UBS says their checks suggest Samsung is currently undergoing MLC (multi-level cell) licensing renewal negotiations with SanDisk (NASDAQ:SNDK). Although they do not believe current contractual agreements do not expire until 2H09, Samsung is likely approaching the process earlier in order to procure more favorable terms as current MLC royalty rates. SanDisk's "first generation" patents that include MLC expire in the 2009-2014 timeframe while "2nd generation" patents, or modified/updated versions of MLC and other patents, expire in 2020 or later. Firm believes Samsung has a number of next-generation process technology development efforts underway, including charge trapping and PRAM, that may afford it some leverage in this process. Firm views the potential for lower royalty rates for future MLC payment streams from Samsung as a negative for SanDisk.
Notablecalls: Looks like a big blow for SNDK to me. All the negative talk so far has been about product line. However, note that licencing revenue is at least equally important as products, with some firms valueing licencing at $25 per share. With key licensees such as Samsung trying to renegotiate, look for this figure to come down sharply with the stock following the road.
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