SanDisk 2013 Annual Report Download - page 143

We currently expect that industry bit-supply growth for fiscal year 2014 will be approximately 40%,
similar to the estimated supply growth rate in fiscal year 2013 and significantly lower than in fiscal year
2012. We expect that our captive bit-supply growth for fiscal year 2014 will be between 25% and 35%,
compared to 18% in fiscal year 2013 and 86% in fiscal year 2012. In fiscal year 2014, we expect our
business to experience a modest decline in our blended average selling price per gigabyte compared to no
change in fiscal year 2013. Our revenue for fiscal year 2014 will be influenced primarily by our captive
bit-supply growth, industry pricing trends and the mix of our product sales. We expect our fiscal year 2014
cost reduction per gigabyte to be less than the 20% generated in fiscal year 2013, likely in the range of 15%
to 20%. Our primary cost reduction in fiscal year 2014 will come from the 1Y-nanometer technology
transition and expected positive impact of the Japanese yen to U.S. dollar exchange rate for Japanese yen
denominated wafer purchases, offset by a continued product mix shift toward products which carry higher
non-flash memory content.
As part of our efforts to continuously reduce the cost of NAND flash, we are currently focused on
transitioning our products to 19-nanometer and 1Y-nanometer technologies and we plan to transition to
1Z-nanometer technology beginning in late 2014 and throughout the 2015 timeframe. Our 1Y-nanometer
and subsequent technology nodes have increased manufacturing equipment requirements, which reduce
the cost reduction benefits obtainable through these technologies compared with previous technology node
transitions. We continue to develop our 3D NAND architecture, and we continue to target pilot
production for our 3D NAND in 2015 and volume ramp of our 3D NAND products in 2016. Some of our
competitors have announced the launch of 3D NAND technologies with volume production beginning in
2014. At this time, these technologies are still emerging and it is unclear how these new technologies will
compare to our 3D NAND technology and what implications other 3D NAND approaches may have for
our industry or our business in terms of cost leadership, technology leadership, supply increases and
product specifications. We believe that continued 2D NAND scaling is the most efficient method of
reducing NAND costs in the near term and addressing the broadest range of market opportunities and
therefore continue to focus on scaling 2D NAND flash at least through the 1Y-nanometer and 1Z-
nanometer technology nodes, while we work on alternative technologies, primarily 3D NAND and 3D
ReRAM in parallel. We believe that both 3D NAND and 3D ReRAM technologies may be viable
alternatives to 2D NAND flash memory, when 2D NAND flash memory can no longer cost-effectively
scale at a sufficient rate, or at all. However, even when 2D NAND flash memory can no longer be further
scaled, we expect 2D NAND flash technology and potential alternative technologies to coexist for an
extended period of time.
Fiscal Year 2013 Developments and Transactions
Convertible Notes. In the second quarter of fiscal year 2013, we settled our 1% Convertible Senior Notes
due 2013, or the 1% Notes due 2013, in cash for $928.1 million principal plus $4.6 million of accrued
interest. In addition, the associated convertible bond hedge transaction was terminated, with no shares
purchased and the associated warrants that expired unexercised.
In October 2013, we issued and sold $1.5 billion in aggregate principal amount of 0.5% Convertible
Senior Notes due October 15, 2020, or the 0.5% Notes due 2020. The 0.5% Notes due 2020 were issued at
par and pay interest at a rate of 0.5% per annum. The 0.5% Notes due 2020 may be converted into our
common stock, under certain circumstances, based on an initial conversion rate of 10.8470 shares of
common stock per $1,000 principal amount of notes (which represents an initial conversion price of
approximately $92.19 per share). The conversion price will be subject to adjustment in some events, but
will not be adjusted for accrued interest. The net proceeds to us from the offering of the 0.5% Notes due
2020 were $1.48 billion. Concurrently with the issuance of the 0.5% Notes due 2020, we purchased a
convertible bond hedge for $332 million and sold warrants for proceeds of $218 million. The separate
convertible bond hedge and warrant transactions are structured to reduce the potential future economic
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Annual Report