SanDisk (Nasdaq: SNDK) and Samsung Electronics Co. Ltd. (KRX: 005930) announced today that they have renewed a royalties agreement to renew the cross license of their semiconductor patent portfolios. There was a big question mark over the current agreement, which is due to expire in August. Failure to extend the agreement would have cost SanDisk hundreds of millions of dollars in lost income and would have sharply lowered the company's value.
In addition, the companies signed a flash memory supply agreement, under which Samsung will continue to make available to SanDisk a guaranteed portion of its flash memory production output. The new agreements are for seven years.
News of the renewed agreement saw SanDisk's share jump over 16% on Nasdaq.
After taking a hit for a long period, SanDisk is now seeing demand for flash memory products stabilizing, resulting in a rise in prices for the first time in years.
SanDisk chairman and CEO Dr. Eli Harari said last week that the price of flash memory per gigabyte "has more than doubled since December."
The rise in price of flash memory products which began last February came after a sharp fall in the level of production, which the large companies in the market implemented Samsung, SanDisk and Toshiba. SanDisk lowered production by 30%, but in its conference call for the last quarter forecast that it would return to full production within six months to a year.
The terms of SanDisk's new agreement with Samsung are not as good as the current agreement and include royalty payments that are lower by half. Full details of the financial terms have not been disclosed.
The agreement also comes in the wake of Samsung's dramatic takeover bid for SanDisk six months ago. The offer was made at $26 per share, or $5.9 billion, compared with SanDisk's current market cap of $3.6 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on May 27, 2009
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