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Sandisk Corp  (SNDK)
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    Sector  Technology    Industry Computer Hardware
   Industry Computer Hardware
   Sector  Technology
 


Sandisk Corp Segments

 
Retail
   33.39 % of total Revenue
OEM
   66.61 % of total Revenue
 

Business Segments (Sep. 30, 2015)
Revenues
(in millions $)
III. Quarter
%
(of total Revenues)
(Sep. 30, 2015)
Income
(in millions $)
III. Quarter
%
(Profit Margin)
Retail
484.90 33.39 % 0.00 -
OEM
967.40 66.61 % 0.00 -
Total
1,452.30 100 % 0.00 -

• View Income Statement • View Competition by Segment • View Annual Report

Growth rates by Segment (Sep. 30, 2015)
Y/Y Revenue
%
III. Quarter
Q/Q Revenue
%
(Sep. 30, 2015)
Y/Y Income
%
III. Quarter
Q/Q Income
%
Retail
-13.33 % 0.71 % - -
OEM
-18.5 % 28.01 % - -
Total
-16.85 % 17.39 % - -

• View Growth rates • View Competitors Segment Growth • View Market Share

To get more information on Sandisk's Retail, OEM, Total segment. Select each division with the arrow.

  Sandisk's

Business Segments Description



Industry Background. The digital computing industry includes traditional computers and consumer electronic, communications and industrial products. We focus our products on digital consumer devices like digital cameras, mobile phones, gaming devices, personal computers and portable digital audio players. The storage requirements of these applications include small form factor size, portable and removable storage, high reliability and storage capacity, low power consumption and the capability to withstand high levels of shock vibration and temperature fluctuations.

The flash memory market is primarily comprised of NOR and NAND technologies. NOR is traditionally used for code storage and characterized by fast read speeds with generally higher costs per megabyte and lower storage capacities than NAND. NAND flash memory is traditionally used for embedded and removable data storage and is characterized by fast write speeds, high capacity and lower manufacturing cost than NOR flash memory. We are focused on NAND-based products.

Our Primary Markets. We currently focus primarily on five consumer electronics markets: imaging, mobile phones, USB flash drives, gaming devices and digital audio players.


• Imaging. We make and sell flash storage cards that are used as the film for all major brands of digital cameras. Our cards are also used to store video in solid-state digital camcorders and to store digital data in many other devices including maps in global positioning systems, or GPS, and personal data in personal digital assistants, or PDAs. Primary card formats for cameras and other digital devices include CompactFlash, or CF, Secure Digital, or SD, Memory Sticktm and xD-Picture Cardtm.

• Mobile Phones. Multimedia features in mobile phones such as camera functionality, audio/MP3, games, video or internet access have been increasing in popularity. These features require additional storage capacity in the phone and transferability of data to and from other devices. Today, we are a leading supplier of microSD, miniSD, SD, Memory Stick PRO Duotm, and reduced sized MMC, or RS-MMCtm, cards for removable storage in many mobile phone models.

• USB Flash Drives. USB flash drives allow consumers to store computer files on keychain-sized devices and then quickly and easily transfer these files between laptops, desktops and other devices. We believe USB flash drives will be a key factor in the evolution of mobile computing. In 2005, we announced products on the U3 platform, which is designed to make the USB drive a platform for on-the-go computing.

• Gaming Devices. Portable game consoles now include advanced features and functionality, including storage of game results, digital audio, video playback and photo viewing. These features demand high capacity memory storage cards. In the first quarter of fiscal 2005, we began shipping brightly colored SD and Memory Stick PRO Duo cards for this emerging market.

• Digital Audio Players. Digital audio players allow consumers to download, store and play music. In fiscal 2004, we introduced our first SanDisk digital audio player, utilizing flash memory for storage. Our current line of digital audio players includes a number of products from the Sansatm m200 series all the way up to the flagship Sansa e200 series with both embedded and removable memory.


