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SanDisk to Rake in $1B From Flash Sale to Toshiba

In a sign of continued upheaval in the flash memory market, SanDisk is selling 30 percent of its NAND flash memory operations to its partner, Toshiba. In return, SanDisk will net $1 billion in cash and equipment that will help it better cope amid financial challenges and a looming hostile takeover.

The deal is aimed at "significantly" reducing capital spending and production supply commitments, Ryan Donovan, a SanDisk (NASDAQ: SNDK) spokesman, told InternetNews.com.

Toshiba and SanDisk have jointly operated a Flash memory manufacturing venture for several years. Now, as a result of their new agreement -- a non-binding memorandum of understanding -- SanDisk will get a needed influx of cash and capital while handing over a greater chunk of the business to Toshiba, the No. 2 NAND flash chip maker behind Samsung.

SanDisk is struggling against several market challenges, including reduced consumer spending on electronics that use flash memory technology, as well as dropping memory prices due to overproduction and inventory glut. NAND flash is used in a wide variety of products, including USB flash drives, digital audio and video equipment, mobile devices and solid-state drives (SSDs).

The news also comes as SanDisk, the top supplier of standalone flash storage cards, bats away a hostile $5.9 billion takeover by Samsung. Samsung initiated acquisition overtures in late September, offering SanDisk shareholders $26 a share, and in a letter to its investors, saying that required critical investment and development to stay competitive.

But spokespeople dismissed the link between the Toshiba deal and the specter of Samsung.

"This has nothing to do with any potential future transaction," Donovan said, regarding Samsung's acquisition move. "We did this to improve capital spend and to respond to the supply issue."

He declined comment on whether Samsung has made another acquisition offer. Calls and e-mails to Samsung and Toshiba were not returned by press time.

As of late Monday morning, SanDisk's shares were trading at $14.03, a 9.74 percent drop from Friday's close of $15.51 a share. A year ago, SanDisk's stock was above $50 a share.

An acquisition by Samsung of SanDisk's business could rock the NAND flash market, according to industry watchers -- giving Samsung at least 50 percent of the market.

As of 2007, Samsung held a 38 percent share of the NAND space, with Toshiba holding 20 percent, Hynix Semiconductor claiming 15 percent and SanDisk having 11 percent, according to a Gartner report.

Snapping up SanDisk would also let Samsung save $350 million in royalties that it's currently paying each year to Toshiba, according to industry watchers.

Toshiba's play

Toshiba, meanwhile, is hoping for a payout from its part in today's deal with SanDisk, which will not involved any plant closings or layoffs, they said, and which is scheduled for completion in the first quarter of 2009.

Despite the current gloomy market look, Toshiba predicts the NAND flash memory market will grow at an annual rate of more than 200 percent, according to a statement from the company. The vendor said growth will be tied to sales of mobile phones and digital camcorders, as well as emerging applications such as SSDs used in notebook computers and servers.

Toshiba also said the deal with SanDisk would help it more cheaply and quickly expand its manufacturing capabilities.

One industry analyst said the agreement should be welcome news for SanDisk shareholders.

"It helps to offload some burden and obligations from SanDisks' books, which should be seen by investors as a good sign," Greg Schultz, senior analyst at StorageIO, told InternetNews.com.

It could also help SanDisk in future deals, noted the analyst.

"By shifting some production capabilities to partner Toshiba it certainly paves the way for a cleaner, and perhaps better, deal with the likes of a Samsung," Schultz said.