Samsung has abruptly dropped its $5.8 billion bid for the memory card-maker SanDisk.
In a letter to SanDisk's board, Samsung Electronics CEO Yoon Woo Lee wrote that the recent quarterly results heightened concerns about SanDisk's ability to weather a protracted downturn in the memory industry and the broader economy. In addition, SanDisk had just announced a preliminary agreement with its manufacturing partner, Toshiba, to in effect sell some of its share of the NAND flash back to Toshiba in exchange for cash and relief from some other financial obligations. EE Times has posted the full text of Samsung's letter.
For its part, SanDisk said it remained open to discussions with Samsung, but only at a price that it felt reflected the value of the company's intellectual property. And it questioned whether Samsung really wanted to buy the company in the first place. (The SanDisk press release is here.) The negotiations (or lack thereof) were also complicated by a key licensing agreement between Samsung and SanDisk that is set to expire in less than a year. SanDisk earns hundreds of millions of dollars in royalties from this agreement each year.
SanDisk's quarterly results were disappointing, but it's hard to believe that they were a surprise to Samsung. The entire memory industry has been suffering through a severe downturn for some time, and the math is simple. Memory suppliers invested heavily in expanded production, which resulted in sharp oversupply that is expected to extend from 2007 through the first half of next year. As a result memory prices have fallen below production costs, even for suppliers with the most advanced technology. Initially this mainly affected the DRAM suppliers, but eventually it caught up with the NAND flash players as well.
Ultimately it seems SanDisk and Samsung were too far apart on price to even begin to tackle other formidable issues. Here is a link to my previous post on the technology that made SanDisk an attractive target for Samsung.