SanDisk 2013 Annual Report Download - page 106

As of the end of fiscal year 2013, we owned, or had rights to, more than 2,600 United States, or U.S.,
patents and more than 2,100 foreign patents. We had more than 1,100 patent applications pending in the
U.S., and had foreign counterparts pending on many of the applications in multiple jurisdictions. We
continually seek additional U.S. and international patents on our technology.
We have patent license agreements with many companies, including SK Hynix Semiconductor, Inc., or
Hynix, Intel Corporation, or Intel, Hitachi Ltd., Renesas Electronics Corporation, Samsung, Sony
Corporation, or Sony, and Toshiba. In the three years ended December 29, 2013, we have generated
$1.13 billion in revenue from license and royalty agreements.
Trade secrets and other confidential information are also important to our business. We protect our
trade secrets through confidentiality and invention assignment agreements, among other measures.
Supply Chain
Our supply chain is an important competitive advantage and is comprised of the following:
•Silicon Sourcing. All of our memory storage solutions require silicon chips for the memory and
controller components. Substantially all of our NAND flash memory is supplied by our ventures
with Toshiba. This represents captive supply and we are obligated to take our share of the output
from these ventures or pay the fixed costs associated with that capacity. See ‘‘Ventures with
Toshiba.’’ We also purchase non-captive flash memory from other suppliers to supplement our
captive flash memory. We use controllers which we have designed in-house as well as controllers
purchased from third-parties. Our controllers that are designed in-house are manufactured at third-
party foundries.
•Assembly and Testing. We sort and test our memory wafers at captive and third-party facilities in
China, Japan and Taiwan. Our products are assembled and tested at both our in-house facility in
Shanghai, China, and through our network of contract manufacturers, which are primarily in China,
Malaysia and 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 NAND flash manufacturing business ventures, which provide
us leading-edge, cost-competitive NAND wafers for our end products. In September 2004, Flash
Partners Ltd., which produces 300-millimeter NAND flash wafers in Toshiba’s Fab 3 facility, or Fab 3, 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, or Fab 4, 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, or Fab 5, 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 flash 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’ revenue from wafer sales to us and Toshiba are
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