SanDisk 2007 Annual Report Download - page 60

technologies to be adopted, for consumers to accept and transition to these new standards or technologies and for
significant sales to be generated from these new standards or technologies, if this happens at all.
Competitors or other market participants could seek to develop new standards for flash memory products
which, if accepted by device manufacturers or consumers, could reduce demand for our products. For example,
certain handset manufacturers and flash memory chip producers are currently advocating the development of a new
standard, referred to as Universal Flash Storage, or UFS, for flash memory cards used in mobile phones. Intel and
Micron have also developed a new specification for a NAND flash interface, called ONFI, which would be used
primarily in computing devices. Broad acceptance of new standards, technologies or products may reduce demand
for some of our products. If this decreased demand is not offset by increased demand for new form factors or
products that we offer, our results of operations could be harmed.
Alternative storage solutions such as high bandwidth wireless or internet-based storage could reduce the need
for physical flash storage within electronic devices. These alternative technologies could negatively impact the
overall market for flash-based products, which could seriously harm our results of operations.
Consumer devices that use NAND flash memory do so in either a removable card or an embedded format. We
offer NAND flash memory products in both categories; however, our market share is strongest for removable flash
memory products. If designers and manufacturers of consumer devices, including mobile phones, increase their
usage of embedded flash memory, we may not be able to sustain our market share. In addition, if NAND flash
memory is used in an embedded format, we would have less opportunity to influence the capacity of the NAND
flash products and we would not have the opportunity for additional after-market retail sales related to these
consumer devices or mobile phones. Any loss of market share or reduction in the average capacity of our product
sales or any loss in our retail after-market opportunity could harm our operating results and business condition.
We are developing the next generations of MLC technology, including 3-bits per cell, or X3, and 4-bits per cell,
or X4. We believe the successful introduction of X3 and X4 technology may be required in order to achieve the level
of future cost reductions for the further adoption of flash memory in consumer applications. The performance,
reliability, yields and time-to-market of X3 and X4 technologies are uncertain, and there can be no assurance of the
commercial success of these technologies.
In addition, we are investing in future alternative technologies, such as our three-dimensional semiconductor
memory, which currently is limited to one-time programmable applications. We are investing significant resources
to develop this technology for multiple read-write applications; however, there can be no assurance that we will be
successful in developing these alternative technologies or that we will be able to achieve the yields, quality or
capacity required for this technology to be cost competitive with new or other alternative memory technologies.
We face competition from numerous manufacturers and marketers of products using flash memory, as well as
from manufacturers of new and alternative technologies, and if we cannot compete effectively, our results of
operations and financial condition will suffer. Our competitors include many large companies that may have
greater advanced wafer manufacturing capacity and substantially greater financial, technical, marketing and other
resources than we do, which allows them to produce flash memory chips in high volumes at low costs and to sell
these flash memory chips themselves or to our flash card competitors at a low cost. Some of our competitors may
sell their flash memory chips at or below their true manufacturing costs to gain market share and to cover their fixed
costs. Such practices occurred in the DRAM industry during periods of excess supply and resulted in substantial
losses in the DRAM industry. Our primary semiconductor competitors include Hynix, IM Flash, Micron, Samsung,
STMicro and Toshiba. We, along with Hynix, IM Flash, Samsung and Toshiba, are aggressively increasing NAND
output and are expected to continue to produce significant NAND output in the future. In addition, current and
future competitors produce or could produce alternative flash or other memory technologies that compete against
our NAND flash memory technology or our alternative technologies, which may reduce demand or accelerate price
declines for NAND. Furthermore, the future rate of scaling of the NAND flash technology design that we employ
may slow down significantly, which would slow down cost reductions that are fundamental to the adoption of flash
memory technology in new applications. If the scaling of NAND slows down or alternative technologies prove to be
more economical, the investments in our captive fabrication facilities could be impaired and our results of
operations and financial condition will suffer. 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
14