Business Tech

Spansion said Thursday that it is exploring a merger or sale, as the flash memory chip company delays interest payments on notes.

The Sunnyvale, Calif.-based company announced that it has been "exploring strategic alternatives, including, but not limited to, opportunities to merge with or sell to similar U.S. or foreign businesses."

Spansion, one of the largest flash memory suppliers, was formed by the integration of Advanced Micro Devices' and Fujitsu's flash memory operations in 2003. The company has posted a long string of losses as it has struggled to turn a profit in the fickle NOR flash memory business.

NOR flash is used in set-top boxes and cell phones but addresses a much different market than its better-known cousin, NAND flash. NOR is typically used to store and run computer code, while NAND is used for large-capacity storage, just like hard disk drives.

Spansion received a lukewarm response to its IPO in 2005.

The company said Thursday that it has engaged Barclays Capital "to assist the company in exploring these strategic alternatives," the company said.

In connection with this, Spansion has initiated discussions to begin an "organized process of potential balance sheet restructuring opportunities" and will delay making the interest payment on its outstanding 11.25 percent senior notes due 2016, which is due January 15, the company said.

Standard & Poor's Ratings Services on Thursday lowered its corporate credit rating on Spansion to "D" from "CCC" and the issue-level rating on the company's 11.25 percent senior unsecured notes due 2016 to "D" from "CC."

After a string of quarterly losses, Spansion, according to reports, is also considering Chapter 11 protection.

Advanced Micro Devices is shedding its cost-intensive chip-manufacturing operations in a bid to stay afloat financially.

On Tuesday, AMD and Advanced Technology Investment Co. announced a broad restructuring plan that centers on the creation of a new entity, temporarily titled The Foundry Company, that will take over the manufacture of processors for AMD. Early word of the restructuring came Monday night.

ATIC, which is based in Adu Dhabi, United Arab Emirates, was formed this year. According to its Web site, ATIC is a tech investment company "wholly owned by the government of Abu Dhabi."

In addition, Abu Dhabi-based Mubadala Development will increase its current investment in AMD to 19.3 percent. According to its site, six-year-old Mubadala's "sole shareholder is the government of the Emirate of Abu Dhabi."

The overall deal is expected to close at the beginning of 2009, the companies said.

Here are the full details of Tuesday's announcement, as listed in the press release from AMD and ATIC:

Upon closing, The Foundry Company will:

• Have a total enterprise value of $5 billion, consisting of AMD's contribution of manufacturing assets and intellectual property (including its fabrication facilities in Dresden, Germany), intellectual capital and employees valued together at $2.4 billion; ATIC's contribution of $1.4 billion in new capital; and $1.2 billion of debt assumed by The Foundry Company from AMD.

AMD's Fab 36 in Dresden, Germany.

(Credit: AMD)

• Be consolidated with AMD for purposes of financial reporting.

• Have a board of directors whose membership is equally divided between representatives of AMD and ATIC.

• Have only AMD and ATIC as stockholders, each of which at the closing will have equal voting rights.

• Be owned 44.4 percent by AMD and 55.6 percent by ATIC on a fully converted to common basis. ATIC's economic ownership will increase over time based on the differences in securities held by AMD and ATIC, and depending on whether AMD elects to invest proportionately with ATIC in future capital infusions to support The Foundry Company's growth.

• Have its principal headquarters in Silicon Valley, and its research and development and manufacturing leadership teams and ecosystems in New York, Dresden, and Austin, Texas;

• Have an exclusive supply agreement with limited exceptions to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products.

• Begin construction of the Fab 4X manufacturing facility in New York in the middle of 2009, directly employing more than 1,400 workers in upstate New York when the facility is in full operation.

• Expect to increase capacity through completing the 300mm conversion of a second state-of-the-art facility in Dresden in 2009.

• Join the IBM technology development alliance for both SOI (silicon on insulator) and bulk silicon technology, greatly expanding the addressable market of The Foundry Company.

• After the upgrade and expansion in Dresden and the build-out of the New York facility, The Foundry Company envisions expanding its global manufacturing footprint over time, if commercially justified, to also include new fabrication facilities in Abu Dhabi.

• Announce its permanent corporate name and identity.

Upon closing, AMD will:

• Have equal voting rights with ATIC in The Foundry Company.

• Own 44.4 percent of The Foundry Company on a fully converted to common basis.

Artist's rendering of the planned Fab 4X in New York.

(Credit: AMD)

• Improve its liquidity through The Foundry Company's assumption of approximately $1.2 billion of AMD's debt, ATIC's $700 million payment to AMD for ownership interests in The Foundry Company, and Mubadala's purchase for $314 million of 58 million newly issued AMD shares and warrants for 30 million additional shares.

• Tightly focus on the design and development of the next generation of innovation based on the fusion of computing and graphics processing.

• Elect a Mubadala designee as a member of its board of directors.

• Excluding its consolidation of The Foundry Company for financial reporting purposes, improve its net cash position by $2.1 billion, through The Foundry Company's assumption of approximately $1.1 billion in debt (net of approximately $100 million cash transferred by AMD to The Foundry Company) and cash payments from ATIC and Mubadala aggregating $1 billion.

• Have the option, but not any requirement, to provide additional capital funding to The Foundry Company in response to future capital calls.

• Have an exclusive supply agreement with The Foundry Company, with limited exceptions, to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products.

Upon closing, ATIC will:

• Have equal voting rights with AMD in The Foundry Company.

• Own 55.6 percent of The Foundry Company on a fully converted to common basis.

• Invest an initial $2.1 billion, of which $1.4 billion will be invested directly in the new company and $700 million will be paid directly to AMD.

• Commit a minimum of $3.6 billion and up to $6 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden and construction of a new facility in upstate New York.

Upon closing, Mubadala will:

• Purchase for an aggregate of $314 million 58 million newly issued AMD shares and warrants for 30 million additional shares, giving it a total stake in AMD of 19.3 percent on a fully diluted basis.

• Have a right to designate a representative for election as a member of the board of directors of AMD.