SAN JOSE, Calif. -- The flash patent royalty deal between SanDisk Corp. and Samsung Electronics Co. Ltd. covers 3- and 4-bit per cell technology, but not 3-D memory, according to analysts.
SanDisk also stands to gain lower royalty payments in the agreement, according to analysts.
As reported, SanDisk (Milpitas, Calif.) and Samsung this week announced they have agreed to cross-license their flash memory semiconductor portfolios and that Samsung will continue to supply SanDisk with a guaranteed portion of its flash memory production.
The new agreements become effective when the current cross-license and supply agreements expire on Aug. 14, 2009, and will run for seven years from that date.
''The royalty payment will be (about) half of the previous rate, versus our prior model of a 60 percent decline,'' said Edwin Mok, an analyst with Needham & Co. LLC. ''We estimate Samsung royalty was $300-400 million in 2008 and $250-300 million in 2009. Based on timing of the agreement, it will have half a quarter impact to 4Q09 royalty revenue and full year impact to 2010. Therefore, we have increased our 2010 royalty estimate.''
There are more details as well. ''SanDisk stated that the new agreement will extend beyond MLC (in prior agreement) to cover 3-bit and 4-bit per cell technology, but it will not include 3-D memory,'' Mok said.
''The Samsung agreement covers certain system level IP that was part of (SanDisk's) legal actions against 25 companies in 2008,'' he said. ''We believe this agreement limits royalty upsides from competitive card/USB makers, since they can avoid paying SanDisk royalty payment by purchasing finished products from Samsung and re-labeling under their own brand (a common practice in flash cards/USB business).''
''Overall, we see two ways of looking at the agreement. On the one side, it includes licensing of 3- and 4-bit technologies but not at a premium licensing rate that one would expect given that the agreement covers more patents,'' said Daniel Amir, an analyst at Lazard Capital Markets.
''On the flip side, despite the lower royalty rate, it is better to have an agreement than not to have any deal at all. We believe there is potential for deals to cover other licenses in the future like 3-D memory (if needed),'' Amir said. ''In addition, the supply agreement assures SanDisk access to flash when the market heats up again, without its having to spending capex in expanding capacity.''