SanDisk 2000 Annual Report Download - page 25

2 3 . Sa n D is k C o rp o ra t io n . 2 0 0 0 A n n u a l Re p o rt
inc lude Lexar M ed ia, M - System s, Pre te c , Sim p le
Tec hno lo g y, So ny Co rp o ratio n, King ston Tec hno lo g y,
Panasonic , Silic o n Sto rag e Tec hno lo g y, TDK
Co rp o ration, M atsushita B attery, De lkin Devices, Inc .,
Feiya Tec hno lo g y C o rp o ratio n, Dane - Ele c
M anufacturing, Silicon Tek, Infineo n Tec hno lo g ies and
Viking Co m p o ne nts.
In ad d itio n, m any c o m p anies have b een c e rtified
b y the Co m pac tFlash Assoc iatio n to m anufac ture and
se ll their o w n b rand o f Com pac tFlash. W e belie ve
ad d itional m anufacture rs w ill e nte r the Com p ac tFlash
m arket in the future.
W e have ann o unc ed an ag re em ent w ith
M atsushita and Toshib a to jo intly d eve lo p and p ro m o te
a next g eneratio n flash m em o ry c ard c alle d the Se c ure
Dig ital Card . Und er this agree m e nt, Se c ure Dig ital Card
ro yalty- bearin g lic e nses w ill b e g ranted to o ther flash
m em o ry c ard m anufac ture rs, w h ic h w ill increase the
c o m p e titio n fo r o ur Secure Dig ital Card, Co m p actFlash
and M ultiM ediaCard p ro d uc ts. In ad d ition, M atsushita
and To shiba have c o m m e nc e d selling Sec ure Dig ital
Card s that w ill com p ete d irec tly w ith o ur produc ts.
W hile o the r flash card m anufac turers w ill b e required
to pay the SD Associatio n lic e nse fe es and ro yalties
w hic h w ill b e shared b e tw e en M atsu shita, Toshib a and
SanDisk, there w ill b e no ro yalties o r lic ens e fee s
p ayab le am o ng the thre e c o m p anies fo r their re sp e c -
tive sales o f the Se c ure Dig ital Card . Thus, w e w ill fo r-
fe it p o te ntial ro yalty inc om e fro m Secure Dig ital Card
sale s b y M atsu shita and Toshib a.
In ad d itio n, w e and Toshib a w ill each separate ly
m arket and se ll any 512 m e g ab it and 1 g ig abit flash
m em o ry c hips and Sec ure Dig ital Card c o ntrollers
d eve lo p e d and m anufac tured und er o ur relatio nship .
Ac c o rd ingly, w e w ill com p ete d irec tly w ith To shib a fo r
sale s o f these ad vanc ed c hip s and c ontro llers.
W e have ente red into p atent c ro ss- lic e ns e ag re e-
m ents w ith seve ral of our le ad in g c o m petito rs inc lud ing
H itachi, Lexar, Sam sung, Toshib a, Inte l, SST, Sharp ,
Sm artDisk and TDK. Und e r the se agree m ents, each
p arty m ay m anufacture and sell p ro d uc ts that incorpo-
rate techno lo g y c o vere d by the o ther p arty’s p atents
related to flash m e m o ry d e vic es. As w e continue to
lic ense o ur p atents to c ertain o f o ur c o m p etito rs, com -
p etitio n w ill inc rease and m ay h arm our b usine ss,
financ ial c o nditio n and results o f o p e rations. Currently,
w e are engag ed in lic ensing d iscussions w ith se veral
o f o ur c o m p etito rs. There c an be no assurance that
w e w ill b e succ essful in c o nclud ing lic e nsing agre e -
m ents under te rm s, w hich are favo rab le to us.
Alte rnative s torag e m e dia
Co m p e ting p ro d ucts have b ee n intro d uced that pro-
m o te in d ustry stand ards that are d iffe rent fro m o ur
Co m p actFlash and M ultiM ed iaCard p ro d uc ts includ ing
To shib a’s Sm artM e d ia, So ny Co rp o ratio n’s M e m o ry
Stic k, Sony’s stand ard flo p p y d isk used fo r d ig ital stor-
ag e in its M avica digital c am e ras, Panaso nic’s M eg a
Sto rag e card s, Io m eg a’s Clik d rive , a m iniaturize d ,
m echanical, rem o vab le d isk d rive , and M - Syste m s’
Disko nc hip fo r em bed d e d sto rag e ap p lic ations and the
Secure M ultiM ediaCard fro m H itachi and Infineon. Eac h
c o m p e ting stand ard is m echanically and ele c tro nically
inc o m p atib le w ith C o m p ac tFlash and M ultiM ediaCard . If
a m anufacturer o f d ig ital c am eras o r o ther consum er
elec tro nic d e vic es designs in one o f these alternative
c o m p e ting stand ard s , Co m p actFlash or M ultiM ediaCard
w ill b e elim inate d fro m use in that p ro d uc t.
