SanDisk 2009 Annual Report Download - page 60

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Our Strategy
Our strategy is to be an industry-leading supplier of NAND flash storage solutions and to develop large
scale markets for NAND-based storage products. We maintain our technology leadership by investing in
advanced technologies and NAND flash memory fabrication capacity in order to produce leading-edge, low-cost
NAND memory for use in a variety of end-products, including consumer and computing devices. We are a
one-stop-shop for our retail and OEM customers, selling in high volumes all major NAND flash storage card
formats for our target markets. Our revenues are driven by product sales as well as the licensing of our
intellectual property.
We believe the market for flash storage is price elastic, meaning that a decrease in the price per megabyte
results in demand for higher capacity and the emergence of new applications for flash storage. We continuously
reduce the cost of NAND flash memory, which we believe over time, will enable new markets and expand
existing markets and allow us to achieve higher overall revenue.
We create new markets for NAND flash memory through our design and development of NAND
applications and products. We are founders or co-founders of most major form factors of flash storage cards in
the market today. We pioneered the Secure Digital, or SD™, card, together with a subsidiary of Toshiba and
Panasonic Corporation, or Panasonic. The SD card is currently the most popular form factor of flash storage
cards used in digital cameras. Subsequent to pioneering the SD card, we worked with mobile network operators
and handset manufacturers to develop the miniSD™ card and microSD™ card to satisfy the need for even
smaller form factor memory cards. The microSD card has become the leading card format for mobile phones.
With Sony Corporation, or Sony, we co-own the Memory Stick PRO™ format and co-developed the SxS
memory card specification for high-capacity and high-speed file transfer in flash-based professional video
cameras. We also worked with Canon, Inc. to co-found the CompactFlash®, or CF, standard. Through our
internal development and technology obtained through acquisitions, we also hold key intellectual property for
USB drives and SSDs. We plan to continue to work with a variety of leading companies in various end markets
to develop new markets for flash storage products.
Our team has a deep understanding of flash memory technology and we develop and own leading-edge
technology and patents for the design, manufacture and operation of flash memory and data storage cards. One of
the key technologies that we have patented and successfully commercialized is multi-level cell technology, or
MLC, which allows a flash memory cell to be programmed to store two or more bits of data in approximately the
same area of silicon that is typically required to store one bit of data. We have an extensive patent portfolio that
has been licensed by several leading semiconductor companies and other companies in the flash memory
business. Our cumulative license and royalty revenues over the last three fiscal years were approximately
$1.37 billion.
We have invested with Toshiba in high volume, state-of-the-art NAND flash manufacturing facilities in
Japan. Our commitment takes the form of capital investments and loans to the flash ventures with Toshiba, credit
enhancements of these ventures’ leases of semiconductor manufacturing equipment, take-or-pay commitments to
purchase up to 50% of the output of these flash ventures with Toshiba at manufacturing cost plus a mark-up and
sharing in the cost of SanDisk-Toshiba joint research and development activities related to flash memory. We
refer to the flash memory which we purchase from the SanDisk-Toshiba ventures as captive memory. Our
strategy is to have a mix of captive and non-captive supply and we have, from time-to-time, supplemented our
sourcing of captive flash memory with purchases of non-captive memory, primarily from Hynix, Toshiba and
Samsung.
In addition to flash memory, our products include controllers that interface between the flash memory and
digital consumer devices. We design our own memory controllers and have them manufactured at wafer foundry
companies. Our finished flash memory products, which include the NAND flash memory, controller and outer
casing, are assembled at our in-house assembly and test facility in Shanghai, China, and through our network of
contract manufacturers.
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