SanDisk 2011 Annual Report Download - page 109

This is a TAB type table. Insert
conts here. Annual Report
Product gross margins decreased in fiscal year 2011, compared to fiscal year 2010, due primarily to average
selling price reductions exceeding cost reductions. Costs per gigabyte decreased over the prior year by 31%,
primarily due to wafer production transitioning from 32-nanometer to 24-nanometer. This cost reduction includes
the negative impact of the appreciation of the Japanese yen to the U.S. dollar for wafer purchases denominated in
Japanese yen, increased sale of products incorporating non-captive flash memory, startup costs incurred by Flash
Forward, a ($25) million charge related to both a power outage in early March 2011 and an earthquake on
March 11, 2011, that affected Flash Ventures, and an increase in amortization of acquisition-related intangible
assets related to our acquisition of Pliant.
Product gross margins increased in fiscal year 2010, compared to fiscal year 2009, due primarily to cost
reductions exceeding average selling price reductions. The decrease in product cost is primarily due to wafer
production transitioning from 43-nanometer to 32-nanometer technology, increased usage of X3 technology, and
production at Flash Partners and Flash Alliance running at full utilization in fiscal year 2010 compared to less
than full utilization in the first half of fiscal year 2009. While cost reductions exceeded average selling price
reductions in fiscal year 2010, the rate of cost decline of our memory products was less in fiscal year 2010 than
fiscal year 2009 in part due to the appreciation of the Japanese yen, which resulted in an increase in our foreign-
denominated costs. Furthermore, the increase in product gross margin was partially offset by an ($18) million
charge related to a power outage experienced at Fab 3 and Fab 4 in the fourth quarter of fiscal year 2010.
Research and Development.
FY 2011
Percent
Change FY 2010
Percent
Change FY 2009
(In millions, except percentages)
Research and development .............. $ 547.4 30% $ 422.6 10% $ 384.2
Percent of revenue ..................... 9.7% 8.7% 10.8%
Our fiscal year 2011 research and development expense increased from fiscal year 2010 primarily due to
higher third-party engineering costs of $69 million, employee-related costs of $39 million related to increased
headcount and compensation expense, and technology license amortization expense of $17 million.
Our fiscal year 2010 research and development expense increased from fiscal year 2009 primarily due to
higher third-party engineering costs of $23 million and employee-related costs of $14 million related to increased
headcount and compensation expense.
Sales and Marketing.
FY 2011
Percent
Change FY 2010
Percent
Change FY 2009
(In millions, except percentages)
Sales and marketing ................... $ 199.4 (5%) $ 209.8 1% $ 208.5
Percent of revenue ..................... 3.5% 4.4% 5.8%
Our fiscal year 2011 sales and marketing expense decreased from fiscal year 2010 primarily due to lower
promotional and marketing costs in our retail channels.
Our fiscal year 2010 sales and marketing expense did not change significantly in total or by expense
category from fiscal year 2009.
General and Administrative.
FY 2011
Percent
Change FY 2010
Percent
Change FY 2009
(In millions, except percentages)
General and administrative .............. $ 157.8 (5%) $ 166.5 (3%) $ 171.4
Percent of revenue ..................... 2.8% 3.5% 4.8%
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