Lexar Business Back On Track After Micron Purchase, Executive Says

Despite posting a more than $100 million loss for the fiscal year ended Aug. 31, the Lexar business has been profitable for the past two quarters, Adams said. The new management team has, for one thing, taken “a lot of cost out of the organization from a headcount perspective,” he said. Lexar headcount was reduced by about 35 percent -- more than 100 employees -- from a year ago, he said, and there are now more than 550 employees working at Lexar after the merger with Micron’s Crucial division. Job cuts were made on multiple fronts, including operations, sales and marketing, finance and IT, said Adams. The company also reduced international functions, he said.

In the process, Lexar has gained market share, Adams told us, but conceded the company has a long way to go before it makes up for all the share that had been lost over the past couple of years. “This is a big, pivotal year for us,” he said. After getting “thrown out of retail” in many cases a couple of years ago, Lexar is starting to make its way back into major retail accounts, Adams said.

A significant problem that Lexar faced before Micron bought it was the decision to sue Toshiba in 2002. Lexar accused Toshiba of patent infringement and stealing its trade secrets after Toshiba dropped a partnership with Lexar and forged an alliance with Lexar’s main rival, SanDisk. That dispute was settled when Micron bought Lexar. But the long legal battle effectively locked Lexar out of the ability to obtain low-cost Multi-Level Cell (MLC) memory products and it was stuck with more expensive, Single-Level Cell (SLC) memory that significantly reduced its ability to compete with rivals, Adams said.

The purchase by Micron also made it much easier for Lexar to receive flash memory because Micron is now supplying it directly. In the past, Lexar had to mainly rely on Samsung for NAND memory supplies.

The Lexar brand name is present in at least one major retailer’s holiday ad promotions this year, and Adams said there has been a 25 percent increase in the number of Lexar SKUs being carried at major retail accounts. There was a Lexar 2-GB SD card featured in a recent Circuit City ad circular, with pricing at $17.99 -- $12 less than the usual price. Lexar’s Kodak-branded SD cards were also featured in Wal-Mart’s Black Friday ad circular and Adams said that retailer is one of the company’s largest accounts. SanDisk was still the dominant memory card player in Black Friday retail ads this year. But Adams said Lexar’s presence at major mass market retailers will become more significant this spring; it was too late to get Lexar products onto many retail shelves in time for this holiday season.

After being on and off again with Office Depot and OfficeMax, Lexar’s products are back in those retail accounts this year, Adams said. Fry’s Electronics had carried Lexar’s NAND memory products before, but that retailer is carrying its DRAM product for the first time now, he said. After representing more than a $20 million a year business for Lexar in the past, Fry’s was down to only about $1 million recently, but Adams is confident “we'll get there again,” he told us. Lexar’s memory cards are also back at Best Buy stores already, albeit only in the photo department, Adams said, adding the company also expects to get Lexar memory cards into new retail accounts. The company’s Kodak-branded cards will be promoted by it and Kodak through the holiday season, he also said.

Lexar is one of only three major players in the Memory Stick market, along with SanDisk and Sony. Although Sony leads in market share and SanDisk is now No. 2, Adams said Lexar’s share is “much closer” to its rivals now than a year ago, without offering specifics. Lexar also plans to launch a line of Memory Sticks targeted at mobile products early next year, Adams told us. An announcement will likely come in early January and product will hopefully ship by spring, he said. “We think there’s going to be a high growth opportunity for us” on Memory Sticks and his company is feeling much more confident about its position than a year ago, he said. For now, however, Lexar’s market share on Memory Stick is “significantly lower than our overall market share” on memory products, he said.

Also on tap for Micron is a larger presence in the solid state drive category, Adams told us. That effort was officially announced by Micron Wednesday, when it said it was entering the “growing” SSD market via the RealSSD family of products. The RealSSD SSDs are being offered for computing, enterprise server and networking applications, it said. Despite Micron’s claim that RealSSD marked the company’s entry into the SSD market, the company already offered Lexar- branded ExpressCard SSDs in 4-, 8- and 16-GB capacities. RealSSDs merely represent the first Micron-branded SSDs from the company, a spokeswoman said.

Micron will also be offering multiple Crucial-branded SSDs, the company said, explaining Crucial’s “well- established white box and online presence make it a natural fit for SSDs.” Much like Crucial DRAM products, Crucial SSDs will be sold via system builders and to individual online customers, it said. More specifics about the Crucial SSDs will be disclosed during CES in January, the company said.

The devices in the new RealSSD product line include 1.8- inch and 2.5-inch RealSSD solid state drives for notebook and desktop computing applications, in 32-GB and 64-GB densities. Micron is now sampling both those devices, with mass production expected in Q1, it said. Also planned are RealSSD Embedded USB products ranging in density from 1- to 8-GB. Those are designed to be integrated into a system through an embedded USB 2.0 interface, Micron said, adding that “provides a cost-effective solution to store and boot an entire operating system within an industrial PC or blade server system or it could be used as a reserve for often accessed files.” Micron is now sampling those products, with mass production expected by the end of 2007, it said.

The cost of flash memory coming down “dramatically” has paved the way for flash-based SSD expansion, Dean Klein, vice president of Micron’s memory system development, told analysts and reporters during a briefing in San Francisco Wednesday. SSDs will be used in place of hard drives on a growing basis, he predicted, but said hard drives won’t be entirely replaced. Commercial notebooks are among the best uses for SSDs, he said, noting SSDs are lighter-weight than hard drives. SSDs also use lower power, and offer faster boot-up time, increased reliability, improved performance and reduced noise, the company said.

Micron plans to “leverage” its NAND technology to offer its customers a “better solution at a better price” in the SSD space, Klein later said, and the company now has “the channels to take this to the market.” The company already demonstrated the industry’s first 50-nanometer flash memory and Micron said Wednesday it plans to offer “sub-40 nanometer” memory during 2008. The 50-nanometer flash memory was demonstrated over the summer in conjunction with Intel, which formed an IM Flash Technologies joint venture with Micron. It’s inevitable Micron and Intel will start competing head to head with one another because each is now offering its own SSD products, but Micron Memory Group Vice President Brian Shirley said, “as of today, we're not bumping into each other.”

Another example of Micron’s efforts to expand its business came via a recent announcement that Lexar teamed with digital security company Gemalto to create the Windows Vista-compatible Smart Enterprise Guardian, a USB device that natively incorporates industry standards for protecting digital identities and sensitive documents. The SEG combines Gemalto’s .NET-based solution and Lexar’s hardware-based memory encryption technology to provide secure mobility.