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PART I
ITEM 1. BUSINESS
Statements in this report, which are not historical facts, are forward-looking statements within the meaning of
the federal securities laws. These statements may contain words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates” or other wording indicating future results or expectations. Forward-
looking statements are subject to risks and uncertainties. Our actual results may differ materially from the results
discussed in these forward-looking statements. Factors that could cause our actual results to differ materially
include, but are not limited to, those discussed in “Risk Factors” in Item 1A of this report, and elsewhere in this
report. Our business, financial condition or results of operations could be materially adversely affected by any of
these factors. We undertake no obligation to revise or update any forward-looking statements to reflect any event or
circumstance that arises after the date of this report. References in this report to “SanDisk»,” “we,” “our,” and “us”
collectively refer to SanDisk Corporation, a Delaware corporation, and its subsidiaries. All references to years or
annual periods are references to our fiscal years, which consisted of 52 weeks in 2005, 53 weeks in 2004 and
52 weeks in 2003.
Overview
Who We Are. We are the worldwide leader in flash storage card products. We design, develop and market
flash storage devices used for a wide variety of consumer electronics products such as digital cameras, mobile
phones, Universal Serial Bus, or USB, drives, gaming devices, MP3 players and other digital consumer devices.
Flash storage allows data to be stored in a compact format that retains the data for an extended period of time after
the power has been turned off.
Our Strategy. Our strategy is to identify and develop current and emerging mass consumer markets for flash
storage products and through our vertical integration supply strategy sell in high volumes all major flash storage
card formats for our target markets, enabling us to be a one-stop-shop for our retail and original equipment
manufacturer, or OEM, customers.
Our revenues are driven by the sale of products and licensing of our intellectual property. We believe the
market for flash storage is price elastic. From 2004 to 2005, we increased the number of megabytes sold by 166% in
large measure due to a decrease of 52% in our average selling price per megabyte over the same period. Our
management team believes that more applications for flash storage will be created through the continued increase in
the number of megabytes a consumer can purchase at a given price point. The dynamics of these price declines
driving increased volume resulted in an increase in our product revenues from $1.6 billion in 2004 to $2.1 billion in
2005. In addition, our license revenue increased from $174.2 million in 2004 to $239.5 million in 2005 as a result of
continued adoption of flash technologies by our licensees.
We create new markets for flash memory. Together with Matsushita Electric Industries, Ltd., or Matsushita,
which owns the Panasonic brand, and a subsidiary of Toshiba Corporation, or Toshiba, we launched the Secure
Digital card, or SD
TM
card, which is currently the most popular form factor of flash storage cards. We followed that
effort by working with mobile network operators and handset manufacturers to develop the miniSD
TM
card and
microSD
TM
card, an even smaller form factor memory card. Our market-driving efforts now include investment in
the U3
TM
platform, with which software developers can transform USB drives from a simple mass storage device to
a platform for on-the-go computing. We are also in the early stages of developing the market for pre-loaded content,
such as music, and other digital content for end-users in specific fields such as education. We are working with
device manufacturers, infrastructure and copyright owners and software developers in developing these emerging
markets, which we believe will contribute to the future of flash storage products.
We are founders or co-founders of most major form factors of flash storage cards in the market today. We co-
own the Memory Stick PRO
TM
format with Sony Corporation, or Sony, we have worked with Canon, Inc., or Canon,
to co-found CompactFlash», and worked with Matsushita and a subsidiary of Toshiba to co-found the SD card. We
co-developed miniSD with NTT DoCoMo, Inc., Toshiba and Matsushita, and we pioneered TransFlash
TM
in
collaboration with Motorola, Inc., or Motorola. We plan to continue to work with leading companies in mobile
3
Annual Report