Samsung has dropped its $5.85bn bid for SanDisk following the memory card vendor's disappointing financial results and its new agreement with Samsung competitor Toshiba.

"Your surprise announcements of a quarter billion dollar operating loss, a hurried recognition of your relationship with Toshiba and major job losses across your organisation all point to a considerable increase in your risk profile," said Samsung Electronics chief executive Yoon Woo Lee in an official letter addressed to SanDisk executives.

On Monday, SanDisk announced that third-quarter revenue had slumped 21 per cent since last year. To reduce its capital commitments in 2009, the company signed an agreement in which Toshiba would take over 30 per cent of the parties' joint manufacturing ventures.

SanDisk had also just turned down Samsung's offer of $26 a share, claiming that it undervalued its long-term prospects.

Gartner analyst Joseph Unsworth suggested that Samsung's rejection of the offer was due to SanDisk's financial condition rather than the over-supply in the market for Nand Flash memory, affecting Samsung's market position and economic prospects.

Nand Flash memory forms the core of removable storage devices known as USB drives and most memory card formats.

"The over-supply is a known fact and not new," said Unsworth. "Samsung has actually got what it wants. It has managed to get Toshiba to chip in and increase its exposure to Flash."

But Unsworth noted that Samsung had still not sorted out the $50m royalty payment it continues to pay to SanDisk each year, due to expire in August 2009. "It has a 40 per take in the market and it cannot afford to let it expire," he explained.

The expensive financial obligation was one of the main drivers for Samsung to acquire SanDisk in the first place, argued Unsworth.