SanDisk 2014 Annual Report Download - page 98

technology in creating hybrid drive products. Our failure to compete effectively against these
industry players could harm our business and results of operations.
•Enterprise Storage Solution Manufacturers. In the market for enterprise data center SSDs, we face
competition from Intel, Micron, Samsung and Toshiba, all of which are also NAND flash producers,
as well as from Lite-On, Seagate and WDC. Many of these competitors have significantly more
experience with the software components that are required for successful enterprise SSD solutions,
and our failure to continue to develop software expertise could harm our ability to effectively
compete in this market. Many established and start-up companies are contributing to the
development of the enterprise data center SSD market. Our competitors in this market may be able
to leverage existing resources and competencies or acquire or develop other strategic relationships
with established or start-up companies before we are able to, which could give them a competitive
advantage, and if we are unable to independently develop comparable capabilities, we may be
unable to effectively compete.
Our ability to generate revenue or adequate margins for certain products may be limited by our ability to
secure, at competitive prices or at all, components or materials required to produce those products. Our
products require certain components and materials for which we do not have captive supply. Our ability to
generate revenue or adequate margins could be impacted by an inability to source those components or
materials in a cost-effective manner, or at all. For example, some of our SSDs and the MCP storage
solutions that we supply for use in mobile devices include both NAND flash memory and DRAM. Since we
do not have a captive supply of DRAM, there could be periods in which we are unable to cost-effectively
and timely source DRAM in the quantities that we require, which could result in our competitors with
greater access to DRAM becoming preferred suppliers for these solutions, as well as discrete flash
solutions. In addition, costs of DRAM have increased in the past and continued increases in the future
would harm our gross margin for our products that include DRAM. Furthermore, as our product portfolio
has evolved to include an increasing mix of complex products, we have become increasingly reliant on
components and materials other than flash memory, and the proportion of our product costs attributable
to these materials has increased. If we are unable to source these components or materials cost effectively,
or at all, or if we are unable to reduce the cost of these materials and other costs, our revenue and margin
may be harmed.
Our financial performance and the value of our investments depend significantly on worldwide economic
conditions, which have deteriorated in many countries and regions, and may not recover in the foreseeable
future. Demand for our products is harmed by negative macroeconomic factors affecting consumer and
enterprise spending. Continuing high unemployment rates, low levels of consumer liquidity, risk of default
on sovereign debt and volatility in credit and equity markets have weakened consumer confidence and
decreased consumer and enterprise spending in many regions around the world. These and other economic
factors may reduce demand for our products and harm our business, financial condition and operating
results. In addition, we maintain investments, including our cash, cash equivalents and marketable
securities, of various holdings, types and maturities and, given the global nature of our business, our
investment portfolio includes both domestic and international investments. Credit ratings and pricing of
these investments can be negatively affected by liquidity, credit deterioration, financial results, economic
risk, political risk, sovereign risk or other factors, and declines in the credit ratings or pricing of our
investments could result in a decline in the value and liquidity of our investments, including our cash, cash
equivalents and marketable securities, and result in a significant impairment of our assets.
We depend on our captive assembly and test manufacturing facilities in China and our business could be
harmed if these facilities do not perform as planned. Our reliance on our captive assembly and test
manufacturing facilities near Shanghai, China has increased significantly and we now utilize these factories
to satisfy a majority of our assembly and test requirements, to produce products with leading-edge
technologies such as multi-stack die packages and to provide order fulfillment. In addition, our Shanghai,
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