SanDisk 2010 Annual Report Download - page 170

Fair Value of Investments in Debt Instruments. There are three levels of inputs that may be used to
measure fair value (see Note 2, “Investments and Fair Value Measurements” in the Notes to the Consolidated
Financial Statements included in Part II, 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 and short and long-term
marketable securities. We currently do not have any investments that use Level 3 inputs.
Results of Operations
Product Revenues.
FY 2010
Percent
Change FY 2009
Percent
Change FY 2008
(In millions, except percentages)
OEM ...................................... $2,776.8 75% $ 1,586.8 54% $ 1,030.3
Retail ...................................... 1,686.1 8% 1,567.5 (14%) 1,812.9
Product revenues ......................... $4,462.9 41% $ 3,154.3 11% $ 2,843.2
The increase in our fiscal year 2010 product revenues compared to fiscal year 2009 reflected a 74% increase
in the number of gigabytes sold, partially offset by a (19%) reduction in average selling price per gigabyte. The
increase in number of gigabytes sold was the result of a 41% increase in memory units sold with an increase in
average capacity of 23%. The increase in product revenues in fiscal year 2010 over fiscal year 2009 was
primarily due to higher OEM revenues, principally from cards and embedded solutions for the mobile phone
market and full-year sales of private label cards, wafers and components to new OEM channels and customers
that we added in the second half of fiscal year 2009. Our retail product revenue growth was driven primarily by
increased sales of imaging products, partially offset by a decline in sales of audio/video products.
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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