Hardware / Other

SanDisk Buying Msystems: What it Portends For the Future

Author: Akinola Akintomide
Date: 2006-10-04
Source: Dev Hardware

We are seeing some serious consolidation in the hardware industry. Flash company SanDisk made one of the more recent moves when it acquired Msystems. What will this mean for the flash industry as a whole? Keep reading to find out.

SanDisk Buying Msystems: What it Portends For the Future

We are seeing some serious consolidation in the hardware industry. Flash company SanDisk made one of the more recent moves when it acquired Msystems. What will this mean for the flash industry as a whole? Keep reading to find out.

The Acquisitions

The acquisitions this year in the equipment making and hardware industry have just kept coming: Alcatel chomped Lucent, Advanced Micro Devices acquired ATI Technologies, and Micron Technologies bought Lexar Media. Now On July 30, SanDisk Corporation of Milpitas, California (NASDAQ: SNDK), acquired Msystems (formerly known as M-Systems Flash Disk Pioneers) of Kfar Saba, Israel (NASDAQ: FLSH) in an all stock transaction. The Israeli's NASDAQ code (and former name) pretty much states what the merger is all about. It is a consolidation of two big companies, both of which are world class brands in the flash memory category. This acquisition will strengthen SanDisk's core competences.

The acquisition could lead to a whole new generation of products, as both companies seek to create new markets and expand their incursions into existing storage solutions for everything from PCs to handheld devices. To estimate the long term effects of this acquisition, we should look at the present and emerging products that both companies are currently involved in, and also the possible products that could materialize.

Positioning for an Unseen Tomorrow

Kevin Kelly's book, "New Rules for the New Economy," postulates that by 2010 , there will be ten billion handheld devices connected to the Internet. There is a definite upward trend in the use of cell phones, digital cameras, MP3 players, handheld video games such as the Sony PSP, Nintendo Game Boy, DS, iPod, and the use of handheld devices to view and hear podcasts. Relating it to SanDisk's presence in the Flash industry for final consumer products (MMC and Flash memory for handheld devices) and Msystems' strong customer base of original equipment manufacturers (OEMs), SanDisk looks like the fisherman who bought the lake, the boat, and the house with the jetty.

If the trend of storage systems moves toward flash memory, SanDisk and other flash storage manufacturers could very well be the computer barons of the next decade.

Fiscal Details

The acquisition valued Msystems at 1.55 billion dollars. Under the terms of the deal, each share of Msystems will be converted to roughly 0.76 SanDisk shares. This is estimated to be 26 percent above the trading value of Msystems throughout the month of July. As of July 30, the deal valued each Msystem share at $36 per share. SanDisk's chief operating officer, Sanjay Mehrotra, was quoted by Reuters as saying he considered the acquisition as a once in a lifetime occurrence and that they intended to keep the Msystems brand based in Israel. "Such complimentary strengths (as found with both companies) are frankly quite hard to come by," according to Mehrotra. SanDisk is currently valued at over nine billion dollars.

Flash Memory Everywhere

Flash memory technology was pioneered by SanDisk in the 80s. The industry has grown and thrived. With companies such as Kingston, SIS and even AMD getting into the act, now flash memory is the storage technology for cell phones, handheld MP3 players, flash drives (of course), and memory cards for digital cameras. Samsung is even planning to build laptops with flash storage systems (and marketers are cringing at the estimated final prices).

SanDisk have made a name for itself in consumer products that depend on flash memory as their storage systems. Their current product lineup includes the new Sansa e280 , which is the biggest flash-based MP3 player at 8 GB. The company also creates secure flash drives with fingerprint identification, and is well known for its award-winning SanDisk Extreme IV Compact flash cards, which are the fastest storage cards in the world (and aimed at photographers). SanDisk also supplies memory cards for mobile phones and other mobile devices. In its own words "SanDisk Corporation is the world's largest supplier of flash data storage card products, designs, manufactures and markets industry-standard, solid-state data, digital imaging and audio storage products using its patented, high-density flash memory and controller technology."

