SanDisk 2000 Annual Report Download - page 23

2 1 . Sa n D is k C o rp o r a t io n . 2 0 0 0 A n n u a l R e p o r t
p ro d uc ts that utilize o ur M ultiM ediaCard in anticip atio n
o f ne w produc ts suc h as M P3 players and digital c am -
c o rd ers that w ill inc o rp o rate the Sec ure Dig ital Card . If
this o c c urs, sales o f o ur M ultiM ediaCard p ro d uc ts m ay
b e harm ed . The m ain c o m p e tition fo r the Se c ure
Dig ital Card is exp ected to c o m e fro m the So ny
M em o ry Stic k. So ny has substantially g reate r financial
and o ther resourc es than w e d o and e xte nsive m ar-
ke ting and sales c hanne ls and b rand re c o g nition. W e
c anno t assure yo u that our Se c ure Dig ital Card w ill b e
suc cessful in the face o f such c om petitio n.
In ad d itio n, the m arke t fo r p o rtab le digital m usic
p laye rs is ve ry new and it is unc ertain ho w q uic kly con-
sum er dem and fo r the se players w ill g ro w . If this m ar-
ke t does not g ro w as q uic kly as antic ip ated o r our
c usto m ers are no t succ essful in selling their p o rtab le
d ig ital m usic p layers to c o nsum ers, o ur reve nues c o uld
b e ad ve rse ly affec ted . In additio n, it is o ften the c as e
w ith ne w c o nsum er m arkets that afte r an initial p erio d
o f ne w m arke t fo rm atio n and initial acc ep tanc e by
early ad op ters, the m arket enters a p eriod o f slow
g ro w th as stand ards em e rg e an d infrastruc ture d evel-
o p s. In the eve nt that this o c curs in the p o rtab le d ig ital
m usic p laye r m arke t or o ther em erg ing m arkets, sales
o f o ur produc ts w o uld b e harm e d .
The suc c e ss o f o ur ne w pro du c t strateg y w ill
d epend up on, am o ng o th er thing s, the follow ing :
• o ur ab ility to successfully d e velop ne w p rod uc ts
w ith hig her m em o ry c apac itie s and enhanc ed fea-
ture s at a lo w er c o st p e r m eg abyte;
• the d evelo p m ent o f new ap p lic atio ns o r m arke ts
fo r o ur flash data storag e p ro d uc ts;
• the ad o p tion by the m ajo r c o ntent p ro vid e rs of the
c o p y p ro tec tio n fe atures o ffe red b y our Se c ure
Dig ital Card p ro d uc ts;
• the exte nt to w hic h p ro spec tive c usto m ers d e sig n
o ur produc ts into their p ro d uc ts and suc cessfully
intro d uc e their p rod uc ts; and
• the exte nt to w hic h o ur p ro d uc ts or te c hnolog ies
b ecom e o b so le te or no nc o m p etitive d ue to p ro d -
uc ts o r te c hnologies d e velo p ed by o thers.
5 12 m e g ab it and 1 g ig ab it fla sh m e m o ry
c ard p ro ducts
On June 30 , 2 000 , w e c lo s ed a transac tion w ith
To shib a p ro vid ing for the jo int d evelo p m ent and m anu-
facture o f 5 12 m egab it and 1 g ig ab it flash m e m o ry
c hip s and Se c ure Dig ital Card contro lle rs. As p art o f
this c o llaboratio n, w e and Toshib a p lan to em p lo y
To shib a’s 0 .16 m ic ro n and future 0.13 m ic ro n NAN D
flash inte g rated c irc uit m an ufac turing tec hno lo g y and
SanDisk’s m ultileve l c e ll flash and c o ntro lle r syste m
te c hnology. During the third quarter of 20 0 0, w e
anno unc e d w ith Toshib a the com p letio n o f the joint
d eve lo p m e nt o f the 512 M e g ab it N AND flash c hip
em ploying Toshib a’s .16 m ic ro n m anufac turing process
te c hnology. We exp ec t card s em ploying the 5 12
m egab it te c hnology to b e ship p ed in sig nific ant quanti-
tie s in the sec o nd half o f 200 1, and card s em ploying
the 1 g igab it techno lo g y to b e shipped in 20 0 2. The
d eve lo p m e nt o f 5 12 m eg abit and 1 g ig ab it flash
m em o ry c hips and Sec ure Dig ital Card c o ntrollers is
exp ected to b e c o m plex and inc orp o rates SanDisk and
To shib a tec hno lo g y that is still under d eve lo p m e nt. W e
c anno t assure yo u that w e and Toshib a w ill suc c e ssful-
ly d e velop and b ring into full produc tio n w ith ac c ept-
ab le yie ld s and reliab ility the se new p ro d uc ts or the
und erlying te c hnology, or that any d evelo p m e nt o r p ro-
d uc tion ram p w ill b e c o m p le te d in a tim ely o r c o st-
effe c tive m anner. If w e are no t suc c essful in any of the
ab o ve , o ur business, financ ial c o nditio n and results o f
o p eratio ns c o uld su ffer.
