SanDisk 2007 Annual Report Download - page 66

We have some non-silicon components which have long lead times requiring us to place orders several months
in advance of our anticipated demand. The extended period of time to secure these long lead time parts increases our
risk that forecasts will vary substantially from actual demand, which could lead to excess inventory or loss of sales.
We are sole-sourced for a number of our critical components and the absence of a back-up supplier exposes our
supply chain to unanticipated disruptions. We rely on our vendors, some of which are a sole source of supply, for
many of our critical components, such as certain controllers for our CompactFlash and USB products. We do not
have long-term supply agreements with most of these vendors. Our business, financial condition and operating
results could be significantly harmed by delays or reductions in shipments if we are unable to obtain sufficient
quantities of these components or develop alternative sources of supply.
Our global operations and operations at the flash ventures with Toshiba and third-party subcontractors are
subject to risks for which we may not be adequately insured. Our global operations are subject to many risks
including errors and omissions, infrastructure disruptions, such as large-scale outages or interruptions of service
from utilities or telecommunications providers, supply chain interruptions, third-party liabilities and fires or natural
disasters. No assurance can be given that we will not incur losses beyond the limits of, or outside the scope of,
coverage of our insurance policies. From time-to-time, various types of insurance have not been available on
commercially acceptable terms or, in some cases, have been unavailable. We cannot assure you that in the future we
will be able to maintain existing insurance coverage or that premiums will not increase substantially. We maintain
limited insurance coverage and in some cases no coverage for natural disasters and sudden and accidental
environmental damages as these types of insurance are sometimes not available or available only at a prohibitive
cost. Accordingly, we may be subject to an uninsured or under-insured loss in such situations. We depend upon
Toshiba to obtain and maintain sufficient property, business interruption and other insurance for the flash ventures
with Toshiba. If Toshiba fails to do so, we could suffer significant unreimbursable losses, and such failure could also
put the flash ventures with Toshiba in breach of various financing covenants. In addition, we insure against property
loss and business interruption resulting from the risks incurred at our third-party subcontractors; however, we have
limited control as to how those sub-contractors run their operations and manage their risks, and as a result we may
not be adequately insured.
We are exposed to significant risk from foreign currency fluctuations. Our purchases of NAND flash memory
from the flash ventures with Toshiba and our investments in, and other transactions related to, those ventures are
denominated in Japanese yen. In recent months, the Japanese yen has appreciated relative to the U.S. dollar and this
will increase our costs of NAND flash wafers. Further, most of our products are manufactured in China and
significant fluctuations in Chinese renminbi, or RMB, could increase our product costs. We expect over time to
increase the percentage of our sales denominated in currencies other than the U.S. dollar. Management of foreign
exchange exposures is complex and we do not currently hedge many of these exposures. If we do not successfully
manage our foreign exchange exposures, our business, results of operations and financial condition could be
harmed.
We may be unable to protect our intellectual property rights, which would harm our business, financial
condition and results of operations. We rely on a combination of patents, trademarks, copyright and trade secret
laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. In the past,
we have been involved in significant and expensive disputes regarding our intellectual property rights and those of
others, including claims that we may be infringing third-parties’ patents, trademarks and other intellectual property
rights. We expect that we may be involved in similar disputes in the future.
We cannot assure you that:
• any of our existing patents will not be invalidated;
• patents will be issued for any of our pending applications;
• any claims allowed from existing or pending patents will have sufficient scope or strength;
• our patents will be issued in the primary countries where our products are sold in order to protect our rights
and potential commercial advantage; or
• any of our products or technologies do not infringe on the patents of other companies.
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