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Wednesday, May 23, 2007

Intel and STMicro no threat to SanDisk

With SanDisk (SNDK) one of the recommended TradeRadar stock picks, I wanted to know what impact the recently announced agreement between Intel (INTC) and STMicroelectronics (STM) would have on SanDisk. Here's how it looks:

The agreement whereby Intel and STMicroelectronics will be combining their flash memory business shows how to tough it is to prosper in this industry. It continues the consolidation that began with Micron Technologies buying Lexar and SanDisk buying M-Systems. It also continues Intel's strategy of looking for synergies with partners, an approach that was demonstrated by their teaming up with Micron to push into the NAND flash market.

Currently, Intel and STMicro primarily manufacture NOR flash memory. NOR flash is often used in cell phones but that has started to change. Indeed, NOR flash memory has been largely superseded by NAND flash memory for the hottest consumer applications like MP3 players, digital cameras and PDAs. The fact that NOR usage is declining at a double digit rate is one problem the companies face. In terms of NAND production, they are coming from way behind in a segment that is growing twice as fast as the NOR segment is declining. Another problem is that their manufacturing capabilities are lagging those of other major players. Samsung, for example, produces chips more cheaply and more efficiently using 12-inch wafers. Intel and STMicro are still using 8-inch wafers.

SanDisk, Toshiba and Samsung are among the largest players in the NAND flash segment and they already have the state-of-the-art manufacturing capability to produce 12-inch wafers. This merger between Intel and STMicro's flash memory businesses will have little effect on SanDisk or the industry's other dominant players.

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