Sunday’s CIBC conference proved to be an exciting event for the flash sector, because it was there that we first heard Saifun Semiconductors' (Nasdaq:SFUN) response to the dramatic announcement by M-Systems Flash Disk Pioneers (Nasdaq: FLSH) about the 4-bit storage capacity of its new x4 chips. Today sees the response of the third relevant company, Sandisk (Nasdaq: SNDK), at the annual conference held by JP Morgan in San Francisco.
The headlines from the conference, which spoke of cooperation between M-Systems and Saifun, sound like hot air to me. Both companies said more or less the same thing, “we’ll talk when their product is shown to work.” This means that neither side believes that the other will actually reach the stage of mass production of NAND chips.
Of the two companies, Saifun looks to me like the one which is feeling the pressure much more, if only because of the fact that for years it has boasted that it is the only company in the world that can offer double, and more recently, quadruple storage capacity in one single cell. All of a sudden, along comes a company, not a global giant but rather a company from the same village, and claims it can do it too.
M-Systems’ announcement, in effect, ruined the slides introduced by Saifun CFO Igal Shany in his presentation, slides that he would be well advised to update before he shows them at future presentations, since they say repeatedly that Saifun is the only one to have done it. Asked about M-Systems’ announcement he replied, “It’s about controllers, not flash memories," mentioning M-Systems in the same breath together with a smaller Taiwanese company Silicon Motion Technologies (Nasdaq: SIMO).
In my innocence, I thought that M-Systems was one of the leaders in innovative flash technology, but along comes Shani and turns it into a controller company, despite it having never sold a single controller since the day it was founded. Shany did add that this was a brilliant invention in the field of controllers, similar to the brilliant MLC storage solution jointly developed by Toshiba (TSE: 6502; LSE: TOS; XETRA, AEX, Paris: TSBA), and Sandisk, which offers double storage capacity, but immediately added that Saifun was still studying the M-Systems announcement.
In my view, Saifun’s conduct over the years has been too conceited and arrogant. They have not been modest enough in their declarations. On the ground, events at Saifun have evolved at a much slower pace than that implied by their repeated claim that “only we can do it.” At M-Systems, on the other hand, they only make an announcement once they know that the timeline from conception to mass production or substantial sales for any of their inventions is no longer than one year.
As I have said in the past, I am not rushing to remove Saifun from my portfolio because of M-Systems’ invention, although Saifun’s entry to the NAND field could be substantially harmed by it. Having said this, Saifun has still made impressive progress in the NOR, a development that was reflected by last week’s announcement by one of its largest clients in this field, Spansion Inc. (Nasdaq: SPSN), which was spun out of AMD (NYSE: AMD).
The fog surrounding M-Systems’ invention will lift within a few weeks or months, once the identity of its NAND chip manufacturing partner, or partners, both existing and new, in the new technology are finally revealed. The leading candidate, and the one most likely to sign an agreement with M-Systems, is Toshiba, which has had a longstanding close and successful collaboration with M-Systems, as well as being a minority shareholder, with less than 1% of the company.
Another leading candidate is Korean company Hynix Semiconductor (KSE: 000660.KS), in which M-Systems invested $100 million in equipment in return for guaranteed fab capacity. The Japanese manufacturer Renesas Technology, a small player in the NAND market, is also a candidate, but the partnership that would trigger the biggest response by the company’s stock is one with Intel (Nasdaq: INTC)/Micron Technology (NYSE: MU). Intel/Micron will not be keen to pay royalties to Sandisk for the use of MLC technology, if they can make the leap forward directly to x4, a move which is possible, according to M-Systems’ presentation.
Samsung, I feel, has not been ruled out entirely by M-Systems, and it appears that it too is studying the invention in depth; therefore it too could be a possible partner for the new technology. M-Systems’ previous contract with Samsung, under which it had no right to sue Samsung’s clients for patent violations, is unreasonable in an era when M-Systems has become a leading IP provider.
Zisapel’s faith
When was the last time you heard of a company’s owner, or managers, buying rather than selling their company’s shares? It was probably in the US market since in Israel it is a very rare occurrence. This would explain the enthusiasm that greeted the announcement by Radvision (Nasdaq: RVSN; TASE: RVSN) chairman Zohar Zisapel, who last week bought a further $3.3 million worth of Radvision shares on the open market, in addition to his current 10.3% share in the company.
Anyone who heard the presentation by Radvision’s new CEO Boaz Raviv at the CIBC conference, in which he predicted a wide-scale roll out of the market for video conference calls over computers and 3G handsets, understood why Zisapel increased his stake. Incidentally, when he was asked several years ago what would be the next hot field in technology, Zisapel mentioned video conference calls, despite the fact that he and his brother Yehuda are involved in many other fields.
It should also be noted here that the downslide of Radvision stock from a high of $21.4 in February to $15 last week can be attributed in its entirety to the collapse of the hedge fund Saranac Capital Management, which held 2.4 million shares in Radvision last year and liquidated its position in the stock from January 2006 onwards, after its investors bolted.
Gilat Satellite Networks (Nasdaq: GILTF; TASE: GILTF) has made an impressive 20% gain since the beginning of the month, breaking through the two year high of $8.20. Speaking at the CIBC conference, Gilat’s co-founder and newly appointed CEO Amiram Levinberg gave an overview of the company’s financial and business progress. Former CEO Shlomo Rodev, who came from the beverages sector where every penny is critical to the bottom linet, oversaw a general restructuring of the company and a reorganization across all its budgeting and auditing systems, in the wake of the company’s major collapse.
The Levinberg brothers, professionals and leading forces in the field of satellite communications, were recently brought back into the company together with its founder Yoel Gat, by York Capital Management, which invested in Gilat and could increase its share in the controlling stake to 30% this year if it converts the debt into shares. The Levinberg brothers are now doing marketing and business development in their field of expertise, activities that are likely to guarantee double digit annual growth and profit in the coming years.
Gilat’s two key growth engines are satellite communications equipment for large enterprises, primarily in the US, and satellite telephony and Internet access equipment in rural regions in developing countries. During his presentation at the conference, Levinberg clearly hinted at the prospect of an upcoming major deal with a leading equipment manufacturer, a development that could perhaps account for the fact that every round of profit taking in the stock immediately brings a raft of new investors in its wake.
Published by Globes [online], Israel business news - www.globes.co.il - on May 23, 2006
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