SanDisk 2003 Annual Report Download - page 53

card and other products. In addition, Matsushita and Toshiba sell Secure Digital cards that compete directly
with our products for which no royalties are payable.
We have entered into patent cross-license agreements with several of our leading competitors, including,
Intel, Matsushita, Renesas, SST, Samsung, Sharp, Sony, Toshiba and TDK. Under these agreements, each
party may manufacture and sell products that incorporate technology covered by the other party's patent or
patents related to Öash memory devices. If we continue to license our patents to our competitors, competition
will increase and may harm our business, Ñnancial condition and results of operations. There can be no
assurance that we will be successful in concluding licensing agreements under terms that are favorable to us,
or at all, or that these licenses will help our business.
Our products compete against new products that promote diÅerent industry standards from ours, and if
these new industry standards gain market acceptance, our business will be harmed.
Each of our products faces competition from large and small suppliers; some introducing diÅerentiated
products that may be more attractive to our customers. For example, Lexar Media's Jump Drive, M-Systems'
DiskOnKey, Toshiba's Trans Memory and Trek's Thumbdrive compete directly with our Cruzer Mini product
line and the Secure MultiMediaCard from Renesas and InÑneon, the RS-MMC from Renesas and Samsung,
and the MultiMediaCard from Samsung all compete with our SD and MMC cards. In addition, in 2002, the
xD-picture card format was introduced as direct competition for our Smart Media card products. We
experienced a decline in sales of Smart Media card products in 2002 and 2003 and expect a continued decline
in sales of these products in 2004 as sales of xD-picture cards increases. We compete with Sony and Lexar in
the market for Memory Stick products. Sony has a very strong brand name which may make their Memory
Stick cards more attractive to some customers than our comparable cards. In 2004, we expect to begin
manufacturing and oÅering a SanDisk labeled version of the Memory Stick PRO and Memory Stick Pro Duo
product lines. Additionally, Olympus' and Fuji's control of the market for digital cameras using the xD-picture
card format gives them a competitive advantage in selling xD-picture cards to retail customers. Rotating disk
drives, including among others, the Microdrive, compete with our larger capacity Öash memory cards. In
addition, other companies, such as Matrix Semiconductor, have announced products or technologies that may
potentially compete with our Shoot and Store products. Additionally, new card formats, like the Express Card
are periodically introduced in an eÅort to compete with the existing standards for memory cards. New
competing standards may not be mechanically and electronically compatible with our products. If a
manufacturer of digital cameras or other consumer electronic devices designs in one of these alternative
competing standards, our products will be eliminated from use in that product.
We face competition from products based on alternative Öash technologies and if we cannot compete
eÅectively, our business will be harmed.
We also face competition from products based on alternative MLC Öash technology from Intel (Strata
Flash), Renesas (AG-AND) and InÑneon Öash (Twin bit). These products compete with our NAND MLC
products.
Furthermore, we expect to face competition both from existing competitors and from other companies
that may enter our existing or future markets with similar or alternative data storage solutions, which may be
less costly or provide additional features. Our business is characterized by rapid innovation and many other
companies are pursuing new technologies, which may make our Öash memory obsolete or uncompetitive in a
few years. Additionally, if we do not continue to invest in new technologies, our business would likely be
seriously harmed.
Risks Related to Sales of Our Products
Sales to a small number of customers represent a signiÑcant portion of our revenues and if we were to lose
one of our major customers or experience any material reduction in orders from any of these customers, our
revenues and operating results would suÅer.
Approximately one-half of our revenues come from a small number of customers. For example, sales to
our top 10 customers accounted for approximately 50% of our product revenues during Ñscal 2003, 2002 and
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