SanDisk 2011 Annual Report Download - page 89

This is a TAB type table. Insert
conts here. Annual Report
During periods of excess supply in the market for our flash memory products, we may lose market share to
competitors who aggressively lower their prices. In order to remain competitive, we may be forced to sell
inventory below cost. If we lose market share due to price competition or we must write-down inventory, our
operating results and financial condition could be harmed. Conversely, under conditions of tight flash memory
supply, we may be unable to adequately increase our production volumes or secure sufficient supply in order to
maintain our market share. In addition, longer than anticipated lead times for advanced semiconductor
manufacturing equipment or higher than expected equipment costs could harm our ability to meet our supply
requirements or to reduce future production costs. If we are unable to maintain market share, our operating
results and financial condition could be harmed.
Our ability to respond to changes in market conditions from our forecast is limited by our purchasing
arrangements with our silicon sources. Some of these arrangements provide that the first three months of our
rolling six-month projected supply requirements are fixed and we may make only limited percentage changes in
the second three months of the period covered by our supply requirement projections.
Our products also contain non-silicon components that have long lead-times requiring us to place orders
several months in advance of anticipated demand. This long lead-time increases our risk that forecasts will vary
substantially from actual demand, which could lead to excess inventory or loss of sales.
We rely on our suppliers and contract manufacturers, some of which are the sole source of supply for our
non-memory components, and capacity limitations or the absence of a back-up supplier exposes our supply chain
to unanticipated disruptions or potential additional costs. We do not have long-term supply agreements with
many of our suppliers and some of our contract manufacturers, certain of which are sole sources of supply for our
non-memory components. From time-to-time, certain materials may become difficult or more expensive to
obtain, which could impact our ability to meet demand and could harm our profitability. Our business, financial
condition and operating results could be significantly harmed by delays or reductions in shipments if we are
unable to obtain sufficient quantities of these components or develop alternative sources of supply in a timely
manner, on competitive terms, or at all.
Our global operations and operations at Flash Ventures and third-party subcontractors are subject to risks
for which we may not be adequately insured. Our global operations are subject to many risks including errors and
omissions, infrastructure disruptions, such as large-scale outages or interruptions of service from utilities or
telecommunications providers, supply chain interruptions, third-party liabilities and fires or natural disasters. No
assurance can be given that we will not incur losses beyond the limits of, or outside the scope of, the coverage of
our insurance policies. From time-to-time, various types of insurance have not been available on commercially
acceptable terms or, in some cases, at all. There can be no assurance that in the future we will be able to maintain
existing insurance coverage or that premiums will not increase substantially. We maintain limited insurance
coverage and in some cases no coverage at all for natural disasters and environmental damages, as these types of
insurance are sometimes not available or available only at a prohibitive cost. For example, our test and assembly
facility in Shanghai, China, on which we significantly rely, may not be adequately insured against all potential
losses. Accordingly, we may be subject to uninsured or under-insured losses. We depend upon Toshiba to obtain
and maintain sufficient property, business interruption and other insurance for Flash Ventures. If Toshiba fails to
do so, we could suffer significant unreimbursable losses, and such failure could also cause Flash Ventures to
breach various financing covenants. In addition, we insure against property loss and business interruption
resulting from the risks incurred at our third-party subcontractors; however, we have limited control as to how
those sub-contractors run their operations and manage their risks, and as a result, we may not be adequately
insured.
We and our suppliers rely upon certain rare earth materials that are necessary for the manufacturing of our
products, and our business could be harmed if we or our suppliers experience shortages or delays of these rare
earth materials. Rare earth materials are critical to the manufacture of some of our products. We and/or our
suppliers acquire these materials from a number of countries, including the People’s Republic of China. We
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