SanDisk 2000 Annual Report Download - page 26

2 4 . Sa n D is k C o rp o ra t io n . 2 0 0 0 A n n u a l Re p o rt
S a le s to a s m a ll num b e r o f c u s t o m e rs r e p re s e n t a
s ig n ific a n t p o rtio n o f o ur re ve n u e s .
Ap p ro xim ate ly o ne- half o f o ur revenues c om e fro m a
sm all num b er o f c usto m e rs. Fo r exam p le , sales to o ur
to p 10 c usto m e rs ac c o unte d fo r ap p ro xim ately 48% ,
57% , and 5 9%, re sp e c tive ly, o f o ur p ro d uc t revenues
fo r 200 0, 1999 , and 199 8 . In 20 0 0, no sing le c usto m e r
ac c o unte d fo r g re ater than 10% o f o ur to tal revenues.
In 1999 and 19 98, re venue s fro m o ne c usto m e r
exc eed e d 10% o f o ur to tal revenues. If w e w e re to
lo se o ne o f o ur m ajo r c ustom ers o r experie nc e any
m aterial reduc tio n in o rd ers fro m any of the se cus-
to m e rs, o ur reve nu es and o p erating re sults w o uld suf-
fe r. Our sales are generally m ad e by stand ard p ur-
c hase o rd ers rathe r than lo ng - term c o ntrac ts. In ad d i-
tio n, the c o m positio n o f o ur m ajo r c usto m er b ase
c hang es fro m ye ar to year as the m arket d e m and for
o ur custom ers’ p ro d uc ts changes.
O u r m u ltip le s a le s c ha n n e ls m a y c o m p e te fo r a
lim it e d num b e r o f c u s t o m e r s a le s .
W eb b ased sales o f o ur p ro d uc ts to d ay rep re se nt a
sm all b ut g ro w ing p o rtion o f o ur o ve rall sale s. Sale s o n
the Inte rne t tend to und ercut trad itio nal d istrib utio n
c hanne ls and m ay d ram atic ally change the w ay our
c o nsum er p ro d uc ts are p urc hase d in future years. W e
c anno t assure yo u that w e w ill suc c e ssfully d evelo p
the Inte rne t sale s c hanne l o r suc cessfully m anag e the
inhe rent c o nflic t b etw een the Interne t and o ur trad i-
tio nal sales c hannels.
W e m u s t a c hie v e a c c e p ta b le w a fe r m a n u fa c tu r in g
yie ld s .
The fab ric atio n o f o ur produc ts re q uires w afers to b e
p ro d uc e d in a hig hly c o ntro lled and ultra clean e nviro n-
m ent. Se m ic o nduc to r c o m p anies that sup ply o ur
w afers som etim es have exp erienced p ro b lem s ac hie v-
ing ac c e p table w afer m anufacturing yield s.
Sem icond uc tor m anufac turing yie ld s are a func tion of
b o th o ur d esig n tec hno log y and the fo und ry’s m anu-
facturing p ro c e ss te c hnology. Low yie ld s m ay result
fro m d esig n erro rs o r m anufac turing failures. Yield
p ro b lem s m ay not be d eterm ined o r im proved until an
ac tual produc t is m ad e and can b e te sted . As a re sult,
yield p ro b lem s m ay n o t be id entified until the w afe rs
are w e ll into the produc tio n p ro c e ss. The risks asso c i-
ate d w ith yields are eve n g reate r b e c ause w e re ly
exc lusive ly on indep e nd ent o ffsho re found rie s fo r our
w afers w hich inc rease s the e ffo rt and tim e req uired to
id entify, c o m m unic ate and resolve m anufac turing yie ld
p ro b lem s. If the fo und ries cannot achieve p lanned
yield s, w e w ill exp erie nc e hig he r c osts and reduc e d
p ro d uc t availab ility, w hich could harm o ur business,
financ ial c o nditio n and results o f o p e rations.
