Apple already uses Anobit’s technology in the iPhone, iPad and the MacBook Air, so the company’s interest here is clear: Own and control the technologies critical to those products, particularly if they further differentiate them from the competition.

The acquisition, if it closes, would be Apple’s first in Israel and, potentially, its largest ever, surpassing its $404 million purchase of NeXT in 1997.

Reached for comment, Apple declined, citing its policy of ignoring rumors and speculation.

But given the widespread adoption of tablets like Apple’s iPad, coupled with everyone under the sun vying for a piece of the tablet market, it’s easy to see that consumption of content will continue to explode. And that’s the point — with that explosion comes the aftershock of storage demand. As more users adopt tablets as mainstream, more storage from hard drives will be needed from the backend servers and in the cloud to serve them. So while flash is appealing for use in consumption devices like tablets, let’s not let this obscure the main fact about tablets in the big picture of the storage market, which is that tablets aren’t hurting hard drive sales — in fact, they are helping.

When examining the storage market, we can look at present and future projections for HDD unit sales and by volume of capacity (in petabytes) shipped as per the chart below:

But we can also look at the data trends for consumption. In 2005, the world generated 150 exabytes (one billion gigabytes) of data. This year, it’s estimated that we’ll create and store 1,200 exabytes, and in 2020, a staggering 35,000 exabytes!¹ That’s 30x growth over the next 10 years.

This isn’t the first time that we’ve heard in the HDD world that the sky is falling. About a decade ago, MP3 player manufacturers shrank the device footprint and switched from hard drive storage to flash. Not long after, smartphones came on the scene, and those in the know posted that users would discard their PCs in favor of smartphones and, again, the hard drive industry would suffer. But the sky never fell, and neither MP3 players nor smartphones caused hard drive sales to decline. In fact, sales actually grew 14 percent between 2000 and 2005, and continued to grow 12 percent from 2005 to 2010.¹ The reality is that the more content consumption devices hit the market, the greater the demand for hard drive storage capacity, even when it is not local to the device.

Now let’s delve into some logic. Consumers didn’t discard their PCs for smartphones, and they aren’t going to chuck their PCs for tablets — the devices just aren’t that interchangeable. People are using their tablets for content consumption: to watch movies, browse the Internet, check email, play games, etc. But they aren’t really using their tablets for content creation, and certainly don’t rely on them for heavy duty applications. So logically, it follows that most people who own a tablet need a PC as well.

But just for argument’s sake, let’s assume users worldwide tossed out their PCs and replaced them with tablets. Right out of the gate, we would have a capacity problem. The bottom line is that all the flash in the world isn’t close to enough to meet the worldwide need for storage capacity, and that fact will remain true for a very, very long time. Here are some numbers to consider: In 2010, all the content created and replicated grew past a staggering zettabyte (one trillion gigabytes), and is expected to reach 1.8 zettabytes in 2011. Yet in 2010, the entire NAND flash memory industry manufactured just over 11 exabytes (you would need 1000 exabytes to equal every one zettabyte) of storage. Even with forecasts predicting that NAND flash production capacity will grow to 21 exabytes in 2011, only nine percent of that, or about two exabytes, will go to the flash memory used in tablets.² That’s not nearly enough capacity to meet demand.

Tablets with flash storage simply don’t have the onboard capacity to store the massive volumes of digital content that users want to access — anytime, anywhere. So all that data needs to be stored externally, in either local attached, networked or cloud storage — and all those formats rely on hard drives. So, once again, tablet popularity doesn’t hurt hard drive sales. In fact, some pundits see tablets as a net gain for hard drives: “For now, IDC sees the rise in demand for iPads/tablets as additive … for HDD makers in terms of the growth of information and digital content that has to be stored somewhere. That content and information consumed by these devices most likely will be stored on hard disk drives in data centers, cloud infrastructures, or on USB or network-attached personal storage devices in homes.”³

So in the end, even if some users do opt to replace their PCs with tablets, hard drives will still be in high demand. Content will continue its growth and storage will always be needed. Because nobody is saying worldwide demand for storage capacity is decreasing. Now that would be an ugly rumor!

Mark Wojtasiak is a Senior Manager in Product Marketing with Seagate Technology. For the past 5 years, Mark has been based in Seagate’s Shakopee, MN, design center where Seagate lives and breathes enterprise storage. Though Mark works in the middle of everything enterprise, his role at Seagate enables him to listen, learn, discuss, and share anything and everything related to storage. From the traditional desktop to external drives to the cloud, he develops insights on the latest storage technology, trends, customers, and users.

