SanDisk 2002 Annual Report Download - page 38

3 6 S a nD isk C o rp o ra tio n
estim ates for the rem aining m onths of the forecast m ay only
be changed by a certain percentage from the previous
m onth’s forecast. These restrictions lim it the Com pany’s
ability to react to significant fluctuations in dem and for its
products. As a result, the Com pany had not been able to
m atch its purchases of w afers to specific custom er orders,
and therefore the Com pany had taken w rite downs for
potential excess inventory purchased prior to the receipt of
custom er orders in fiscal 2001 and m ay be required to do so
in the future. These adjustm ents decrease gross m argins in
the quarter reported and have resulted, and could in the
future result, in fluctuations in gross m argins on a quarter-
to-quarter basis. To the extent the Com pany inaccurately
forecasts the num ber of w afers required, it m ay have either
a shortage or an excess supply of w afers, either of w hich
could have a m aterial adverse effect on the Com pany’s
business, financial condition and results of operations.
Additionally, if the Com pany is unable to obtain scheduled
quantities of w afers from any foundry w ith acceptable yields,
the Com pany’s business, financial condition and results of
operations could be negatively im pacted.
In addition, certain key com ponents are purchased from
single source vendors for w hich alternative sources are cur-
rently not available. Shortages could occur in these essential
m aterials due to an interruption of supply or increased
dem and in the industry. If the Com pany w ere unable to pro-
cure certain of such m aterials, it w ould be required to
reduce its m anufacturing operations w hich could have a
m aterial adverse effect upon its results of operations. The
Com pany also relies on third-party subcontractors its prod-
ucts. The Com pany has no long-term contracts w ith these
subcontractors and cannot directly control product delivery
schedules. This could lead to product shortages or quality
assurance problem s that could increase the m anufacturing
costs of its products and have adverse effects on its oper-
ating results.
Ba sis o f P re se nta tio n
The Com pany’s fiscal year ends on the Sunday closest to
Decem ber 31. Fiscal year 2002 ended on Decem ber 29,
2002 and w as 52 w eeks in length. Fiscal year 2001 ended
on Decem ber 30, 2001 and w as 52 w eeks in length. Fiscal
year 2000 ended on Decem ber 31, 2000 and w as 52 w eeks
in length. For ease of presentation, the accom panying finan-
cial statem ents have been show n as ending on the last day
of the calendar m onth.
Princip le s of Co nsolid a tio n
The consolidated financial statem ents include the accounts
of the Com pany and its w holly ow ned subsidiaries. All inter-
company balances and transactions have been elim inated.
Use o f Estim a te s
The preparation of financial statem ents in conform ity w ith
generally accepted accounting principles requires m anage-
m ent to m ake estimates and assum ptions that affect the
am ounts reported in the financial statem ents and accom pa-
nying notes. The estim ates and judgm ents affect the
N o t e s t o C o n s o lid a t e d F in a n c ia l S t a t e m e n t s
Note 1:
O r g a n iz a t io n a n d S u m m a r y o f S ig n ific a n t
Ac c o u n t in g P o lic ie s
Org a niza tio n a nd N a ture o f Op e ra tions
SanDisk Corporation (the Com pany) w as incorporated in
Delaw are on June 1, 1988, to design, m anufacture, and
m arket industry- standard, solid-state m ass storage prod-
ucts using proprietary, high-density flash m em ory technol-
ogy. The Com pany operates in one segm ent and serves
custom ers in the consum er electronics, industrial, com m u-
nications and highly portable com puting m arkets. Principal
geographic m arkets for the Com pany’s products include
the United States, Japan, Europe and the Far East.
Supplie r a nd C us tom e r C onc e ntra tions
A lim ited num ber of custom ers historically have accounted
for a substantial portion of the Com pany’s revenues. Sales
to our top 10 custom ers accounted for approxim ately 48%,
49% and 48%, respectively, of our product revenues for the
fiscal years ended Decem ber 31, 2002, 2001 and 2000. In
2002, 2001 and 2000, no single custom er accounted for
m ore than 10% of total revenues. Sales of the Com pany’s
products w ill vary as a result of fluctuations in m arket
dem and. Further, the flash data storage m arkets in w hich
the Com pany com petes are characterized by rapid techno-
logical change, evolving industry standards, declining aver-
age selling prices and rapid technological obsolescence.
Certain of the raw m aterials used by the Com pany in the
m anufacture of its products are available from a lim ited
num ber of suppliers. All of the Com pany’s products require
silicon w afers. The m ajority of the Com pany’s flash m em ory
w afers are currently supplied by the Com pany’s FlashVision
joint venture with Toshiba. The Com pany’s NAND flash
m em ory products are substantially supplied by Toshiba’s
w afer facility in Yokkaichi, Japan and, to a lesser extent, by
Sam sung. In the third quarter of 2001, the Com pany began
to purchase controller w afers from UM C and is continuing
developm ent of advanced flash m em ory technology utilizing
the 0.15 m icron technology design rules at UM C. The
Com pany is dependent on its foundries to allocate to the
Com pany a portion of their foundry capacity sufficient to
m eet the Com pany’s needs, to produce w afers of accept-
able quality and w ith acceptable m anufacturing yields and
to deliver those w afers to the Com pany on a tim ely basis.
On occasion, the Com pany has experienced difficulties in
each of these areas. Under the Com pany’s current joint
venture agreem ent w ith Toshiba, the Com pany is com m it-
ted to purchase 50% of FlashVision’s w afer output from the
Yokkaichi fabrication facility.
Under the term s of the Com pany’s w afer supply agree-
m ents, the Com pany is obligated to provide a six-m onth
rolling forecast of anticipated purchase orders. Except in
lim ited circum stances and subject to acceptance by the
foundries, the estim ates for the first three m onths of each
rolling forecast constitute a binding com m itm ent and the