Can SanDisk Win As Spansion Goes Bankrupt? (SNDK, SPSN, AMD)

Spansion Inc. (NASDAQ: SPSN) is toast.  At least that is the case for shareholders.  The maker and designer of flash memory chips has filed for Chapter 11 bankruptcy protection.  Spansion was not the largest player in the sector, but you have to wonder if competitors like SanDisk Corp. (NASDAQ: SNDK) and others could actually come out ahead while Spansion is suffering through bankruptcy.

Spansion is down by more than half now.  When this was just a nickel stock on Friday, it is actually hard to care.  But what is interesting is that Spansion generated around $600 million in revenue per quarter.  While revenue were expected to contract (and losses expected to grow), there was an expectation of close to $2 billion in sales in 2009.

The consumer is in the tank, camera sales are in the drain, and consumer spending is looking more incremental than anything.  Still, $2 billion or anything close is a large chunk of business for other producers to win.  Bankrupt companies do keep operating in Chapter 11, unlike Chapter 7 where firms are just liquidated.  But suppliers and customers hate dealing with bankrupt companies because payment is always at risk and past transactions can be broken up by a court ruling.

SanDisk (NASDAQ: SNDK) is the largest of flash maker and it has been battered along with all chip and consumer electronics makers.  It has more than $4 billion in cash, liquidity investments, and long-term investments.  Get this: First Call has estimates at almost $2.5 billion in revenue this year and almost $2.7 billion next year.  We do not want to spend too much time on debating whether those numbers are too high or too low because they are expected to lose money and the sector is in shambles.  But it has a massive amount of business it could pick up from Spansion.  And it has the financial wherewithal to withstand the current climate.

While flash memory makers and DRAM makers all compete against each other, there is never a pure 100% overlap in businesses and customers.  But for the lion’s share there generally is.

Spansion was spun off from Advanced Micro Devices Inc. (NYSE: AMD).  While it has been a very difficult time for both companies, at least AMD is still around as a stock.

Jon C. Ogg
March 2, 2009