^{1 IDC Digital Universe Study, June 2011}

^{2 Gartner, Forecast: NAND Flash Supply and Demand, Worldwide, 1Q10-4Q12, 3Q11 Update, page 2, Table 15-3, September 2011}

^{3 http://storageeffect.media.seagate.com/2010/11/storage-effect/a-tablet-with-a-side-of-storage-please/}

While for tax reasons it’s probably more likely that HP will spin the unit out as an independent company — there are no taxes when assets are distributed to shareholders — Sterne Agee analyst Shaw Wu, in a note to clients issued this morning, breaks down the possible suitors should HP opt instead for a sale.

Topping the list is Samsung, which you might have guessed already. Samsung would make sense, Wu argues, given its “large size and global ambitions.” Samsung has been trying to build a PC business since 1997, when it acquired AST Research, but hasn’t gotten anywhere. But it is the world’s biggest manufacturer of DRAM memory chips, used in PCs; and the largest supplier of NAND flash memory, which forms the basis of solid-state drives that are increasingly built into notebook PCs. It’s also a big maker of LCD displays and notebook batteries. All that vertical integration, combined with HP’s consumer PC footprint — it’s the biggest supplier to Best Buy — would make Samsung the worldwide player it has always aspired to be.

Don’t ignore the other players, though. Acer, Lenovo, Sony and even Dell could all conceivably show up with a bid, Wu writes. But it will all come down to HP’s asking price, and what parts of the business are included. Wu pegs HP’s PC business as being worth $8 billion, or about $3.66 per HP share. To calculate that valuation, he assumes a premium of five times profit of $1.6 billion on $40 billion in revenue; a five percent operating margin and a 22 percent tax rate.

One potential issue to watch in a possible Samsung bid: Whether the South Korean giant asks HP to include its webOS software. Samsung is also a huge supplier of smartphones around the world, and would probably like to rely less on Google’s Android than it does now — and would want to own its own operating system. Having decided to kill the webOS hardware business, HP has indicated that it has plans to keep the software alive in some form, though enough cash from Samsung might change HP’s mind.

Wu also argues that the market has gotten too negative on the PC business in general. While it’s true that Apple’s iPad has left a historically significant mark on the PC universe, PCs aren’t dead yet — just ask Intel. Give them iPad-like touchscreens and flash drives for instant-on capability, and the market might rebound, he says. “We believe longer-term tablets and PCs are the same market. Ironically, we view Apple’s MacBook Air as the first generation of these future hybrid PCs.”

Update at 9:38 AM PDT / 12:38 PM EDT: Samsung just issued a brief statement saying it’s not interested in HP’s PC business. Such rumors are “not true,” the company says. Well it’s really not a rumor exactly, but speculation really. Somehow I don’t believe it’s the last word on the subject.

(Image, obviously, is from the sheet music of the number “Who Will Buy?” from the musical “Oliver!” Hear it below.)

Worth about $7.8 billion, the deal is believed to include liquid-crystal display panels for the next iteration of the iPad, as well as mobile application processors and NAND flash memory chips used for the U.S. company’s iPhones and iPads.

One unknown: Whether the displays reportedly included in this deal are the rumored Super PLS panels that offer not just a wider viewing angle, but superior visibility outdoors. Another: Whether this deal is somehow related to the $3.9 billion component supplies and capacity contract Apple COO Tim Cook mentioned during Apple’s first-quarter earnings call.

“In the past several quarters we’ve identified another area and come to some recent agreements that [CFO Peter Oppenheimer] talked about in his opening comments, in that these payments consist of prepayments and capital for process equipment and tooling,” Cook said back in January. “And similar to the flash agreements, they’re focused in that area we feel is very strategic. And so I’d prefer not to go into more detail about what specific area it’s in, but it’s the same kind of thinking that led us to those deals that led us to the flash deal.”

PREVIOUSLY: Apple Using Cash to Secure Cache of Components

“We strongly believe that one or more very strategic opportunities may come along, that we are in a unique position to take advantage of because of our strong cash position,” he said. “You know, we’ve demonstrated a strong track record of being very disciplined with the use of our cash. We don’t let it burn a hole in our pocket, we don’t allow it to motivate us to do stupid acquisitions. And so I think that we’d like to continue to keep our powder dry, because we do feel that there are one or more strategic opportunities in the future. That’s the biggest reason.”

