SanDisk Corp, the world's largest maker of memory cards used in digital cameras, surged the most in two years in German trading after Samsung Electronics Co said it may buy the American company.

SanDisk jumped 15 per cent to the equivalent of $15.43 as of 9:40 a.m. in Frankfurt, headed for the biggest gain since 25 July, 2006. Samsung rose 1.2 per cent to close at 520,000 won on the Korea Exchange, bucking a drop in stocks across Asia that drove down the MSCI Asia Pacific index by 2 per cent.

South Korea-based Samsung, the world's second-largest chipmaker, said today it's considering various options regarding SanDisk, including an acquisition. "We are looking at various opportunities regarding SanDisk, but nothing has been decided yet," Samsung spokesman James Chung has been quoted as saying.

The potential takeover target was even more guarded in its response. ''SanDisk periodically has conversations with multiple parties, including Samsung, regarding a variety of potential business opportunities,'' SanDisk said in a statement, ''We evaluate all of these opportunities, but maintain a policy of not commenting on market rumors or speculation.''

A takeover would help Samsung widen its lead over Toshiba Corp. in the $15 billion market for chips that store data in cameras and portable music players. Accordingly, on news of this possible deal, the latter's shares fell 4.6 per cent to their lowest since November 2005. (See: SanDisk launches high-definition video flash card line and SanDisk brings iNAND 16-GB embedded flash drive for latest mobile handsets)

Chipmakers are under pressure to consolidate after prices halved this year, driving SanDisk to its largest quarterly loss in almost seven years. SanDisk, the world's largest manufacturer of NAND flash chips, has fallen 59 per cent this year in New York trading as consumers cut spending and a glut drove down prices. In July, the California-based company posted a $67.9 million loss, its largest quarterly deficit since 2001.

The shares have tumbled since mid-May, when they reached a recent peak just above $33. The stock closed at $13.46 on Thursday, valuing the company at around $3.2 billion. In contrast, its market capitalization at the beginning of this year was $6.5 billion. This relatively cheap valuation has evinced interest from several quarters, with memory maker Seagate Technologies mentioned as a possible contender.

Samsung had a 42.3 per cent market share in the NAND flash memory-chip market in the second quarter, compared with Toshiba's 27.5 per cent and Hynix Semiconductor Inc.'s 13.4 per cent. However, before this development, Toshiba had intended to leverage its existing partnership with SanDisk to double its capacity over the next year. Industry sales are expected to rise 9 per cent this year to $15.2 billion.

Samsung pays $400 million to $500 million annually to use SanDisk's flash memory patents. The savings from royalty fees alone may justify an acquisition, analysts say. The Korean conglomerate has reportedly engaged JPMorgan Chase & Co as an advisor for the deal.