SanDisk 2012 Annual Report Download - page 114

Taiwan. We believe the use of our in-house assembly and test facility, as well as contract
manufacturers, reduces the cost of our operations, provides flexibility and gives us access to increased
production capacity.
Ventures with Toshiba
We and Toshiba have invested in several flash memory manufacturing business ventures, which provide us
leading-edge, cost-competitive NAND wafers for our end products. From May 2000 to May 2008, FlashVision
Ltd., operated and produced 200-millimeter NAND flash memory wafers. In September 2004, Flash Partners
Ltd., which produces 300-millimeter NAND flash wafers in Toshiba’s Fab 3 facility, was formed. In July 2006,
Flash Alliance Ltd., a 300-millimeter wafer fabrication facility which began initial production in the third quarter
of fiscal year 2007 in Toshiba’s Fab 4 facility, was formed. In July 2010, Flash Forward Ltd., a 300-millimeter
wafer fabrication facility which began production in the third quarter of fiscal year 2011 in Toshiba’s Fab 5
facility, was formed. Flash Partners and Flash Alliance have been fully equipped. Flash Forward has been
partially equipped. We refer to Flash Partners, Flash Alliance and Flash Forward collectively as Flash Ventures.
Through Flash Ventures, located within Toshiba’s Yokkaichi, Japan facilities, we and Toshiba collaborate
in the development and manufacture of NAND-based flash memory wafers using semiconductor manufacturing
equipment owned or leased by each of the Flash Venture entities. We hold a 49.9% ownership position in each of
the Flash Venture entities. Each Flash Venture entity purchases wafers from Toshiba at cost and then resells
those wafers to us and Toshiba at cost plus a mark-up. We are committed to purchase half of Flash Ventures’
NAND wafer supply or pay for half of Flash Ventures’ fixed costs regardless of the output we choose to
purchase. We are also committed to fund 49.9% of other Flash Ventures’ costs to the extent that Flash Ventures’
revenues from wafer sales to us and Toshiba are insufficient to cover these costs. The non-equity investments in
Flash Ventures are shared equally between us and Toshiba.
Competition
We face competition from flash memory manufacturers, as well as manufacturers and resellers of products
that incorporate flash memory cards.
We believe that our ability to compete successfully depends on a number of factors, including:
• price, quality and on-time delivery of products;
• product performance, availability and differentiation;
• success in developing new products, applications and markets;
• timing of new product announcements and successful introductions;
• sufficient availability of cost-efficient supply;
• creation and monetization of IP and the development of industry standards and formats;
• the number and nature of competitors in a given market; and
• general market and economic conditions.
We believe our key competitive advantages are:
• our strong history of technological innovation and standards creation, which enables us to grow the
overall market for flash memory;
• our IP ownership, in particular our patents, and multi-level cell, or MLC, manufacturing know-how,
which provides us with license and royalty revenue as well as cost advantages;
• Flash Ventures, which provides us with leading-edge, low-cost flash memory;
• our flexible supply chain;
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