SanDisk 2007 Annual Report Download - page 69

For example, China does not currently have a comprehensive and highly developed legal system, particularly
with respect to the protection of intellectual property rights. This results, among other things, in the prevalence of
counterfeit goods in China. The enforcement of existing and future laws and contracts remains uncertain, and the
implementation and interpretation of such laws may be inconsistent. Such inconsistency could lead to piracy and
degradation of our intellectual property protection. Although we engage in efforts to prevent counterfeit products
from entering the market, those efforts may not be successful. Our results of operations and financial condition
could be harmed by the sale of counterfeit products.
Our international business activities could also be limited or disrupted by any of the following factors:
• the need to comply with foreign government regulation;
• changes in diplomatic and trade relationships;
• reduced sales to our customers or interruption to our manufacturing processes in the Pacific Rim that may
arise from regional issues in Asia;
• imposition of regulatory requirements, tariffs, import and export restrictions and other barriers and
restrictions;
• changes in, or the particular application of, government regulations;
• duties and/or fees related to customs entries for our products, which are all manufactured offshore;
• longer payment cycles and greater difficulty in accounts receivable collection;
• adverse tax rules and regulations;
• weak protection of our intellectual property rights;
• delays in product shipments due to local customs restrictions; and
• delays in research and development that may arise from political unrest at our development centers in Israel.
Tower Semiconductor’s financial situation is challenging. Tower supplies a significant portion of our
controller wafers from its Fab 2 facility and is currently a sole source of supply for some of our controllers.
Tower’s Fab 2 is operational and in the process of expanding capacity and our ability to continue to obtain sufficient
supply on a cost-effective basis may be dependent upon completion of this capacity expansion. Tower’s continued
expansion of Fab 2 requires sufficient funds to operate in the short-term and raising the funds required to implement
the current ramp-up plan. If Tower fails to comply with the financial ratios and covenants contained in the amended
credit facility agreement with its banks, fails to attract additional customers, fails to operate its Fab 2 facility in a
cost-effective manner, fails to secure additional financing, fails to meet the conditions to receive government grants
and tax benefits approved for Fab 2, or fails to obtain the approval of the Israeli Investment Center for a new
expansion program, Tower’s continued operations could be at risk. If this occurs, we will be forced to source our
controllers from another supplier and our business, financial condition and results of operations may be harmed.
Specifically, our ability to supply a number of products would be disrupted until we were able to transition
manufacturing and qualify a new foundry with respect to controllers that are currently sole sourced at Tower, which
could take three or more quarters to complete.
As of December 30, 2007, we have recognized cumulative losses of approximately $55.4 million as a result of
the other-than-temporary decline in the value of our investment in Tower ordinary shares, $12.2 million as a result of
the impairment in value on our prepaid wafer credits and $1.3 million of losses on our warrant to purchase Tower
ordinary shares. We are subject to certain regulations or restrictions on the transfer of our approximately
14.1 million Tower ordinary shares. It is possible that we will record further write-downs of our investment,
which was carried on our consolidated balance sheet at $20.1 million at December 30, 2007, which would harm our
results of operations and financial condition.
Our stock price has been, and may continue to be, volatile, which could result in investors losing all or part of
their investments. The market price of our stock has fluctuated significantly in the past and may continue to
fluctuate in the future. We believe that such fluctuations will continue as a result of many factors, including future
announcements concerning us, our competitors or our principal customers regarding financial results or expec-
tations, technological innovations, industry supply or demand dynamics, new product introductions, governmental
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