SanDisk 2003 Annual Report Download - page 46

to be generated from them, if this happens at all. Moreover, broad acceptance of new standards or products by
consumers may reduce demand for our older products. If this decreased demand is not oÅset by increased
demand for our new products, our results of operations could be harmed. We cannot assure you that any new
products or standards we develop will be commercially successful. See ""Ì The success of our business
depends on emerging markets and new products.''
The success of our business depends on emerging markets and new products.
In order for demand for our products to grow, the markets for new devices that use our Öash memory
products, such as digital cameras, cellular phones that incorporate digital cameras, portable digital music
players, USB Öash drives and PDAs, must develop and grow. If sales of these products do not grow, our
revenues and proÑt margins could be adversely impacted.
The success of our new product strategy will depend, among other factors, upon the following:
‚ our ability to successfully develop new products with higher memory capacities and enhanced features
at a lower cost per megabyte;
‚ the development of new applications or markets for our Öash data storage products;
‚ the extent to which prospective customers design our products into their products and successfully
introduce their products;
‚ the extent to which our products or technologies become obsolete or noncompetitive due to products or
technologies developed by others; and
‚ the adoption by the major content providers of the copy protection features oÅered by our SD card
products.
Risks Related to Our FlashVision Joint Venture
Our FlashVision joint venture with Toshiba makes us vulnerable to risks, including potential inventory
write-oÅs, disruptions or shortages of supply, limited ability to react to Öuctuations in product demand, direct
competition with Toshiba, and a signiÑcant contingent indemniÑcation obligation, any of which could
substantially harm our business and Ñnancial condition.
We and Toshiba plan to continue to expand the wafer fabrication capacity of our FlashVision business in
Japan and as we do so, we will make substantial capital investments and incur substantial start-up and tool
relocation costs, which could adversely impact our operating results.
In June 2000, we, along with Toshiba, formed FlashVision for the joint development and manufacture of
several Öash memory products, including 512 megabit, 1 gigabit, 2 gigabit and other advanced Öash memory
products. We and Toshiba each separately market and sell these products. Accordingly, we compete directly
with Toshiba for sales of products incorporating these jointly developed and manufactured products. In
addition, we and Toshiba plan to make substantial investments in new capital assets from time to time to
expand the wafer fabrication capacity of our FlashVision business in Japan. Each time that we and Toshiba
add substantial new wafer fabrication capacity, we will experience signiÑcant start-up costs as a result of the
delay between the time of the investment and the time qualiÑed products are manufactured and sold in
volume quantities. We will incur start-up costs and pay our share of ongoing operating activities even if we do
not utilize our full share of the expanded output. Given the current apparent acceleration in global demand for
Öash memory wafers and assuming that the markets for our products continue their current growth, new
anticipated demand from customers may outstrip the supply of Öash memory wafers available to us from all of
our current sources. In that case, we may need to secure substantial additional Öash memory wafer fabrication
capacity at .09 micron and Ñner line lithography. Accordingly, we and Toshiba are currently discussing various
fabrication and test capacity expansion plans for the FlashVision operation in Yokkaichi, Japan. We and
Toshiba plan to substantially expand and increase Yokkaichi's 200 mm Öash memory wafer output in 2004
and 2005. The capacity expansion will be partially funded through FlashVision internally generated funds, as
well as through substantial additional investments by Toshiba and SanDisk. In February 2004, we committed
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