Toshiba and SanDisk Agree to Jointly Develop and Jointly Manufacture Gigabit Scale Flash Memories - Company Business and Marketing

Edge: Work-Group Computing Report, Oct 18, 1999

Toshiba Corporation and SanDisk Corporation (Nasdaq:SNDK) has announced the signing of a Memorandum of Understanding (MOU) to enter into a long term strategic partnership in the area of joint development and joint manufacturing of gigabit scale flash memories.

A new company will be established in January 2000 and will start the business using Toshiba's Yokkaichi fab in Japan. New production capacity is planned at Dominion Semiconductor LLC, a Toshiba group company in Virginia, where the volume production will start in the first half of 2001.

The key areas of cooperation outlined in the MOU are: Toshiba and SanDisk intend to jointly develop 512 megabit (Mbit) and 1 gigabit (Gbit) flash memory chips and Secure Digital (SD) Memory Card controllers. The companies plan to employ Toshiba's future 0.16 micron and 0.13 micron NAND flash memory technology and SanDisk's multilevel cell (MLC) flash technology and controller system integration.

Toshiba and SanDisk intend to form and jointly fund a 50/50 joint venture manufacturing company which will manufacture all of the jointly developed flash memory products for both companies. By 2002, the flash memory production capacity of the joint venture is projected to be able to support more than $1 billion in annual sales.

When further additional manufacturing capacity is required, the joint venture manufacturing company is chartered to secure third party external sources including foundries. Toshiba and SanDisk will separately market and sell their share of the output of the joint venture production to their respective customers.

Yasuo Morimoto, president and CEO of Toshiba Corporation's Semiconductor Company, said, "We are confident that this collaboration will allow Toshiba to accelerate its participation in the rapidly growing market for flash storage in such applications as digital still cameras, voice recorders, video games and silicon audio players. We see our collaboration with SanDisk as highly beneficial to each other and to the customers we serve, as we will provide them with market-defining, state-of-the-art flash storage products."

Eli Harari, president and CEO of SanDisk, said, "This strategic cooperation between the two pioneers of flash storage represents for SanDisk a critically important milestone as we prepare to meet the major market growth opportunities projected for flash storage in the years ahead. Gigabit scale flash memory development is costly and technologically challenging.

"Toshiba and SanDisk will benefit immensely from combining Toshiba's advanced IC manufacturing technology with SanDisk's system and multilevel cell design technology. Our customers will benefit when the large scale production capacity of the joint venture manufacturing company comes on stream in 2001 through the shared investments by the two companies.

"This new capacity will allow SanDisk to significantly increase its flash production output beyond the growth that we can achieve at our current foundries with our proprietary D2 (double density or MLC) NOR flash memory. Finally, this cooperation further strengthens the SD Memory Card co-developed by Matsushita, SanDisk and Toshiba."

A definitive agreement, based on the principles outlined in the MOU, will be negotiated and is expected to be concluded by January, 2000. It will be subject to final approval by the boards of Toshiba and SanDisk.

The matters discussed in this news release contain forward looking statements that are subject to certain risks and uncertainties as described under the caption "Risk Factors" in the company's annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. The company assumes no obligation to update the information in this release. In addition, the following risks and uncertainties should be considered:

The development of the 512Mbit and/or 1Gbit flash memory chips is highly challenging. There can be no assurances that such development will be completed successfully in a timely manner and with cost effective designs. If there are significant delays in the development schedules, or if the resultant chip designs cannot yield cost effective designs or be manufacturable in high volumes, this could have a material adverse impact on SanDisk's operating results in 2001.

During the equipping, startup and production ramp phase of the Dominion wafer fab, the fab efficiency will be low and the output will be insufficient to cover running expenses. Therefore, during the startup period in 2001, SanDisk's expenses at Dominion could become material, adversely impacting operating results.

To support the new product development activities contemplated under the MOU, SanDisk's research and development spending may increase in 2000. Revenues from the sale of advanced flash products developed under this MOU may lag the R&D expenses associated with these products thereby adversely impacting SanDisk's operating results.

Toshiba Corporation is a leader in information and communications systems, electronic components, consumer products, and power systems. The company's integration of these wide-ranging capabilities assures its position as a leading company in semiconductor, LCD and other electronic devices. Toshiba has 198,000 employees worldwide, and annual sales of over US$40 billion. Visit Toshiba's website at http://www.toshiba.co.jp