Lexar Media, Inc:

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Lexar Media is banking on a digital picture being worth more than a thousand words. The company designs and markets memory cards and connectivity products (USB flash drives) for the digital photography, consumer electronic, and communications markets. Lexar's products (which are made by third parties) are sold mostly in the US (which accounts for nearly 60% of sales), as well as in Japan, Korea, the UK, Europe, and Canada. Sales to Wal-Mart account for more than 15% of company sales. Other customers include OEMs and licensees. Lexar has a licensing agreement with Kodak to make and distribute Kodak-branded memory cards. The firm was acquired by Micron Technology for about $850 million.

Micron pursued the acquisition to add Lexar's NAND flash technology to its own designs. NAND flash is a type of memory that retains data even when its power supply is cut off. The all-stock deal was completed at the end of the third quarter of 2006.

It was speculated, however, that Lexar was exploring other options, such as a possible deal with SanDisk. Some of Lexar's largest shareholders, including Elliott Management Corporation and Carl Icahn, openly oppose the Micron/Lexar deal, saying that Lexar was quick in shopping itself and could have garnered a higher price.

Lexar wrangled with Toshiba in court over claims that Toshiba stole trade secrets concerning NAND flash memory chips and then shared secret information with Lexar's rival SanDisk Corp. Lexar won the judgment and a California jury award of $465 million. Although the award was made final in October 2005, Toshiba was later granted a new trial on damages, citing insufficient evidence to support the $465 million.

In late 2006 Toshiba and Micron settled their NAND flash memory-related litigation. As part of the deal, valued at $288 million, Toshiba purchases certain Micron semiconductor technology and license patents formerly owned by Lexar Media.

SanDisk Corporation:

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If forgetting things drives you crazy, SanDisk's products might help preserve your sanity. The company is a top producer of data storage products based on flash memory, which retains data even when power is interrupted. SanDisk's products include removable and embedded memory cards used in digital cameras, personal digital assistants, networking equipment, medical devices, and other electronics. The company sells to manufacturers such as Canon, Eastman Kodak, Ericsson, Matsushita, and Siemens, as well as through retailers, including Best Buy, Circuit City, and Office Depot. SanDisk has become a leading competitor in the market for MP3 music players with its Sansa brand players.

In late 2006 SanDisk purchased rival msystems for about $1.5 billion in stock. After passing on an opportunity to acquire competitor Lexar Media (which went to chip maker Micron Technology earlier in 2006), SanDisk pursued msystems instead, widening its portfolio of flash memory-based data storage products.

Responding to the dramatic collapse of prices in the NAND flash memory market, SanDisk set a number of cost-cutting measures in early 2007. These included the layoff of up to 10% of the worldwide staff (approximately 250 employees), salary cuts for senior executives, salary freezes for all other employees, and a hiring freeze for most areas.

SanDisk outsources its manufacturing to semiconductor foundries such as Taiwan's United Microelectronics and Israel's Tower Semiconductor (in which SanDisk holds a minority stake).

SanDisk, which holds more than 700 patents in flash memory technology, licenses its technology to customers such as Intel, Sharp, Sony, and Toshiba.

The company has formed several joint ventures with Toshiba -- Flash Alliance, Flash Partners, and FlashVision -- which manufacture flash storage cards for cell phones and digital audio players and cameras. Toshiba Semiconductor operates three memory chip fabs in Yokkaichi, Japan, and in 2006 SanDisk and Toshiba set plans to build a fourth fab at Yokkaichi that will manufacture NAND flash memory chips; estimated price tag is $5.2 billion. Construction of Fab 4 began in the summer of 2006, with initial production expected in the second half of 2007. Toshiba will pay for the facility's construction, while SanDisk and Toshiba will share the cost of equipping it, which is generally the more expensive part of putting up a new semiconductor plant. Like Toshiba's Fab 3 in Yokkaichi, which began turning out chips in 2005, Fab 4 will use silicon wafers measuring 300mm (approximately 12 inches) in diameter; most existing fabs in the world use 200mm wafers. While more and more consumer electronics products are incorporating NAND flash memory, SanDisk and Toshiba are making an expensive bet that demand for those chips will remain high in 2008, when Fab 4 will fully come on-line.

Prices for NAND flash memory parts dropped 60% in 2006 and are projected to fall another 65% in 2007, as more suppliers flood the market with product. Despite the fall in prices, unit volume and the size of the over-all market are forecast to grow substantially in 2007 and the near future.

Entities controlled by Capital Group International own nearly 14% of SanDisk, while those controlled by CAM North America hold nearly 8% of the company.