SanDisk 2014 Annual Report Download - page 95

• difficulty integrating the accounting, supply chain, human resources and other systems of the
acquired business;
• disruption of or delays in ongoing research and development efforts and release of new products to
market;
• diversion of capital, management attention and other resources;
• assumption of liabilities;
• issuance of equity securities that may be dilutive to our existing stockholders;
• diversion of resources and unanticipated expenses resulting from litigation arising from potential or
actual business acquisitions or investments, including any ongoing litigation of the acquired
business;
• failure of the due diligence processes to identify significant issues with product quality, technology
and development, or legal and financial issues, among other things;
• incurring non-recurring charges, increased contingent liabilities, adverse tax consequences,
depreciation or deferred compensation charges, amortization or impairment of intangible assets or
impairment of goodwill, which could harm our results of operations; and
• potential delay in customer purchasing decisions due to uncertainty about the direction of our
product offerings or those of the acquired business.
In July 2014, we completed the acquisition of Fusion-io, a developer of flash-based PCIe hardware
and software solutions that enhance application performance in enterprise and hyperscale data centers. In
addition to the risks described above, failure to leverage or delays in leveraging Fusion-io’s go-to-market
capabilities to generate revenues for our products could harm our ability to realize the potential financial
or strategic benefits of the acquisition and thereby harm our growth prospects or results of operations.
Failure to realize the anticipated benefits from acquisitions could result in the impairment of our
acquisition-related intangible assets, which would harm our results of operations. For example, in the third
quarter of fiscal year 2013, we recorded impairment charges of $47 million related to amortizable
intangible assets and $36 million related to an in-process research and development intangible asset, both
from the acquisition of Pliant Technology, Inc., or Pliant. These impairment charges stemmed primarily
from our decision to integrate more of the SMART Storage Systems, or SMART Storage, architecture and
technology into our future enterprise product roadmap and from the delay of our next-generation SSD
platform built on the Pliant technology.
Any disruption or shortage in our supply chain could reduce our revenue, earnings and gross margin. All of
our flash memory products require silicon supply for the memory and controller components. Substantially
all of our flash memory is currently supplied by Flash Ventures and to a much lesser extent by third-party
silicon suppliers. Any disruption or shortage in supply of flash memory from our captive or non-captive
sources, including disruptions due to disasters, unplanned maintenance, work stoppages, supply chain
interruptions and other factors, would harm our operating results.
The concentration of Flash Ventures in Yokkaichi, Japan, magnifies the risks of supply disruption. The
Yokkaichi location and Japan in general are subject to earthquakes, typhoons and other natural disasters.
Moreover, Toshiba’s employees who produce Flash Ventures’ products are covered by collective bargaining
agreements and any strike or other job action by those employees could interrupt our wafer supply from
Flash Ventures. A disruption in our captive wafer supply, including but not limited to disruptions from
natural disasters, emergencies such as power outages, fires or chemical spills, or employee strikes or other
job actions could cause us not to have sufficient supply to meet demand, resulting in lost sales and market
share, as well as significant costs, including wafer loss. For example, the March 11, 2011 earthquake and
tsunami in Japan caused a brief equipment shutdown at Flash Ventures, which resulted in some wafer loss
as well as delayed or canceled deliveries of certain tools and materials from suppliers impacted by the
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Annual Report