SanDisk 2013 Annual Report Download - page 116

• SSD solutions require longer production cycle times due to, among other things, more complex
assembly and testing to produce a finished product, as well as customer requirements for consigned
inventory and increased use of hubs for order fulfillment, which could lead to higher levels and cost
of inventory;
• SSD solutions require different go-to-market strategies compared to our historical consumer and
mobile products, which could increase our operating expenses, 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 SSD solutions, we could lose sales and
corresponding profit opportunities, which would harm our operating results.
Our revenue depends in large part on our ability to achieve design wins with OEM customers and the
success of products sold by our OEM customers. Our primary OEM products include cards for mobile
devices, embedded memory products, and SSDs for the notebook, storage and server markets. Our OEM
revenue is primarily dependent upon our products meeting OEM specifications and the achievement of
design wins in an OEM’s products such as mobile phones, tablets, computers and enterprise servers. Even
if our products meet OEM specifications, our sales to these customers are dependent upon the
OEMs choosing our products over those of our competitors, on the OEMs’ ability to create, market and
sell their products successfully, and our ability to supply our products in sufficient quantity and in a timely
manner. For example, in the first half of fiscal year 2012, our OEM sales declined because our next
generations of mobile embedded products were in various stages of development and qualification, and
because mobile OEM customers reduced their rate of card bundling and bundled lower capacity cards. If
our OEM customers are not successful in selling their current or future products in sufficient volume or in
a timely manner, should they decide not to use our products, should they further reduce their card
bundling or bundle lower capacity cards, or should we not be able to produce our products in sufficient
quantity or quality, our revenue, operating results and financial condition could be harmed.
Sales to a small number of customers represent a significant portion of our revenue, and if we were to lose
one or more of our major customers or licensees, or experience any material reduction in orders from any of our
customers, our revenue and operating results could suffer. Our ten largest customers represented
approximately 49% and 43% of our revenue in fiscal years 2013 and 2012, respectively. In fiscal year 2013,
Apple accounted for 20% of our revenue. In fiscal year 2012, Apple accounted for 13% of our revenue.
The composition of our major customer base has changed over time, including shifts between OEM and
retail-based customers, and there have been changes in the market share concentration among our
customers. Many of our OEM customers purchase more than one product category from us. The primary
reason that Apple’s percent of our sales increased in fiscal year 2013 relative to fiscal year 2012 is that
Apple began purchasing SSDs from us, in addition to their ongoing purchases of mobile embedded and
other products. We expect fluctuations in our customer and licensee base and the mix of our revenue by
customer and licensee to continue as our markets and strategies evolve, which could make our revenue less
predictable from period-to-period. Our sales are generally made from standard purchase orders and
short-term commitments rather than long-term contracts. Accordingly, our customers, including our major
customers, may generally terminate or reduce their purchases from us at any time with limited notice or
penalty. If we were to lose one or more of our major customers or licensees, or experience any material
reduction in orders from any of our customers or in sales of licensed products by our licensees, our revenue
and operating results could suffer.
Our SSD products are more complex and rely on more sophisticated firmware than our other products,
which may result in increased costs and lower gross margin due to more frequent product updates. Our SSD
solutions are more complex than our traditional products due to, among other things, an increased
dependence on more sophisticated firmware and customization of our products for specific OEM
customers. Changes in our OEM customers’ specifications for these products could require us to update
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