Consumer Electronics Industry News Sample

Dec 8, 2005 13:01:12

SPANSION INC: S&P Puts B Rating on Planned $400M Sr. Unsec. Notes

UNITED STATES (SunStream News) -- Standard & Poor's Ratings Services assigned its 'B' corporate credit rating to Sunnyvale, California-based Spansion, Inc., the joint venture between Advanced Micro Devices Inc. (AMD; B/Stable/--) and Fujitsu Ltd. (BBB-/Stable/--). The rating outlook is stable.

At the same time, Standard & Poor's assigned its 'B' rating to Spansion's proposed $400 million of senior unsecured notes due 2015. Proceeds from the note issue and a concurrent IPO are expected to be used primarily to repay outstanding debt to AMD and Fujitsu.

"The ratings on Spansion reflect the company's exposure to the aggressively competitive and cyclical NOR flash semiconductor industry, significant capital investment requirements, and a history of periodic material negative free cash flows," said Standard & Poor's credit analyst Bruce Hyman. "These factors are partially offset by Spansion's leading market position, prospects for the development of differentiated technologies, and market growth expectations in certain served markets."

Spansion's revenues are derived from the manufacturing and sale of NOR flash semiconductors, a type of embedded memory used in mobile phones, consumer products, automotive electronics, and other devices. The $8 billion-$9 billion global NOR flash market displays many of the characteristics of commodity-like semiconductor markets, such as DRAM. These include:

* severe revenue cyclicality,
* intense price pressure,
* high capital investment requirements, and
* periods of negative free cash flows for suppliers.

Furthermore, the NOR flash market has relatively modest expected growth rates. Spansion and principal rival Intel Corp. have held comparable mid-20% shares of the global NOR market for several years. Competitor Intel aggressively cut prices in 2004 and recaptured market share from Spansion, while putting pressure on industry profitability. In more recent quarters, the market environment has stabilized, and Spansion's operating performance has recovered somewhat.

Following the proposed refinancing, Spansion is expected to have relatively moderate financial leverage for its rating level, which helps to somewhat offset the company's high business risk.

In addition to funded debt of $400 million from the new notes, Spansion is expected to have approximately $320 million of additional liabilities, including capital leases, a Japanese term loan, and others. Based on trailing-12-month EBITDA as of June 30, 2005, total debt to EBITDA is 2.7x. Improving profitability in the second half of 2005 is expected to result in slightly lower financial leverage at year-end.

ss/tcr

Source: Troubled Company News -- US & Canada

Publication Date: 2005-12-08

 

COY:	SPSN

IND:	CSE

GEO:	n-us

 

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