SanDisk 2009 Annual Report Download - page 94

than the carrying value, then we must write down the carrying value to its estimated fair value based primarily
upon forecasted discounted cash flows. An impairment of an equity method investment is deemed to occur if the
fair value, based upon quoted market prices if available or forecasted discounted cash flows, is less than the
carrying value. Substantially all of our equity method investments are not actively traded and we rely on
discounted cash flows to estimate fair value. These forecasted discounted cash flows include estimates and
assumptions related to revenue growth rates and operating margins, risk-adjusted discount rates based on our
weighted average cost of capital, future economic and market conditions and determination of appropriate market
comparables. Our estimates of market segment growth and our market segment share and costs are based on
historical data, various internal estimates and certain external sources, and are based on assumptions that are
consistent with the plans and estimates we are using to manage the underlying business. Our business consists of
both established and emerging technologies and our forecasts for emerging technologies are based upon internal
estimates and external sources rather than historical information. If future forecasts are revised, they may indicate
or require future impairment charges. We base our fair value estimates on assumptions we believe to be
reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those
estimates.
Fair Value of Investments in Debt Instruments. There are three levels of inputs that may be used to
measure fair value (see Note 3, “Investments and Fair Value Measurements” in the Notes to the Consolidated
Financial Statements included in Item 8 of this report). Each level of input has different levels of subjectivity and
difficulty involved in determining fair value. Level 1 securities represent quoted prices in active markets, and
therefore do not require significant management judgment. Our Level 2 securities are primarily valued using
quoted market prices for similar instruments and nonbinding market prices that are corroborated by observable
market data. We use inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar
data, which are obtained from independent pricing vendors, quoted market prices, or other sources to determine
the ultimate fair value of our assets and liabilities. The inputs and fair value are reviewed for reasonableness, may
be further validated by comparison to publicly available information, compared to multiple independent
valuation sources and could be adjusted based on market indices or other information. In the current market
environment, the assessment of fair value can be difficult and subjective. However, given the relative reliability
of the inputs we use to value our investment portfolio, and because substantially all of our valuation inputs are
obtained using quoted market prices for similar or identical assets, we do not believe that the nature of estimates
and assumptions was material to the valuation of our cash equivalents, short and long-term marketable securities.
We currently do not have any investments that use Level 3 inputs.
Results of Operations
Product Revenues.
FY 2009
Percent
Change FY 2008
Percent
Change FY 2007
(In millions, except percentages)
Retail ............................................ $1,567.5 (14)% $1,812.9 (16)% $2,162.5
OEM ............................................. 1,586.8 54% 1,030.3 (20)% 1,283.6
Product revenues ............................... $3,154.3 11% $2,843.2 (17)% $3,446.1
The increase in our fiscal year 2009 product revenues compared to fiscal year 2008 reflected a 116%
increase in the number of gigabytes sold, partially offset by a 48% reduction in average selling price per
gigabyte. The increase in number of gigabytes sold was the result of an increase in average capacity of 71% and
an increase in memory units sold of 26%. The decline in retail product revenues in fiscal year 2009 compared to
fiscal year 2008 was primarily attributable to a weak worldwide consumer spending environment through all of
2009. The increase in OEM product revenues in fiscal year 2009 compared to fiscal year 2008 was due to
increased sales of cards and embedded products primarily in the mobile phone markets and increased sales to
new OEM channels, including the sale of private label cards, wafers and components.
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