Our Sales Channels. Our products are delivered to end-users through approximately 150,000 worldwide retail storefronts and as data storage cards bundled with host products by our OEM customers. We market our products under the SanDisk brand in the retail channel using a direct sales organization, distributors and manufacturers’ representatives. We also sell directly and through distributors, SanDisk branded and private label products to OEM customers. Our sales efforts are organized as follows:


• Retail. We ship SanDisk brand name products directly to consumer electronics stores, office superstores, photo retailers, mobile phone stores, mass merchants, catalog and mail order companies, internet and e-commerce retailers, drug stores, supermarkets and convenience stores.


We also sell product to smaller retailers through distributors. Our retail distributors include AVS Technologies, Inc., D&H Distributing Co., Inc., Duttenhofer GMBH & Co., Hama Corporation, Inc., Holst Import BV, Ingram Micro, Inc., Kaga Electronics Co., Ltd., Princeton Technology Corporation, Tech Data Corporation and Wynit, Inc., in addition to approximately 50 other distributors.

We have a separate distribution network focused on the cellular phone market. Our distributors provide us access to mobile network operator branded storefronts as well as other retailers with significant mobile communications offerings. We intend to continue to emphasize offering our products throughout the mobile communication retail community as an important driver of our planned growth in that market.

We support our retail sales channels with both direct sales representatives and independent manufacturers’ representatives. We have multiple domestic retail sales offices and have organized our sales efforts in the rest of the world around three regional territories: Europe, Middle East and Africa, or EMEA, Japan and non-Japan Asia/Pacific, which we refer to as Asia Pacific. Information regarding our sales by geography is included in Note 4 to our consolidated financial statements included in Item 8 of this report.


• OEM. Our OEM customers include manufacturers of digital cameras, mobile phones and other digital consumer devices, such as GPS receivers. Our products are sold directly to OEMs and through distributors. We support our OEM customers with both direct sales representatives and independent manufacturers’ representatives.


Due to industry practice that allows customers to change or cancel orders with limited advance notice prior to shipment, we do not believe that backlog as of any particular date is indicative of future sales. As of the end of fiscal 2005 and fiscal 2004, our backlog was $105.7 and $78.6 million, respectively. The following table describes the distribution of our net product revenues (in millions):


The significance of our North American retail channel to our business has resulted in our revenues being seasonally higher in our fourth quarter due to the holiday buying season. Our first and third quarters have sometimes been seasonally lower than their preceding quarters.

Our Customers. In 2005, 2004 and 2003, revenues from our top 10 customers and licensees accounted for approximately 50%, 55% and 48% of our revenues, respectively. In 2005, Best Buy accounted for 11% of our total revenues; all other customers were less than 10% of our revenues. In 2004 and 2003, no single customer or licensee accounted for greater than 10% of our total revenues. The composition of our major customer base from year-to-year has changed over time, and we expect this pattern to continue as our markets and strategies evolve. Sales to our customers are generally made pursuant to purchase orders rather than long-term contracts.

Our Products. Our products can be categorized by form factor and performance. Form factor generally correlates with our targeted end-market.

We make many form factors of removable data storage cards as well as USB flash drives and flash digital audio players. The principal form factors of our products are:


• CompactFlash. Our CF products are characterized by high performance. CF products are well-suited for a range of consumer applications, including digital still cameras and audio recorders. CF cards are available in capacities ranging from 32 megabytes to 8 gigabytes.

• SD. The SD card provides content copyright protection features. This form factor is used in digital cameras, mobile phones, gaming devices, GPS receivers, PDAs and digital audio players in the consumer electronics marketplace. We offer SD cards in storage capacities of 32 megabytes to 2 gigabytes.

• miniSD Card. The miniSD card is a smaller version of the SD card which leverages the feature-set of the standard SD card but is designed for small mobile phones. An optional full-size SD card adapter allows miniSD cards to be used in full size SD card applications thereby acting as a bridge to the large range of SD-based consumer and telecommunications devices. Capacities range from 128 megabytes to 2 gigabyte.



• microSD. microSD is an ultra-small removable flash memory storage format designed for new mobile phones that are compact yet fully-featured with storage-intensive multimedia applications such as digital cameras, video capture and playback, digital audio players, video games, email and voicemail capabilities. microSD is similar in size and function to embedded flash memory, but can also be readily removed and upgraded to allow for a range of memory capacities as well as interoperability with other consumer electronics devices. Capacities range from 128 megabytes to 1 gigabyte.

