SanDisk 2012 Annual Report Download - page 144

We believe the markets for flash storage are generally price elastic, meaning that a decrease in the price per
gigabyte results in increased demand for higher capacities and the emergence of new applications for flash
storage. We strive to continuously reduce the cost of NAND flash memory in order to enable us to profitably
grow our business, supply a diverse set of customers and channels, and continue to grow our markets. A key
component of our ability to reduce the cost of NAND flash memory is our ability to continue to transition our
NAND flash memory process technology to smaller nodes. We currently expect to be able to continue to scale
our NAND flash memory through a few additional generations, but beyond that there is no certainty that further
technology scaling can be achieved cost-effectively with the current NAND flash memory architecture. We
continue to invest in future generations of NAND flash memory, and we are also pursuing alternative
technologies, such as BiCS and 3D ReRAM technologies, which we believe may be a viable alternative to
NAND flash memory when NAND flash memory can no longer cost-effectively scale at a sufficient rate, or at
all. We believe BiCS technology, if successful, could enable further memory cost reductions beyond the NAND
roadmap. However, even when NAND flash memory can no longer scale further, we expect NAND flash
memory and potential alternative technologies to coexist for an extended period of time. Currently, we are
focused on transitioning our products to 19-nanometer and 1Y-nanometer technologies and improving
manufacturing efficiencies.
Through our investments in our ventures with Toshiba and our in-house assembly and test facility, we have
invested heavily in a vertically integrated business model. We purchase the vast majority of our NAND flash
memory supply requirements through Flash Ventures, our significant flash venture relationships with Toshiba,
which produce and provide us with leading-edge, low-cost memory wafers. Our manufacturing operations are
concentrated in two locations, with Flash Ventures located in Yokkaichi, Japan, and our in-house assembly and
test operations located in Shanghai, China. While we do not unilaterally control the operations of Flash Ventures,
we believe that our vertically integrated business model helps us to reduce the costs of producing our products,
increases our ability to control the quality of our products and speeds delivery to our customers.
We operate in an industry characterized by rapid technology transitions and price declines and evolving end-
user markets for NAND flash memory. Historically, removable flash memory cards for imaging devices and
USB drives provided the majority of our revenues. With the emergence of the smartphone and tablet markets, our
sales of embedded NAND flash memory and cards for mobile phones, tablets, and other mobile devices have
increased, and now represent the largest percentage of our product revenues. Over the next several years, we
believe that the largest growth areas for NAND flash memory will be SSD solutions in the client computing and
enterprise data center markets, whereas the mobile market for NAND flash memory is expected to grow at a
slower rate than in the past, and the retail market for NAND flash memory is expected to be approximately
constant or declining. We continue to focus on adapting our business to the changing end-markets for NAND
flash memory and aligning our resources accordingly.
Stock Repurchase Program
Under our board-approved stock repurchase program, we had cumulatively repurchased 5.73 million shares
for $234 million as of December 30, 2012, of which 5.65 million shares for $230 million were repurchased in
fiscal year 2012. In addition, in December 2012, our Board of Directors authorized an additional $750 million for
stock repurchases, bringing the total amount authorized for stock repurchases to $1.25 billion, of which $1.02
billion remained available for stock repurchases as of December 30, 2012.
Convertible Notes
Our 1% Notes due 2013 will mature on May 15, 2013. Upon maturity, we will be required to pay $928
million in cash to settle the principal amount outstanding under these notes. We intend to settle these notes using
our current cash resources. In addition, the associated convertible bond hedge transaction and warrants will either
be settled on a net share basis or expire unexercised based upon the closing stock price at maturity or on their
respective expiration dates.
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