SanDisk 2004 Annual Report Download - page 34

Table of Contents
We believe that our ability to compete successfully depends on a number of factors, including:
• price, quality, and on−time delivery to our customers;
• product performance, availability and differentiation;
• success in developing new applications and new market segments;
• adequate manufacturing capacity;
• efficiency of production;
• timing of new product announcements or introductions by us, our customers and our competitors;
• the ability of our competitors to incorporate standards or develop formats which we do not offer;
• the number and nature of our competitors in a given market;
• successful protection of intellectual property rights; and
• general market and economic conditions.
We can not assure you that we will be able to successfully compete in the marketplace.
The semiconductor industry is subject to significant downturns and our take−or−pay commitments to the ventures with Toshiba
may result in losses. The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change,
rapid product obsolescence and price decline, evolving standards, short product life cycles and wide fluctuations in product supply and
demand. The industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles
of both semiconductor companies’ and their customers’ products and declines in general economic conditions. These downturns have
been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated declines in selling
prices. We have experienced these conditions in our business in the past and may experience such downturns in the future.
Our obligation to purchase 50% of the output from the ventures with Toshiba would harm our business and results of operations if
there was a downturn in the memory markets. The adverse effects include, among other things, significant decreases in our pricing of
products, significant excess, obsolete or lower of cost or market inventory write−downs and the impairment of our investments in the
ventures with Toshiba. Any future downturns could have a material adverse effect on our business, financial condition and results of
operations.
We depend on third−party foundries for silicon supply and any shortage or disruption in our supply from these sources will
reduce our revenues, earnings and gross margins. All of our flash memory card products require silicon supply for the memory and
controller components. The substantial majority of our flash memory is currently supplied by the ventures with Toshiba and by
Toshiba pursuant to our foundry agreement, and to a lesser extent by Renesas and Samsung. Currently, our controller wafers are only
manufactured by Tower and UMC. In times of significant growth in global demand for flash memory, demand from our customers
may outstrip the supply of flash memory and controllers available to us from our current sources. If our silicon vendors are unable to
satisfy our requirements on competitive terms or at all due to natural disaster, power failure, labor unrest, their refusal to do business
with us, their relationships with our competitors or other causes, we may lose potential sales and our business, financial condition and
operating results may suffer. In addition, these risks are magnified at Toshiba’s Yokkaichi operations where the ventures are operated
and Toshiba’s foundry capacity is located. For example, in 2004, more than one earthquake, as well as an unrelated power outage,
resulted in production line stoppage and loss of wafers in Yokkaichi. Also, the Tower fabrication facility, from which we source
controller wafers, is located in Israel, an area of political turmoil. Any disruption in supply from our silicon sources could significantly
harm our business, financial condition and results of operations.
Our actual manufacturing yields may be lower than our expectations resulting in increased costs and product shortages. The
fabrication of our products requires wafers to be produced in a highly controlled
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