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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 world-Japan’s Toshiba is the other-first 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.