In ad d itio n, w e c anno t assure yo u that the
Do m inio n fab ric ation fac ility w e are co- d e veloping w ith
To shib a, w ill p ro d uc e satisfac to ry q uantitie s o f w afers
w ith ac c ep tab le p ric es, reliab ility and yields. Any failure
in this regard could m ate rially harm o ur business,
financ ial c o nditio n and results o f o p e rations. In ad d i-
tio n, the c o nstructio n and o p eratio n o f this line w ill
c ause us to inc ur sig n ific ant exp ense and m ay re sult in
the diversion o f re so urces from o ther im p o rtant are as
o f o ur business. In ad d ition, w e have no exp erie nc e in
o p erating a w afer m anufac turing line and w e intend to
rely o n the existing m anufac turing o rg anizatio n at the
Do m inio n fac ility. This org anizatio n w ill b e trained in
N AN D flash m anufacturing b y Toshib a, b ut w e c anno t
assure yo u that the y w ill b e suc c essful in m anufac tur-
ing the se ad vanc ed N AN D flash produc ts o n a c o st-
effe c tive basis o r at all.
R is k s a s s o c ia t e d w ith p a t e n ts , p ro p rie t a ry r ig h ts
a n d r e la te d lit ig a tio n.
General
W e rely o n a c o m b inatio n o f p atents, tradem arks,
c o p yrig ht and trade se c ret law s, c o nfid entiality
p ro c edures and licensing arrangem e nts to p ro tec t o ur
inte lle c tual p ro p e rty rights. In the p ast, w e have b e en
invo lved in sig nific ant disp utes re g ard ing o ur inte llec tu-
al property rig hts and claim s that w e m ay b e infring ing
third p arties’ inte llec tual p ro p e rty rig hts. W e expec t
that w e m ay b e invo lve d in sim ilar d is p ute s in the
future . W e c anno t assure yo u that:
• any o f o ur existing pate nts w ill no t b e invalid ate d ;
• p atents w ill be issued for any o f o ur p end ing ap p li-
c at io ns;
• any c laim s allo w ed from e xisting o r p e nd ing
p ate nts w ill have sufficient s c o p e o r stre ng th ;
• o ur p atents w ill b e issued in the prim ary c o untrie s
w he re o ur p ro d uc ts are so ld in order to protect
o ur rights and p o tential co m m ercial ad vantag e; o r
• any o f o ur p ro d uc ts m ay in fringe o n the p atents o f
o the r com p anies.
In a d d itio n, o u r c o m p e tit o rs m a y b e a b le t o d e s ig n
th e ir p ro d uc t s a r o un d o ur p a t e n ts .
W e intend to vig o ro usly enforce o ur pate nts b ut w e
c anno t be sure that o ur e ffo rts w ill be successful. If w e
w ere to have an ad verse res ult in any litig atio n, w e
c o uld b e required to p ay sub stantial d am ages, cease
the m anufac ture, use and sale of infringing produc ts,
exp end sig nificant reso urc e s to d eve lo p no n- infringing
te c hnology, disc o ntinue the use o f c e rtain p ro c e sses
o r o b tain lic ense s to the infring ing tec hno lo g y. Any liti-
g atio n is like ly to re sult in sig nific ant exp en se to us, as
w ell as d ive rt the e ffo rts o f o ur te c hnical and m anag e-
m ent p ersonne l. Fo r exam p le , o ur rec e nt Litig atio n
w ith Lexar lasted fo r tw o and o ne - half years and
resulte d in c um ulative litig atio n exp en ses of ap p ro xi-
m ately $6 .0 m illio n.
Cro ss-lic ense s and ind e m nific a tio n ob lig atio ns
If w e d e c id e to inc o rp o rate third p arty te c hno lo g y into
o ur produc ts o r if w e are fo und to infring e o n o th ers’
inte lle c tual p ro p e rty, w e could be required to lic ense
inte lle c tual p ro p e rty fro m a third p arty. W e m ay also
ne ed to lic ense so m e o f o ur intelle c tual p ro p erty to
o the rs in o rd er to enab le us to o b tain c ro ss- lic ense s to
third p arty p atents. Currently, w e have p atent c ro ss-
lic ense agree m e nts w ith seve ral c o m p anies, inc lud ing
H itachi, Intel, Le xar, Sam sung , Sharp , SST, Sm artDisk,
TDK and To shiba and w e are in d isc ussio ns w ith o ther
c o m p anies re g ard ing p o te ntial c ro ss- lic ense ag re e-