Saifun Semiconductors’ ability to pack more memory into small space makes it one of the most promising startups in 2005.

January 17, 2005 Print Issue

When a group of 30 Israeli venture capitalists chose Saifun Semiconductors in December as the most promising startup for 2005, it was just one more win for a company that has scored an impressive series of triumphs on the way to an initial public offering.

Saifun, based in Netanya, Israel, won in a landslide over other Israeli startups at the Tamir Fishman and RBC Capital Markets annual conference in Tel Aviv in December. Saifun’s high-density flash memory technology, which is ideally suited for mobile phones, MP3 players, and other portable devices, has been licensed by companies such as Fujitsu, AMD, and, in December, Japanese electronics giant Sony.

The deal with Sony could be worth hundreds of millions of dollars, the company says. Sony will use Saifun’s technology in all its mobile devices, from MP3 players to digital cameras. “It gives the company credibility,” says Brian Matas, vice president of market research at IC Insights in Scottsdale, Arizona. “You have to give them credit for signing someone of that caliber.” Earlier, Saifun licensed its technology to Spansion, a joint venture of AMD and Fujitsu, after a contentious legal battle with the two chip makers. The company also sells licenses through a joint venture with Infineon.

Saifun’s advantage is its ability to pack more memory into small space. Traditionally, memory chips have consisted of millions of transistors, each able to store a single data bit symbolized by a zero or one. Saifun’s non-volatile NROM technology can store two to four bits on a single memory unit. “We believe that the multi-bit cell technology (based on Saifun’s NROM) adopted by AMD and Infineon could be easier from a manufacturing standpoint than the multi-level cell adopted by Intel, STM and the other players,” JP Morgan analysts concluded in a recent report.

The company’s future is not a sure thing. “It’s hard to say how it will play out for Saifun,’’ says Scott Jones, president of IC Knowledge in Georgetown, Massachusetts. “The flash market is pretty crowded.” Gartner DataQuest has estimated that the flash memory market should expand from $3.4 billion in 2003 to $4.4 billion in 2004.

If anyone knows how to overcome challenges it is Boaz Eitan, the serial entrepreneur who founded Saifun. Mr. Eitan, a former fighter pilot in Israel’s Air Force, was shot down over Syria in 1970 and tortured during three years as a prisoner of war in Damascus. After his release in 1973, he completed doctoral studies in physics at Hebrew University in Jerusalem under Professor Dov Frohman, the inventor of erasable programmable memory. Mr. Eitan joined Intel and devoted his career to nonvolatile memory technology.

In 1983, Mr. Eitan helped establish Waferspace Integration (WSI) in Silicon Valley, which SGS (now a unit of Thomson Microelectronics) bought in 2000 for $68 million. His entrepreneurial experience

and patents portfolio led him to start Saifun in 1997, when the company made history by cramming two bits into a single memory cell. In 2004, Saifun made another breakthrough by putting four bits in a single memory cell.

Mr. Eitan is notorious for never talking to the media. That leaves analysts guessing about the company. Semiconductor insiders believe sales of NROM by Saifun and its partners reached $200 million in 2003, and quadrupled to $800 million this year. Infineon Flash is believed to have generated $100 million in revenue in 2004. By 2007 NROM sales are expected to top $5 billion. Industry sources say Saifun’s revenues may top $50 million a year. Analysts speculate that after investing $10 million a year in R&D, the 140-person company is profitable.

Analysts will soon learn if they guessed right. The company is gearing up for a Nasdaq offering and will have to provide financial information. Originally Saifun aimed to raise $250 million at a company valuation exceeding half a billion dollars, helped by shareholder Morgan Stanley. But Lehman Brothers replaced the investment bank in June in order to expedite the process.

Saifun needs to hurry. During 2004, rivals Toshiba, Samsung, and Hitachi narrowed the technological gaps, presenting 2-bit storage without violating Saifun’s patents. Toshiba even reached 4 bits per cell, but industry sources say its chip heats up, hampering memory preservation. As Saifun loses its technological lead, its valuation has shrunk. In December, American investment fund General Atlantic bought Tower Semiconductors’ 10 percent stake in Saifun for $39 million, reflecting a company value of $390 million.