SanDisk 2013 Annual Report Download - page 119

replaced by a technology where our IP is less relevant, our license and royalty revenue would decrease.
Also, we may not have access to or we may have to pay royalties to access alternative technologies that we
do not develop internally. If our competitors successfully develop new or alternative technologies, and we
are unable to scale our technology on an equivalent basis, or if our competitors’ new or alternative
technologies satisfy application-specific requirements that our technologies are not able to, we may not be
able to compete effectively, and our operating results and financial condition would suffer.
Alternative technologies or storage solutions such as cloud storage, enabled by high bandwidth
wireless or internet-based storage, could reduce the need for physical flash storage within electronic
devices or reduce the rate by which average capacity increases in such devices, which could materially harm
our operating results.
Growth of our NAND flash memory bit-supply at a slower rate than the overall industry for an extended
period of time, would result in lowering our industry market share which could limit our future opportunities or
harm our financial results. Our strategy has been to focus on increasing our share of high-value solutions
rather than our industry bit share. During 2013, our competitors in total grew their NAND flash memory
bits faster than us and we expect this trend to continue in 2014. Successful broad-based commercialization
of 3D NAND may accelerate the growth of NAND flash bits more than we anticipate. If our bit growth
lags behind our competitors, it will reduce our captive flash bit market share in the industry. With lower bit
market share, we may not be able to sufficiently address all market opportunities. Some of our customers
may want to buy multiple types of products or specific quantities of our products and if we limit the growth
of our production, we may not be able to meet customer volume supply requirements or other competitors
with greater market share may become more preferred suppliers based upon either the breadth of product
offerings or volume of product supply. In addition to the potential loss of bit market share, our competitors
may realize better cost declines than us enabled by improved economies of scale achieved through
additional bit growth. If our competitors have lower costs, this could allow our competitors to offer similar
products at a lower price than us which could harm our competitiveness and financial results. If we decide
to purchase non-captive supply from competitors to provide supply to our customers, there is no guarantee
we will be able to secure such supply at a competitive price, or in the right product mix or quality level or in
sufficient volume, or at all.
Difficulty in forecasting demand for our products may result in excess inventory or lost sales, either of
which could harm our financial results. The majority of our products are sold directly or indirectly into
consumer markets, which are difficult to accurately forecast. Also, a significant portion of our quarterly
sales are from orders received and fulfilled in that quarter. Additionally, we depend upon timely reporting
from our customers as to their inventory levels and sales of our products in order to forecast demand for
our products. The failure to accurately forecast demand for our products may result in lost sales or excess
inventory and associated reserves or write-downs, any of which could harm our business, financial
condition and operating results.
The long lead times for some of our purchasing or other arrangements further restrict our ability to
respond to variations from our forecasts. Some of our silicon purchasing arrangements provide that the
first three months of our rolling six-month projected supply requirements are fixed and we may make only
limited percentage changes in the second three months of the period covered by our supply requirement
projections. Our products also contain non-silicon components that have long lead-times requiring us to
place orders several months in advance of anticipated demand. In addition, purchasing decisions for
manufacturing tools in Flash Ventures as well as tools in our captive assembly and test manufacturing
facility near Shanghai, China often need to be made several months in advance in order to ensure that the
tools can be integrated into the manufacturing process when increased capacity is needed. These
purchasing arrangements increase the risk of excess inventory or loss of sales in the event our forecasts
vary substantially from actual demand.
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Annual Report