SanDisk 2006 Annual Report Download - page 63

We also compete with flash memory card manufacturers and resellers. These companies purchase, or have a
captive supply of, flash memory components and assemble memory cards. Our primary competitors currently
include, among others, A-Data, Buffalo Technology, Fuji, Hagiwara, Hama, I/O Data, KingMax, Kingston, Kodak,
Lexar, Matsushita, Micron, Netac, Panasonic, PNY, Ritek, Samsung, Sony, Toshiba, Tradebrands and Transcend.
Some of our competitors have substantially greater resources than we do, have well recognized brand names or
have the ability to operate their business on lower margins than we do. The success of our competitors may
adversely affect our future sales revenues and may result in the loss of our key customers. For example, Toshiba and
other manufacturers have recently increased their market share in the mobile market, including the microSD card,
which has been a significant driver of our growth. In the digital audio market, we face competition from well
established companies such as Apple and Microsoft. In the USB market we face competition from a large number of
players including Kingston, Lexar, Memorex and PNY, among others.
Furthermore, many companies are pursuing new or alternative technologies, such as phase-change technology,
charge-trap flash and millipedes/probes, which may compete with flash memory. For example, two of our
competitors are advocating charge-trap flash technology, which if successful and if we are unable to scale our
technology on an equivalent basis, could provide an advantage to these competitors.
These new or alternative technologies may provide smaller size, higher capacity, reduced cost, lower power
consumption or other advantages. If we cannot compete effectively, our results of operations and financial condition
will suffer.
We have patent cross-license agreements with several of our leading competitors. Under these agreements, we
have enabled competitors to manufacture and sell products that incorporate technology covered by our patents. If
we continue to license our patents to our competitors, competition may increase and may harm our business,
financial condition and results of operations.
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;
• sufficient availability of supply;
• 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.
While we believe we are well-positioned to compete in the marketplace, there can be no assurance that we will
be able to compete successfully in the future.
The semiconductor industry is subject to significant downturns that have harmed our business, financial
condition and results of operations in the past and may do so in the future. The semiconductor industry is highly
cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price
declines, 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.
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