• Memory Stick PRO/Memory Stick PRO Duo. Co-developed with Sony, the Memory Stick PRO product line is sold in capacities ranging from 64 megabytes to 4 gigabytes, depending on the format, and is used in digital cameras, digital video camcorders, mobile phones and televisions. Memory Stick PRO and Memory Stick PRO Duo offer substantially improved performance in higher write speeds and capacity, as compared with the original Memory Stick line of products, as well as built-in MagicGatetm copyright protection. All products in our Memory Stick PRO product line meet the minimum standard performance of 15 megabits per second for high-resolution recording of moving images.

• Cruzer® USB Flash Drives. Our Cruzer USB flash drives are available in capacities ranging from 32 megabytes to 4 gigabytes. Our Cruzers allow users to transfer data files between any device with a USB port. Cruzers offer a high-speed, compact replacement for the floppy disk or other removable media. In addition to our standard Cruzer family, our Cruzer Titanium USB flash drive family is targeted at high-end users. Cruzer Titanium is an extremely rugged USB flash drive made from titanium and other metals. In conjunction with M-Systems, Inc., or M-Systems, we developed the U3tm platform for USB drives, which is designed for on-the-go computing.

• XD-Picture Card. In 2003, we began selling the xD-Picture Card format under arrangements with Olympus Optical Co., Ltd., or Olympus, and Fuji Photo Film Co., Ltd., or Fuji. The xD-Picture Card allows for rapid data transfer, is ultra compact and is compatible with all xD cameras. The xD-Picture Card is available in capacities ranging from 64 megabytes to 1 gigabyte.

• Sansa Digital Audio Music Player. In late fiscal 2004, we began selling Sansa digital audio music players. These very small flash-based MP3 devices allow consumers to download songs and listen to the radio. Our flagship line offers a removable card slot for easy transportability of the music between devices and for expansion of storage capacity. Sansa is available in capacities ranging from 256 megabytes to 6 gigabytes.

• Gaming Cards. In 2005, we began selling SD and Memory Stick Pro Duo cards into the gaming market. These cards allow consumers to store game scores and levels, turn on advanced features in gaming devices, and listen to audio or watch movies in portable gaming devices such as the Sony PlayStation® Portable.


Technology. Since our inception, we have focused our research, development and standardization efforts on developing highly reliable, high-performance, small form factor and cost-effective flash memory storage products to address a variety of emerging markets. We have been actively involved in all aspects of this development, including flash memory process development, chip design, controller development and system-level integration to ensure the creation of fully-integrated, broadly interoperable products that are compatible with both existing and newly developed system platforms. We believe our core technical competencies are in:


• high-density flash memory process, device design and reliability;

• controller design;

• system-level integration;

• compact packaging; and

• low-cost system testing.


We have also initiated, defined and developed standards to meet new market needs and to promote wide acceptance of the standards through interoperability and ease-of-use.

To achieve compatibility with various electronic platforms regardless of the host processors or operating systems used, we developed new capabilities in flash memory chip design and created intelligent controllers. We also developed an architecture that can leverage advances in process technology designed for scaleable, high-yielding, cost-effective and highly reliable manufacturing processes. We design our products to be compatible with industry-standard interfaces used in standard operating systems for personal computers, mobile phones, gaming devices, music players and other consumer and industrial products.

Our patented intelligent controller technology with its advanced defect management system permits our flash storage card products to achieve a high level of reliability and longevity. Each one of our flash cards contains many millions of flash memory cells. For example, our 4 gigabyte cards may contain as many as 35 billion storage cells. A failure in any one of these cells or in a group or block of cells can result in loss of data such as picture files, and this can occur several years into the life of a flash storage card. The controller chip inside our cards is designed to detect such defects and recover data under most standard conditions.

Patents and Licenses. We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights.

In 1988, we developed the concept of emulation of a hard disk drive with flash solid-state memory. The first related patents were filed by our president and chief executive officer Dr. Eli Harari and exclusively licensed to us. As of the end of 2005, we owned or had rights to 349 United States patents, 212 foreign patents, 450 patent applications pending in the United States, and have foreign counterparts pending on many of the applications in multiple jurisdictions. We intend to seek additional international and United States patents on our technology.

