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PART I
ITEM 1. BUSINESS
Statements in this report, which are not historical facts, are forward-looking statements within the meaning of
the federal securities laws. These statements may contain words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates” or other wording indicating future results or expectations. Forward-
looking statements are subject to risks and uncertainties. Our actual results may differ materially from the results
discussed in these forward-looking statements. Factors that could cause our actual results to differ materially
include, but are not limited to, those discussed in “Risk Factors” in Item 1A of this report, and elsewhere in this
report. Our business, financial condition or results of operations could be materially adversely affected by any of
these factors. We undertake no obligation to revise or update any forward-looking statements to reflect any event or
circumstance that arises after the date of this report. References in this report to “SanDisk»,” “we,” “our,” and
“us,” collectively refer to SanDisk Corporation, a Delaware corporation, and its subsidiaries. All references to
years or annual periods are references to our fiscal years, which consisted of 52 weeks in 2006 and 2005 and
53 weeks in 2004.
Overview
Who We Are. We are one of the world’s largest suppliers of flash-based data storage products for the
consumer, mobile communications, and industrial markets. Our mission is to be the preferred choice in personal
storage solutions for the worldwide digital economy. We seek to achieve our mission by developing leading
technologies and innovative products and delivering our products through both original equipment manufacturer, or
OEM, and retail channels.
We design, develop, market and manufacture products and solutions in a variety of form factors using our flash
memory, controller, and firmware technologies. We source the vast majority of our flash memory supply through
our significant venture relationships with Toshiba that provide us with leading edge and low cost memory wafers.
Our products are used in a wide range of consumer electronics devices such as digital cameras, mobile phones,
Universal Serial Bus drives, or USB drives, gaming consoles, MP3 players and other digital devices. Our products
are also embedded in a variety of systems for the enterprise, industrial, military and other markets. Flash storage
technology allows data to be stored in a low-power consumption format, as well as a durable and compact format
that retains the data after the power has been turned off.
On November 19, 2006, we closed our acquisition of msystems Ltd., or msystems, an Israeli-based semi-
conductor company with a broad embedded NAND product portfolio, deep firmware expertise, and extensive OEM
relationships.
Our Strategy. Our strategy is to identify and develop current and emerging high-growth markets for flash
storage products. We maintain our technology leadership and invest in flash memory fabrication capacity in order to
produce leading-edge, low cost flash memory for use in our products. We sell in high volumes all major flash
storage card formats for our target markets, enabling us to be a one-stop-shop for our retail and OEM customers.
Our revenues are driven by the sale of our products and the licensing of our intellectual property. We believe
the market for flash storage has price elasticity of demand. Excluding the newly acquired msystems business, from
2005 to 2006, we increased the number of megabytes sold by 221% in large measure due to a decrease of 58% in our
average selling price per megabyte over the same period. Our management team believes that more applications for
flash storage will be created through the continued increase in the number of megabytes a consumer can purchase at
a given price point. The dynamics of these price declines driving increased volume resulted, in part, in an increase in
our product revenues from $2.1 billion in 2005 to $2.9 billion in 2006. In addition, our license revenue increased
from $239.5 million in 2005 to $331.1 million in 2006 as a result of continued adoption of flash technologies by our
licensees.
We enable new markets for NAND flash memory through a variety of removable card form factors, and we are
founders or co-founders of most major form factors of flash storage cards in the market today. We pioneered the
Secure Digital card, or SD
TM
card, together with Matsushita Electric Industries, Ltd., or Matsushita, which owns the
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