SanDisk 2003 Annual Report Download - page 8

‚Multimedia Cellular Phones. The multimedia cellular phone market is experiencing growth driven by
demand for new capabilities such as camera functionality, audio/MP3, games, video, internet access
and other multimedia features. These features require increasing storage capacity in the phone. We are
the leading supplier of miniSD and SD cards for removable storage in some of these multimedia
cellular phones.
‚USB Flash Drives. USB Öash drive solutions allow consumers to store computer Ñles on keychain-
sized devices and then quickly and easily transfer these Ñles between laptops, desktops and other
devices. We believe USB Öash drives will be the successor to Öoppy disk drives and Zip drives in
personal computers and laptops.
We also sell our products to industrial, telecom, automotive and numerous other customers. For example,
our cards are used in many of the new electronic voting machines to store votes for ballots that have been cast.
Semico Research Corp. has estimated the 2003 Öash storage card market to be equivalent to $3.3 billion
in revenues and also estimates these markets will grow to $12.0 billion in revenues by 2006.
Our strategy is to identify mass consumer markets for Öash storage and to manufacture in high volumes
and sell all major Öash storage card formats for our target markets, enabling us to be a one-stop-shop for our
retail and OEM customers. We have partnerships and agreements with leading technology companies to
continue to expand our universal Öash storage card format strategy. For example, we have an agreement with
Sony for co-development of MemoryStick Pro, an agreement with Matsushita and Toshiba for joint
development of SD and miniSD cards, and agreements with Olympus and Fuji providing us the right to
manufacture xD-Picture cards, which Olympus and Fuji require for their digital cameras. For 2003, our largest
customers included Best Buy, Canon, Circuit City, Costco, Hama, Ingram Micro, Kaga, Nikon, Princeton
Technology and Wynit. In 2003, 2002 and 2001, no customer individually represented more than 10% of our
total revenues.
We have leveraged our intellectual property and leading market position to establish global industry
standard card formats as well as manufacturing partnerships and relationships that provide us with access to
leading edge semiconductor capacity, allowing us to share the costs of fabrication capacity with our partners
while retaining access to advanced process technology. Our FlashVision joint venture with Toshiba, operating
from Toshiba's Yokkaichi semiconductor fabrication facility, is our principal source of memory wafer supply
and provides us with captive capacity at a favorable cost. We also have purchase agreements with Toshiba,
Samsung and Renesas providing additional guaranteed supply under favorable terms.
Our broad-based intellectual property also diÅerentiates our products from those of our competitors,
improves our manufacturing eÇciency and generates royalty revenue. For example, our multi-level cell, or
MLC, technology can substantially reduce manufacturing costs per megabyte and has been licensed to some
of our manufacturing partners in return for royalties and a guaranteed portion of their output.
To enhance our position as the leading global supplier of Öash storage card products in the rapidly
growing markets that we address, we intend to pursue the following business strategies:
Expand Retail Distribution Network. We intend to continue to expand our retail customer base to
more geographic regions as well as to new outlets such as supermarkets and drug stores. We also seek to
strengthen our current retailer relationships and establish exclusive arrangements where practical.
Enable New Digital Consumer Markets. We intend to develop further product segmentation
solutions for the digital camera market, as well as for the multimedia cellular phone, USB Öash drive, and
other digital consumer markets. Other digital consumer markets may include devices such as digital
camcorders, compressed audio players, handheld computers and personal data assistants.
Expand Our Supply Base and Maintain Our Focus on Low-Cost Production and Global Distribution.
We intend to continue to partner with suppliers to procure a large portion of our supply from captive
sources, such as FlashVision, and a smaller portion from other sources. Our objective is to control our
access to high-volume, low-cost supply of leading-edge Öash memory wafers to meet demand, while
delivering solid returns on our invested capital over time.
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