SanDisk Signals More Chip Deals Ahead

SAN FRANCISCO -- Chip stocks are battered and bruised, and that's making them increasingly irresistible to some of their peers.

Investors witnessed a prime example of this Friday, when Samsung revealed that it is looking over SanDisk(SNDK), a rival maker of flash memory chips whose stock has plunged more than 50% in the last three months.

In a filing with Korean regulators, Samsung reportedly said that it was exploring all options, including a buyout or an alliance with SanDisk, but that nothing has been decided yet.

The news sent SanDisk's shares up $4.18, or 31% on Friday, to close at $17.64.

The deal would represent a major shake-up in the market for NAND flash, a type of chip used to store data in MP3 players and digital cameras.

But it also underscores how ripe much of the semiconductor market has become for consolidation.

Chipmakers of all stripes have seen stock prices compressed in recent months amid fears that a global economic slowdown will stall sales of the PCs and consumer electronics gadgets that use chips.

On Thursday, the Philadelphia Stock Exchange Semiconductor Sector Index , an index of 18 large semiconductor stocks, fell to its lowest level in more than five years.

The deal between Samsung and SanDisk, if it happens, could represent the beginning of a consolidation trend and cause investors to rethink the entire semiconductor sector, says one hedge fund manager.

"If we're going to have a wave of foreign consolidation out there, it would make people think twice about how low these stocks can actually go," he says.