SanDisk 2005 Annual Report Download - page 86

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protection from operational incidents. We and Toshiba are each committed to take 50% of Flash Partners’
wafer output, with each company specifying the type of wafer in its allocation.
Flash Partners is expected to generate cash over time as a result of being paid as part of its manufacturing
cost for its non-cash depreciation expense. This cash is currently expected to be used to fund expansion of
Flash Partners’ flash memory manufacturing capacity and ultimately to repay loans from us and Toshiba.
•Research and Development. We and Toshiba each have teams that are currently working on the
70-nanometer and 55-nanometer designs. Our research and development cost sharing is similar to that
of FlashVision. See Note 5 to our consolidated financial statements included in Item 8 of this report.
We refer to our wafer purchases from the Toshiba ventures and foundry arrangement with Toshiba as captive
capacity as compared with our market-priced purchases of flash memory from Samsung and Renesas, which we
refer to as non-captive capacity.
Competition
Our industry is very competitive. We face competition from numerous flash memory card manufacturers, as
well as from semiconductor manufacturers of NAND flash memory. We also face competition from hard disk drives
and from new technologies. See Item 1A, “Risk Factors.”
Our Key Competitive Advantages. We believe our key competitive advantages in NAND flash products
include:
• our intellectual property ownership, in particular our patent claims and manufacturing know-how over MLC,
provides a cost advantage to us and Toshiba;
• through the ventures with Toshiba, we benefit from Toshiba’s manufacturing and research and development
experience and expertise;
• we manufacture and sell a broader range of card formats than any of our competitors, which gives us an
advantage in obtaining retail and OEM distribution; and
• our captive NAND flash wafer supply enables us to control our supply chain and provides cost advantages
over our competitors, who only have contractual relationships with their suppliers.
Semiconductor Competitors. Our primary semiconductor competitors currently include our historical
competitors Renesas, Samsung and Toshiba. New competitors include Hynix Semiconductor, Inc., or Hynix,
IM Flash Technologies, LLC, or IM Flash (a new company formed by Micron Technology, Inc., or Micron, and
Intel), Infineon Technologies, A.G., or Infineon, Micron, and STMicroelectronics N.V., or STMicro, who began
shipping NAND or NAND-competitive memory in 2004. If any of these competitors increase their memory output,
it will likely result in a decline in the prevailing prices for packaged NAND semiconductor components.
Additionally, manufacturers of NOR flash memory, such as Intel and Spansion LLC, or Spansion, are attempting
to use their flash memory for traditional NAND applications, both embedded and in data storage cards.
Card and USB Flash Drive Competitors. We compete with manufacturers and resellers of flash memory
cards and USB flash drives. These companies purchase (or have captive supply of) flash memory components and
assemble memory cards. These companies include, among others, Buffalo Technology, Dane-Elec Manufacturing,
or Dane-Elec, Delkin Devices, Inc., or Delkin, Fuji, Hagiwara Sys-Com Co., Ltd., or Hagiwara, Hama Corporation,
Inc., or Hama, I/O Data Device, Inc., or I/O Data, Infineon, Kingmax, Inc., or KingMax, Kingston Technology
Company, Inc., or Kingston, Eastman Kodak Company, or Kodak, Lexar, M-Systems, Matsushita, Memorex
Products, Inc., or Memorex, Micron, PNY Technologies, Inc., or PNY, PQI Corporation, or PQI Corp., Pretec
Electronics Corporation (USA), or Pretec Electronics, Renesas, Samsung, Sharp, SimpleTech, Inc., Sony, Toshiba
and Viking Components, Inc., or Viking Components.
Digital Audio Players. Our digital audio players face competition from products offered by other companies,
including Apple Computer, Inc., or Apple, Creative Technologies, Ltd., or Creative, iriver America, Inc., or iriver,
and Samsung.
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Annual Report