M-Systems plays its card

What message will M-Systems CEO Dov Moran deliver at the 3GSM World Congress in Barcelona?

The heavy snow that fell in New York at the weekend and the freezing weather conditions were the talk of the day among dealers at Wall Street, at least at the beginning of the new trading week.

From today through Thursday attention on the tech stocks front will focus mainly on Barcelona where the 3GSM World Congress is due to get underway. The meeting will produce a good many new views about innovation in the cellular field, some of which will no doubt move several stocks during the course of the week.

Speaking at the Barcelona congress will be CEOs of mega companies, among them Microsoft CEO Steve Ballmer (Nasdaq:MSFT), Motorola CEO Edward J. Zander (NYSE: MOT), the new Nokia CEO Olli-Pekka Kallasvuo, (NYSE: NOK), as well as executives from leading cellular companies in Europe. Also scheduled to speak is M-Systems CEO Dov Moran (Nasdaq:FLSH), who is set to unveil the MegaSim card, which is due to go on sale by the year’s end. In this connection, the company featured in an article in the Wall Street Journal, which reported on the market for flash cards for cell phones. This is a market that will experience mega growth over the coming years.

The cell phone has become an entertainment complex, supporting applications for TV and radio broadcasts, music, games and photography. Both of the cell phone manufacturers mentioned above face continuing demands to reduce the size of their sets to the size of a small chocolate bar. The result is that there is not enough room, and designers fight over every millimeter of space. These applications require a large memory and the solution that appears most likely to emerge in the coming years is a handset with a special slot for a flash card with high storage capacity, similar to the technology in use today in digital cameras.

According the Wall Street Journal, the number of mobile handsets worldwide with special flash card slots reached 100 million in 2005, and this figure is set to increase sevenfold by 2010. The most popular card in use today is the multimedia card, which is available in sizes of up to 1Gigabyte (GB) and whose standard is supported by Samsung, the world’s largest flash manufacturer, and Nokia, the world’s largest maker of handsets. M-Systems is set to make its entry into this market today at Barcelona, with the expected announcement of a number of cooperation agreements.

In contrast to DiskOnKey (DOK), M-Systems is not inventing anything new this time round, but is rather integrating existing products and assimilating new technologies that it has developed over recent years, specifically the encoding technology developed by the Israeli company Fortress, which M-Systems acquired several years back. M-Systems’ rivals, such as Sandisk (Nasdaq:SNDK), were either surprised at the outset by the unveiling of the DOK, or dismissed the new invention and took their time in entering the new market themselves, a move which helped M-Systems grab a substantial market share. Things are different where the MegaSim is concerned; the sharks have been around for some time, and it will be interesting to see if the company will this week disclose the marketing agreements it signed last year. Faithful to the strategy of not selling anything directly under its own name on the shelves of retail chains, M-Systems has opted this time around for sophistication. It did not pitch the mobile DiskOnChip (MDOC) to its OEM customers, since they are the ones who manufacture the handsets, but instead, it approached a new class of customer, in the form of cellular operators such as Orange, for example, and they are the ones who will sell the card.

The card, which will be well secured, integrates SIM data, or the identity of the set owner, with new functions such bank account or credit card details, a sort of electronic wallet, together with high storage capacity of at least 1GB. Cellular companies have a financial interest in maintaining the link between customers’ electronic wallets and phones. M- System’s new marketing strategy, therefore, will provide cellular companies with the impetus to sell the MegaSim card and be among those bargain hunters who will cash in on the services provided to the user via their sets. Examples of this can be seen in the new services being added daily to existing 3G networks.

Published by Globes [online], Israel business news - www.globes.co.il - on February 14, 2006

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