That remark spurred all sorts of speculation about what sensible large-scale acquisitions Apple might make. And while it was certainly reasonable to conclude from Jobs’s remarks that Apple is preparing itself for some big M&A plays in the future, there was another equally plausible conclusion: What if by “strategic opportunities,” Jobs was referring to supply chain investments–money spent to overcome impediments to growth? Apple has done this before, most notably in 2005, when it arranged to purchase up to 40 percent of Samsung Electronics’ holiday NAND flash output for use in it iPods. It inked a similar iPhone-related deal in 2008, forcing Samsung to reduce its supply to other customers to fulfill its obligation to Apple. And there was another half-billion-dollar deal with Toshiba is 2009.

And according to COO Tim Cook, Apple just did it again–but on a much grander scale. During the first-quarter earnings call last week, Cook said the company had invested $3.9 billion to secure component supplies and capacity.

“We’ve historically entered into certain agreements with different people to secure supply and other benefits,” he said. “And the largest one in the recent past has been we signed a deal with several flash suppliers back at the end of 2005 that totaled over $1 billion because we anticipated that flash would become increasingly important across our entire product line and increasingly important to the industry. And so we wanted to secure supply for the company, and we think that, that was an absolutely fantastic use of Apple’s cash. And we constantly look for more of these. And so in the past several quarters we’ve identified another area and come to some recent agreements that [CFO Peter Oppenheimer] talked about in his opening comments, in that these payments consist of prepayments and capital for process equipment and tooling. And similar to the flash agreements, they’re focused in that area we feel is very strategic. And so I’d prefer not to go into more detail about what specific area it’s in, but it’s the same kind of thinking that led us to those deals that led us to the flash deal.”

For what particular components, he wouldn’t say. There are some likely candidates, though: The high-res LCDs used in the iPhone 4 and iPad; solid-state drives like the ones in the new MacBook Air, which are presumably headed to other portions of the MacBook line as well; or perhaps some new system on a chip that will infuse the next-generation iPad and iPhone with significant performance gains. I’m sure there are others as well. And all fit quite nicely into Jobs’s vision of “strategic opportunities.”

Asian component makers — those that make chips and touch-screens used in Apple’s devices and other similiar gadgets — say they are having a tough time meeting orders thanks in part to stronger-than-expected demand for smartphones and tablet PCs.

In recent months, Dell (DELL), Samsung, Toshiba and even Chinese battery-maker BYD have announced plans to launch tablet PCs. A slew of mobile handset makers including LG Electronics, Sony Ericsson (SNE) and Nokia (NOK) have also launched new smartphones to compete with Apple’s iPhone 4. These components are also making headway into electronic readers such as Amazon.com’s (AMZN) Kindle and Barnes & Noble’s (BKS) Nook. The new devices are creating more demand for chips, touch-screens and other types of displays.

“Due to the recent emergence of new, promising applications, such as tablet PCs, smartphones and iPad, we expect the supply condition in the NAND flash market will be tighter in the second half of this year,” said Toshiba spokesman Keisuke Ohmori.

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The resulting demand for NAND flash will be “insatiable,” says iSuppli analyst Michael Yang. And supplies for the year will likely be strained. iSuppli figures that in 2010, iPhone shipments will reach 33 million units, up from 25.1 million in 2009–each with an average of 35.2 gigabytes of NAND.

That’s a hell of a lot of flash. Add to that the memory requirements of Apple’s iPod line and its new iPad slate and, well, you can see where things are going (see chart below; click to enlarge). Says Yang: “With the iPhone already the largest application for NAND, this huge growth is likely to lead to some periods of under-supply for the year.”

That’s not likely to be a problem for Apple (AAPL), which typically inks long-term supply agreements with its flash suppliers to ensure that its needs are met. Recall that the company boasted of a half-billion dollar flash memory deal with Toshiba last July.

“We did a long-term supply agreement with Toshiba,” Apple COO Tim Cook explained at the time. “As a part of that, as part of the terms and conditions, we paid them $500 million as a pre-pay earlier in the quarter. You know, we view Flash as a very key component for us because as you know we use it in so much on so many of our products and also we are a reasonable percentage of the user of Flash on a worldwide basis.”

