Spansion ( SPSN) reported a larger-than-expected loss Monday, as slackening demand for midrange cell phones weighed down its profit margins.

But the Sunnyvale, Calif., maker of flash memory chips said it will outgrow the market in 2007.

Spansion said it lost $25 million, or 19 cents a share, in the three months ended Dec. 31. That's less than the company's loss at this time a year ago, when Spansion posted a net loss of $48 million, or 63 cents a share.

Analysts polled by Thomson Financial however, were expecting Spansion to lose 6 cents a share.

Spansion posted sales of $687 million in the fourth quarter, up 16% year over year and in line with its revised guidance. The company had initially projected fourth-quarter sales between $710 million and $740 million, but pared back the estimates earlier this month.

Shares of the company rose 61 cents, or 4.6%, to $13.80 in recent after-hours trading.

In a statement Monday, Spansion said its sales and gross margin were lower than expected in the fourth quarter primarily due to reduced demand for midrange wireless cell phone handsets, which use Scansion's NOR flash chips.

Spansion said it "has demand" for these custom products in the first quarter of 2007.

The chipmaker projected that revenue and "financial performance" in the first quarter will be flat sequentially, with an opportunity to be slightly up by leveraging a richer mix of higher margin products.

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