The company that holds patent rights for a breakthrough flash memory technology is apparently discussing the possibility of being acquired by the world's biggest flash producer. It's come down to this.

Flash card manufacturer SanDisk issued a statement early this morning, essentially using a bull-horn with trumpet accompaniment to awaken the world to the news that it does not comment on rumor and speculation. That speculation, it said, concerns news emerging from the Korean business press this week, indicating that it and leading flash memory producer Samsung are in merger talks.

"SanDisk periodically has conversations with multiple parties, including Samsung, regarding a variety of potential business opportunities," the statement reads. "We evaluate all of these opportunities, but maintain a policy of not commenting on market rumors or speculation."

The tone of the statement itself is probably the clearest validation to date that the memory developer is in talks with the memory producer. A report on the South Korean service eDaily this morning, local time, claims to cite Samsung spokespersons as confirming that negotiations are in the works, at least with regard to a timetable for further partnership extensions, perhaps more; but English-language services have not been able to officially corroborate the report so far, beyond Samsung's own bull-horn and trumpet treatment.

The problem at hand is the effort to make the NAND flash business model work. Flash memory has already evolved way past the commodity phase, and has entered the level of ubiquity. Although water is an equally ubiquitous commodity, enterprising manufacturers have found a way to bottle and sell it for profit. Flash memory producers have yet to discover an equally clever mechanism, for two reasons: 1) When embedding flash in consumer devices, the "bottle," in this case, typically belongs to someone else -- like Apple (one key exception being solid-state disks, or SSDs); 2) when selling flash as a card, royalties apply to such an extent that they could usurp what little margins producers may receive.

In this case, the technology with the obvious potential to remake, and perhaps replenish, the ailing flash industry is multi-level cell (MLC), where the binary digits or "bits" that we're so accustomed to in DRAM, are replaced with units that can assume multiple states -- 4 or 8 or 16, and so on, instead of 2.

It's SanDisk that holds a number of key MLC patents. But it's not a major manufacturer of products that could make use of MLC, besides mere memory cards whose retail prices have already sunken below the giveaway point. SanDisk counts on royalties as a provider of revenue, and Samsung is one of SanDisk's main clients. Of the approximately $400 million in royalty revenues SanDisk is likely to receive in 2008, a full 90% of that could come from Samsung alone.

That is, if Samsung wants to pay. In March 2007, Samsung decided on its own that it didn't really want to pay as much as it did, despite a 2002 agreement between the two companies that set royalty terms. While Samsung paid 2% of sales revenue from MLC ships to SanDisk, it paid another 6% to the SD Card Association, which in turn distributed a chunk of that change to SanDisk as well. Samsung decided it didn't want to pay the extra 6%.

While a lawsuit might seem like the obvious option from SanDisk's perspective, keep in mind that Samsung is close to providing half of the world's flash memory, and such a suit might only drive Samsung to find alternative sources.

So last December, rather than fight, SanDisk reached a cross-licensing agreement with Samsung that enabled the SSD manufacturer to produce so-called OneNAND memory technology which involves MLC, with SanDisk sharing some kind of stake in the revenue. It was a very short-term agreement, though, expiring in August 2009. If the agreement is allowed to elapse, and Samsung decides again to set its own royalty rates unilaterally at 2% or so, SanDisk's only option may be to fight. And if it fights, that 2% will be more like 0%.

With SanDisk's stock value remaining in the tank, and with overall revenue from NAND flash sales expected to decline worldwide in 2010, according to iSuppli estimates, acquisition at this point may be the only way for SanDisk to survive. Thus the trumpets and bull-horns.