Spanion Declares Bankruptcy - What's the Impact?

It was only last month that I had the Q&A with Jim Handy about the memory industry shake-up. The shocks are still continuing, as Spansion filed for bankruptcy. This follows the resignation of the CEO in the wake of the company trying to restructure its balance sheet, a 35 percent layoff, and Spansion Japan having already filed for bankruptcy. So what happens now?

It was only last fall that Spansion crowed that iSuppli had named it the world’s largest pure-play Flash memory provider for the eleventh quarter running, with about 40 percent market share. Ah, for those heady and happy days. The filing trigger for Spansion, which manufacturers NOR flash memory that is often used by camera phones, was an oversupply of NAND, notes Handy in an alert sent out from his firm, Objective Analysis:

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.

NAND prices have dropped precipitously, with a gigabyte selling today for only ten percent of the price in 2007. So Spansion already had to slash prices to keep their products in the game at all. Then came a secondary factor. Usually NOR flash is seasonal, with sales increasing through the fourth quarter of a year before dropping off in the first quarter of the next year. But 2008 was an anomaly, with the economy stomping on sales and NOR unit shipments literally down to a 2005 level. It was too much for the company to weather.

The filing was under Chapter 11, so the company intends to restructure in some way or other. According to Handy, who has spoken with Spansion, the company is considering three alternatives:

• Merger with another company, whether memory chip maker, some other kind of semiconductor vendor, or an OEM.
• Fixing the current business to work economically.
• Getting additional financing.

There’s no word from Spansion as to when it might emerge from Chapter 11, and given the sputtering state of the economy, a rush of certainty is probably nothing to expect.

Chip image courtesy Spansion.