MegaSIM or Bust

This idea really sounds pretty good. Take your basic SIM card, add a big chunk of high capacity NAND, world-class encryption, a serious microprocessor with its own OS and onboard software and voilà, a whole new platform for the mobile network operator (MNO) that retains full SIM capabilities.

The size of the potential market is theoretically the size of the SIM market today and those numbers are truly staggering. Today there are over 2 billion GSM customers, representing 82% of the world’s mobile phone users, and every one of those GSM mobile phones has a SIM card inside.

While the potential for the high-capacity, high-performance SIM market is tremendous, there are stumbling blocks between here and there. Handsets will need a new higher performance SIM interface and MNOs will have to decide that the more expensive SIMs are worth the effort.

While it is too early to tell if/when this market will take off, 2008 looks to be shaping up as a most interesting year. SanDisk sees 2007 as a design-in period for its high capacity SIM card, MegaSIM. In 2008 SanDisk expects MegaSIM “to emerge as a major revenue contributor.” These are fighting words coming from an organization as conservative as SanDisk.

Thanks to msystems, MegaSIM is market ready and trial tested. This didn’t happen overnight.

The Development of MegaSIM

MegaSIM goes back at least 7 years to the year 2000. This was the year that msystems had the foresight to acquire Fortress U&T Ltd. Fortress was a privately held Israeli-based company specializing in data security and crypto technology. Fortress provided advanced security technology to some of the world’s crypto smart card industry leaders. Smart folks.

In 2001 and 2002, with Fortress’s help, msystems worked on R&D for chips for next-gen SIM cards supported by European grants.

In early 2003, msystems hired a manager from Nokia to handle its, as yet unannounced SIM card business. This manager made it into the Israeli press when he slipped up and revealed msystems’ confidential high capacity SIM aspirations. He never made that mistake again.

MegaSIM was officially announced in October 2004:

For the first time in the cellular market, a SIM card will combine high capacity flash-based storage, with densities reaching 256 Megabytes, and advanced security features to enable a variety of compelling mobile applications. As mobile handsets increase their multimedia capabilities, and service providers begin implementing broadband mobile service, the need for secured, scalable and configurable high capacity storage becomes acute. The MegaSIM card module will enable SIM card vendors to provide their mobile operator customers with a (U)SIM card enabling a variety of advanced mobile services such as MMS, MP3 and video clips downloading, full PIM functionality, and high resolution picture storage.

In November, 2005, msystems acquired Microelectronica Espanola, a leading European smart card company. Msystems took this calculated step to establish direct access to the MNOs. In addition msystems acquired important technology and manufacturing capabilities.

Msystems’ strategy was to leverage both Microelectronica’s channel to the MNOs as well as its technology in secured manufacturing to grow its business for both MegaSIM and for msystems newly introduced line of memory cards.

Am posting a transcript of the November 14, 2005 acquisition of Microelectronica Espanola msystems’ conference call. Although almost two years old, it is still quite relevant.

When SanDisk acquired msystems, it also acquired Microelectronica and its management team. At the time of the Microelectronica acquisition msystems hired Simone Cavallo to manage Microelectronica. Believe he came from STMicro where he had been Group Vice-President, Smart Card Telecom Division. Before STM, Simone was a general executive manager at Incard, one of the world’s main producers of smart cards.

Today Simone is VP of SanDisk’s MNO division where he works with SanDisk MNO management from the USA, Iran, Israel, Spain, Taiwan, Korea, and China. Internationalization is always a plus.

Since acquiring msystems, SanDisk has added TrustedFlash functionality to MegaSIM. TrustedFlash seems to be an important SanDisk strategy and deserves its own post, which I will get around to eventually.

Using its Microelectronica connections and perseverence, msystems convinced MNOs to give MegaSIM a shot. Trials apparently went well enough. Big names too: Orange, Telefonica, TIM and China Mobile.

So what’s the sales pitch to the MNOs? Or put another way, why should the the Oranges and China Mobiles of this world be interested in a next-gen, high capacity SIM card like MegaSIM?

The MNO Challenge

The MNOs, are worried about losing their relevancy/leverage. And for good reason. MNO average revenue per user (ARPU) is declining and they are faced with rising subscriber churn rates.

MNOs have made massive capital investments in wireless data infrastructure and now are faced with the threat of becoming nothing more than “Fat Pipes.”

This is where the MegaSIM fits in. MegaSIM gives the MNO an opportunity build a connection with its customers and to monetize value-added propositions, increasing revenues per user and reducing churn rates.

Most MNOs offer rich content through their portals and services today. By controlling the mass storage at the heart of the mobile phone, they are also able to control this content and influence how it is used. Personal ID + Smart card functionality = ECommerce etc.

MegaSIM is tailor-made for MNOs. Whether it is adopted is another matter though. You can lead a horse to water, but you can’t make it drink.

The MNOs are conservative beasts with an aversion to uncertainty. Disagreement over standards hasn’t helped.

How SanDisk shot itself in the foot over MegaSIM Standards

It appears that Sandisk shot itself in the foot or maybe both feet in the standard’s process for high capacity SIMs. Probably no lasting damage, but sheesh.

There were two competing standards for the phone interface for high capacity SIMs: USB and MMC. Msystems designed MegaSIM so that it could work with whichever won out. FLSH and some others were pushing MMC because it could rollout sooner.

Orange trials for example were based on MMC. Various phones were designed with the technology. Looked like trials would transition smoothly into rollouts with MMC.

Then SanDisk got involved. This was before the FLSH acquisition. SanDisk didn’t have a high capacity SIM product, so it decided to try to derail the process by claiming at the 11th hour that its patents would be required for folks to use MMC for the high capacity SIMs.

