SanDisk 2010 Annual Report Download - page 136

contains millions of flash memory cells. A failure in any one of these cells can result in loss of data, such as
picture files, and this can occur several years into the life of a flash storage product. The controller chips used in
our products are designed to detect such defects and recover data under most standard conditions.
Patents and Licenses
We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures
and licensing arrangements to protect our intellectual property rights. See Item 1A, “Risk Factors.”
As of the end of fiscal year 2010, we owned, or had rights to, more than 1,700 United States, or U.S.,
patents and more than 1,100 foreign patents. We had more than 1,100 patent applications pending in the U.S.,
and had foreign counterparts pending on many of the applications in multiple jurisdictions. We continually seek
additional U.S. and international patents on our technology.
We have various patent licenses with several companies including, among others, Hynix, Intel Corporation,
or Intel, Lexar Media, Inc., or Lexar, a subsidiary of Micron Technology, Inc., or Micron, Panasonic, Renesas
Technology Corporation, or Renesas, Samsung, Sharp Electronics KK, or Sharp, Sony and Toshiba. From
time-to-time, we enter into discussions with other companies regarding potential license agreements for our
patents. In the three years ended January 2, 2011, we have generated $1.28 billion in revenue from license
agreements.
Trade secrets and other confidential information are also important to our business. We protect our trade
secrets through confidentiality and invention assignment agreements.
Supply Chain
Our supply chain is an important competitive advantage and is comprised of the following:
•Silicon Sourcing. All of our flash memory card products require silicon chips for the memory and
controller components. The majority of our memory is supplied from the flash ventures with Toshiba.
This represents captive memory supply and we are obligated to take our share of the output from the
flash ventures with Toshiba or pay the fixed costs associated with that capacity. See “Ventures with
Toshiba.” From time-to-time, we also purchase non-captive NAND memory supply from other silicon
suppliers. Our NAND flash memory contracts provide us a certain amount of guaranteed output from
these silicon suppliers if we provide orders within a required lead time; however, we are not obligated
to purchase the guaranteed supply unless we provide an order for future purchases.
•Assembly and Testing. We sort and test our wafers at Toshiba in Yokkaichi, Japan, and at other
facilities in Taiwan. Our flash memory products are assembled in both our in-house assembly and test
facility in Shanghai, China, and through our network of contract manufacturers. Our packaged memory
final test, card assembly and card test is performed at our in-house facility and at subcontractors in
China, Singapore and Taiwan. We believe the use of our in-house assembly and test facility as well as
subcontractors reduces the cost of our operations, provides flexibility and gives us access to increased
production capacity.
Ventures with Toshiba
We and Toshiba have successfully partnered in several flash memory manufacturing business ventures,
which provide us leading edge, cost competitive NAND wafers for our end products. From May 2000 to May
2008, FlashVision Ltd., or FlashVision, operated and produced 200-millimeter NAND flash memory wafers. In
September 2004, we and Toshiba formed Flash Partners Ltd., or Flash Partners, which produces 300-millimeter
NAND flash wafers in Toshiba’s Fab 3 facility, or Fab 3. In July 2006, we and Toshiba formed Flash Alliance
Ltd., or Flash Alliance, a 300-millimeter wafer fabrication facility which began initial production in the third
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