But an undersupply of flash will almost certainly cause difficulties for other consumer electronics companies, which may be forced to grapple with part shortages and price increases across the entire NAND flash market.

As I noted last night, AMD said on its post-earnings conference call with the Street that it expects a less-than-seasonal sequential increase in Q4 revenues, due in part to the “the big build we’ve seen of PCs in anticipation of the Win 7 launch.”

That has triggered concerns that the PC industry has built too much inventory–and that it could result in both reduced component consumption in Q4 and beyond, and lower pricing for memory, which has benefited in recent weeks from higher NAND and DRAM prices.

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“We are no longer planning to pursue the acquisition as there has been no progress since we withdrew our offer as of Oct. 22, 2008,” the company said in a filing with the Korea Exchange. The announcement comes after the two companies inked a new seven-year NAND flash-memory license agreement, one that will see Samsung paying about half the royalty amount it paid previously.

“We did a long-term supply agreement with Toshiba,” Cook explained. “As a part of that, as part of the terms and conditions, we paid them $500 million as a pre-pay earlier in the quarter. You know, we view Flash as a very key component for us because as you know we use it in so much on so many of our products and also we are a reasonable percentage of the user of Flash on a worldwide basis.”

Indeed, Apple (AAPL) sells millions of NAND flash-enabled devices each year, so many that its needs often constrain supply for the entire market. In 2005, the company arranged to purchase up to 40 percent of Samsung Electronics’ holiday NAND output for use in it iPods. In July of last year Apple bought 50 million 8Gb-equivalent NAND flash chips from Samsung, forcing the company to reduce its supply to other customers.

Then, this past April, Apple ordered 100 million 8Gb–or one-gigabyte (1GB)–chips from Samsung, once again causing flash supplies to tighten. Now we have this $500 million prepayment, which, according to sources, will keep Apple in NAND for about three months.

Great news for Toshiba, which has been suffering mounting losses in the midst of tougher competition, and for the NAND market as well. As Tim Cook said yesterday, “The NAND market has now begun to stabilize and we expect it to move towards a supply/demand balance.”

If that’s the kind of thing that makes you happy, then you would love today’s call, in which the exact same thing happened again. Twice! From my transcription/paraphrase this afternoon:

Q: What about getting into the low priced/netbook category?

Apple COO Tim Cook: “Our goal is not to build the most computers, it’s to build the best. Whatever price point we can build the best in, we will play there. At this point, we don’t see a way to build a great product at that price point, $399, $499.” We think many customers buying those find themselves “disenchanted” after buying cheapo/netbooks.

Q: Do you think there is an emerging market for a “truly mobile device” with a larger screen, a market big enough that you may want to participate?

Cook: “Never want to discount anything in the future,” and never want to answer specifically your question about new products. [Duh.] But boy, do we think netbooks are lousy, and we think customers agree.

Two things here:

1. Apple has a history of disparaging products and markets right before they unveil their own. So it’s not unreasonable for analysts to keep asking about the prospects for a supercheap Mac laptop. But Apple really is emphatic about its distaste for these machines.
2. Apple is not ruling some sort of device that’s more expensive than a netbook and less expensive than a $999 MacBook…and may have a big touchscreen…and is bigger than an iPhone, etc. Something, perhaps, like an $800 iTablet. We’ll see.

EARLIER:

Joining call late; analysis of Q3 results here.

Reading from prepared statement:

• Eight billion songs purchased and downloaded from iTunes store.
• Slight uptick at Mac retail stores. 50 percent of Macs sold at stores to customers who didn’t own Macs before. 258 stores. 27 store remodels.
• Gross-margin improvement: Component cost increase not as high as expected; weaker U.S. dollar helped.
• Cash pile: Will be invested in short-term investments. First week of Q4, made $500 million payment to Toshiba for future supply of NAND flash memory.

