No Fun at Saifun Semi

Updated from 12:27 p.m. EDT

Investors pummeled Saifun Semiconductor's(SFUN - Cramer's Take - Stockpickr) stock Friday, after the Israeli company announced it has lost one of its most important customers, raising doubts about the viability of its technology.

Saifun said that Qimonda(QI - Cramer's Take - Stockpickr), the memory division of German chipmaker Infineon(IFX - Cramer's Take - Stockpickr), is ramping down its use of NROM technology licensed from Saifun.

As a result, Saifun said it does not expect any license or service fees, and only limited royalty fees, from Qimonda after the fourth quarter.

Qimonda-parent Infineon accounted for 57% of Saifun's $65.8 million in licensing revenue in 2005. Saifun licenses intellectual property for a flash-like memory technology dubbed NROM.

Saifun shares were recently off more than 26%, or $7.68, to $21.40 in midday trading Friday -- well below its previous 52-week low of $24.36.

The news represents not only a major blow to Saifun's immediate revenue stream, but also puts in doubt the future of the company's flagship IP asset. The fact that Infineon, a longtime believer in Saifun's technology, now appears to have given up on NROM does not bode well.

Like flash memory, NROM is nonvolatile memory technology, meaning it can retain data even when the power is switched off. Saifun claims NROM has several advantages compared to traditional flash memory, including the fact that it is better suited to store four bits of data per cell (traditional flash chips currently retain two bits of data per cell).