Friday, September 5, 2008

Why does Samsung need SanDisk?

There’s been a lot of speculation and analysis on why Samsung would acquire SanDisk. Here’s my take.

1. Samsung needs the capacity. – Samsung has enough capacity, especially in this market.

2. Samsung is attracted by SanDisk’s retail reach. – Samsung has a strong retail brand and could have leveraged its own retail channels to push flash cards through its distribution network if it wanted to. Why do it now?

3. Samsung saves on royalty fees and the savings justify an acquisition. – Pay $3 billion (SNDK’s market cap) to save on $400 million a year? Sounds pretty good. >10% ROI. But the level of that royalty stream is not guaranteed and I don’t think Samsung would do a deal just to save on royalty payments.

4. Samsung wants the IP. – Sometime in the next few years, FG NAND flash is likely to hit a brick wall and an alternative technology will be required. CTF has its problems and one of the potential options is 3D memory (see http://forward-insights.blogspot.com/2008/06/sandisk-and-toshiba-to-jointly-develop.html). SanDisk appears to have some fundamental IP in that area. Sure, Samsung could negotiate an extension to their existing cross licensing agreement with SanDisk to include 3D memory but they don’t get the knowhow. The knowhow is what is going to allow the leaders to scale the brick wall.

Samsung is not known for big acquisitions and its last big acquisition of AST Research 20 years ago is not considered a success. And it’s hard to imagine SanDisk’s manufacturing and joint development partner, Toshiba standing idly by as Samsung takes ownership of SanDisk’s most prized assets.

3 comments:

Samsung Customer said...

IMO, it is the IP for next generation non-volatile memories that drives the interest and the elimination of royalties that funds the acquisition. (So pretty much in agreement with you here.)

Anonymous said...

i never understood sandisk? what specific ips does it have that it licenses to toshiba and samsung?

I thought toshiba invented flash?

Gregory Wong said...

SanDisk has a lot of IP relating to MLC and flash management. Toshiba holds a lot of device level, process technology patents.