SanDisk 2008 Annual Report Download - page 14

Manufacture Ltd. and STATS ChipPAC, in China. We believe the use of our in-house assembly and
test facility as well as subcontractors reduces the cost of our operations and gives us access to increased
production capacity.
Ventures with Toshiba
We and Toshiba have entered into several business ventures. In May 2000, we formed FlashVision Ltd., or
FlashVision, which produced 200-millimeter NAND flash memory wafers. In September 2004, we and Toshiba
formed Flash Partners Ltd., or Flash Partners, or Fab 3, which produces 300-millimeter NAND flash wafers and
operated at full production capacity of approximately 150,000 wafers per month during fiscal year 2008. In
July 2006, we and Toshiba formed Flash Alliance Ltd., or Flash Alliance, or Fab 4, a 300-millimeter wafer
fabrication facility which began initial production in the third quarter of fiscal year 2007 with full capacity
estimated to be approximately 210,000 wafers per month. Fab 4 was ramped to more than 50% of this estimated
full capacity by the end of fiscal year 2008. We are currently not investing in further capacity expansion of Fab 4
as weak macroeconomic conditions coupled with the growth of our NAND supply base have resulted in us
carrying excess inventory. During fiscal year 2008, the 200-millimeter FlashVision venture ceased operation as
planned. The FlashVision venture is in the process of selling its equipment.
With the Flash Partners and Flash Alliance ventures, or hereinafter referred to as Flash Ventures, located at
Toshiba’s Yokkaichi Japan operations, we and Toshiba collaborate in the development and manufacture of
NAND-based flash memory products using the semiconductor manufacturing equipment owned or leased by
each venture entity. We hold a 49.9% ownership position in each of the current Toshiba and SanDisk venture
entities. Each venture entity purchases wafers from Toshiba at cost and then resells those wafers to us and
Toshiba at cost plus a mark-up. We are committed to purchase half of each venture’s NAND wafer supply or pay
for half of the venture’s fixed costs regardless of the output we choose to purchase. We are also 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 equally between us and
Toshiba. In addition, we have the right to purchase a certain amount of wafers from Toshiba on a foundry basis.
See Note 20, “Subsequent Events,” of the Notes to Consolidated Financial Statements of this Form 10-K
included in Item 8 of this report, for further information regarding our definitive agreement with Toshiba to
restructure Flash Ventures current production capacity.
Competition
We face competition from numerous semiconductor manufacturers and manufacturers and resellers of flash
memory cards, USB drives, digital audio players and other consumer electronics devices. We also face
competition from manufacturers of hard disk drives and from new technologies.
Key Competitive Advantages. Our key competitive advantages are:
• we have a tradition of innovation and standards creation which enables us to grow the overall market
for flash memory;
• our intellectual property ownership, in particular our patent claims and MLC manufacturing know-
how, provides us with license and royalty revenue as well as certain cost advantages;
• Flash Ventures provide us with leading edge, low-cost flash memory;
• 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;
• we have global retail distribution of our products through worldwide retail storefronts; and
• we have worldwide leading market share in removable flash cards and UFDs.
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