Reflections on Turning 21

Today a friend passed along a second hand email from Eli and Sanjay to SanDisk employees- see below.  No secrets, but some interesting reflections on SanDisk’s positioning in the card business with SD.

I have a post about 95% written on Apple and SD cards, which I’ll post this Sunday. Hopefully soon thereafter I’ll have the time to expand on SD and microSD. The story continues to go unappreciated, yet holds much promise.

My friend thought it would be just fine for me to post this email, so here it is:

To the SanDisk team!

We have just celebrated SanDisk’s 21st birthday, so we we should pause for a moment and reflect on a few recent developments in our business that went somewhat unnoticed, yet are quite profound.

1. Two weeks ago Apple launched their new Mac Book notebook PC’s with for the first time SD card slots. Their decision is an acknowledgement that more people around the world capture their precious memories and family photos and video clips on the SD format than on any other format.

2. Fuji Film and Olympus recently introduced their new lineups of  digital cameras. Virtually all of these models now support both XD card as well as SD or microSD. Some models altogether eliminate the XD card slot in favor of SD or microSD cards. This ends a 10 years format battle. Fuji and Olympus wanted to have a proprietary format that would allow them to capture higher margins. The market decided otherwise; the XD proprietary card was way more expensive than SD cards, and this limited its attractiveness to consumers. Lack of open competition limited XD maximum capacity to 2GB, compared to 32GB for SD cards.

The SD and microSD that we invented have now become the primary global card formats. Tenacity, patience and the right strategy triumphed.

3. Yesterday Kodak announced that they are discontinuing their famous KodakChrome film. When we started developing flash digital film cards no one took us seriously. It was difficult for camera makers to see how a 2MB Flash card selling for $100 would ever compete with a $3.99 roll of film that had been perfected over nearly 100 years. There was no infrastructure to support digital film, no easy way to make quality prints, and numerous other obstacles. Despite all our detractors we never lost faith. We followed our convictions and never doubted our technology roadmap, our passion for performance and innovation, our relentless pursuit of cost reductions, and our belief in open standard formats and market competition.

4. Walk into any BestBuy store: More than half their digital camcorders now use flash storage. Almost all their portable GPS units use Flash. Several of their latest netbook models use flash SSD. Notebook PC’s will soon follow. Of course, virtually all MP3 players have adopted Flash.

5. Almost 1 billion handsets today have a slot for the microSD card that we invented. More and more smart phones employ between 8GB and 32GB of flash storage, and this trend is expected to grow with a multitude of third party apps stores offered with the iPhone, Rim, and other competitors.

We can all be proud of our achievements in the past 21 years. We have stayed true to our core values- integrity, courage to pursue bold visions, passion and teamwork.

We achieved together more than any of us dared to dream. Yet, we believe that SanDisk’s best days are still ahead.

May the Force be with SanDisk!

Thank you
Eli and Sanjay

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12 Responses to Reflections on Turning 21

  1. hapa says:

    Savo,
    For your SD post, could you please elaborate on 3C (SD-3C, LLC) and 4C Entity, LLC. I wonder what 4C is in relation to 3C. I’m glad you’re doing this important piece. Thanks, as always for sharing your great insight.

    hapa.

    • savolainen says:

      Greetings hapa,

      I’m not going to be able to get to Solid State Storage Solutions LLC, SSSS LLC, in today’s post on SD cards. The post is long enough as it is.

      There may be an overlap if Microsoft is involved, but I don’t think anyone, not directly involved, knows what exactly SSSS LLC is up to- if anything at this point. No public announcements have ever been made.

      Whatever SSSS LLC is up to, it appears to be another licensing entity set up by SanDisk to attempt to monetize IP outside of existing cross- license agreements. There is an unnamed partner.

      There seem to be three possibilities:

      1. SSSS LLC is involved with the U3-follow on that SanDisk announced with Microsoft. This would make Microsoft the unnamed partner. The timing fits. Microsoft fits as a major owner of system level flash IP. The patents assigned to SSSS LLC don’t seem to fit though.

      2. SSSS LLC is involved with x4 and x4 controllers.

      3. SSSS LLC is involved with improved performance related to MLC SSDs- such as ExtremeFFS. On the face of it, this seems like the closest fit to the patents.

