SanDisk 2014 Annual Report Download - page 85

• insufficient supply of materials other than flash memory, such as DRAM, or capacity from our
suppliers and contract manufacturers to meet demand or increases in the cost of these materials or
capacity;
• inability to realize the potential financial or strategic benefits of business acquisitions or strategic
investments;
• disruptions to our supply chain or operations, for example, whether due to natural disasters,
emergencies such as power outages, fires or chemical spills, or employee strikes or other job actions,
or geopolitical unrest;
• inability to enhance current products, develop new products or transition products to new
technologies on a timely basis or in advance of our competitors;
• increased memory component and other costs as a result of currency exchange rate fluctuations for
the U.S. dollar, particularly with respect to the Japanese yen;
• inability to obtain non-captive memory supply of the right product mix and quality in the time frame
necessary to meet demand, or inability to realize an adequate margin on non-captive purchases;
• insufficient assembly and test or retail packaging and shipping capacity from our Shanghai, China
facilities or our contract manufacturers, or labor unrest, employee strikes or other disruptions at
any of these facilities;
• errors or defects in our products caused by, among other things, errors or defects in the memory or
controller components, including memory and non-memory components we procure from third-
party suppliers;
• the financial strength and market position of our customers; and
• the other factors described in this ‘‘Risk Factors’’ section and elsewhere in this report.
Competitive pricing pressures or product mix changes may result in lower average selling prices for our
products, and if such price declines are not offset by a corresponding increase in demand for our products or a
reduction in our costs, our revenue, margins or both may decline. The price of NAND flash memory is
influenced by, among other factors, the balance between supply and demand, including the effects of new
fab capacity in the industry, macroeconomic factors and business conditions, technology transitions,
conversion of industry DRAM capacity to NAND, development of new technologies such as 3D NAND or
other actions taken by us or our competitors to gain market share. In particular, the NAND flash memory
industry has, from time-to-time, experienced periods of excess supply, resulting in price declines. Industry
bit supply is expected to continue to grow, and if bit supply grows at a faster rate than market demand, the
industry could again experience unanticipated price declines. If we are not able to offset price declines with
sufficient increases in unit sales or average memory capacity per unit or a shift in product mix towards
products with higher average selling prices, our revenue may be harmed. In addition, our products have
varying gross margins and, to the extent our revenue mix shifts towards products with lower gross margins,
our overall profitability may decline or not grow as expected.
If we are unable to reduce our product costs to keep pace with reductions in average selling prices, our gross
margin may be harmed. Because of the historical and expected future declines in the price of NAND flash
memory, we need to reduce our product costs in order to maintain adequate gross margin. Our ability to
reduce our cost per gigabyte of memory produced primarily depends on technology transitions and the
improvement of manufacturing efficiency, including manufacturing yields. If our technology transitions
(for example, the production ramp of NAND technology on the 15-nanometer process node) take longer
or are more costly to complete than anticipated, our flash memory costs may not remain competitive with
other NAND flash memory producers, which would harm our gross margin and financial results.
Furthermore, as 2D NAND approaches scaling limits, the inherent physical technology limitations of
NAND flash technology are resulting in more costly technology transitions than we have experienced in
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