W e m a y b e u n a b le t o m a in ta in m a r k e t s h a r e .
During p eriods o f excess sup p ly in the m arket fo r o ur
flash m em ory p ro d uc ts, suc h as w e are experie nc ing
in the first half of 20 0 1, w e m ay lo se m arket share to
c o m p e tito rs w ho ag g re ssive ly low er their prices.
Co nve rse ly, under c o nd itions o f tig ht flash m e m o ry
sup ply, w e m ay b e unab le to inc re ase our p ro d uc tio n
vo lum e s at a suffic ie ntly rap id rate so as to m aintain
o ur m arke t share. Ultim ate ly, o ur g ro w th rate d epends
o n our ab ility to o btain sufficient flash m e m o ry w afers
and o ther co m p o ne nts to m e et dem and . If w e are
unab le to d o so in a tim e ly m anne r, w e m ay lo se m ar-
ke t share to our c o m petito rs.
O u r in te r na tio n a l o p e ra t io n s m a k e u s v u ln e r a b le t o
c h a ng in g c o n d it io ns a n d c ur r e n c y flu c tu a t io ns .
Politic a l risks
Curre ntly, the m ajo rity o f o ur flash m e m o ry w afe rs
are p ro d uced b y three UM C fo und ries in Taiw an. We
also use a third - party sub c o ntrac tor in Taiw an fo r the
assem bly and te sting of our M ultiM e d iaCard p ro d -
uc ts. W e m ay there fo re b e affected b y the politic al,
econo m ic and m ilitary c o nd itions in Taiw an. Taiw an is
c urrently eng ag e d in vario us politic al d isp utes w ith
China and in the p ast b o th c o un tries have c o nduc te d
m ilitary exerc ises in o r n ear th e o ther’s te rrito rial
w aters and airspac e . The Taiw anese and Chinese
g o vernm ents m ay esc alate these d isp utes, resulting
in an econo m ic em barg o , a d isrup tion in ship p ing
ro ute s o r e ven m ilitary ho stilities . This c o uld harm o ur
b usiness by interrupting o r d e laying the p ro d uc tion or
ship m ent o f flash m e m o ry w afers o r M ultiM e d iaCard
p ro d uc ts b y o ur Taiw anese fo und ries and sub c on-
trac tor. See “ – W e d ep e nd o n our sup p lie rs and third
p arty subcontrac tors.”
W e use a third - p arty sub c on trac tor in China fo r
the assem b ly and te sting of our Com p ac tFlash p rod -
uc ts. As a res ult, o ur b usine ss c o uld b e harm ed b y the
effe c t o f p o litic al, ec ono m ic , leg al and o ther unc e rtain-
tie s in C hina. Und er its c urre nt le ad e rship , the Chine se
g o vernm ent has b e en p ursuing ec o no m ic refo rm poli-
c ies, inc luding the e nc o urag em en t of fo re ig n trad e and
investm ent and g re ater ec ono m ic dec e ntralizatio n. The
Chinese g o vernm ent m ay no t c o ntinue to p ursue
the se polic ies and , even if it d o es continue, the se p o li-
c ies m ay not b e suc c e ssful. The Chinese g o ve rnm e nt
m ay also sig nific antly alter these p o lic ie s fro m tim e to
tim e . In ad d ition, China do es not c u rrently have a c o m -
p rehensive and highly d evelop ed legal syste m , p articu-
larly w ith respec t to the p ro te c tio n o f intelle c tual