Q&A:

• Please talk about your relationship with wireless carriers (i.e., when will you dump AT&T (T) for Verizon (VZ). Tim Cook: “I think that most of the carriers we’re doing business with are thrilled with lower churn…and, of course, their customers are demanding the iPhone.” Do you see opportunity beyond the iPhone, like data plans for laptops with AT&T? “Nothing to be announced today.” How’s your relationship with AT&T? “I think it’s an excellent relationship and we’re very happy with it.”
• Discussion of education and professional market for Mac laptops/PCs–both affected by economy more than consumer market, i.e., schools and corporations are less likely to spring for shiny new Macs than Joe Sixpack.
• How is the $99 iPhone performing? As we made changes–launch of 3Gs and lower-priced iPhones–we saw acceleration of unit sales. But won’t break down mix. Supply of phones has been “constrained” and demand is robust. Opportunity for enterprise sale? Big opportunity. Doing well with small business, and with big corporations and agencies where employees can purchase for themselves.
• Guidance details? No change in thinking regarding guidance offerings. We usually see an increase in Mac units from June to September, but we think the sequential increase will be less than in previous years since we’ve refreshed our lines a while back. Also, education sales are “under pressure from budget shortfalls.” Same thing with the iPod: We think we’ll see a decline for regular players but an increase for the iPod touch. Seasonality makes projections a little funky this time around given timing of product launches.
• Channel inventory for iPhone lower is than we would like; there are 1.83 million phones in inventory.
• Given the $999 MacBook and price cuts for the Mac line, is the MacBook more or less elastic than anticipated? As we expected, some people are now buying up, because they can get the Macbook Pro for $1,199, down from $1,899. “We’re not thinking fundamentally different about the Mac business than we were before.” If we can build great Macs at lower prices, we will, but we won’t put the Mac brand on products that aren’t up to our standards.
• Update on Snow Leopard? Why such a low price point? Snow Leopard is priced aggressively so that all our users can upgrade to it, and we expect that they will. What commodity prices are you worried about, what should we think of the Toshiba prebuy? Are others coming? The market for DRAM and large-size LCDs has “shifted to constrained environment” and prices have moved accordingly. The NAND supply is getting better. We have a long-term supply agreement with Toshiba. We view flash as key component because we use it in so many products, and we’re a big consumer on a worldwide basis. We’re always open to similar deals. We’ve done one with LG on LCDs. We may do others, but we’re not working on one now.
• Please talk more about consumer demand for lower-priced laptops. No details forthcoming. But on macro level: Once price changes, people are upsold from $999 unit to $1,199 unit. [We just heard that.] Prior to change, we had seen people leaning toward the $999 product. What about pricing on iPhone side? Sounds like $99 3G iPhone helped drive traffic to the $199 3GS iPhone. Was that the plan? We’re focused on total iPhone units. So we’re psyched about 5.2M iPhones sold. Also, take note that the 3GS is in short supply and not available in all territories. Also, early in cycle, you have more upgraders, and upgraders are more likely to get higher priced phones. Still, too early to tell about product mix.
• Competitors are now finally coming out with rival app stores–Pre (barely), BlackBerry, etc.). What are you up to in answering back? Well, we just launched OS 3.0. That’s pretty great. It has an Installed base of 45 million (iPhones and iPod touch). We have a gazillion apps. According to the latest numbers from Nokia (NOK) and RIM (RIMM), they have a couple thousand each; Android has maybe 5,000. “We feel extremely good about our competitive position and continue to believe that we’re light years ahead of other people.”
• What about getting into the low-priced/netbook category? Tim Cook: “Our goal is not to build the most computers, it’s to build the best. Whatever price point we can build the best in, we will play there. At this point, we don’t see a way to build a great product at that price point, $399, $499.” We think many customers buying those find themselves “disenchanted” after buying cheapo/netbooks.
• Is the carrier network strong enough to handle all the apps and the more robust apps you’re coming out with every day? Non-answer. Do you think you guys will make investments on the side to take pressure of carrier-capacity issues? No plans. When we entered business, we looked at it, decided what we could do well was deliver the handset. I think there are other people that have more skills in the network area, and I think we have a lot of those partners.
• Back to netbooks and things like netbooks, but better, like the iTablet: Do you think there is an emerging market for a “truly mobile device” with a larger screen, a market big enough that you may want to participate? Cook: “Never want to discount anything in the future,” and never want to answer specifically your question about new products. [Duh.] But, boy, do we think netbooks are lousy and we think customers agree.
• Any info on iPhone sales split between new buyers and upgrades? Nope. Okay, how about the app store? It looks like prices are in a “race to the bottom”; there are lots of 99 cent apps. Are you worried about that? And can you help customers distinguish between good ones and “garbage”? Cook: “We realize there’s further opportunity for improvement” regarding promoting quality apps, etc. Regarding price: It’s up to the developers. As the installed base grows, it makes more sense to have lower prices, but that’s up to the developers.

