SanDisk 2012 Annual Report Download - page 5

Stockholders Letter
SanDisk Corporation
951 SanDisk Drive
Milpitas, CA 95035-7933
Dear SanDisk Stockholders,
2012 marked the 25th anniversary of the invention of NAND flash memory technology. Looking back, it is
amazing to see how this technology has transformed, and in many cases disrupted, industries while enabling the
creation of new markets and devices to enhance our lifestyles. Today, flash memory technology is a key driver of
a pervasive “smart digital lifestyle” for both consumers and businesses. The confluence of key secular trends of
mobility, expanding digital content and increasing connectivity is driving a greater need for high-performance,
cost-effective flash-based storage solutions for use at the desktop and in consumer applications. The enterprise
data center is also being transformed by growing deployment of flash-based solutions in both servers and storage
systems.
SanDisk’s expanding portfolio of solutions is widely used in many of the products that are at the center of these
key secular trends. SanDisk is dedicated to providing robust, reliable and affordable storage solutions for
consumer and enterprise applications in a wide variety of formats and devices. Our products enable users to
efficiently and effectively capture, retrieve, share and preserve digital content. We have great expertise and
passion in delivering these solutions and our 4,500+ patents granted worldwide are vital to both current NAND
flash and future memory technology storage solutions.
Recap of 2012
In 2012, the mobile market remained the largest driver of our business accounting for 46% of our revenue. Our
mobile products are used in smartphones, feature phones, tablets, eReaders and other portable devices. Our
consumer electronics offerings including cards, USB flash drives and audio/video devices drove 31% of our
revenue. Client and enterprise solid-state drive (SSD) product sales almost tripled from 2011 to account for 9%
of our 2012 revenue. Our client SSD products are used in thin-and-light computers, notebook and desktop
personal computers, while our enterprise SSD products are used in data center storage and server infrastructure.
Licenses of our intellectual property contributed to 7% of our revenue and a similarly sized contribution came
from wafers, components and accessories.
In the first half of 2012, many of our mobile OEM customers began reducing the rate of card bundling with the
sales of their mobile phones and tablets. As the market share leader in mobile cards, we were impacted more than
our competitors and we saw lower sales of our mobile cards through OEMs. The mobile OEM de-bundling trend
contributed to an industry-wide flash memory supply and demand imbalance, causing aggressive price declines
during the first half of the year. Compounding the weak pricing and reduced card bundling, our first half revenue
opportunities were constrained as we re-aligned our embedded product portfolio to meet market requirements.
This combination of card de-bundling, market imbalance and embedded product transitions caused our results in
the first half of 2012 to be significantly weaker than our initial expectations.
Despite these challenges, thanks to the adaptability and agility of our SanDisk team, we recovered very quickly
in the second half of 2012 with sequential growth in revenue, profitability, and cash flow and expanded market
share. Specifically, we began supplying our customers with a broader range of embedded products for mobile
devices, thus driving embedded revenue to a quarterly record of $500 million in the fourth quarter of 2012.
Additionally, we achieved strong growth in the computing market with combined revenue from our enterprise
and client SSDs almost doubling year-over-year in the fourth quarter of 2012. We also maintained, or increased
our retail market share in both developed and emerging geographies.