On Monday NOR flash memory maker Spansion (SPSN) filed for bankruptcy, and SanDisk fell from a high of $9.75 last Friday to as low as $7.88 yesterday, before recovering a bit to close at $8.01. Today, SNDK edged up three whole cents to close at $8.05, after hitting $7.89 intraday.

The NOR flash memory business is a terrible business with no future. SanDisk does not make NOR flash, and never did. They make NAND flash, which is used for the “film” in digital cameras, to make USB memory sticks, and – most important – to make the solid state memory “disks” that replace hard disk drives in netbook and some laptop computers.

NOR flash was developed before NAND flash, and is best used for storing programs that rarely change, but need to be loaded quickly when a computer is restarted. It replaced EPROMs (Electrically Programmable Read-Only Memories), with the first big application being the new computers put in cars beginning in the 1980s. Because EPROMs could not be easily checked or updated, especially by the corner gas station mechanic, the practice was to pull out the computer, send it to the car manufacturer under the warranty, and put in a new one. The car manufacturers didn’t know how to check them either, and the late ’80s they ate a lot of warranty work and trucked perfectly good computers to the dump. NOR flash, which was easy to check and update, was the answer. But the program storage market is much smaller than the data storage market, and NOR flash is not very good at data storage.

NAND flash is good for data storage, and lately it has been making inroads into the program storage segment. So while the NOR market stagnated, with price cutting and zero profit margins the order of the day, NAND took off on the back of the digital camera boom in the mid-’90s. These days, NAND chips are much larger and therefore much cheaper than NOR, and about two years ago the “boot from NAND” technology was worked out. It is only a matter of time before NOR disappears, taking Spansion with it. In contrast, NAND markets are growing and the technology continues to advance at a rapid clip. Comparing SanDisk to Spansion is like comparing apples to baseballs.

About two weeks ago, the rumors started up again that Samsung will make another bid for SanDisk, and SNDK ran up to $11. That’s what makes yesterday’s misguided drop especially nasty. Samsung has to either buy SanDisk or get a license to SanDisk’s patents for the current generation of multiple-memory-bits per cell (MLC) NAND flash technology. If they don’t cut a deal soon, archrival Toshiba (SanDisk’s manufacturing partner) will be far ahead of them. The hard disk replacement trend is well underway, and later this year we are likely to see rising NAND prices and a sharply rising stock price for SanDisk. Continue to buy SNDK all the way up to $15 for my $32 target, most likely in a takeover. (Samsung’s last bid was $26 a share.)