Crucial 2012 Annual Report Download - page 7

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We utilize subcontractors to perform a portion of our assembly and module assembly services. Outsourcing these services
enables us to reduce costs and minimize our capital investment.
In recent years, we have produced an increasingly broad portfolio of products, which enhances our ability to allocate
resources to our most profitable products but also increases the complexity of our manufacturing process. Although our
product lines generally use similar manufacturing processes, our overall cost efficiency can be affected by frequent conversions
to new products, the allocation of manufacturing capacity to more complex, smaller-volume parts and the reallocation of
manufacturing capacity across various product lines.
Availability of Raw Materials
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our
raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our
standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability of raw
materials such as silicon wafers, photomasks, chemicals, gases, photoresist, lead frames and molding compound. Shortages
may occur from time to time in the future. In addition, disruptions in transportation lines could delay our receipt of raw
materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw materials is
disrupted or our lead times extended, our business, results of operations or financial condition could be materially adversely
affected.
Marketing and Customers
Our products are sold into computing, consumer, networking, telecommunications, automotive, industrial, and mobile
markets. Market concentrations from 2012 net sales were approximately as follows: computing (including desktop PCs,
servers, notebooks and workstations), 25%; consumer electronics, 20%; mobile, 15%; networking and storage, 10%; and SSDs,
10%. Sales to Intel, primarily NAND Flash products through IM Flash, were 12% of our net sales in 2012, 10% of our net
sales in 2011, and 9% of our net sales in 2010. Sales to Hewlett-Packard Company, primarily of DRAM, were 8% of our net
sales in 2012, 9% of our net sales in 2011 and 13% of our net sales in 2010.
Our semiconductor memory products are offered under the Micron, Lexar®, Crucial™, SpecTek® and Numonyx® brand
names and private labels. We market our semiconductor memory products primarily through our own direct sales force and
maintain sales or representative offices in our primary markets around the world. We sell Lexar-branded NAND Flash memory
products primarily through retail channels and our Crucial-branded products through a web-based customer direct sales channel
as well as channel and distribution partners. Our products are also offered through independent sales representatives and
distributors. Independent sales representatives obtain orders subject to final acceptance by us and are compensated on a
commission basis. We make shipments against these orders directly to the customer. Distributors carry our products in
inventory and typically sell a variety of other semiconductor products, including competitors' products. We maintain inventory
at locations in close proximity to certain key customers to facilitate rapid delivery of products. Many of our customers require
a thorough review or qualification of semiconductor products, which may take several months.
Backlog
Because of volatile industry conditions, customers are reluctant to enter into long-term, fixed-price contracts. Accordingly,
new order volumes for our semiconductor products fluctuate significantly. We typically accept orders with acknowledgment
that the terms may be adjusted to reflect market conditions at the date of shipment. For these reasons, we do not believe that
our order backlog as of any particular date is a reliable indicator of actual sales for any succeeding period.