Crucial 2013 Annual Report Download - page 8

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Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and quality-limiting
contaminants. Despite stringent manufacturing controls, equipment errors, minute impurities in materials, defects in
photomasks, circuit design marginalities or defects and dust particles can lead to wafers being scrapped and individual circuits
being nonfunctional. Success of our manufacturing operations depends largely on minimizing defects to maximize yield of
high-quality circuits. In this regard, we employ rigorous quality controls throughout the manufacturing, screening and testing
processes. We are able to recover certain devices by testing and grading them to their highest level of functionality.
We test our products at various stages in the manufacturing process, perform high temperature burn-in on finished products
and conduct numerous quality control inspections throughout the entire production flow. In addition, we use our proprietary
AMBYX™ line of intelligent test and burn-in systems to perform simultaneous circuit tests of semiconductor memory die
during the burn-in process, capturing quality and reliability data and reducing testing time and cost.
We sell semiconductor products in both packaged and unpackaged (i.e. "bare die") forms. Our packaged products include
memory modules, MCP's, managed NAND, SSDs, memory cards and USB devices. We assemble many products in-house
and, in some cases, we outsource assembly services where we can reduce costs and minimize our capital investment. We
contract with independent foundries and assembly and testing organizations to manufacture NAND Flash media products such
as memory cards and USB devices.
In recent years, we have produced an increasingly broad portfolio of products, which enhances our ability to allocate
resources to our most profitable products but also increases the complexity of our manufacturing operations. Although our
product lines generally use similar manufacturing processes, our overall cost efficiency can be affected by frequent conversions
to new products, the allocation of manufacturing capacity to more complex, smaller-volume parts and the reallocation of
manufacturing capacity across various product lines.
Availability of Raw Materials
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our
raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our
standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability of raw
materials such as silicon wafers, photomasks, chemicals, gases including helium, photoresist, lead frames and molding
compound. Shortages may occur from time to time in the future. In addition, disruptions in transportation lines could delay
our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw
materials is disrupted or our lead times extended, our business, results of operations or financial condition could be materially
adversely affected.
Marketing and Customers
Our products are sold into computing, consumer, networking, telecommunications, automotive, industrial, and mobile
markets. Market concentrations from 2013 net sales were approximately as follows: computing (including desktop PCs,
servers, notebooks and workstations), 30%; mobile, 15%; consumer electronics, 15%; SSDs, 15% and networking and storage,
10%. Sales to Intel, primarily NAND Flash products through IM Flash, were 10% of our net sales in 2013, 12% of our net
sales in 2012, and 10% of our net sales in 2011. Sales to Hewlett-Packard Company, primarily of DRAM, were 10% of our net
sales in 2013, 8% of our net sales in 2012 and 9% of our net sales in 2011. We expect that our acquisition of Elpida will
increase our concentration of sales to mobile, graphics and computing markets in 2014.
Our semiconductor memory products are offered under the Micron, Lexar®, Crucial™, SpecTek® and Elpida brand names
and private labels. We market our semiconductor memory products primarily through our own direct sales force and maintain
sales or representative offices in our primary markets around the world. We sell Lexar-branded NAND Flash memory products
primarily through retail channels and our Crucial-branded products through a web-based customer direct sales channel as well
as channel and distribution partners. Our products are also offered through independent sales representatives and distributors.
Independent sales representatives obtain orders subject to final acceptance by us and are compensated on a commission basis.
We make shipments against these orders directly to the customer. Distributors carry our products in inventory and typically sell
a variety of other semiconductor products, including competitors' products. We maintain inventory at locations in close
proximity to certain key customers to facilitate rapid delivery of products. Many of our customers require a thorough review or
qualification of semiconductor products, which may take several months.