SanDisk 2012 Annual Report Download - page 132

revenues. In addition, if we are unable to obtain a license that is necessary to manufacture or sell our products,
we could be required to redesign or stop shipping our products to one or more geographic locations, suspend the
manufacture of products or stop our product suppliers from using processes that may infringe the rights of third
parties. We may not be successful in redesigning our products, or the necessary licenses may not be available
under reasonable terms, which would harm our business and financial results.
Changes in the seasonality of our business may result in our inability to accurately forecast our product
purchase requirements. Sales of our products in the consumer electronics market are subject to seasonality. Sales
have typically increased significantly in the fourth quarter of each fiscal year, sometimes followed by significant
declines in the first quarter of the following fiscal year. However, the current global economic environment may
impact typical seasonal trends, making it more difficult for us to forecast our business. Changes in the product or
channel mix of our business can also impact seasonal patterns, adding to complexity in forecasting demand. If
our forecasts are inaccurate, we may lose market share or procure excess inventory or inappropriately increase or
decrease our operating expenses, any of which could harm our business, financial condition and operating results.
Changes in seasonality may also lead to greater volatility in our stock price and the need for significant working
capital investments in receivables and inventory, including the need to build inventory levels in advance of our
projected high volume selling seasons.
We are vulnerable to numerous risks related to our international operations, including political instability,
and we must comply with numerous laws and regulations, many of which are complex. Currently, a large portion
of our revenues are derived from our international operations, and all of our products are produced overseas in
China, Japan and Taiwan. Our revenue and future growth is also significantly dependent on international
markets, and we may face difficulties entering or maintaining sales in some international markets. We are,
therefore, affected by the political, economic, labor, environmental, public health and military conditions in these
countries. For example, China does not currently have a comprehensive and highly developed legal system,
particularly with respect to the protection of IP rights, which results in the prevalence of counterfeit goods in
China, among other things, as well as piracy and degradation of our IP protection. Our efforts to prevent
counterfeit products from entering the market may not be successful, and the sale of counterfeit products could
harm our operating results and financial condition. In addition, customs regulations in China are complex and
subject to frequent changes and, in the event of a customs compliance issue, our ability to import to, and export
from, our factory in Shanghai, China could be adversely affected, which could harm our operating results and
financial condition.
Our international business activities could also be limited or disrupted by any of the following factors:
• the need to comply with foreign government regulation;
• the need to comply with U.S. regulations on international business, including the Foreign Corrupt
Practices Act and rules regarding conflict minerals;
• 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, including natural disasters or labor strikes;
• imposition of regulatory requirements, tariffs, import and export restrictions and other barriers and
restrictions;
• a higher degree of commodity pricing than in the U.S.;
• changes in, or the particular application of, government regulations;
• import or export restrictions that could affect some of our products, including those with encryption
technology;
• 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;
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