SanDisk 2012 Annual Report Download - page 126

solely dedicated to NAND flash. These diversified capabilities may also provide these competitors with
a competitive advantage not only in product design and manufacturing due to the ability to leverage
know-how in DRAM, custom ASICs or other technologies, but also in a greater ability to respond to
industry fluctuations due to their ability to convert their DRAM and other semiconductor
manufacturing capacity to NAND flash and vice-versa. Current and future memory manufacturer
competitors could produce alternative flash or other memory technologies that could compete against
our NAND flash technology or our alternative technologies, which may reduce demand or accelerate
price declines for our products. Furthermore, the future rate of scaling of the NAND flash technology
design that we employ may slow down significantly, which would slow down cost reductions that are
fundamental to the adoption of NAND flash technology in new applications. If our scaling of NAND
flash technology slows down relative to our competitors, our business and operating results would be
harmed and our investments in captive fabrication facilities could be impaired.
•Flash Memory Card Manufacturers and Resellers. We compete with flash memory card manufacturers
and resellers, which purchase or have a captive supply of flash memory components and assemble
memory cards. We also sell flash memory in the form of white label cards, wafers or components to
certain OEMs who sell flash products that may ultimately compete with our branded products in the
retail or OEM channels. The sales volumes and pricing to these OEMs can be highly variable and these
OEMs may be more inclined to switch to an alternative supplier based on short-term price fluctuations
or the timing of product availability, which could harm our branded market share and reduce our sales
and profits.
•Client Storage Solution Manufacturers. In the market for client computing SSDs, we face competition
from large NAND flash producers such as Intel, Micron, Samsung and Toshiba, from third-party client
SSD solution providers such as Kingston, OCZ and PLDS, and from hard drive manufacturers such as
Seagate and WDC. In this market, we compete with these industry players largely on the basis of
performance capabilities and product reliability. Many of the large NAND flash producers have
established relationships with computer manufacturers, or are computer manufacturers themselves,
which gives them a competitive advantage in qualifying and integrating their client storage solutions in
this market as well as the ability to leverage competencies that have been developed through these
relationships in the past. Hard drive manufacturers may also have a competitive advantage in their
ability to leverage their existing relationships and brand recognition with customers, as well as their
ability to leverage existing technology in creating hybrid drive products. Our failure to compete
effectively against these industry players could harm our business and results of operations.
•Enterprise Storage Solution Manufacturers. In the market for enterprise data center SSDs, we face
competition from large NAND flash producers such as Intel, Micron, Samsung and Toshiba, from
enterprise SSD solution providers such as Fusion-io, LSI, SMART Modular and STEC, and from hard
drive manufacturers such as Seagate and WDC. Many of these competitors have significantly more
experience with the software components that are required for successful enterprise SSD solutions, and
our failure to continue to develop software expertise could harm our ability to effectively compete in
this market. In addition, enterprise data center SSDs is an emerging market, and many start-up
companies are contributing to the development of this market. Our competitors in this market may
acquire or develop other strategic relationships with these start-ups before we are able to, and if we are
unable to independently develop capabilities that we would have acquired through these start-ups, we
may be unable to effectively compete.
Our ability to generate adequate margins for certain products may be limited by our ability to secure
components or materials required to produce those products. Our products require certain non-flash memory
components and materials for which we do not have captive supply. Our ability to generate adequate margins
could be impacted by an inability to cost effectively source those components or materials. For example, we
supply MCP storage solutions for use in mobile devices. These MCP solutions include both NAND flash
memory and DRAM; however, since we do not have a captive supply of DRAM, there could be periods in which
we are unable to cost-effectively source the DRAM that we require or to source DRAM in the quantities or on
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