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SanDisk Acquisition Soap Opera Continues
By: Chris Preimesberger
2008-09-18
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It's an international-impact story: Korea's Samsung, Japan's Toshiba, U.S.-based Seagate--and even Intel--are being talked about as possible suitors for embattled NAND flash vendor SanDisk, which is being caught up in the overall solid-state chip downturn. So far, only Samsung has actually made a tender offer for SanDisk. More news is expected soon.
SANTA CLARA, Calif.SanDisk,
the innovative but struggling NAND flash maker, flatly rejected a formal bid by
Samsung for a $26-per-share takeover Sept. 17, but that event is hardly the
final chapter in this new storage sector soap opera.
Samsung, the South Korean IT giant that is one of the two largest providers of
NAND flash processors in the worldJapan's Toshiba is the otherfirst made an overture
out of the blue on Sept. 5. SanDisk's board turned down the offer Sept. 17.
SanDisk, with a market capitalization of $3.2 billion, has suffered along with
the rest of the industry through an oversupply of NAND chips, especially those
ticketed for use in servers and laptops. SanDisk's common stock closed at $22.49
per share Sept. 18.
An acquisition of SanDisk would expand Samsung's world market share to between
40 and 50 percent at a time when prices for flash memory, used in such products
as iPods, cell phones and digital cameras, are falling sharply. NAND flash this
week was selling for slightly under $2 per gigabyte; a year ago, it commanded
around $4 to $5 per gigabyte.
The deal would also reduce Samsung's licensing costs substantially by assuming
control of SanDisk's popular intellectual property. Samsung now pays SanDisk in
the neighborhood of $500 million per year in licensing fees. A $3 billion deal
ostensibly would pay for itself in about six years, based on those fees alone.
Toshiba, a longtime partner with SanDisk, has countered with similar interest
in SanDisk. The two companies have cooperated on a number of product ventures
during the last decade.
"Once the word gets out there that a good company like SanDisk is having
trouble and might be available, this kind of thing happens," Tom Coughlin,
president of Coughlin Associates and a longtime NAND flash analyst, told me at
IDEMA DiskCon 2008 here. "It's going to be interesting to see what will
actually take place."
Joseph Unsworth, research director of NAND flash semiconductors at Gartner,
told me that there's no doubt that SanDisk will be acquired.
"No question about that. But who will it be? If Samsung is successful,
that will definitely cause some real antitrust issues," Unsworth said.
Why? "Because then Samsung will have more than 40 percent of the market.
And since Toshiba is such a close partner with SanDisk, that means that Samsung
and Toshiba will then be partners. That makes the flash market dominated by a
combined Samsung-Toshiba partnership. We're talking more than 70 percent of the
market," Unsworth said.
There are two other twists in this storage-sector saga: There is the
possibility that Seagate Technology, the world's largest hard disk drive maker,
will step in and throw the Far East deal completely off
track. The other: Intel.
Seagate CEO Bill Watkins said the other day
that he wasn't interested in adding SanDisk, but industry observers aren't
convinced this is the end of the story.
Intel was simply a matter of talk at the DiskCon show. Intel already is deeply
engrained in the flash sector with its own fabs and set of partners, but the
world's largest chip maker nonetheless was mentioned.
"It would make good sense for Seagate, at least from where I stand,"
Coughlin told me. "Seagate wants to be a major NAND flash player. They
don't have access to the [Far East] fab plants, as
SanDisk does. They also don't have the patents that SanDisk does. It's strictly
speculation, of course, but I think it's a possibility."
Seagate's (Scotts Valley, Calif.) and SanDisk's (Milpitas,
Calif.) cultures as Silicon
Valley neighbors are similar, also.
Seagate and SanDisk representatives at the DiskCon conference declined
comment. SanDisk issued a statement
on its Web site about the Samsung offer.
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