SanDisk 2006 Annual Report Download - page 68

forward contracts used to mitigate these exposures is complex and if we do not successfully manage our foreign
exchange exposures, our business, results of operations and financial condition could be harmed.
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 also
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. In
November 2006, we acquired msystems, which is headquartered and has substantial operations in Israel, and we
have a development center in Northern Israel, near the border with Lebanon, areas that have recently experienced
significant violence and political unrest. Continued turmoil and unrest in this area could cause delays in the
development of our products. 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 Milpitas, California; Yokkaichi, Japan; Hsinchu and Taichung, Taiwan; and Dongguan, Shanghai
and Shenzen, 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 avian flu. If a natural disaster or epidemic
were to occur in one or more of these areas, our operations could be significantly impaired and our business may be
harmed. This is magnified by the fact that we do not have insurance for most natural disasters, including
earthquakes. 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 and expensive disputes regarding our intellectual property rights and those of
others, including claims that we may be infringing third-parties’ patents, trademarks and other intellectual property
rights. We expect that we may be involved in similar disputes in the future. We cannot assure you that:
• any of our existing patents will not be invalidated;
• patents will be issued for any of our pending applications;
• any claims allowed from existing or pending patents will have sufficient scope or strength;
• our patents will be issued in the primary countries where our products are sold in order to protect our rights
and potential commercial advantage; or
• any of our products or technologies do not infringe on the patents of other companies.
In addition, our competitors may be able to design their products around our patents and other proprietary
rights.
Several companies have recently entered or announced their intentions to enter the flash memory market, and
we believe these companies may require a license from us. Enforcement of our rights may require litigation. If we
bring a patent infringement action and are not successful, our competitors would be able to use similar technology to
compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of
their patent or assert a counterclaim that our patents are invalid or unenforceable. If we did not prevail as a defendant
in patent infringement case, we could be required to pay substantial damages, cease the manufacture, use and sale of
infringing products, expend significant resources to develop non-infringing technology, discontinue the use of
specific processes or obtain licenses to the infringing technology.
We may be unable to license intellectual property to or from third-parties as needed, or renew existing licenses,
which could expose us to liability for damages reduce our royalty revenues, increase our costs or limit or prohibit us
from selling products. If we incorporate third-party technology into our products or if we are found to infringe
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Annual Report