On January 13, 2006, we completed the acquisition of Matrix Semiconductor, Inc., or Matrix. Matrix is a pioneer in the design and development of three dimensional semiconductor memory technology. Patents transferred to us upon completion of the acquisition included 124 United States patents, approximately 14 foreign patents, and approximately 141 patent applications pending in the United States, and have foreign counterparts pending on many of the applications in multiple jurisdictions.

We have various patent licenses with several companies including, among others, Intel Corporation, or Intel, Lexar Media, Inc., or Lexar, Matsushita, Renesas, Samsung, Sharp Electronics KK, or Sharp, Sony and Toshiba. From time to time, we have also entered into discussions with other companies regarding potential license agreements for our patents.

Trade secrets and other confidential information are also important to our business. We protect our trade secrets through confidentiality and invention assignment agreements.

Supply Chain. Our supply chain is an important competitive advantage.


• Silicon Sourcing. All of our flash memory card products require silicon chips for the memory components and controller components. The majority of our memory is supplied from our ventures with Toshiba and our Toshiba foundry relationship. This represents captive memory supply and we are obligated to take the output from the ventures with Toshiba. We purchase non-captive memory supply primarily from Renesas and Samsung. We are guaranteed a percentage of the total output of each of Renesas and Samsung, but are not obligated to use the guaranteed supply until we give them an order for future purchases. We also source memory products from Fuji and Olympus. Our controller wafers are currently supplied by Tower Semiconductor Ltd., or Tower, and United Microelectronics Corporation, or UMC. We have a foundry agreement with Tower on a purchase order basis.

• Testing and Assembly. We sort and test our wafers at Toshiba in Yokkaichi, Japan, and Ardentec Corp. in Taiwan. Our tested wafers are then shipped to our third-party memory assembly subcontractors, including StatsChipPAC Ltd., or StatsChipPAC, in China, Silicon Precision Industries Co., Ltd., or SPIL, in Taiwan, and Sharp and Mitsui & Co., Ltd., both in Japan. Our packaged memory final test, card assembly and card test is performed at ASE Group, DataFab Systems, Inc., or DataFab, SPIL and United Test and Assembly Center, in Taiwan, and Beautiful Enterprise Co., Ltd., DataFab, Flextronics International, Ltd., or Flextronics and StatsChipPAC, in China. We believe our use of subcontractors reduces the cost of our operations and gives us access to increased production capacity.


Ventures with Toshiba

FlashVision. In May 2000, we invested in the FlashVision venture, which operated in Manassas, Virginia until May 2002. In April 2002, we and Toshiba agreed to consolidate the NAND wafer fabrication manufacturing operations in Fabs 1 and 2 of Toshiba’s Yokkaichi operations in Japan, through a venture named FlashVision, Ltd., or FlashVision.


• Semiconductor Manufacturing Equipment. Toshiba owns the wafer fabrication facilities, Yokkaichi Fabs 1 and 2, in which FlashVision’s tools are installed. We have also installed in Yokkaichi Fabs 1 and 2 tools which we own directly, providing us with approximately 10% additional capacity on approximately the same terms as supply from FlashVision. Fabs 1 and 2 produce 200-millimeter wafers.

• Capitalization and Related Matters. We own 49.9% of FlashVision and Toshiba own 50.1% of FlashVision. FlashVision’s funding takes the form of permanent capital (37.8 billion Japanese yen, or approximately $321 million based upon the exchange rate at January 1, 2006, in total) and loans from Toshiba and us, funded one-half by each owner.


At the end of fiscal 2005, our loans to FlashVision were 7.3 billion Japanese yen, or approximately $62 million based upon the exchange rate at January 1, 2006, and we are not committed to fund additional amounts in fiscal 2006. FlashVision’s stated life will terminate in December 2016, but may be terminated by Toshiba or by us by notice given from May 16, 2008 to May 15, 2009. There are other termination events described in the master agreement and the operating agreement, which are exhibits to this report. Those agreements should be read carefully in their entirety for a comprehensive understanding of our rights and obligations.


