Spansion Inc. (CODE)

[elephant]

2 articles: Sandisk deal

Flash memory patent litigation impacts bottom lines

June 9, 2009

http://www.glgroup.com/News/Flash-memory-patent-litigation-impacts-bottom-lines-40263.html

Implications

The recent cross-license agreement with Samsung, noted in the article of interest, includes four-bit-per cell technology, which is a critical element for building enterprise servers using high density solid state disk drives and will keep SanDisk profitable over the next 7 years.
Analysis

SanDisk has reaped the fruits again of its pioneering in the field of NAND flash memory. This company has benefitted from remaining a fabless entity. The lack of a billion dollar price tag of a maintaining a fab operation has enabled them to create a highly talented legal team focused on protecting their critical IP and a product development team focused on innovative designs and new and advanced consumer applications.

The recent cross-license agreement with Samsung, noted in the article of interest, included four-bit-per cell technology, which is a critical element for building enterprise servers using high density solid state disk drives. Samsung has reportedly paid SanDisk ~450 million dollars annually for patent royalties, which have likely kept SanDisk in a stronger cash position than many of its rivals such as Micron, Hynix, STEC and Elpida.

Spansion is looking to defend itself from Samsung patent infringement as well in a new lawsuit. This company is seeking the exclusion from the US market of more than 100 million MP3 players, cell phones, digital cameras, and other consumer electronic devices containing Samsung's flash memory components, which the company claims violate 10 of its patents for floating gate technology. Also, the case in the US District Court in Delaware is focused on an injunction and treble damages for the alleged infringement relating to Samsung flash memory, which Spansion estimates has generated ~$30 billion in Samsung's global revenues since 2003.

Spansion is one of the leaders whom developed charge-trap flash as a replacement to the conventional floating gate in flash devices. However, Freescale recently announced they would be going into production for NOR flash products using an alternative nanocrystal-based gate design, as one of the first to do so commercially. It will be interesting to see how this plays out across the industry in patent litigation, as Samsung, Micron, Spansion and SanDisk have all explored this technology, which could be used for NAND flash as well.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.

Contributed by a Member of the GLG Technology, Media & Telecom Councils

http://www.picturebusinessmag.com/article/samsung-electronics-co-sandisk-corp-after-lengthy-negotiations-recently-agreed-patent-licensing-deal-heads-off-threat-litigation-between-two-major-players-market-chips-known-flash-memory-408181_1.html

Samsung, SanDisk Settle
Picture Business Staff

Samsung Electronics Co. and SanDisk Corp., after lengthy negotiations, recently agreed to a patent licensing deal that heads off the threat of litigation between two major players in the market for chips known as flash memory.

The deal extends an existing licensing pact between the companies and provides Samsung rights to key SanDisk patents on what could be an important advance in flash-chip technology. Samsung targeted SanDisk last year for an unsolicited takeover bid that it later dropped.

Financial details of the pact weren't disclosed. But the companies said fixed payments and royalty rates are expected to be about half those of recent years under their current agreement, which expires Aug. 14.

Analysts estimate that South Korea's Samsung has been paying hundreds of millions of dollars a year to SanDisk in patent royalties, though the amounts have gone down lately as fierce competition has caused flash-memory prices to plunge. Edwin Mok, an analyst at Needham & Co., puts Samsung's payments at about $350 million in 2008 and $250 million this year; based on the companies' remarks, he estimates that Samsung would pay SanDisk around $125 million a year starting in 2010.

Though SanDisk will receive less money, the deal eased fears the two companies would sue each other, said Daniel Amir, an analyst at Lazard Capital. Avi Cohen, an analyst with Avian Securities, added that some investors also were concerned that Samsung had been independently developing flash-memory technology that could compete with SanDisk's inventions. As a result of the new deal, two companies that had been seen as antagonists will act like partners, he said.

Eli Harari, SanDisk's chief executive, told shareholders at the company's annual meeting recently that the negotiations took two years and were "very, very intense." He added, however, that he came to forge a friendship Oh-Hyun Kwon, president of Samsung's semiconductor business, and predicted the deal will lead to "a much healthier relationship between our two companies."