SanDisk 2014 Annual Report Download - page 91

Future alternative non-volatile storage technologies or other disruptive technologies could make NAND
flash memory or the alternative technologies that we are developing obsolete or less attractive, and we may not
have access to those new technologies on a cost-effective basis, or at all, or new technologies could reduce the
demand for flash memory in a variety of applications or devices, any of which could harm our operating results
and financial condition. Due to inherent technology limitations, the bit growth and cost reduction from
2D NAND flash technology transitions is slowing down. We began transitioning to the 15-nanometer node
in the second half of fiscal year 2014 and expect to continue ramping production on this node throughout
fiscal year 2015. Beyond the 15-nanometer node, there is no certainty that further technology scaling can
be achieved cost effectively with the 2D NAND flash architecture. In the first quarter of fiscal year 2011,
we began investing in our 3D NAND flash architecture and we continue with our 3D NAND development,
optimizing for manufacturability, scalability, cost and product specifications, and targeting a broad range of
applications. We expect to invest in a 3D NAND pilot line in the second half of fiscal year 2015 and ramp
volume production of 3D NAND in fiscal year 2016. We are also investing in 3D ReRAM technology,
which we believe may be a viable alternative to NAND flash memory in the future. We expect 2D NAND,
3D NAND and potential future technologies, including 3D ReRAM, to co-exist for an extended period of
time. The success of our overall technology strategy is also dependent in part upon the development by
third-party suppliers of advanced semiconductor materials and process technologies, such as extreme
ultraviolet, or EUV. Our technology development of 2D NAND, 3D NAND and 3D ReRAM is done in
conjunction with Toshiba, and the success of our development could be influenced by whether we are able
to agree with Toshiba on a technology path or the timing and amount of investment. There can be no
assurance that we will be successful in developing 3D NAND, 3D ReRAM or other technologies in a
timely manner, or at all, or that we will be able to achieve the yields, quality or capacities to be cost
competitive with existing or other alternative technologies. Furthermore, we cannot guarantee that
3D NAND, 3D ReRAM or other technologies we develop will match or exceed all of the performance
characteristics of 2D NAND flash technology, will be developed at a rate that matches market needs, will
result in cost reductions that will enable us to be competitive, or will be well-suited, in a timely manner, or
at all, for all of the applications in the end markets that 2D NAND flash memory currently addresses or
may address in the future. Additionally, 3D NAND, 3D ReRAM or other technologies may require
different capital equipment or manufacturing processes than existing 2D NAND which could impact the
cost reduction benefits obtainable through these technologies.
Many companies, including some of our competitors, have developed or are attempting to develop
alternative non-volatile technologies such as magnetoresistive RAM, or MRAM, ReRAM, Memristor,
vertical or stacked NAND, phase-change and charge-trap flash technologies and other technologies.
Samsung has introduced products based on its 3D NAND flash technology, known as 3D VNAND, and
other companies have announced the expected launch in 2015 of products incorporating 3D NAND
technologies. At this time, these technologies are still emerging and it is unclear how they will compare to
our 2D NAND or 3D NAND technology and what implications 3D NAND approaches may have for our
industry or our business in terms of cost leadership, technology leadership, supply increases and product
specifications. For example, the specifications of competitors’ 3D NAND may make it more competitive in
certain products than the 2D NAND currently produced by us. Successful broad-based commercialization
of one or more of these technologies could reduce the competitiveness and future revenue and profitability
of our current and future generations of 2D NAND flash technology, and it could reduce the
competitiveness and future revenue and profitability of the potential alternative 3D NAND or 3D ReRAM
technologies that we are developing or even supplant them in their entirety. In addition, we generate
license and royalty revenue from NAND flash technology, and if NAND flash technology is 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.
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Annual Report