Samsung Electronics Co Ltd said on Wednesday it renewed its NAND flash memory chip license with SanDisk Corp for seven years, at a lower royalty, while guaranteeing a portion of its chips output to SanDisk.

Although some information cannot be disclosed due to an agreement between the two parties, the royalty rate will be about half the rate applied in the existing contract, Samsung said in a filing to the Korea Exchange.

We are very pleased with the agreements announced today. Furthermore, continued access to Samsung's flash capacity under competitive terms gives us greater flexibility in managing our future capital expenditures, SanDisk chairman and CEO Eli Harari said in a joint statement released later on Wednesday.

The new agreements would become effective when the current cross license and supply agreements expires on August 14, 2009 and would run for seven years, the statement said.

In an interview conducted last week at the Reuters Global Technology Summit in New York, Harari described the renewal negotiations as quite intense.

He indicated the possibility of litigation if an agreement was not reached, as Samsung and its customers would then be infringing patents SanDisk holds.

SanDisk shares traded on Nasdaq jumped 16 percent to $15.79 on Wednesday afternoon.

We believe the conclusion of the renewal of the licensing agreement with Samsung removes one of the recent concerns on SanDisk and focus will now shift on the improvement on the NAND market itself, said Avi Cohen, managing Partner of Avian Securities.

Samsung, the world's top maker of NAND flash memory chips, pays about $350 million a year in royalties to SanDisk for its patented technology, widely used in digital cameras, music players and other electronic devices.

Last year, SanDisk spurned an unsolicited buyout offer from Samsung for $26 per share, saying the offer undervalued the company. Samsung dropped its bid in October, citing SanDisk's deepening losses and uncertain outlook.

(Reporting by Marie-France Han and Seo Eun-kyung and Franklin Paul in New York; editing by Jacqueline Wong, Chris Lewis and Andre Grenon)

Electronics Samsung Chip