SanDisk 2007 Annual Report Download - page 57

Item 1A. RISK FACTORS
Our operating results may fluctuate significantly, which may adversely affect our financial condition 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:
• average selling prices, net of promotions, declining at a faster rate than cost reductions for our products due
to industry or SanDisk excess supply and competitive pricing pressures;
• reduction in price elasticity of demand related to pricing changes for some of our markets and products;
• our license and royalty revenues may decline significantly in the future as our existing license agreements
and key patents expire or if licensees fail to perform on a portion or all of their contractual obligations, which
may also lead to increased patent litigation costs;
• unexpected difficulties in developing, or inability to develop, X3, X4, 3D, or other advanced, alternative
technologies or difficulty in bringing advanced technologies into volume production at cost competitive
levels;
• increased purchases of non-captive flash memory, which typically costs more than captive flash memory and
may be of less consistent quality;
• insufficient assembly and test capacity from our contract manufacturers or our Shanghai facility;
• excess supply from captive sources due to output increasing faster than the growth in demand resulting in
excess inventory;
• unpredictable or changing demand for our products, particularly demand for certain types or capacities of
our products or demand for our products in certain markets or geographies;
• addition of new competitors, expansion of supply from existing competitors and ourselves creating excess
market supply, which could cause our average selling prices to decline faster than our costs decline;
• difficulty in forecasting and managing inventory levels, particularly due to noncancelable contractual
obligations to purchase materials such as custom non-memory materials, and the need to build finished
product in advance of customer purchase orders;
• timing, volume and cost of wafer production from the flash ventures with Toshiba as impacted by fab
start-up delays and costs, technology transitions, yields or production interruptions;
• disruption in the manufacturing operations of suppliers, including suppliers of sole-sourced components;
• increased memory component and other costs as a result of exchange rate fluctuations to the U.S. dollar,
particularly with respect to the Japanese yen;
• potential delays in the emergence of new markets and products for NAND flash memory and acceptance of
our products in these markets;
• timing of sell-through by our distributors and retail customers;
• errors or defects in our products caused by, among other things, errors or defects in the memory or controller
components, including memory and non-memory components we procure from third-party suppliers;
• write-downs or impairments of our investments in fabrication capacity, equity investments and other assets;
• impairment of goodwill and other challenges related to our acquisitions of msystems Ltd. and Matrix
Semiconductor, Inc.;
• estimates used in calculating share-based compensation expense;
• reduced sales to our retail customers if consumer confidence declines or due to economic declines in the
United States, Europe or other geographies; and
• other factors described under “Risk Factors” and elsewhere in this report.
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