It is has been our opinion that companies that form successful royalty models resemble gutters and the fab companies have the appearance like shingles when looking at a roof. When it rains the gutter can create a stronger stream receiving income and achieve a much higher level of profitability. The delay of M-Systems secondary offing might reduce the chance of more fab developments.

Either way this looks like a marathon race and since this is such a very large market it will be about a $40 billion market when quad flash is widely available, that means that any of the top three or four should benefit.

Saifun already competes extremely well with NOR but early 2007 when it doubles the number of bits from 2 bits to 4 per cell it should be able to show advantages over MCL NAND currently the price performance leader. Saifun has a chance of repeating the same step that, in our opinion, allowed SanDisk to lead the last cycle.

There are many new technologies looking to replace flash but at this point there are a few that are close to achieving mainstream volumes. You should know the Saifun technology hibernated for about twenty years. This is very common, the Internet incubated for about 30 years and electricity for 100 years. New technologies often hibernate longer than people anticipate, and then it seems that they often almost explode onto the seen very quickly.

Even though Saifun’s approach is about 20 years old, the technology they have just started to achieve is commercial feasibility.

The true advantage is since they only use points in the cell versus in the more convention approach such as NOR or NAND that uses the whole cell. This simpler usage allows for higher data retention and also provides a faster response time, and hopefully more density, and less power.

This is a tremendous advantage having 4 times the bits in competitive cells. Saifun also believe future that future cells could expand to possible to 8 or even 16 bits per silicon.

Possible risk

Saifun only has a handful of clients, if they loose Infineon Technologies (NYSE:IFX) Saifun largest client, they would impact their business tremendously. On a side note, it looks like it will pick up UMC out of Taiwan.

Saifun has basically signed many very large vendors like Sony (NYSE:sne) and Spansion (NASDAQ:SPSN) a spin off Advanced Micro Devices (NYSE:AMD) / Fujitsu (pink sheets) these based solely on the flash market are small in the market, since the production volume is small this could make it harder to be designed into leading volume products.

Even though we believe NROM offers a simpler cell structure with several layers, we believe it will be easy over time to reduce or migrate to a smaller form factor, but this has not been completed in high volume production. If and/or until they can compete in a smaller form factor this company will be, based on unit size, be at a significant disadvantage. Experts believe in 2007 this disadvantage should be at most minimal and Saifun believes in late cycles this will be come a true advantage.

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