SanDisk Preps Secret-Weapon Chip

But Wong, the Forward Insights analyst, notes that the equipment could also be used to produce rewriteable 3D chips, since both technologies share similar production processes. In fact, Wong says it wouldn't be surprising if SanDisk were making the investment to set up a small, research-dedicated manufacturing line with Toshiba, giving the firms some hands-on experience producing re-writeable 3D chips.

"If you really want to accelerate the development, you really need an R&D line to accelerate the learning," says Wong.

Another reason to step up 3D efforts is SanDisk's intellectual property business, which generates between 11% and 15% of SanDisk's quarterly revenue from licenses and royalty payments.

The 3D deal calls for Toshiba to pay SanDisk unspecified license fees, the first known monetization of SanDisk's re-writeable 3D technology.

The deal that matters most to investors, however, is the contract with Samsung, the largest licensee of SanDisk intellectual property. That agreement's August 2009 expiration date has weighed on SanDisk shares, as investors fret that SanDisk could lose an important source of high-margin revenue if the contract is not renewed.

"There's a big discount to the Samsung IP royalty stream," says American Technology Research analyst Doug Freedman.

Freedman believes SanDisk is better-positioned to renegotiate a deal with Samsung than Wall Street expects. But it's clear that anything that can strengthen SanDisk's negotiating hand is welcome. And bringing rewriteable 3D memory technology to the table would give SanDisk some valuable bargaining leverage.

"It's very possible that that could be what their strategy is; to try to get as much IP built up as possible," Freedman says, although he notes that SanDisk might also prefer to give itself an advantage in the market by keeping the 3D technology to itself.

Of course, the scope of the 3D memory opportunity is far from certain, particularly given that today's existing NAND flash technology could extend its life span through innovation in semiconductor materials, negating the underlying purpose of 3D memory.

SanDisk's 3D technology remains a bet on the future, but the odds are looking better.

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