Replies to post #439179 on Zeev's Turnips Patch-No Politics (ZEEV)

[goodluck]

The fact that LEXR and SFUN are also getting hit shows how indiscriminate this selling in Sandisk is. LEXR especially should benefit by the MU/INTC plant, since they are fabless and NAND gluts will help them, not hurt them.

I think a new base has to be built in SNDK before it goes back to new highs. My guess is that the base will be built between the mid-40s and the mid-50s, but it is just a guess. I expect the royalty situation will be clarified in the coming week or two. If the royalty situation is negative for SNDK, then I agree they have a problem.

[goodluck]

Intel already has cross-licensed patents with SanDisk, but Micron is another story. "We do believe very strongly they [Micron] will require a license from us," said SanDisk spokesman Bob Goligoski. "They do not have a license yet."


Flash Moves to Fore
By Alexei Oreskovic
TheStreet.com Staff Reporter
11/21/2005 3:57 PM EST
URL: http://www.thestreet.com/tech/alexeioreskovic/10253919.html

If there was any doubt about the central role that flash memory will play in the tech industry's future, it was put to rest Monday morning when Intel (INTC:Nasdaq) and Micron (MU:NYSE) teamed up to create new flash memory company with a half-a-billion-dollar order already on the books, courtesy of Apple (AAPL:Nasdaq) .

The size of Apple's advance order raised eyebrows on Wall Street.

Apple, whose iPod nano uses flash memory, clearly wants to secure a supply of the vital component for what has become its most promising business. In the company's most recently reported quarter, iPod sales represented nearly one-third of Apple's total revenue. But according to some analysts, a $500 million order of flash should go beyond any immediate iPod needs.

"It's pretty clear Apple has some interesting plans going forward that have to be bigger than just for an MP3 player," said Thrivevent Financial analyst Jim Grossman, whose firm owns Apple shares. Among the rumors circulating the Internet are everything from a flash-based personal video recorder to an Apple laptop that relies on flash memory instead of a hard drive.

The joint venture between Intel and Micron, dubbed IM Flash Technologies, had been rumored for weeks. Even so, news of the flash newcomer sent ripples across the industry, with shares of flash memory maker SanDisk (SNDK:Nasdaq) taking the hardest hit and sinking $9.27, or 16.5%, to $46.93 in recent trading.

The Intel-Micron joint venture could mean both stiffer competition and more litigation for SanDisk, which has never shied away from lawsuits to enforce its patents over key NAND flash memory technology.

Intel already has cross-licensed patents with SanDisk, but Micron is another story. "We do believe very strongly they [Micron] will require a license from us," said SanDisk spokesman Bob Goligoski. "They do not have a license yet."

Such licenses make up an important part of SanDisk's business, generating revenue of $60 million last quarter, or about 10% of overall revenue.

Supply of flash memory, which is used in consumer electronic gadgets such as cell phones, digital cameras and MP3 players, is currently tight, and prices have crept up. But the extra flash that will come to market through the Intel/Micron venture could bring prices back down.

Shares of Apple were recently up 0.6% at $64.94, Intel was down .06% at $25.13, and Micron was down 1.23% at $14.

The deal will give both Intel and Micron an entree into the red-hot market for NAND flash memory, one of the fastest-growing segments of the semiconductor industry. According to the Semiconductor Industry Association, sales of all types of flash memory are projected to increase 16% next year, to $21 billion.

Both Intel and Micron currently produce a less popular type of flash known as NOR, which stores programming instructions on components such as cell phones and MP3 players. NAND flash on the other hand, is used to store the actual data that people generate with gadgets, such as photographs taken with cell phones and music on MP3 players. The SIA projects NAND will grow nearly four times as fast as NOR next year, with NAND sales rising 23.5% compared with 6.1% for NOR.

As hot as the flash market is, though, it is nonetheless a volatile commodity market -- and one that requires a great deal of investment. By partnering, Intel and Micron lessen their risk considerably, while each provides a key piece to the puzzle. Intel has strong flash production expertise. And Micron has DRAM facilities that can be converted into flash facilities for a fraction of what it would cost to build a flash memory factory from the ground up.

"From an investment standpoint, it's a really easy decision," says Jim Handy, the flash memory analyst at the market research firm Semico Research.

It's a tack that other flash makers have successfully taken in the past, notes Handy. South Korea's Hynix, the third-largest flash maker, converted its factories' unused DRAM capacity to flash production a few years ago and enlisted the help of STMicroelectronics (STM:NYSE) . Within nine months of signing the deal, Hynix was in volume production of flash, says Handy.

According to the details of the deal made public, Intel and Micron will each pony up $1.2 billion in cash, notes and assets to the venture. During the next three years, each company is expected to make an additional contribution of about $1.4 billion.

Micron would own 51% of the company, and Intel will have a 49% stake. The venture will rely on chipmaking facilities in Idaho, Virginia and Utah. Micron, which is based in Boise, Idaho, has four semiconductor fabrication facilities in Idaho. It's unclear who owns the other facilities cited in the announcement.

While funding the venture will be no problem for Intel, which is sitting on more than $11 billion in cash, it could present a bit more of a challenge for Micron. As of September, the company had about $1.3 billion in cash and short-term investments on its balance sheet, prompting some investors to wonder if the company would have to tap the public markets to finance its end of the deal.

And the possibility of a flash glut is casting another shadow over the announcement. Today's rosy predictions about flash memory growth are eerily reminiscent of exuberance over DRAM memory forecasts in the mid-1990s, say some investors. Of course, the DRAM market became oversaturated, prices plunged and many of the big players, such as Samsung and Hynix, converted their excess DRAM capacity into flash capacity.
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Staff reporter Ronna Abramson contributed to this story.