SanDisk 2006 Annual Report Download - page 58

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venture’s NAND wafer supply and are committed to fund 49.9% of each venture’s costs to the extent that the
venture’s revenues from wafer sales to us and Toshiba are insufficient to cover these costs. The investments in each
venture entity are shared 50/50 between us and Toshiba. In addition, we purchase wafers from Toshiba on a foundry
basis.
We assumed msystems’ ownership interest in its venture with Toshiba, TwinSys Data Storage Limited
Partnership, or TwinSys, which was designed to enable the parties to benefit from a portion of each party’s
respective sales of USB flash drives. As of December 31, 2006, we had a 50.1% beneficial ownership in TwinSys,
consisting of (i) 49.9% ownership in TwinSys and (ii) 0.2% interest held by Twinsys Ltd., in which we have a 51%
ownership interest. We and Toshiba are currently negotiating the mutual closure of this venture by the first half of
fiscal year 2007. However, no written agreement has been reached.
Competition
We face competition from numerous semiconductor manufacturers and manufacturers and resellers of flash
memory cards, USB drives, digital audio players and other consumer electronic devices. We also face competition
from manufacturers of hard disk drives and from new technologies. See Item 1A, “Risk Factors.”
Key Competitive Advantages. Our key competitive advantages are:
• we have a tradition of innovation and standards creation which provides us with strength in growing the
overall market for NAND memory;
• our intellectual property ownership, in particular our patent claims and MLC manufacturing know-how,
provides us certain cost advantages;
• our fab ventures with Toshiba provide us with an attractive cost structure;
• we market and sell a broader range of card formats than any of our competitors, which gives us an advantage
in obtaining strong retail and OEM distribution; and
• we have leading market share with number 1 worldwide market share in removable flash cards and USB
flash drives and number 2 market share in U.S. flash-based digital audio players.
Semiconductor Manufacturers. Our primary semiconductor competitors currently include Samsung,
Toshiba, Hynix, IM Flash Technologies, LLC, or IM Flash (a company formed by Micron and Intel), Micron,
and STMicroelectronics N.V., or STMicro. If the NAND industry increases memory output faster than the increase
in demand it will likely result in industry margin compression as the price decline rates exceed normal cost declines.
Flash Memory Card and USB Drive Manufacturers. Our primary competitors currently include, among
others, A-Data Technology Co., Ltd., or A-Data, Buffalo Technology, FUJIFILM Corporation, or Fuji, Hagiwara
Sys-Com Co., Ltd., or Hagiwara, Hama Corporation, Inc., or Hama, I/O Data Device, Inc., or I/O Data, Kingmax,
Inc., or KingMax, Kingston Technology Company, Inc., or Kingston, Eastman Kodak Company, or Kodak, Lexar,
Matsushita, Micron, Netac Technology, Co., or Netac, Panasonic, PNY Technologies, Inc., or PNY, RITEK
Corporation, or Ritek, Samsung, Sony, Toshiba, Tradebrands International, or Tradebrands, and Transcend
Information, Inc., or Transcend.
Digital Audio Player Manufacturers. Our digital audio players face strong competition from products
offered by other companies, including Apple Inc., or Apple, Creative Technologies, Ltd., or Creative, Microsoft
Corporation, or Microsoft, and Samsung.
Other Technologies. Other technologies compete with our product offerings and many companies are
attempting to develop memory cells that use different designs and materials in order to reduce memory costs. One
example of an alternative technology is the small hard disk drive, which has a low cost per megabyte for high
memory capacity but a high cost per megabyte for low capacities. Hard disk drives also have significant power
requirements and they are not as rugged as flash memory. Other future competitive technologies could include
different designs and materials such as phase-change technology, charge-trap flash and millipedes/probes.
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Annual Report