      I checked this morning and another US patent has been assigned to SSSS LLC on 2 June 2009: #7542339 Clock synchronized non-volatile memory device. This patent was applied for on 20 August, 2007.

      Regardless of SSSS LLC, I am very curious of what has been happening with U3 and Microsoft.

      There have been recent rumors about MSFT possibly delivering Windows 7 on USB drives. This would seem tailor-made for a U3+ smart drive. I guess we’ll have to wait and see.

      If the U3+ partnership between SNDK and MSFT is alive, I would think that SD cards would also be considered for distribution.

      A while back a friend with close ties to SanDisk asked around about MSFT and heard nothing. Has anyone out there heard anything?

      Best,
      Savo

  2. DanR says:

    Savo,

    Let me add further speculation.

    At the end of each 10K there is a list of subsidiaries (>50%). U3 LLC is listed as one in 2006 10K but not in 2007 or 2008 10K. SSSS LLC is not listed either.

    SanDisk, though, is the largest holder because it says that it is consolidating the venture since it us the primary beneficiary.

    There are 3 holders: SanDisk, the main partner and another.

    Looking at the 10K statement, indeed, it does say “parties” in plural.

    “During the second quarter of fiscal 2007, the Company formed a venture with third parties that will license intellectual property”

    I’m locked on Microsoft as the partner, mainly because of the u3 replacement PR from SanDisk, and the mention there on the creation of a licensing entity.

    The PR talks about USB drives and SD platform NOT SSD.

    “…next-generation software and hardware solution to place application programs and personal customization on USB flash drives and flash memory cards, expanding on and replacing SanDisk’s existing U3(TM) Smart Technology”

    It also said that SanDisk will bring to the table the hardware and security platform but… not the U3. Why is that ? Because U3 is inferior solution to the one they spent $42M on. U3 has major drawback in that windows application need to be modified and even if modified you cant run them on any USB.

    Here comes IMO the purchased IP : from Ceedo.

    “Ceedo Personal has often been compared to another product, U3 that is similar in both appearance and functionality. However, a key difference between U3 and Ceedo is that Ceedo does not require Windows applications to be modified in order for them to be allowed to be carried on the portable device.”

    Similar to U3 but better.

    http://www.ceedo.com/products/ceedo-overview.html

    Since Ceedo had struck deals with other USB manufacturer in the past, they wanted to keep all this quite until release of windows7. Renesas SSSS LLC patents probably have nothing to do with the SanDisk/Microsoft venture (accidental or misleading). Ceedo probably got only small % in the venture, but got cash instead. I don’t think that the X4 patents are involved (why share so much with others) or ExtremeFFS (in 5/07 there was probably nothing).

    Speculative stuff.

    • savolainen says:

      Hey Dan,

      I agree with you about U3+ and Microsoft being by far the most likely explanation behind SSSS LLC. The timing of the U3+ announcement and the SEC filings puts it over the top for me, but there are other- though less likely- scenarios.

      Back in 2007 when U3+ was announced, I did think the division of labor a bit odd and a bit rigid given U3 software is owned by SanDisk:

      “Under the terms of the agreement, Microsoft will develop a new software experience and SanDisk will develop new hardware capabilities, including the addition of TrustedFlash security technology.”

      Your Ceedo angle is very interesting and would explain a lot of the dynamics.

      Way back when, some were speculating that MSFT itself was thinking about developing a U3/Ceedo killer.

      http://www.digitimes.com/bits_chips/a20060519PB200.html

      If MSFT is now partnered with both U3/SNDK and Ceedo, it seems MSFT instead decided to be most careful on the IP/ functionality angle.

      The original SNDK/MSFT pr noted:

      “The new offering is expected to be commercially available starting in the second half of 2008.”

      Here we are closing in on a year late, with no comment by either company. No questions either by analysts following the company. Rather remarkable given the stakes.

      Best,
      Savo

  3. gal2k says:

    check out the Ceedo logo and the Modu logo….one of these ripped the other off….nothing meaningful…but funny.
    gal2k

  4. JAWIV says:

    Ceedo works with Lexar…here is an article headline from 2006:

    Lexar’s U3 Killer: PowerToGo

  5. JAWIV says:

    http://blogs.zdnet.com/microsoft/?p=3187

    The above link is very recent conversations about MSFT, USBs, StartKey, etc etc

    make sure you read through the comments at the end of teh article…need to scroll down a bit.

