SanDisk 2014 Annual Report Download - page 92

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
and industry revenue rather than our industry bit share. During 2014 and 2013, our competitors in total
grew their NAND flash memory bits faster than us. 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 for an extended period of time, 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
requirements or our competitors may become more preferred suppliers based upon either the breadth of
their product offerings or volume of their 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. A significant portion of our quarterly sales are from orders received
and fulfilled in that quarter. Additionally, we depend upon timely reporting from some of our customers as
to their inventory levels and sales of our products in order to forecast demand for our products.
Furthermore, the diversification of our product offerings and our customer base requires us to produce
multiple technology nodes and memory architectures in parallel in order to meet demand. 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
facilities 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.
Our license and royalty revenue may fluctuate or decline significantly in the future due to license agreement
renewals, declines in sales of the products or use of technology underlying the license and royalty revenue by our
licensees, or if licensees fail to perform on a portion or all of their contractual obligations. If our existing
licensees do not renew their licenses upon expiration, renew them on less favorable terms, exercise their
option to terminate the license or fail to exercise their option to extend the licenses, or we are not
successful in signing new licensees in the future, our license revenue, profitability, and cash provided by
operating activities would be harmed. As our older patents expire, and the coverage of our newer patents
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