SanDisk 1998 Annual Report Download - page 25

SanDisk Corporation
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request to have the case dismissed. Discovery in this suit
began in August 1998. Currently the case is in the claims
construction phase. See “Item 3. Legal Proceedings.”
We intend to vigorously enforce our patents but we cannot
be sure that our efforts will be successful. If we were to have
an adverse result in any such litigation, we could be required
to pay substantial damages, cease the manufacture, use and
sale of infringing products, expend significant resources to
develop non-infringing technology, discontinue the use of
certain processes or obtain licenses to the infringing technol-
ogy. Any litigation is likely to result in significant expense to
us, as well as divert the efforts of our technical and manage-
ment personnel.
If we decide to incorporate third party technology into our
products or if we are found to infringe on others’ intellectual
property, we could be required to license intellectual property
from a third party. We may also need to license some of our
intellectual property to others in order to enable us to obtain
cross-licenses to third party patents. Currently, we have
patent cross-license agreements with Hitachi, Intel, Samsung,
Sharp, SST and Toshiba and we are in discussions with other
companies regarding potential cross-license agreements. We
cannot be certain that licenses will be offered when we need
them, or that the terms offered will be acceptable. If we do
obtain licenses from third parties, we may be required to pay
license fees or royalty payments. In addition, if we are unable
to obtain a license that is necessary to the manufacture of
our products, we could be required to suspend the manufac-
ture of products or stop our foundries from using processes
that may infringe the rights of third parties. We cannot
assure you that we would be successful in redesigning our
products or that the necessary licenses will be available
under reasonable terms.
We have historically indemnified various suppliers and
customers for alleged patent infringement. The scope of such
indemnity varies, but may, in some instances, include indem-
nification for damages and expenses, including attorney’s
fees. We may periodically engage in litigation as a result of
these indemnification obligations. Our insurance policies
exclude coverage for third party claims for patent infringement.
Any future obligation to indemnify our customers or suppliers
could have a negative affect on our business, financial condi-
tion or results of operations.
Our Rapid Growth M ay Strain O ur O perations
We have experienced rapid growth, which has placed, and
continues to place, a significant strain on our personnel and
other resources. To accommodate this growth, we must
continue to implement and improve our operational, financial
and management information systems, as well as hire, train,
motivate and manage our employees. We have had difficulty
in the past hiring the necessary engineering, sales and mar-
keting personnel to support our growth. In addition, we
must make a significant investment in our existing internal
information management systems to support increased
manufacturing, as well as accounting and other management
related functions. Our systems, procedures and controls may
not be adequate to support our rapid growth, which could
in turn negatively affect our business, financial condition
and results of operations.
We Depend Upon Certain Key Personnel
Our success greatly depends on the continued contributions
of our senior management and other key research and devel-
opment, sales, marketing and operations personnel, including
Dr. Eli Harari, the founder, President and Chief Executive
Officer. Our success will also depend on our ability to recruit
additional highly skilled personnel. We cannot assure you
that we will be successful in hiring or retaining such key
personnel, or that any of our key personnel will remain
employed with us.
Our Stock Price M ay Be Volatile
The market price of our stock has fluctuated in the past and
is likely to fluctuate in the future. For example, in the twelve
month period ending December 31, 1998, our stock price
fluctuated from a low of $5.125 to a high of $26.25. We
believe that such fluctuations could continue as a result of
future announcements concerning us, our competitors or
principal customers regarding technological innovations,
new product introductions, governmental regulations, litiga-
tion or changes in earnings estimates by analysts. In addition,
in recent years the stock market has experienced significant
price and volume fluctuations and the market prices of the
securities of high technology companies have been especially
volatile. These fluctuations as well as general economic,
political and market conditions may have an adverse affect
on the market price of our Common Stock.
Year 2000 Issues M ay Harm O ur Business
Many existing computer systems and applications may not
function properly when using dates beyond December 31,
1999. We have established a Year 2000 Risk Management
program to assess the impact that the Year 2000 issue may
have on our business. Based on our assessment to date, all of
our flash memory and connectivity products are Year 2000
compliant. Other Year 2000 issues that we face include:
• Assessment and remediation of the tertiary business
information systems
• Assessment and remediation of the computer systems
used for facilities control, machine control and
manufacturing testing
• Year 2000 compliance of our key suppliers and customers
Our estimated total costs for Year 2000 compliance issues
are not expected to have a material adverse affect on our
business. However, the failure of our key suppliers and
customers to take proper remedial efforts could harm our
business, financial condition and results of operations.
See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Year 2000
Readiness Disclosure.”