SanDisk 2014 Annual Report Download - page 96

earthquake. In addition, Flash Ventures has, from time to time, experienced power outages and power
fluctuations, which have resulted in a loss of wafers and increased costs associated with bringing the facility
back online.
Currently, wafers for our internally-designed controllers are manufactured by third-party foundries. In
addition, we purchase controllers from third-party sources, and some of our products require other
components and materials for which we do not have captive supply, such as the DRAM included in some
of our SSDs and MCP storage solutions that we supply for use in mobile devices. A disruption in the
manufacturing operations of our controller wafer vendors, third-party controller vendors or suppliers of
other components, such as DRAM, could result in delivery delays, harm our ability to make timely
shipments of our products and harm our operating results until we could qualify an alternate source of
supply for these components, which could take several quarters to complete.
Our business depends significantly upon sales through retailers and distributors, and if our retailers and
distributors are not successful, we could experience reduced sales, substantial product returns or increased price
protection claims, any of which would harm our business, financial condition and operating results. A
significant portion of our sales is made through retailers (for our retail channel) and distributors (for both
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 products, 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 products, technologies and standards. New products may require significant upfront
investment with no assurance of long-term commercial success or profitability. As we introduce new
products, 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 products, 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
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