SanDisk 2008 Annual Report Download - page 23

These new or alternative technologies may enable products that are smaller, have a higher capacity, lower
cost, lower power consumption or have other advantages. If we cannot compete effectively, our results of
operations and financial condition will suffer.
We believe that our ability to compete successfully depends on a number of factors, including:
• price, quality and on-time delivery to our customers;
• product performance, availability and differentiation;
• success in developing new applications and new market segments;
• sufficient availability of supply, the absence of which could lead to loss of market share;
• efficiency of production;
• timing of new product announcements or introductions by us, our customers and our competitors;
• the ability of our competitors to incorporate standards or develop formats which we do not offer;
• the number and nature of our competitors in a given market;
• successful protection of intellectual property rights; and
• general market and economic conditions.
There can be no assurance that we will be able to compete successfully in the future.
Under certain conditions, a portion or the entire outstanding lease obligations related to Flash Ventures’
master equipment lease agreements could be accelerated, which would harm our business, results of operations,
cash flows, and liquidity. Flash Ventures’ master lease agreements contain customary covenants for Japanese
lease facilities. In addition to containing customary events of default related to Flash Ventures that could result in
an acceleration of Flash Ventures’ obligations, the master lease agreements contain an acceleration clause for
certain events of default related to us as guarantor, including, among other things, our failure to maintain a
minimum stockholder equity of at least $1.51 billion, and our failure to maintain a minimum corporate rating of
either BB- from Standard & Poors, or S&P, or Moody’s Corporation, or a minimum corporate rating of BB+
from Rating & Investment Information, Inc., or R&I. As of December 28, 2008, Flash Ventures was in
compliance with all of its master lease covenants. While our S&P credit rating was B, two levels below the
required minimum corporate rating threshold from S&P, our R&I credit rating was BBB-, one level above the
required minimum corporate rating threshold from R&I.
On February 4, 2009, R&I confirmed our credit rating at BBB- with a change in outlook from stable to
negative. If R&I were to downgrade our credit rating below the minimum corporate rating threshold, Flash
Ventures would become non-compliant with certain covenants under its master equipment lease agreements and
would be required to negotiate a resolution to the non-compliance to avoid acceleration of the obligations under
such agreements. Such resolution could include, among other things, supplementary security to be supplied by
us, as guarantor, or increased interest rates or waiver fees, should the lessors decide they need additional
collateral or financial consideration under the circumstances. If a resolution is unsuccessful, we may be required
to pay a portion or the entire outstanding lease obligations up to $2.09 billion, based upon the exchange rate at
December 28, 2008, covered by our guarantee under such Flash Ventures master lease agreements, which would
substantially deplete our cash position and may force us to seek additional financing, which may or may not be
available.
The semiconductor industry is subject to significant downturns that have harmed our business, financial
condition and results of operations in the past and may do so in the future. The semiconductor industry is highly
cyclical and is characterized by constant and rapid technological change, rapid product obsolescence, price
declines, evolving standards, short product life cycles and wide fluctuations in product supply and demand. The
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