SanDisk 2004 Annual Report Download - page 37

Table of Contents
We are sole sourced for a number of our critical components and the absence of a back−up supplier exposes our supply chain to
unanticipated disruptions. We rely on our vendors, some of which are a sole source of supply, for many of our critical components.
We do not have long−term supply agreements with most of these vendors. Our business, financial condition and operating results
could be significantly harmed by delays or reductions in shipments if we are unable to develop alternative sources or obtain sufficient
quantities of these components.
We depend on our third−party subcontractors and our business could be harmed if our subcontractors do not perform as planned.
We rely on third−party subcontractors for our wafer testing, packaged memory final testing, product assembly, product testing and
order fulfillment. We do not have long−term contracts with our existing subcontractors nor do we expect to have long−term contracts
with any new subcontract suppliers. We do not have exclusive relationships with any of subcontractors and therefore cannot guarantee
that they will devote sufficient resources to manufacturing our products. We cannot, and will not, be able to directly control product
delivery schedules. Furthermore, we manufacture on a turnkey basis with some of our subcontract suppliers. In these arrangements we
do not have visibility and control of their inventories of purchased parts necessary to build our products or of the progress of our
products through their assembly line. Any significant problems that occur at our subcontractors, or their failure to perform at the level
we expect, could lead to product shortages or quality assurance problems, either of which would have adverse effects on our operating
results.
We are exposed to foreign currency risks. Many of our purchases of NAND flash memory from our Toshiba venture and our
investments in those ventures are denominated in Japanese yen. Additionally, we expect over time to increase the percentage of our
sales denominated in currencies other than the United States dollar. Management of these foreign exchange exposures and the hedging
mechanisms used to mitigate those exposures is complicated and we have limited experience in these activities. If we do not
successfully manage our foreign exchange exposures, our business, results of operations and financial condition would be materially
adversely affected.
Terrorist attacks, war, threats of war and government responses thereto may negatively impact our operations, revenues, costs
and stock price. Terrorist attacks, U.S. military responses to these attacks, war, threats of war and any corresponding decline in
consumer confidence could have a negative impact on consumer retail demand, which is the largest channel for our products. Any of
these events may disrupt our operations or those of our customers and suppliers and may affect the availability of materials needed to
manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers. Any
of these events could increase volatility in the U.S. and world financial markets, which could harm our stock price and may limit the
capital resources available to us and our customers or suppliers or adversely affect consumer confidence. This could harm our business
and results of operations.
Natural disasters or epidemics in the countries in which we or our suppliers or subcontractors operate could negatively impact
our operations. Our operations, including those of our suppliers and subcontractors, are concentrated in Sunnyvale, California,
Yokkaichi, Japan, Taichung, Taiwan and Dongguan, Shenzen and Shanghai China. In the past, these areas have been affected by
natural disasters such as earthquakes, tsunamis and typhoons, and some areas have been affected by epidemics, such as SARS. If a
natural disaster or epidemic were to occur in one or more or these areas, our disaster recovery processes may not provide adequate
business continuity. This could harm our business and results of operations.
We may be unable to protect our intellectual property rights, which would harm our business, financial condition and results of
operations. We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing
arrangements to protect our intellectual property rights. In the past, we have been involved in significant disputes regarding our
intellectual property rights and those of others, including claims that we may be infringing third parties’ patents,
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