SanDisk 2013 Annual Report Download - page 113

• inability to enhance current products, develop new products or transition products to new
technologies on a timely basis or in advance of our competitors;
• increased memory component and other costs as a result of currency exchange rate fluctuations for
the U.S. dollar, particularly with respect to the Japanese yen;
• inability to obtain non-captive memory supply of the right product mix and quality in the time frame
necessary to meet demand, or inability to realize an adequate margin on non-captive purchases;
• insufficient assembly and test or retail packaging and shipping capacity from our Shanghai, China
facility or our contract manufacturers, or labor unrest, employee strikes or other disruptions at any
of these facilities;
• 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;
• inability to realize the potential financial or strategic benefits of business acquisitions or strategic
investments;
• the financial strength and market position of our customers; and
• the other factors described in this ‘‘Risk Factors’’ section and elsewhere in this report.
Competitive pricing pressures may result in lower average selling prices for our products, and if such price
declines are not offset by a corresponding increase in demand for our products, our revenue may decline. The
price of NAND flash memory is influenced by, among other factors, the balance between supply and
demand, including the effects of new industry fab capacity, macroeconomic factors and business
conditions, technology transitions, conversion of industry DRAM capacity to NAND, development of new
technologies such as 3D NAND or other actions taken by us or our competitors to gain market share. In
particular, the NAND flash memory industry has, from time-to-time, experienced periods of excess supply,
resulting in price declines. Industry bit supply is expected to continue to grow, and if bit supply grows at a
faster rate than market demand, the industry could again experience unanticipated price declines. If we are
not able to offset price declines with sufficient increases in unit sales or average memory capacity per unit
or a shift in product mix towards products with higher average selling prices, our revenue and operating
results may be harmed.
If we are unable to reduce our product costs to keep pace with reductions in average selling prices, our gross
margin may be harmed. Because of the historical and expected future declines in the price of NAND flash
memory, we need to reduce our product costs in order to maintain adequate gross margin. Our ability to
reduce our cost per gigabyte of memory produced depends on technology transitions and the improvement
of manufacturing efficiency, including manufacturing yields. If our technology transitions (for example, the
production ramp of NAND technology on the 1Y-nanometer or 1Z-nanometer process nodes) take longer
or are more costly to complete than anticipated, our flash memory costs may not remain competitive with
other NAND flash memory producers, which would harm our gross margin and financial results. The
transitions to 1Y-nanometer and 1Z-nanometer will likely lead to less product cost reduction than we have
experienced with prior technology node transitions. Furthermore, the inherent physical technology
limitations of NAND flash technology may result in more costly technology transitions than we have
experienced in the past, particularly with respect to required capital expenditures, which could further limit
our ability to keep pace with reductions in average selling prices. Manufacturing yields are a function of
both design and manufacturing process technology, and yields may also be impacted by equipment
malfunctions, fabrication facility accidents or human error. Manufacturing yield issues may not be
identified during the development or production process or solved until an actual product is manufactured
and tested, further increasing our costs. If we are unable to improve manufacturing yields or other
manufacturing efficiencies, our gross margin and results of operations would be harmed. In addition, our
products contain non-flash memory materials and require product level assembly and test. Our non-flash
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