SanDisk 2011 Annual Report Download - page 72

To achieve compatibility with various electronic platforms regardless of the host processors or operating
systems used, we continue to develop new capabilities in flash memory chip design and advanced controllers.
We also continue to evolve our architecture to leverage advances in manufacturing process technology. Our
products are designed to be compatible with industry-standard interfaces used in operating systems for personal
computers, or PCs, mobile phones, tablets, ultrabooks, notebooks, digital cameras, gaming devices, GPS devices,
servers and other computing devices
Our proprietary controller and sophisticated firmware technologies permit our flash storage solutions to
achieve a high level of reliability and longevity. Each one of our flash devices 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. Our system technologies, including our controller chips and
firmware, 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 2011, we owned, or had rights to, more than 2,000 United States, or U.S.,
patents and more than 1,700 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 patent license agreements with many companies, including Hynix, Intel, Lexar Media, Inc., or
Lexar, a subsidiary of Micron Technology, Inc., or Micron, Panasonic, Renesas Technology Corporation, or
Renesas, Samsung, Sony and Toshiba. In the three years ended January 1, 2012, we have generated $1.15 billion
in revenue from license and royalty 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 system products require silicon chips for the memory and
controller components. The majority of our memory is supplied by Flash Ventures. This represents
captive memory supply and we are obligated to take our share of the output from these ventures or pay
the fixed costs associated with that capacity. See “Ventures with Toshiba.” We also purchase
non-captive NAND memory supply from other silicon suppliers. We have NAND flash memory supply
contracts with certain suppliers that provide us a certain amount of guaranteed output if we provide
orders within a required lead time; however, we are not obligated to purchase the guaranteed supply
unless we provide orders. We generally design our controllers in-house and have them manufactured at
third-party foundries.
•Assembly and Testing. We sort and test our memory wafers at Toshiba in Yokkaichi, Japan, and at
other captive and third-party facilities in China and Taiwan. Our products are assembled and tested at
both our in-house facility in Shanghai, China, and through our network of contract manufacturers
primarily in China 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.
8