pace with cutthroat competition in this segment. Spansion will sell 42,200,000 shares of its Class A common stock at $12 per share has granted the underwriters a 30-day option to buy an additional 5,064,000 shares of Class A common stock to cover over-allotments. The firm will be traded under the symbol SPSN at NASDAQ.

In its recent SEC filing covering the third quarter results of this year, AMD indicated that Spansion will need investments to stay in business. "Our competitors have aggressively priced their products in order to increase market share, which resulted in decreased average selling prices for our products and adversely impacted our results of operations. In addition, recent capital investments by competitors have resulted in substantial industry manufacturing capacity, which may further contribute to a competitive pricing environment." The company highlighted Intel’s dominance in the NOR Flash business as its major challenge : "Intel’s significant financial resources enable it to market its products aggressively, to target our customers and our channel partners with special incentives, and to discipline customers who do business with us," the filing says.

The IPO is likely to enable Spansion to follow through with its expansion plans, which are estimated between $800 million and $950 million. As a result of the IPO, AMD also will no longer be obligated to fund the operations of Spansion.

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