SanDisk Shares Surge as Samsung Considers Acquisition

 SanDisk Corp., the world's largest maker of memory cards used in digital cameras, surged the most in more than eight years in Nasdaq trading after Samsung Electronics Co. said it may buy the U.S. company.

SanDisk jumped $4.18, or 31 percent, to $17.64 at 4 p.m. on the Nasdaq Stock Market, the biggest gain since January 2000. Samsung, the world's second-largest chipmaker, said today it is considering options regarding SanDisk, including an acquisition.

A takeover would help Samsung widen its lead over Toshiba Corp. in the $15 billion market for chips that store data in cameras and portable music players. Chipmakers are under pressure to consolidate after prices halved this year, driving SanDisk to its largest quarterly loss in almost seven years.

``The smaller companies can't hold out any more,'' said Chang In Whan, chief executive officer of KTB Asset Management Co. in Seoul, which manages the equivalent of $5.4 billion. ``If these smaller companies get absorbed into the bigger ones, it will be easier for the industry to control production.''

SanDisk's $1.15 billion of 1 percent convertible debt due in 2013 jumped 10.7 cents, or 16 percent, to 77.9 cents on the dollar today, according to Trace, the Financial Industry Regulatory Authority's bond-pricing service. The yield plunged 3.36 percentage points to 6.55 percent.

Suwon, South Korea-based Samsung rose 1.2 percent to close at 520,000 won on the Korea Exchange, bucking a drop in stocks across Asia that drove down the MSCI Asia Pacific index by 2 percent.

Multiple Suitors?

SanDisk, estimated by researcher iSuppli Corp. to be the world's largest buyer of NAND flash chips, has fallen 47 percent this year in New York trading as consumers cut spending and a glut drove down prices. In July, the Milpitas, California-based company posted a $67.9 million loss, its largest quarterly deficit since 2001, according to data compiled by Bloomberg.

The stock's decline has prompted interest by Seagate Technology Inc. in buying SanDisk, Edaily said, echoing an EE Times report last month that said Seagate may make a bid.

``SanDisk periodically has conversations with multiple parties, including Samsung, regarding a variety of potential business opportunities,'' SanDisk said today in a statement. ``We evaluate all of these opportunities, but maintain a policy of not commenting on market rumors or speculation.''

Samsung had a 42.3 percent market share in the NAND flash memory-chip market in the second quarter, compared with Toshiba's 27.5 percent and Hynix Semiconductor Inc.'s 13.4 percent, according to iSuppli. Industry sales will probably rise 9 percent this year to $15.2 billion, according to the El Segundo, California-based research firm.

Chip Royalties

Samsung pays $400 million to $500 million annually to use SanDisk's flash memory patents, according to estimates at Lehman Brothers Holdings Inc. The savings from royalty fees alone may justify an acquisition, Lehman's Chung Chang Won wrote in a note to clients today. Analysts at Daewoo Securities Co. and Meritz Securities Co. also said a purchase would be positive for Samsung.

SanDisk's revenue from product licenses and royalties amounted to $254 million in the six months ended June 29, according to the company's financial statements to the Securities and Exchange Commission. Samsung accounted for 13 percent of SanDisk's total sales, the biggest contributor, during the period, according to SanDisk.

Slumping Prices

Prices of the benchmark NAND flash memory have slumped 51 percent this year because of a glut, according to Dramexchange Technology Inc., operator of Asia's biggest spot market for chips.

The NAND industry will remain ``weak'' into the first quarter of next year and prices may continue to decline, according to BNP Paribas SA this week.

A Samsung acquisition of SanDisk may hurt Toshiba because it may force the Japanese company to invest in chip factories on its own, increasing Toshiba's financial burden, said Hideyuki Suzuki, general manager at the research department of Morningstar Japan K.K. Toshiba spokeswoman Hiroko Mochida declined to comment.

Toshiba said in February it will spend more than 1.7 trillion yen ($16 billion) with SanDisk to build two semiconductor plants.