Call finished.

But COO (and temporary CEO) Tim Cook’s dismissal of the netbook market will continue to spark speculation that the company is readying something that sits in between a laptop and an iPhone (which is itself a computer, of course). Silicon Alley Insider’s Dan Frommer got more of Cook’s response than I did so I’ll reprint his quote here:

“When I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience and not something we would put the Mac brand on. So it’s not a space–as it exists today–that we’re interested in, nor do we believe that customers in the long term would be interested in. That said, we do look at the space and are interested in how customers respond to it. People who want a small computer than does browsing and email might want to buy an iPod touch or iPhone. We play indirect basis. Then of course if we find a way where we can deliver an innovative product that really makes a contribution, then we’ll do that. We have some interesting ideas in this space.”

EARLIER:

Apple (AAPL) just turned in a strong quarter and followed it up with conservative guidance. A fairly typical performance for the company. Now investors will want to know about new product lines, Steve Jobs’s health and other matters. I’ll be covering the call live. Please refresh this page for the most current information. Click here if you want to listen in yourself.

Joining call now. Tim Cook CFO Peter Oppenheimer going over info that’s already in the release.

Mac products: 2.2 million Macs, a three percent decline year-to-year. Tough comparison from last year. But better than the seven percent drop in PC sales overall. “We feel very positive about our Mac performance.” Began and ended quarter with three-to-four weeks of Mac inventory.

iPod: People still buying ‘em! iPod touch selling well, and so are apps. Claims people like the new shuffle player. [Dubious about that]. We own the MP3 player market. [Duh.] Began and ended the quarter with four-to-six weeks of inventory.

iTunes store: 35,000 apps available in store, up from 15,000 a quarter ago. “We are within hours” of one billions app downloaded.

iPhones: Unless I’m missing something, absolutely no new data here. Praising new iPhone 0S 3.0 that’s in the works. Apple delayed the start of revenue recognition of all iPhones sold after the company announced the new OS, which was March 17. Will start up again once OS is released.

Stores: Half our Macs sold to people who had never owned one before. Average revenue per store is down year over year, because the economy is lousy.

Gross margins: Commodity and other component costs lower than expected. Higher-margin sales better are also than expected. Apple also spent less on operating expenses than expected.

Guidance: Forecasting is “challenging” in macroenvironment. Again, noting delay in revenue recognition for iPhones (see above). Excited about new products in pipeline, etc.

Q&A

Outlook for pricing on component supply? Mostly favorable, but some commodities, like NAND, will increase sequentially. Cook does not expect to see the level of reduction seen in calendar Q1. Will it be down? It will be “in a similar range as last quarter.”

Cash flow issues? Not really, for several reasons: 1) Apple made prepayment to…. [sorry, I didn't catch who that was]; 2) accounts payable were down, from holiday quarter to spring quarter, which is standard; 3) at $1.3 billion, tax payments were up “significantly” from last year.

Mac business: Desktops selling well, but average selling price down quite a bit. What’s going on? Sales accelerated in March after Apple announced new product launch. Higher-end Pro products sold to professionals are down a bit, which is related to economy for obvious reasons. Education sales also down a bit, for same reasons. Hoping Federal stimulus funds will help with that.

Back to netbooks–why won’t Apple sell them? Cook is still criticizing netbooks. The ones available today are ”just not a consumer experience and not something we would put the Mac brand on, quite frankly. It’s not a space today that we’re interested in, and it’s not a space we think that customers in the long-term are interested in.” But… a slight hedge with regard to smaller computers, which are, of course, what the iPhone and iPod Touch are. We “have interesting ideas in this space.” Today’s netbooks really shouldn’t even be called computers, really.

App store: What’s the mix between paid and free downloads and the iPod and iTouch mix? Nope. Apple won’t say. Again, Cook notes that we’re just “hours away” from the one billionth download. Cook: One of the keys behind the growth of iPod has been that sales of the iPod touch “more than doubled year-over-year.” The iPod and iPod Touch have reached sales of 37 million units, a big platform for developers. So there’s a virtuous cycle there.

[Sorry, missed two questions here.]

