consider the source

The Spansion Expansion

best of luck to you on this one. i think the equity is a zero. have you built a financial model on this company?

let's do some simple math...
1Q08E:
EBITDA 70
Cash interest -30
Capex -250
Cash taxes? 0
FCF -210
Cash 12/31 416
Cash 3/31 206

uh oh, they need $200mn cash to run this business. fast forward through the next few quarters, when the mandatory 17mn/qtr spansion japan loan amortization kicks in and things get tight quick. sure capex is coming down dramatically, but i'm afraid that won't be enough. they'll be tapping their revolver by mid-year, an event that doesn't usually signal an equity rally. and if the bleeding continues beyond that? let's see, their credit facility is only 175mn, they can't issue more debt (secured notes issued just last year already trading at 70) and I don't need to say what the effectiveness of issuing stock at $2 would be.

semi industry success takes more than wafer size increases and node shrinkage. it also takes being in the right market at the right time with the right product and right capital structure. they might have a good product, but their market sucks, the timing sucks and their capital structure is not suitable. 1 out of 4 doesn't get my money.

with so many companies out there to invest in, how on earth somebody singles this one out as a great idea is beyond me. if you really want to own spansion equity, you should buy the bonds and clip the 11.25% coupon until they file for bankruptcy - your bonds will end up being exchanged for new equity after it gets restructured anyway...