Fab 4

These are just a few of SanDisk's products. The company is currently betting a large portion of its future earnings on its NAND flash memory. Its NAND flash memory (a new form of flash technology) is being developed and manufactured in collaboration with Toshiba. NAND technology is fast gaining ground and getting widespread use in digital appliances, some MP3 players and certain types of memory cards.

The NAND flash storage devices come in wafer form; production in SanDisk's Fab 4 facility in Japan is expected to reach 2500 units per month when it goes online late in 2007, and production is projected to reach 67,500 wafers monthly by late 2008. Meanwhile, SanDisk intends to ramp up its Fab 3 (which went live in 2005) facility, where it currently manufactures its NAND flash memory wafers. What does Msystems have to offer SanDisk going forward?

The Next Level of NAND Flash

Msystems specializes in non-removable flash technology and acts as a supplier to various OEM customers. It is also a partner of major flash manufacturers such as Toshiba, AMD and Saifun. It produces the de facto industry standard for flash management. The complementary points that the company brings to SanDisk includes its stake in the field of non-removable flash technologies. Msystems also has a tradition of research and innovation, with a long history of IP (intellectual property patents) to its credit.

X4

One of Msystems' current core technologies is its trademarked x4 technology, which it touts as the next level of NAND technology. Remember, SanDisk and Toshiba are betting heavily on NAND, with a projected 600 billion yen on Fab 4 alone. The X4 technology is achieving new levels of storage, doubling data storage capabilities on NAND flash, while optimizing its reliability and performance. Apart from being projected to improve present flash-based products such as MP3 players, mobile phones and digital cameras, X4 is also expected to enable more cost effective solutions in the use of solid state discs for laptop hard drives; it's actually supposed to make those expensive babies cheaper! This technology is not expected to be mass produced until 2007, so all of these advantages are projections.

The increased storage capacity that X4 offers brings with it increased errors in data retention and long term endurance; power consumption will also be increased due to the higher rate of reading and writing data (new technologies often bring new problems with them). Msystems Patented TrueFSS technology corrects errors in flash memory on the fly, and dramatically prolongs device lifetime by using "advanced dynamic and static wear-leveling algorithms." According to the Msystems website on X4 technology, advanced Msystems error correction code (ECC) minimizes power consumption and silicone redundancy while optimizing performance (taken for granted is the idea that it actually reduces errors). Apart from all the above, X4 technology can be tailored to fit differing applications according to their performance requirements, ergo cards for multimedia storage will be different from those for solid state memory.

While NAND flash technology is being developed by Toshiba and SanDisk, Msystems developed the technology to optimize NAND flash and expand its uses; these complementary strengths are probably what Sanjay Mehrotra was talking about when he was being interviewed by Reuters.

The Future Looks Like Today

SanDisk is betting big on NAND flash, and on X4 technology having widespread appeal by 2007. It is also gambling on flash memory and the devices that use them to have increased use in the next few years. Other companies also expect flash memory to grow big in the next few years. And others can only watch as SanDisk makes a huge grab at the flash memory market, not only of today, but tommorow.

Who Else is Looking Forward

Apart from SanDisk, Korean giant Samsung is investing hundreds of millions in flash memory research and development in the next year. Hynix Semiconductors, Micron Technologies and Kingston are all big in the DRAM and flash memory market. Will there be more mergers and acquisitions? Or perhaps more technological partnerships like the one between SanDisk and Toshiba? Looking back, there have been a number of these in the past, such as Toshiba's partnership with Kingston in 1997. Also worth mentioning is the way that Rambus Technology's intellectual property was used to improve the performance of big memory makers worldwide (although royalty battles have been arising between them and the OEM companies).

SanDisk And Msystems: All's Well, Which Ends...?

The future never turns out exactly as people and organizations plan it to be. SanDisk is betting on some pretty obvious indices, such as increased demand of handheld devices, and that new technologies will drive down the final prices of flash memory systems, which will allow it to penetrate the mainstream of the industry more rapidly. However the chaotic tides that life brings could turn this extremely promising and forward-looking acquisition into another statistic. But however the future turns out, even if none of SanDisk's expectation come to pass, it will strengthen its core competencies with the strong research and development arm it has found in Msystems.