SanDisk 2010 Annual Report Download - page 141

This is a TAB type table. Insert
conts here. Annual Report
• lower than anticipated demand, including due to general economic weakness in our markets;
• insufficient supply from captive flash memory sources, inability to obtain non-captive flash memory
supply of the right product mix with adequate margins and quality in the time frame necessary to meet
demand, or inability to realize a positive margin on non-captive purchases;
• our license and royalty revenues may fluctuate or decline significantly in the future due to license
agreement renewals, non-renewals, business performance of our licensees, or if licensees or we fail to
perform on contractual obligations;
• inability to develop or unexpected difficulties or delays in developing, manufacturing with acceptable
yields, or ramping, new technologies such as 24-nanometer or next generation process technology, X3
NAND memory architecture, 3D Read/Write, Extreme Ultra-Violet lithography, or other advanced
alternative technologies;
• inability to adequately invest in future technologies and products while managing operating expenses
and profit margins;
• insufficient non-memory materials or capacity from our suppliers and contract manufacturers to meet
demand or increases in the cost of non-memory materials or capacity;
• inability to maintain or grow our sales of our non-branded products, wafers and components, or
potential loss of branded product sales as a result;
• insufficient assembly and test capacity from our Shanghai facility or our contract manufacturers, labor
unrest, strikes or other disruptions in operations at any of these facilities;
• timing, volume and cost of wafer production from Flash Ventures as impacted by fab start-up delays
and costs, technology transitions, lower than expected yields or production interruptions;
• difficulty in forecasting and managing inventory levels 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;
• disruption in the manufacturing operations of suppliers, including suppliers of sole-sourced
components;
• potential delays in the emergence of new markets and products for NAND-based flash memory, such
as SSDs, or lack of acceptance of our products by our OEM customers or consumers;
• inability to enhance current products or develop new products on a timely basis;
• timing of sell-through and the financial liquidity and strength of 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; and
• the other factors described under “Risk Factors” and elsewhere in this report.
We require an adequate level of product gross margins to continue to invest in our business. Our ability to
generate sufficient product gross margin and profitability to invest in our business depends in part on industry
and our supply/demand balance, our ability to reduce cost per gigabyte at an equal or higher rate than the price
decline per gigabyte, our ability to develop new products and technologies, the rate of growth of our target
markets, the competitive position of our products, the continued acceptance of our products by our customers,
and our ability to manage expenses. For example, we experienced negative product gross margins for fiscal year
2008 and the first quarter of fiscal year 2009 due to sustained aggressive industry price declines as well as
inventory charges primarily due to lower of cost or market write downs. Since the second half of 2010, we have
invested in expanded wafer capacity in Flash Alliance. In July 2010, we and Toshiba entered into an agreement
to create Flash Forward to operate a 300-millimeter wafer fabrication facility in Fab 5, with initial NAND
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