  6. DanR says:

    JAWIV,

    I know that Ceedo is a long shot, but as soon as you read the following, you might give that option more weight.

    The SSSS LLC licensing entity could be related (a) only UFD & cards, or (b) SSD + (a)

    If (b) then Ceedo is not an option.

    If (a) then Ceedo seems to fit for the missing piece in the puzzle

    Ceedo:
    In 2004, Ceedo an Israeli startup focused on virtualization technology, approached M-Systems and demonstrated a novel method for running applications on M-Systems hardware. The two companies set up a working group and started working. In mid 2004 they already broke up. M-systems claimed that Ceedo failed to meet certain milestones while Ceedo claimed that once M-Systems saw the great potential they looked for ways to cancel the agreement. M-systems approached SanDisk and together they formed the U3 LLC entity and started distributing U3 enabled UFD in 2005. Meanwhile, Ceedo continued to develop their own version of virtual desktop application software.

    At CES 2006 Ceedo presented their Ceedo personal application as the new U3 killer. The Ceedo software was adopted by Lexar and several other UFD manufacturers.

    “At the Consumer Electronics Show in January 2006, Lexar showed its USB Flash drives running a handful of programs using software from startup Ceedo Technologies. Lexar claimed the software would become an industry standard available in products later that year”
    http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=199501125

    Lexar got then a license for the basic Ceedo software and dubbed it PowerToGo. Later Seagate did the same for one of their hard disk USB drive. Both licenses seem to have expired by now.

    Following CES, M-Systems then went and sued Ceedo in 1/06 for IP theft. Ceedo responded by counter claims in 3/06. Both claimes were settled outside the court, already during 2006.
    http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=181502455
    (Dates are not consistent with the Hebrew version)

    “The USB Flash Drive Alliance, a consortium of USB flash drive makers led by Lexar, said last September it would endorse “a new generation” of USB smart drives that let users run programs…Microsoft is a member of the USB Flash Drive Alliance”

    We can guess that Lexar was building on the Ceedo software. My guess is that SanDisk, threatened by the combination of Lexar/Microsoft/Ceedo, went ahead and untied this problem by collaborating with both Ceedo and Microsoft.

    • savolainen says:

      Hey Dan,

      Thanks for posting the additional thoughts on Ceedo. Its interesting that FLSH and Ceedo had a falling out over IP and then settled out of court.

      I would add one wrinkle to your scenario. It seems likely that Microsoft at one time at least considered going with Lexar and friends (USB-IF) and skipping both SanDisk/U3 and Ceedo.

      Microsoft Working with USB-IF on U3/Ceedo Killer?
      http://www.everythingusb.com/usb_apps.html

      As it turned out, Microsoft went with SanDisk. Leaving Lexar and the USB-IF outside looking in. It appears Lexar’s solution was then to turn to Ceedo.

      I suspect that SanDisk’s decision to join FLSH in U3 was at least partially influenced by US patent #6,986,030: “Portable memory device includes software program for interacting with host computing device to provide a customized configuration for the program.”

      Although this patent was applied for in 2001, it was only granted in January 2006- assignee msystems. FLSH got the patent because back in 2000 it had invested- $1M in KeyNetica.

      Money well spent.

      KeyNetica was formed by Shimon Shmueli, Alex Lang and Jean Billman to take advantage of software opportunities that came with DOK.

      When KeyNetica folded, FLSH got the patent due to its investment. When FLSH was acquired by SNDK, SNDK got the patent.

      I suspect that Microsoft’s interest in working with SNDK was at least partially influenced by SNDK’s ownership of this patent, which appears to be the first patent covering the “concept that mobile and smart storage devices are all one needs for mobile computing.”

      I agree Ceedo is a long shot for involvement with SSSS LLC. You make a compelling argument, but from what I can tell from a preliminary pass, while Ceedo has a very relevant product, Ceedo doesn’t have any patents yet. It has applied for at least one which could be important if it is granted. But so far it hasn’t been.

      The SNDK slide back in 2007 said: “Solid-State Storage Solutions licensing entity formed: captures third party flash systems IP portfolio.”

      I am more inclined to believe that the $42M went to the those who had control of all those SSSS LLC patents- which would appear to qualify as a flash systems IP portfolio.

      While it could just be coincidence that these patents are now being assigned to a company with exactly the same name as the licensing entity probably formed by SNDK and Microsoft, it seems improbable. Particularly given that these patents involve flash technology.

