M Systems Flash Disk Pioneers Ltd. (FLSH)

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M-Systems terminates contract with Samsung

06.4.06 | 17:05 By Shirley Yom-Tov

One day after announcing higher than expected earnings, M-Systems (NASDAQ: FLSH) announced today that it has terminated its December 2003 agreement with Samsung Electronics Co., Ltd. due to Samsung's failure to abide by its supply commitments under the terms of the agreement.

Under the terms of the terminated agreement, M-Systems had granted a license to its patents to Samsung in return for license fees and secured capacity of NAND flash memory at favorable prices. As a result of the termination of the agreement, all licenses granted to Samsung, as well as Samsung's obligation to provide secured capacity and pay license fees to M-Systems, have expired.
M-Systems claims that it firmly believes in its ability to secure the flash memory supply needed to support its continued growth. Nonetheless, it is an added difficulty for the firm as the flash memory market is very competitive and M-Systems was trying to hedge against a supply shortage or price increase, by signing contracts such as the one with Samsung.

M-Systems has a similar contract with Toshiba, which with the now-terminated Samsung contract would have been able to provide the raw material for the firm for two years. It has also signed agreements with two other suppliers that will take effect later in the year.

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