Why is Apple still doing an exclusive with AT&T for the iPhone? And how’s Steve Jobs? AT&T (T) is the best wireless provider in the U.S. “They have done a very good job with iPhone….We’re very happy with the relationship we have and do not intend to change it.” Structurally, we’re using GSM architecture, and Verizon (VZ) uses CDMA, and we wanted a world phone.

And Steve Jobs? Apple CFO Peter Oppenheimer: “We look forward to Steve returning to Apple at the end of June.” [Translation: No news.]

[Yet another question missing here. Apologies.]

Any info on DRM-free/”iTunes plus” sales? Too early to tell.

How much impact did Wal-Mart (WMT) have on Apple sales? Very key partner for the iPod. The company believes Wal-Mart provides extended reach. Pleased with results, but “early going, and not much to report there yet.”

So many iPhone Apps. How can you make them easier to find on iTunes? (Same problem as music.) Any kind of unusual patterns? Nonanswer here.

Please talk about competition for smartphones–i.e., please discuss the Palm (PALM) Pre. “Difficult to comment on products that aren’t shipping. So there’s nothing intelligent I could say on the Pre.” But “we think we’re years ahead.” We see things through software lens and that has benefited us and customers very well. Power of device and ecosystem enormous and we’re now just scratching the surface.”

What about suing Palm re: patents on the Pre, etc.? “We think that Apple’s innovation is leading the industry by years. We think competition is great; we think it makes all of us better as long as other companies invent their own stuff.”

Now comes word that the company’s appetite has been renewed–and doubled. Industry sources tell DigiTimes that Apple has placed an order for 100 million 8Gb (1 gigabyte) chips from Samsung, an order so large it is reportedly causing a supply shortage. If correct, the DigiTimes report could lend a bit of credence to rumors of a low-end iPhone. Unless, of course, Apple plans to use them for something else entirely, (a single, massive 100 million gigabyte iPhone?)–also a distinct possibility.

Either way, contract prices for flash memory are likely to rise to unpleasant levels in the near future.

He writes that the stock’s valuation “is now too attractive to ignore.” He notes that the stock has fallen out of favor after Samsung pulled its $26-a-share takeover bid, but that “SanDisk retains some of the key IP in the NAND industry, which we believe is worth significantly more than what is priced into the stock today.” He says that if the company successfully renegotiates a license agreement with Samsung, even with a 50 percent reduction in royalty rate, the stock would be worth close to $20, even if you assume zero value for its card business and give them zero credit for balance sheet cash.

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The memory chip company posted revenue of $1.45 billion, below the Street consensus at $1.54 billion. The company lost $344 million in the quarter, including a $205 million write-down of inventory and work in progress, offset by a gain of $70 million for price adjustments for NAND products purchased from other suppliers in prior periods. Before those items, the company lost $209 million, or 27 cents a share; the Street had expected a loss of 23 cents a share.

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This is clearly not a friendly deal. The Samsung announcement notes it is “reiterating” its proposal to acquire Samsung, and includes a lengthy letter to SanDisk’s management that makes it clear that the two companies had been talking for months, but that SanDisk had wanted a higher price. The hostile nature of the offer makes the potential regulatory obstacles to the deal–the combination would own a majority of the global NAND flash production capacity–all the more daunting.

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The NAND flash memory chip company also said it is delaying the start of the next phase of production ramp at its Fab 4 facility, and now expects to start no sooner than April 2009. The company also is pushing out its decision to invest in Fab 5 until market conditions improve.

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“While we continue to believe the DRAM industry should see further improvements in demand in [the second half], we also think the fragility and sustainability of the current DRAM sector recovery is once again in focus, given concerns for further global macro economic slowing and the potential for NAND capacity conversion to DRAM,” he writes.

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And now it’s creating a bit of a stir again, this time thanks to the iPhone. Apple plans to buy 50 million 8Gb-equivalent NAND flash chips from Samsung. That’s an awful lot of NAND–so much, in fact, that the chip manufacturer has been forced to reduce its supply to other customers to fulfill its obligation to Apple.

Either way, this is ugly news for any Samsung customer not headquartered in Cupertino, Calif. That said, the deal’s impact on the NAND market could be a reduction in prices for all. Something to look forward to, after the drought, I suppose.

One clear message from the Applied Materials’ (AMAT) earnings call yesterday is that there has been a dramatic reduction in capital investment in the DRAM and NAND memory chip sectors.

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