SanDisk juggles its assets in advance of NAND flash downturn

In the latest indication that manufacturers are bracing themselves for the worst, the leading provider of flash memory cards for countries including the US is reducing its stake in two key factories where NAND flash is made.

It is a very safe bet that CE devices are already taking a hit in sales, especially including MP3 players, digital cameras, and any kind of devices that use NAND flash memory. SanDisk is a major supplier, representing more than one-third of US sales of NAND memory cards for devices that use interchangeable memory, according to hardware analysis firm iSuppli.

In a move which both sides in the deal say was prompted by SanDisk, a joint venture between SanDisk and world's #2 NAND supplier Toshiba has agreed to let 30% of two of its jointly owned NAND fabrication facilities to be acquired by Toshiba. In effect, the math would give Toshiba a 65% majority stake in Fab 3 and Fab 4 in Yokkaichi, Japan.

Yokkaichi was already staked out as the key to Toshiba's goal of overtaking rival #1 provider Samsung. Production at Fab 3 commenced in August 2005, and construction on Fab 4 was completed in September 2007. There, the facility immediately launched Toshiba's new 43 nm 300 mm production process, using 3-bit multi-level cell (MLC) technology (rather than the traditional two digits per bit in DRAM) with the intent of moving forward to 4-bit.

But speculation in the Asian business press is centered on the side of SanDisk, which has been actively engaged in thwarting a hostile takeover bid from Samsung. While some are saying the move helps SanDisk reposition itself as less attractive to Samsung, which is believed to be interested in SanDisk's flash card production capacity, others speculate it may make SanDisk easier for Samsung to swallow, while at the same time reducing Toshiba's risk to exposure should Samsung acquire SanDisk's stake in the joint venture.

The third possibility, presented this morning by FabTech's Mark Osborne, is simply that Toshiba needs to accelerate its ramp-up process for MLC in order to improve its margins during the CE downturn. This could mean the repositioning has little to do with Samsung's buyout bid.

Toshiba's stake in the global flash market is a healthy 27.5%, according to iSuppli, versus Samsung's 42.3% stake. A big stake in a waning market is not necessarily a good thing, though; and if Toshiba seizes the lead in technological prowess, it could conceivably afford to remain #2 by selling higher-margin products that could also be more cost-effective for OEMs. Samsung, meanwhile, would be trapped selling the more conventional, lower-margin flash, albeit to OEMs such as Apple. But Apple -- as everyone knows all too well -- can change its mind about parts suppliers in less than a heartbeat.

Meanwhile, SanDisk -- which doesn't have a significant stake in the embedded flash variety -- can benefit from reduced costs, which will help it in a market which iSuppli now believes will have shrunk overall by 3%, despite the abundance of new CE products, by the end of this year. Thus the other interpretation of this move could be that SanDisk is positioning itself for survival...as an independent entity. This just weeks after Toshiba, which was thought to be a possible white knight in a bidding war against Samsung for SanDisk, officially ruled out such a bid two weeks ago.