SanDisk 2004 Annual Report Download - page 31

Table of Contents
capacity of the applicable production facility. As permitted by SFAS 151, we will adopt SFAS 151 at the beginning of 2005 and do
not expect that its adoption will have a material adverse effect on our reported results of operations.
The EITF of the FASB delayed the effectiveness of a portion of the EITF consensus on Issue 03−01, The Meaning of Other Than
Temporary Impairment. The delayed portions of the consensus on EITF 03−01 would require recognition of an other than temporary
impairment of a debt instrument based on interest rate changes, sector credit ratings and company specific changes that do not result in
the conclusion that non−collection of principal or interest is probable. Had EITF 03−01 been effective for 2004, we do not believe it
would have had a material adverse effect on our financial condition or results of operations.
Factors That May Affect Future Results
Our operating results may fluctuate significantly, which may adversely affect our operations and our stock price. Our quarterly
and annual operating results have fluctuated significantly in the past and we expect that they will continue to fluctuate in the future.
This fluctuation could result from a variety of factors, including, among others, the following:
• the factors listed elsewhere under “Factors That May Affect Future Results”;
• unpredictable or changing demand for our products;
• decline in the average selling prices, net of promotions, for our products due to excess supply, competitive pricing pressures and
strategic price reductions initiated by us or our competitors;
• our license and royalty revenues may decline in the future as our existing license agreements expire or our licensees reach their
royalty payment caps;
• timing of sell through by our distributors and retail customers;
• continued development of new markets and products for NAND flash memory;
• timing and volume of wafer production from our Flash Partners venture and costs associated with the Flash Partners’ facility;
• increased purchases of flash memory products from our non−captive sources that may affect our gross margins;
• difficulty in forecasting and managing inventory levels; particularly, building a large inventory of unsold product due to
non−cancelable contractual obligations to purchase materials such as flash memory, controllers, printed circuit boards and
discrete components;
• write−downs of our investments in fabrication capacity, other fixed assets, equity investments and prepaid wafer credits;
• expensing of share based compensation;
• adverse changes in product and customer mix;
• terrorist attacks, governmental responses to those attacks and natural disasters; and
• changes in general economic conditions.
Sales to a small number of customers represent a significant portion of our revenues and if we were to lose one of our major
licensees or customers or experience any material reduction in orders from any of our customers, our revenues and operating results
would suffer. Sales to our top 10 customers and licensees accounted for more than 55%, 48% and 45% of our total revenues during
2004, 2003 and 2002, respectively. If we were to lose one of our major licensees or customers or experience any material reduction in
orders from any of our customers or in sales of licensed products by our licensees, our revenues and operating results would suffer.
Our sales are generally made by standard purchase orders 26