UPDATE 2-Spansion settles suit with Samsung, stock surges

* Spansion, Samsung settle patent lawsuit

* Spansion says will help strengthen position

* Its shares surge 137 percent (Adds share surge, analysts' comments)

By Clare Baldwin

LOS ANGELES, April 7 (Reuters) - Samsung (005930.KS) will pay No. 3 flash memory chip maker Spansion SPSN.O, which has filed for bankruptcy protection, $70 million to settle patent lawsuits, allowing the U.S. company to speed ahead with an Internal overhaul.

News of the settlement -- which would resolve a series of lawsuits filed by both Spansion and the South Korean electronics giant -- more than doubled the U.S. corporation's shares, sending them to 32 cents in after-hours trade from a regular close at 13.5 cents.

Spansion -- which has said it is exploring a sale of the company -- is trying to refocus on its most profitable operations while it restructures debt obligations. It filed for Chapter 11 bankruptcy protection in March after succumbing to plunging chip prices, as more consumers eschewed electronic gadgets during the recession.

While the settlement should improve the company's cash position, it will not significantly reduce short-term debt now topping a billion dollars, or alter the market's fundamental weakness, said ThinkEquity analyst Vijay Rakesh.

"The fact that they're settling helps Spansion shore up its balance sheet a little bit," said Rakesh. "But pricing is still soft and they still have a really onerous debt load."

"Obviously they have taken some pretty drastic actions on the operating expense side."

Under the terms of their agreement, Spansion and Samsung would exchange rights in their patent portfolios in terms of licenses and covenants, Spansion said in a statement. [ID:nWNAB1598]

"The agreement strengthens our cash position to help Spansion emerge from the Chapter 11 process a stronger and more focused company," Chief Executive Officer John Kispert said in a statement.

"The settlement ends the patent disputes between the two companies and is a significant step forward in Spansion's reorganization process."

Spansion sued Samsung in November 2008, seeking to exclude MP3 music players, cellphones, digital cameras and other consumer electronics devices containing Samsung flash-memory components from the U.S. markets, accusing the South Korean company of infringing on its patents.

Samsung countersued, but those complaints will be dismissed under the settlement, Spansion said.

Spansion added that its agreement with Samsung was subject to approval by the bankruptcy courts.

Shares in the company have more than doubled in April, tracking a tech-led rebound amid the company's own comments that it was pondering a sale of itself. Analysts said the settlement was another short-term boost to the stock price.

"It's good because it prevents the company from getting more deeply involved in litigation when it needs to focus its attention on making itself competitive in the market again," Rakesh said. (Editing by Edwin Chan, Leslie Gevirtz and Bernard Orr)