Spansion Spanked by Falling Chip Prices

SAN FRANCISCO -- Spansion(SPSN) suffered a much larger-than-expected loss in the third quarter, as plummeting prices for its flash chips ravaged the company's bottom line.

The company said it killed off its least profitable business in the third quarter and vowed to aggressively cut costs even as it warned that sales in the current quarter will fall short of Wall Street expectations.

The Sunnyvale, Calif., chipmaker posted a net loss of $118.7 million, or 74 cents a share, vs. a net loss of $71.6 million, or 53 cents a share, at this time last year.

Analysts expected Spansion to lose 52 cents a share.

Spansion's stock was up 9 cents to $1.21 in extended trading Wednesday.

Although prices for the NOR flash memory chips Spansion makes have been in freefall for more than a year, the company said the 10% sequential price decline in the third quarter proved greater than expected.

As a result of the price drop, Spansion said it decided to exit its least profitable business, providing chips for "content delivery" manufactured with older-generation equipment.

Spansion said it monetized the business' inventory and wrote down related assets, resulting in a roughly $13 million hit to its gross profit margin.

The news is the latest evidence of the pain being felt in the flash memory business. On Tuesday, Intel(INTC) incurred a $265 million charge to account for its joint-venture producing NOR flash chips with ST Micro(STM).

Last week, Micron(MU) announced it was shutting down an entire production line for NAND flash chips, and laying off 15% of its workforce, on account of the abysmal market conditions.