This PO’d many. The net result of SNDK’s ploy was that support swung to USB which would require redesign of handsets delaying rollout.

Then SNDK acquired FLSH and MegaSIM, but the die had been cast.

USB was crowned as high speed SIM standard.

Lots of irony to this one, but no lasting damage.

One of the beautiful things about MegaSIM is that the bar is set so low. Street expectations are close to zero. Pretty remarkable for a potential $1+ billion market. If MegaSIM starts to get serious traction in 2008, it will be a big surprise. Icing on the cake.

Of the Telcos connected to MegaSIM: Orange, Telefonica, and TIM are the real deal, but the one that really grabs me is China Mobile. China Mobile is the largest MNO in the world with over 330 million subscribers. Doubt this is lost on SanDisk.

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6 Responses to MegaSIM or Bust

  1. afkkl8_99 says:

    Hi Savo,

    Iam facinated by your articles and the way this thread is organized, Read it every week same as I used to read all your comment onthe msys massage board..together with other serious posters.
    I have just two questions….first is who are the two figures added to gallery, one at the right shoulder of DOV the second looking at Shlomi ? And second..do you plan to discuss financial issues such as NAND market analyses, SNDK’S short and long run results estimates etc.

    Regards,

    afkkl8_99

  2. savolainen says:

    Hi afkkl8_99,

    Nice to see some old familiar names. That FLSH message board at its best was interesting, educational and entertaining.

    I have been thinking of putting up a key to the images in the header, under a tab called “Header”. Maybe later this week. The collage seems to have taken on a life of its own. The guy over Dov’s shoulder is Simone Cavallo, from this week’s post.

    The woman looking at Shlomi is my wife. She was in the original picture and I just didn’t bother to take her out.

    WordPress.com apparently has an easy way of adding links in a side window. At some point I will probably experiment with using it for interesting/ relevant articles.

    It would be nice if they had an option more akin to a message board, but I guess these comments sort of function that way.

    Yep, I have been thinking of some articles with more of a financial or numbers angle. Probably the first will be about bit growth & NAND ASP/MB declines and cyclicality including NAND market share. Basically the issues of elasticity and commoditization & supply and demand. That might be too much for one post. We shall see.

    Eventually will probably get around to estimates of one form or another, but that will probably take a while. I will probably circle in. Next up will be more Audio Video. Was surprised to learn/notice recently that SanDisk digital audio revenues were between $250M and $300M in 2006. That’s real $$$.

    Regards,
    Savo

  3. afkkl8_99 says:

    Thanks …It would be nice to see some of the loyal msys/sndk fans’ faces too. ..the “players” and “referee” are already in place would be nice to allocate some area for the fans that contibuted to boards (late Mr. J.A & Mrs C for instance…)

    Thanks again

    afkkl8_99

  4. Poofypuppy says:

    Hi Savo,

    From the SNDK board, saw this article in EETimes re Saifun/China/SMIC. Any thoughts?

    Regards,
    poofypuppy

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    SMIC’s flash efforts stall, says analyst

    Mark LaPedus
    EE Times
    (09/26/2007 11:31 AM EDT)

    TOKYO — Semiconductor Manufacturing International Corp.’s efforts to enter the flash-memory market have apparently stalled, according to an analyst.
    In 2005, Israel’s Saifun Semiconductors Ltd. disclosed a foundry alliance with Chinese foundry provider SMIC. Last year, SMIC (Shanghai) decided to enter the memory card market help with help from Saifun.

    SMIC extended its license to use oxynitride flash memory technology so that it can develop and manufacture memory cards. NROM flash memory from Saifun (Netanya, Israel) stores up to four bits per memory cell.

    The Saifun-SMIC arrangement has stalled. This is based on an analyst report about Saifun’s upcoming quarterly results.

    Saifun ”is likely to be highlighted by continuing weakness in the NOR flash market, with Spansion facing price pressure and the slower-than-expected NROM product ramp at SMIC,” said Daniel Amir, an analyst at Lazard Capital Markets, in a report.

    Overall, though, Saifun is expected to meet its forecast. ”Following our meeting we expect the company to post in-line revenues and EPS for 3Q of $9.9 million and $0.13, respectively,” he said. However, ”our channel checks suggest it is unlikely that an additional licensee will come on board in 2007.”

  5. savolainen says:

    Hey poofypuppy,

    My first take on the EETimes article on Saifun/China/SMIC is that Saifun’s tech, NROM quadbit, isn’t cutting it as NAND competition. At one time, many thought NAND wouldn’t be scalable below 50 nm while NROM would. Times have changed, NAND doesn’t appear to have a problem while NROM might.

    Remember that debate about NROM vs x4 for 4 bit/cell tech? Looks like Dov had it right at least in – direction. We’ll need to see x4 rolled out before its conclusive.

    In any case this isn’t to say that NROM won’t be competitive with some NOR applications.

    Suspect that NROM is used for embedded memory in specialized TSEM controller chips. SMIC has recently been added to the SNDK controller wafer supplier list, so maybe their NROM expertise is proving useful for specialized SNDK controllers too.

    Savo

    PS afkkl8_99 / mordecaim, have asked Mrs. Cencomco for a photo of John if she feels it appropriate. Great idea. Recently stumbled on this “Wired” link about Cencomco and the FLSH board: “Requiem for a Financial Guru”:

    http://www.wired.com/culture/lifestyle/news/2000/09/38776

  6. Poofypuppy says:

    Thanks, Savo.

    Mrs. Cencomco — I’d like to second the idea of including a picture of John if you think it’s appropriate. It’s interesting trying to imagine what an Internet person/poster actually looks like. But either way, we’ll definitely remember him and the wisdom/insight he shared so generously.

    Regards,
    poofy

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