IBM ’s m icro drive , a ro tating disk d rive in a Type II
Co m p actFlash fo rm at c o m p ete s d irectly w ith our Type II
Co m p actFlash m em ory c ard s for use in hig h- end p ro -
fe ssional d ig ital c am e ras. M - System s’ Diskonc hip 200 0
M illennium p ro d uct c om petes ag ainst o ur Flash Chip Set
p ro d uc ts in e m b edd ed storag e ap p licatio ns suc h as se t
to p b o xe s and ne tw o rking ap p lianc es.
Ac c o rd ing to ind e p e nd e nt ind ustry analysts, So ny’s
M avic a d ig ital c am era c ap tured a c o nsiderable p o rtio n
o f the U.S. m ark et fo r d ig ital c am eras fro m 1998 to
200 0. The M avic a uses a stand ard flopp y d isk to sto re
d ig ital im ag es and there fo re u ses no C o m p ac tFlash, o r
any o ther flash card s. Our sales p ro spec ts fo r
Co m p actFlash card s have b ee n ad versely im p ac ted b y
the suc c e ss o f the M avic a. Recently, So ny has shifted
its fo cus to the use o f its flash M e m o ry Stic k in its late st
d ig ital c am era m o d e ls.
Our M ultiM ediaCard p ro d uc ts also have fac e d sig -
nificant c o m p e tition fro m Toshib a’s Sm artM e d ia flas h
c ard s and w e e xp e c t to face sim ilarly sig nific ant co m -
p etitio n fro m So ny’s M e m o ry Stick. So ny has lic e nsed
its p ro p rietary M em ory Stic k to o ther c o m p anies. If it is
ad o p ted and ac hieve s w id esp read use in fu ture pro d-
uc ts, sale s o f o ur M ultiM ed iaCard and Co m p ac tFlash
p ro d uc ts m ay d e c line . Re c ently, H itac hi, Infine o n, Sanyo
and Fujitsu have pro po sed their Sec ure M ultiM ediaCard
w hic h p ro vid e s the c opy p ro te c tio n func tion that is
inc luded in our Sec ure Digital Card . Should this initiative
g ain ind ustry w id e ac c e p tanc e , it m ay re d uce the w id e-
sp re ad ad o p tio n o f the Sec ure Dig ital Card .
In the first q uarter o f 200 0 , Sanyo anno unced that
it is deve lo p ing a m iniature m agneto - o p tic al sto rage
d evic e fo r use in future d ig ital c am eras, m usic p laye rs
and c am c o rd e rs. There can b e no assurance that this
d evic e w ill not b e ad o p te d by som e o f o ur OEM c us-
to m e rs.
Alte rnative fla sh te c hno lo g ie s
W e also fac e c o m petitio n fro m p ro d uc ts b ased o n m ul-
tile vel c ell flash te c hno lo g y fro m Intel and H itac hi. These
p ro d uc ts c o m pete w ith o ur D2 m ultileve l cell flash te c h-
no lo g y. M ultilevel c ell flash is a tec hno log ical inno vatio n
that allo w s eac h flash m em ory c e ll to store tw o b its o f
inform atio n instead of the trad itio nal sing le b it sto red b y
the ind ustry standard flash tec hno lo g y.
Furth erm ore , w e e xp e c t to face c o m p e tition fro m
existing c o m petito rs and fro m o ther c o m p anies that
m ay enter o ur existing o r future m arkets that have sim i-
lar or alternative d ata sto rage so lutio ns w hic h m ay b e
less co stly o r p ro vid e ad d itio nal feature s. Pric e is an
im p o rtant co m p etitive fac tor in the m arke t fo r c o n-
sum er prod uc ts. Inc re ase d price c o m p e tition c o uld
lo w er g ro ss m argins if o ur average se lling p ric es
d ecrease faste r than o ur c o sts and c o uld also result in
lo st sales.