SanDisk 2011 Annual Report Download - page 82

over those of our competitors. Certain of our retail and distributor partners are experiencing financial difficulty
and continued negative economic conditions could cause further liquidity issues for our retail and distributor
customers. For example, two of our North American retail customers, Circuit City Stores, Inc. and Ritz Camera
Centers, Inc., filed for bankruptcy protection in 2008, prior to liquidating, and in 2009, prior to being acquired,
respectively. Negative changes in customer credit-worthiness, the ability of our customers to access credit, or the
bankruptcy or shutdown of any of our significant retail or distribution partners would harm our revenue and our
ability to collect outstanding receivable balances. In addition, we have certain retail customers to which we
provide inventory on a consigned basis, and a bankruptcy or shutdown of these customers could preclude us from
taking possession of our consigned inventory, which could result in inventory charges.
The future growth of our business depends on the development and performance of new markets and
products for NAND-based flash memory. Our future growth is dependent on the development of new markets,
new applications and new products for NAND-based flash memory. Historically, the digital camera market
provided the majority of our revenues; however the mobile market, including mobile phones, tablets, e-readers
and similar mobile devices, now represents over half of our product revenues. Other markets for flash memory
include USB flash drives, tablets, digital audio and video players, GPS devices and SSDs. There can be no
assurance that the use of flash memory in existing markets and products will develop and grow fast enough, or
that new markets will adopt NAND flash technologies in general or our products in particular, to enable us to
grow. Our revenue and future growth is also significantly dependent on international markets, and we may face
difficulties entering, or maintaining sales in, some international markets. Some international markets are subject
to a higher degree of commodity pricing or tariffs and import taxes than in the U.S., subjecting us to increased
pricing and margin pressure.
If actual manufacturing yields are lower than our expectations, we may incur increased costs and
experience product shortages. The fabrication of our products requires wafers to be produced in a highly
controlled and ultra-clean environment. Semiconductor manufacturing yields and product reliability are a
function of both design and manufacturing process technology, and production delays may be caused by
equipment malfunctions, fabrication facility accidents or human error. Yield problems may not be identified
during the production process or solved until an actual product is manufactured and can be tested. We have, from
time-to-time, experienced lower yields that have harmed our business and operating results, including in
connection with transitions to new generations of products. If actual yields are low, we will experience higher
costs and reduced product supply, which could harm our business, financial condition and operating results. For
example, if the production ramp and/or yield of NAND technology on the latest process node, such as
19-nanometer, does not increase as expected, our cost competitiveness would be harmed, we may not have
adequate supply or the right product mix to meet demand, and our business, financial condition and operating
results will be harmed.
Successive generations of our products have incorporated semiconductors with greater memory capacity per
chip. If Flash Ventures encounters difficulties in transitioning to new technologies or architectures or competitors
transition faster than Flash Ventures, our cost per gigabyte may not remain competitive with other flash memory
producers, which would harm our gross margins and financial results. In addition, we could face design,
manufacturing and equipment challenges when transitioning to the next generation of technologies beyond
NAND flash technology. We have periodically experienced significant delays in the development and volume
production ramp of our products. Similar delays could occur in the future and could harm our business, financial
condition and operating results.
In transitioning to new technologies and products, we may not achieve OEM design wins and may
experience product delays, cost overruns or performance issues that could harm our business. The transition to
new generations of products, such as products containing 24-nanometer, 19-nanometer and smaller process
technologies and/or X3 NAND technologies, is highly complex and requires new controllers, new test
procedures, potentially new equipment and modifications to numerous aspects of our manufacturing processes,
resulting in extensive qualification of the new products by our OEM customers and us. If we fail to achieve OEM
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