SanDisk 2013 Annual Report Download - page 122

our retail and commercial channels), and we must rely on them to effectively sell our products. Except in
limited circumstances, we do not have exclusive relationships with our retailers or distributors. In addition,
sales through retailers and distributors typically include commercial terms such as the right to return
unsold inventory and protection against price declines. As a result, we do not recognize revenue until after
the product has been sold through to the end user, in the case of sales to retailers, or to our distributors’
customers, in the case of sales to distributors. If our retailers and distributors are not successful in selling
our products, not only would our revenue decrease, but we could also experience lower gross margin due
to substantial product returns or price protection claims. Furthermore, negative changes in the credit-
worthiness or the ability to access credit, or the bankruptcy or shutdown of any of our significant retail or
distribution partners would harm our revenue and our ability to collect outstanding receivable balances.
We also provide inventory on a consigned basis to certain of our retailers, and a bankruptcy or shutdown of
these customers could preclude us from taking possession of our consigned inventory, which could result in
inventory charges.
We develop new applications, technologies and standards, which may not be widely adopted by consumers
or enterprises, or, if adopted, may reduce demand for our older products. We devote significant resources to
the development of new applications, technologies and standards. New applications may require significant
upfront investment with no assurance of long-term commercial success or profitability. As we introduce
new standards or technologies, it can take time for these new standards or technologies to be adopted, for
consumers to accept and transition to these new standards or technologies and for significant sales to be
generated, if at all. Failure of consumers or enterprises to adopt our new applications, standards or
technologies could harm our results of operations as we fail to reap the benefits of our investments.
Competitors or other market participants could seek to develop new standards for flash memory products
that, if accepted by device manufacturers or consumers, could reduce demand for our products, negatively
impact our license and royalty revenue, or increase license and royalty expense. If new standards are
broadly accepted and we do not adopt these new standards in our products, our revenue and results of
operations may be harmed.
We face competition from numerous manufacturers and marketers of products using flash memory and if
we cannot compete effectively, our operating results and financial condition will suffer. We face competition
from NAND flash memory manufacturers and from companies that buy NAND flash memory and
incorporate it into their end products. We face different competitive pressures in different markets, and we
compete to varying degrees on the basis of, among other things, price, quality and timely delivery of
products, product performance, availability and differentiation, and the development of industry standards
and formats. The success of our competitors may harm our future revenue or margins and may result in
the loss of our key customers.
•NAND Manufacturers. We compete with NAND flash memory manufacturers, including Hynix,
Intel, Micron, Samsung and Toshiba. These companies compete with us in selling a range of flash
based products and form factors, including embedded, solid state drives, removable and other form
factors. These competitors are large companies that may have greater and more advanced wafer
manufacturing capacity, substantially greater financial, technical, marketing and other resources,
better recognized brand names and more diversified and lower cost businesses than we do, which
may allow them to produce flash memory chips in high volumes at low costs and to sell these flash
memory chips themselves or to our competitors at a low cost. In addition, many of our competitors
have more diversified semiconductor manufacturing capabilities and can internally produce
integrated solutions or hybrid products that may include a combination of NAND flash, DRAM,
custom ASICs or other integrated products, while our captive manufacturing capability is 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
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