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SanDisk Shares Soar on Samsung Interest

Battered by a year of flagging prices for flash-memory chips and by an inability to get traction in sales of digital media devices, SanDisk (SNDK) may soon get scooped up by South Korean electronics giant Samsung Group.

SanDisk shares gained $4.18, or more than 31%, on Sept. 5 after Samsung said it’s considering options for SanDisk that include an acquisition. SanDisk issued a statement that neither confirmed nor denied that a deal is in the offing.

Before the gains, SanDisk’s stock had dropped some 60% since the year began. As the market leader in flash-memory cards for digital cameras and other consumer electronics devices, SanDisk has been hurt by pricing pressure caused by an oversupply of the chips on which the cards are based.
Royalties Aplenty

But SanDisk has two strengths that make it attractive to Samsung. It has a strong patent portfolio relating to NAND flash and memory controllers, and it has annually collected $400 million to $500 million in royalties—much of it from Samsung, the world’s largest manufacturer of NAND chips. That contributed to the $254 million in licensing and royalty revenue SanDisk collected in the first six months of 2008, accounting for more than 15% of overall sales for the period.

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