SanDisk 2012 Annual Report Download - page 120

technology transitions, we may not have enough captive supply to meet demand on a timely and cost effective
basis and we may lose sales opportunities and market share as a result, which would harm our ability to grow
revenues. In such cases, we may have only a limited ability to satisfy our supply needs from non-captive supply
sources and may not be able to obtain the right mix of non-captive product within an adequate lead time or at a
cost that allows us to generate an adequate gross margin. Our customers also may not allow us to change the
memory in the products that they have already qualified. Our inability to obtain sufficient cost-effective non-
captive memory that meets our requirements may cause us to lose sales, market share and profits, which would
harm our operating results. In addition, we are contractually obligated to pay for 50% of the fixed costs of Flash
Ventures regardless of whether we purchase any wafers from Flash Ventures. Furthermore, purchase orders
placed under Flash Ventures and the foundry arrangement with Toshiba for up to three months are binding and
cannot be canceled. Therefore, once our purchase decisions have been made, our production costs are fixed, and
we may be unable to reduce costs to match any subsequent declines in pricing or demand, which would harm our
gross margins. Our limited ability to react to fluctuations in supply and demand makes us particularly susceptible
to variations from our forecasts and expectations, and even in times of excess demand, our operating results may
be harmed.
The future growth of our business depends on the development and performance of new and growing
markets and products for flash memory, including the client computing and enterprise SSD markets, and on our
ability to gain market share in these markets. Historically, removable flash memory cards and USB drives, both
sold primarily through the retail channel, provided the majority of our revenues. As growth in these retail
products slowed, we increased sales of embedded NAND flash memory for devices such as mobile phones,
tablets, and other mobile devices, which now represent the largest percentage of our product revenues. Our future
growth is dependent on the development of new markets, new applications and new products for flash memory.
There can be no assurance that the use of flash memory in existing markets and products will continue or grow
fast enough, or at all, or that new markets will adopt flash technologies in general or our products in particular, to
enable us to grow.
Over the next several years, we believe that the largest growth areas for NAND flash will be SSD solutions
in the client computing and enterprise data center markets, whereas the mobile market for NAND flash is
expected to grow at a slower rate than in the past, and the retail market for flash is expected to be approximately
constant or declining. We will continue to make significant investments in the development of hardware and
software solutions for SSD markets in order to successfully penetrate and gain market share in SSD solutions.
Our ability to succeed in the SSD solutions market is subject to various risks and uncertainties, including, among
other things:
• we may be unable to successfully develop or qualify SSD solutions that meet our customers’
requirements, and we cannot guarantee that customers will adopt our SSD solutions even if we do;
• designing and qualifying products in the SSD solutions market will require greater investments and
customization than our traditional markets;
• we may not be able to transition customers to our leading edge products which would prevent us from
getting the full cost advantage of new technology transitions due to longer customer product cycles in
the SSD solutions market;
• SSD solutions require more software than our traditional products, and we must continue to develop
software expertise; and
• SSD solutions require different go-to-market strategies compared to our historical consumer and
mobile products, and we may be unable to build an effective sales and marketing operation to sell our
SSD solutions.
If we are unable to successfully develop, qualify and sell client computing and enterprise SSD solutions, we
could lose sales and corresponding profit opportunities, which would harm our operating results.
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