SanDisk 2007 Annual Report Download - page 54

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Toshiba foundry relationship. This represents captive memory supply, and we are obligated to take the
output from the flash ventures with Toshiba. See “Ventures with Toshiba.” We also purchase non-captive
NAND memory supply primarily from Samsung and Hynix, and source our 3D one-time programmable, or
OTP, memory on a foundry basis at Taiwan Semiconductor Manufacturing Corporation, or TSMC. We are
guaranteed a certain amount of the total output from Samsung and Hynix, but we are not obligated to use the
guaranteed supply until we give them an order for future purchases. Our controller wafers are currently
supplied by Semiconductor Manufacturing International Corporation, or SMIC, TSMC, Tower Semicon-
ductor Ltd., or Tower, and United Microelectronics Corporation, or UMC. We have a foundry agreement
with Tower on a purchase order basis. See Item 1A, “Risk Factors.”
•Assembly and Testing. We sort and test our wafers at Toshiba in Yokkaichi, Japan, and Ardentec
Corporation in Taiwan. Our flash memory products are assembled in both our in-house assembly and test
facility in Shanghai, China, and through our network of contract manufacturers, including StatsChipPAC
Ltd., or StatsChipPAC, in China, and Silicon Precision Industries Co., Ltd., or SPIL, in Taiwan. Our
packaged memory final test, card assembly and card test is performed at our in-house facility and at
subcontractors such as SPIL and United Test and Assembly Center, in Taiwan, and Beautiful Enterprise Co.,
Ltd., Flextronics International, Ltd., or Flextronics, Global Brands Manufacturing Ltd. and StatsChipPAC,
in China. We believe the use of our in-house assembly and test facility as well as subcontractors reduces the
cost of our operations and gives us access to increased production capacity.
Ventures with Toshiba
We and Toshiba have entered into several business ventures. In May 2000, we formed FlashVision Ltd., or
FlashVision, which produces 200-millimeter NAND flash memory wafers. In September 2004, we and Toshiba
formed Flash Partners Ltd., or Flash Partners, or Fab 3, which produces 300-millimeter NAND flash wafers and
ramped to a full production capacity of approximately 150,000 wafers per month during fiscal year 2007. In
July 2006, we and Toshiba formed Flash Alliance Ltd., or Flash Alliance, or Fab 4, a new 300-millimeter wafer
fabrication facility which began initial production in the third quarter of fiscal year 2007 and is expected to expand
to approximately 110,000 wafers per month by mid-fiscal year 2008. Full capacity is expected to reach approx-
imately 210,000 wafers per month, with the timeframe to reach this capacity to be mutually agreed upon by the
parties. We are in preliminary discussions with Toshiba regarding the potential wind-down of the 200-millimeter
FlashVision venture. We and Toshiba have also signed a non-binding memorandum of understanding to form a new
memory wafer fab in Japan. See Note 19 “Subsequent Events” to our consolidated financial statements included in
Item 8 of this report.
With the FlashVision, Flash Partners and Flash Alliance ventures located at Toshiba’s Yokkaichi Japan
operations, we and Toshiba collaborate in the development and manufacture of NAND flash memory products using
the semiconductor manufacturing equipment owned or leased by each venture entity. We hold a 49.9% ownership
position in each of the current Toshiba and SanDisk venture entities. Each venture entity purchases wafers from
Toshiba at cost and then resells those wafers to us and Toshiba at cost plus a mark-up. We are committed to
purchase, and entitled to, half of each venture’s NAND wafer supply and are committed to fund 49.9% of each
venture’s costs to the extent that the venture’s revenues from wafer sales to us and Toshiba are insufficient to cover
these costs. The investments in each venture entity are shared equally between us and Toshiba. In addition, we
purchase wafers from Toshiba on a foundry basis.
Competition
We face competition from numerous semiconductor manufacturers and manufacturers and resellers of flash
memory cards, USB drives, digital audio players and other consumer electronic devices. We also face competition
from manufacturers of hard disk drives and from new technologies. See Item 1A, “Risk Factors.”
Key Competitive Advantages. Our key competitive advantages are:
• we have a tradition of innovation and standards creation which enables us to grow the overall market for flash
memory;
8