Markets & Finance

Investors Cheer SanDisk's Flash Decision


The computer memory outfit is joining forces with Hynix Semiconductor to bolster its products amid rising competition

SanDisk (SNDK) said Mar. 21 that it inked a deal with Hynix Semiconductor to join forces on making powerful computer chips for flash memory, which stores digital data in devices like cameras or music players. The two are positioning themselves to beat back looming rivals in the fiercely competitive industry.

Milpitas (Calif.)-based SanDisk and Seoul's Hynix will make equal investments in an effort to develop x4 technology, which enables the storage of four bits of data per cell, around double the amount of current cells. "This cross license agreement resolves all IP issues between Hynix and SanDisk, and allows each company to focus on maximizing its opportunities," SanDisk CEO Eli Harari said in a press release Mar. 21.

Hynix had originally set the deal with the Israel-based computer storage device maker M-Systems, which SanDisk completed acquiring in November. But SanDisk is no stranger to such deals. By making its computer chips under a joint venture with Toshiba (TOSBF), SanDisk has managed to keep its costs down recently with advanced technology that produces more efficiently.

"Terms are confidential, but we think SNDK benefits from strong manufacturing abilities of Korea's Hynix," Standard & Poor's equity analyst Jay Hingorani said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.) "We see this deal, like the one with Toshiba, augmenting SNDK's non-captive supply of components."

After the news investors bid up the stock 3.8% to $43.48 per share on the Nasdaq March 21.

SanDisk and Hynix face plenty of rivals. In one example, Idaho-based Micron Technology (MU), which traditionally makes chips for things like personal computers and servers, recently bought Lexar Media in an effort to boost its exposure to the flash memory market that SanDisk dominates. Lexar's retail distribution network is similar to SanDisk's (see BusinessWeek.com, 8/1/06, "Flash Free-for-All?").

But Morningstar analyst Larry Cao points out that competitors like Seoul’s Samsung Electronics are still moving to multilevel cell technology. "We believe SanDisk's technology roadmap will continue to give the firm an edge over competition in the foreseeable future," Cao said March 7.

Arik Hesseldahl contributed to this report


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