SanDisk 2010 Annual Report Download - page 6

Solid-state drives (for PCs): Most believe that the key attributes of an ideal portable computer are thin, instant
on, lightweight, rugged, low battery usage, low heat dissipation, and low noise. These features can currently be
enabled only with NAND flash as the high capacity storage medium. There is a certain segment where SSD can
be viewed as a replacement market for hard disk drives (“HDD”) and this market is likely to be price sensitive.
We still think that at a price point of about $1 per gigabyte (at the end consumer level), the case for SSD to
replace a traditional HDD is quite compelling and we believe the industry will be closer to this price point in the
next few years, resulting in significant demand growth for NAND Flash. We are working on developing
solutions for this emerging client SSD market.
Cloud: We see the Cloud as another opportunity for NAND flash. As more and more data are stored in and
accessed from the Cloud, we expect NAND flash to play a key role at both ends of the Cloud network: the
enterprise data center and the client. In the enterprise data center, NAND flash can be used to support very high
data transfer rates into and out of the servers by leveraging NAND flash’s inherent strength in sequential memory
access. The data transfer rates that an SSD can support can be 100 times faster than with HDD, and can be
provided on a very cost effective basis. We see the enterprise as an exciting opportunity and we are evaluating
ways to address that segment. On the client end, we believe that NAND flash represents the last node on the
network, residing with you in a smartphone or other connected client. It is at this last node that we see
opportunity for SanDisk to provide innovative solutions to service providers. Cricket’s Muve Music™,
MetroPCS and Softbank are already taking advantage of our card-based solutions by offering differentiated
services to their end customers.
From a supply standpoint, in order to meet our customer demand for NAND flash solutions, that we expect will
grow over the next several years, we made a strategic decision to invest in our third 300-millimeter wafer joint-
venture fab along with our partner Toshiba. Construction of Fab 5 is underway and we expect the facility to
begin augmenting our existing supply base in the second half of 2011 and beyond.
Key Strategic Advantages
SanDisk’s strengths rest on three important pillars: first, ability to develop and commercialize innovative
solutions. We achieve this through our leadership in memory technology and its successful implementation with
effective systems solutions approaches. For example, our SanDisk®strongECC™ is an intelligent, proprietary,
solution that is embedded in our advanced controllers. This solution utilizes sophisticated signal processing
techniques to reliably write into and read from the NAND flash memory devices. This approach, combined with
other system level expertise capabilities, has allowed us to continue to drive a high mix of our 3-bits per cell
memory in a broad array of removable and embedded solutions.
Secondly, operational excellence and cost leadership. Our two joint venture manufacturing facilities in Japan
represent the world’s largest source of NAND flash supply, providing us with the advantage of scale, a key factor
in our memory cost leadership. We began ramping the 24-nanometer manufacturing technology on 2-bits per cell
as well as on the 3-bits per cell memory architectures. The 24-nanometer technology is expected to be a key cost
reduction driver in 2011. Our assembly and test facility in Shanghai has become a very important competitive
advantage for us as well since it began operations in 2007. We also continue to rely on our subcontractors for our
back end needs. The scale of our operations continues to expand, and we sold nearly 600 million units in 2010.
Thirdly, the diversity of our customer base, through our retail and OEM channels, is unsurpassed and is one of
the strongest assets for SanDisk. We have cultivated deep engagements with our customers and we remain
focused on delivering the high-quality solutions that they expect from us.
I would like to close by expressing my pride in the 3,469 global employees of SanDisk who have helped bring us
to this point. We entered 2011 with strong operating momentum, compelling products and solutions, a solid
balance sheet and solid customer engagement, and this sets the stage for continued growth of our business in
2011 and beyond. I would like to thank you, our stockholders, for your continuing support and confidence in
SanDisk. I trust you share our excitement and passion in driving our business forward and in delighting the
customers that store their worlds in ours.