SanDisk 2011 Annual Report Download - page 95

This is a TAB type table. Insert
conts here. Annual Report
terminate their employment with us at any time. Our success will depend on our ability to recruit and retain
additional highly-skilled personnel. We have relied on equity awards in the form of stock options and restricted
stock units as one means for recruiting and retaining highly skilled talent and a reduction in our stock price may
reduce the effectiveness of share-based awards in retaining employees.
Terrorist attacks, war, threats of war and government responses thereto may negatively impact our
operations, revenues, costs and stock price. Terrorist attacks, U.S. military responses to these attacks, war,
threats of war and any corresponding decline in consumer confidence could have a negative impact on consumer
demand. Any of these events may disrupt our operations or those of our customers and suppliers and may affect
the availability of materials needed to manufacture our products or the means to transport those materials to
manufacturing facilities and finished products to customers. Any of these events could also increase volatility in
the U.S. and world financial markets, which could harm our stock price and may limit the capital resources
available to us and our customers or suppliers, or adversely affect consumer confidence. We have substantial
operations in Israel including a development center in Northern Israel, near the border with Lebanon, and a
research center in Omer, Israel, which is near the Gaza Strip, areas that have experienced significant violence and
political unrest. Turmoil and unrest in Israel, the Middle East or other regions could cause delays in the
development or production of our products and could harm our business and operating results.
Natural disasters or epidemics in the countries in which we or our suppliers or subcontractors operate
could harm our supply chain operations. Our supply chain operations, including those of our suppliers and
subcontractors, are concentrated in the United States, Japan, Taiwan, China and Singapore. In the past, certain of
these areas have been affected by natural disasters such as earthquakes, tsunamis, floods and typhoons, and some
areas have been affected by epidemics, such as avian flu or H1N1 flu. If a natural disaster or epidemic were to
occur in one or more of these areas, we could incur a significant work or production stoppage. For example, a
massive earthquake occurred in Japan in March 2011 resulting in a tool stoppage at Fabs 3 and 4; which resulted
in loss of wafers and increased cost to bring the Fabs back on line. The impact of these potential events is
magnified by the fact that we do not have insurance for most natural disasters, including earthquakes and
tsunamis. The impact of a natural disaster could harm our business and operating results.
Disruptions in global transportation could impair our ability to deliver or receive product on a timely basis
or at all, causing harm to our financial results. Our raw materials, work-in-process and finished products are
primarily distributed via air. If there are significant disruptions in air travel, we may not be able to deliver our
products or receive raw materials. For example, the volcanic eruption in Iceland in April 2010 halted air traffic
for several days over Europe and disrupted other travel routes that pass through Europe, resulting in delayed
delivery of our products to certain European countries. In addition, a natural disaster that affects air travel in Asia
could disrupt our ability to receive raw materials in, or ship finished product from, our Shanghai, China facility
or our Asia-based contract manufacturers. As a result, our business and operating results may be harmed.
Price increases could reduce our overall product revenues and harm our financial position. In the first half
of fiscal year 2009, we increased prices in order to improve profitability. Price increases can result in reduced
growth, or even an absolute reduction, in gigabyte demand. For example, in the second quarter of fiscal year
2009, our average selling price per gigabyte increased 12% and our gigabytes sold decreased 7%, both on a
sequential basis. In the future, if we raise prices, our product revenues may be harmed and we may have excess
inventory.
We rely on information systems to run our business and any prolonged down time could harm our business
operations and/or financial results. We rely on an enterprise resource planning system, as well as multiple other
systems, databases, and data centers to operate and manage our business. Any information system problems,
programming errors or unanticipated system or data center interruptions could impact our continued ability to
successfully operate our business and could harm our financial results or our ability to accurately report our
financial results on a timely basis.
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