      It seems pretty clear that StartKey was going to be the first U3+ product. Why it is late is anyone’s guess, though a delay to coincide with Windows 7 seems the logical explanation.

      Thanks JAWIV for the link to the latest StartKey speculation. Those comments are indeed interesting. The SSSS LLC patents appear that they might enable faster transfer speeds for MLC. Greater speed would be most desirable in a product like StartKey.

      I have gone on long enough at this point. I should probably put all this together in a blog post.

      Best,
      Savo

      • Shimon says:

        Interesting… I try to not follow what is happening in this space because it was a huge missed opportunity, but the history of the USB Flash Drive is fascinating.

  7. DanR says:

    Savo, I’ve already ditched the Renesas SSSS LLC as the third party IP source.

    Reading carefully the SEC filling tells us that:
    1) The SSSS LLC was formed
    2) The parties financed the venture with $10.2M
    3) The venture bought IP from a third party using that $10M

    It is clear from the filling that the SSSS LLC itself bought the IP from a third party. Meaning- the SSSS LLC didn’t have the IP in the first place, and had to go out and buy it.

    Presumably your assumption is that SanDisk/partner bought the entire SSSS LLC Company from Renesas for its flash patents. In this case SanDisk/partner should have just pay Renesas to gain control over the company, and the whole described process of financing the venture who then goes on and acquires the IP was then unnecessary. I also don’t think that the Renesas SSSS LLC patents fit the bill.

    Ceedo – long shot indeed. They don’t own patents as software patents are often not permitted. However, this doesn’t mean that they have no IP. Often the way to protect software IP theft is securing the source code. On the other hand, Eli mentioned capturing flash IP portfolio, and I’m not sure that Ceedo IP is necessarily flash related.

    • savolainen says:

      Hi Dan,

      Thanks again for your comments.

      Yes, the SSSS LLC patents do seem a bit odd- the piece of the puzzle that doesn’t quite seem to fit.

      You may be right that they are not relevant. On the other hand I’m still not convinced.

      I find it suspicious that these patents seem to be dribbling in with exactly the right name- after SSSS LLC (the SanDisk variety) was formed, as continuations of previous patents under other assignees.

      And what the heck does Madison WI have to do with all these Japanese guys anyway?

      And for that matter why call the Microsoft venture: Solid State Storage Solutions, when the key to that venture is probably software? I know the name could just be a placeholder, but still it seems a bit odd.

      In any case, I’ve started working at this from the other end- Microsoft, Windows 7 and StartKey. There seems to be more to StartKey than just virtual desktops.

      The latest rumors point to Microsoft’s possible upgrade strategy for Netbooks- especially those low cost small notebook PCs without either CD or DVD drives.

      SD cards seem to come up a lot as well, which I find interesting and promising. The issues remind me of the issues Apple is pondering and why Apple is now including SD slots in some of its laptops.

      I recently stumbled upon the following Ceedo commentary. Desktop virtualization is a big deal, but Ceedo has big time competition, including MSFT itself:

      “Snapshot analysis

      Ceedo faces stiff competition from some pretty large companies, such as Citrix XenDesktop and Client-side application streaming, Microsoft Softgrid, HP Consolidated Client Infrastructure and VMware’s ACE and VDI solutions. It also faces competition from ClearCube’s Sentry, Endeavors Technologies’ Application Jukebox, LANDesk’s Application Virtualization, Moka5’s LivePC, RingCube’s MojoPac and a few others. So, regardless of the strength of Ceedo’s technology, the company is going to have to work hard to find ways to get the market’s attention. The fact that the term “desktop virtualiztion” could mean a number of different approaches and different technology only adds to this challenge.

      The idea that Ceedo is implementing appears sound. I guess that’s why others, such as Microsoft’s SoftGrid, Moka5’s LivePC are heading down the same technological path.In my view, the key issue here is not whether the technology is workable. The fact that others have taken similar approaches and have thousands of customers actually using their technology demonstrates that it is a workable approach. The real challenges, like the challenges faced by so many small software companies, revolve around making IT decision-makers aware of the company and its products, getting them to consider the products and then getting them to select the products over the products being offered by all of the others.”

      http://blogs.zdnet.com/virtualization/?p=373

      Regards,
      Savo

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