SanDisk 1998 Annual Report Download - page 8

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SanDisk Corporation
3
Another important market segment for SanDisk is telecommunications and network infrastructure,
served by companies such as Lucent, Cisco and Nortel. During 1998, our efforts in this market
began to pay off with a number of important design wins. These customers have determined that
one of the least reliable components in their remote environment is the mechanical disk drive. With
the rapid decline in our flash memory cost, SanDisk is now able to offer a cost effective, highly
reliable, solid state plug and play replacement that meets the price threshold of these customers.
We believe this business plays to our strengths in high capacity, highly reliable flash storage, and
should provide growth opportunities in the years ahead.
In Operations and Technology, the most important accomplishment for SanDisk in 1998 was
transferring our flash technology and establishing volume production at both United Semiconductor
Corporation and United Silicon Incorporated, our foundry partners in Taiwan. This move allowed
us to quickly transition from 32Mbit to 64Mbit technologies for all SanDisk products, and to
establish a highly competitive manufacturing source. We also made excellent progress in developing
the 128Mbit and 256Mbit flash designs, which will become critically important to leadership
products and lower flash costs in 1999 and 2000 respectively. Operations reduced inventories by
43% from the prior year while improving deliveries to customer requests on significantly higher
volumes. Our highest priority during 1999 will be making SanDisk the industry’s highest volume,
most customer responsive flash card supplier.
Competition is expected to remain fierce as growth in our target markets attracts large technology
investments from competitors. The key to retaining our market leadership position is continued
execution of our advanced technology development roadmap and continued excellence in high
volume manufacturing of our flash storage products.
As we look forward to 1999, we are optimistic that new products based on the 128Mbit and
256Mbit flash will spur growth in product revenues and improved gross margins. Growth will
come from an ever more pervasive customer base in all our major markets. According to major
independent market reports, SanDisk has several major mega market opportunities ahead of it in
1999 and beyond. These new markets are beginning to respond elastically to the much more
favorable pricing for flash cards established over the past several quarters.
I believe SanDisk is well positioned to be the global leader for flash data storage as our target
markets enter an accelerated growth phase on their way to becoming mega markets.
We appreciate your continued support of our strategy.
Eli Harari
President and Chief Executive O fficer