• Lease Facility. FlashVision sold and leased back from Mizuho Leasing tools which had an original book value of 37.9 billion Japanese yen, or approximately $321 million based upon the exchange rate at January 1, 2006. FlashVision has been making lease payments and the remaining fixed lease payment obligation at the end of 2005 was 17.7 billion Japanese yen, or approximately $150 million based upon the exchange rate at January 1, 2006. Toshiba guaranteed FlashVision’s performance of its obligations under the lease facility and we agreed to reimburse Toshiba for 49.9% of its claims and associated expenses related to its guarantee agreement, unless those claims resulted from Toshiba’s failure to meet its obligations to FlashVision or breach of Toshiba’s covenants with the lessors. We pay Toshiba a credit enhancement fee for providing the direct guarantee of FlashVision’s lease obligations. In May 2006, FlashVision has the option of purchasing the tools from the lessors. FlashVision is obligated to insure the equipment, maintain the equipment in accordance with the manufacturers’ recommendations and other customary terms to protect the leased assets. The lease agreement contains customary events of default for a Japanese lease facility.

• Operations. By the end of 2005, FlashVision successfully transitioned the majority of its production from 90-nanometers to 70-nanometers. FlashVision purchases wafers from Toshiba and sells wafers to Toshiba and to us at manufacturing cost plus a mark-up. FlashVision generates cash over time as a result of being paid as part of manufacturing cost for its non-cash depreciation expense. This cash is currently expected to be used to fund equipment purchases for FlashVision and to repay loans from Toshiba and us. We and Toshiba are each committed to take 50% of FlashVision’s wafer output, with each company specifying the type of wafer in its allocation.

• Research and Development. We and Toshiba each have design and development teams associated with FlashVision. We and Toshiba each pay the cost of our own design teams and 50% of the wafer processing and similar costs associated with this direct design of the flash memory. We also pay Toshiba for a portion of its semiconductor company’s common research and development activities.


Flash Partners. In September 2004, the Flash Partners, Ltd., or Flash Partners, venture was formed. The key elements of the venture are:


• Semiconductor Manufacturing Equipment. Toshiba has constructed at its expense a wafer fabrication facility, Fab 3, at its Yokkaichi Operations. Flash Partners purchases semiconductor manufacturing equipment for Fab 3, which produces 300-millimeter NAND flash wafers. Toshiba began production for Flash Partners in Fab 3 in the third quarter of fiscal 2005 and expects to achieve 30,000 wafers per month by March 2006. Flash Partners has committed to a plan to ramp production to 70,000 wafers per month by March 2007 and currently estimates the total equipment funding obligation to achieve this plan level to be approximately 365.0 billion Japanese yen, or approximately $3.1 billion based upon the exchange rate at January 1, 2006, of which a portion has already been incurred. Of this amount, we are obligated to fund 50% or approximately $1.5 billion based upon the exchange rate at January 1, 2006. Our remaining funding obligation at January 1, 2006 for the current expansion plan is approximately $1.0 billion.

• Capitalization and Related Matters. We own 49.9% of Flash Partners and Toshiba own 50.1% of Flash Partners. Flash Partners’ funding from its parents is structured as a combination of permanent capital and loans from us and Toshiba, funded one-half by each owner. Flash Partners has a stated life of 15 years, but may be terminated by us or Toshiba by notice given from April 1, 2011 to March 31, 2012. In addition, we have a termination right that may be exercised by notice between April 1, 2007 and March 31, 2008. There are other termination events described in the master agreement and the operating agreement which are exhibits to this report. Those agreements should be read carefully in their entirety for a comprehensive understanding of our rights and obligations.

• Sale and Leaseback. Flash Partners has entered into two equipment lease agreements as described below.



• In December 2004, Flash Partners entered into a master lease agreement with certain financial institutions providing for up to 50.0 billion Japanese yen, or approximately $424 million based upon the exchange rate at January 1, 2006, of original lease obligations. As of January 1, 2006, Flash Partners had drawn down this entire master lease facility. We and Toshiba have each guaranteed, on a several basis, 50% of Flash Partners’ obligations under the master lease agreement. Lease payments are due quarterly and will be completed in stages through 2010. At the end of the lease term, Flash Partners has the option of purchasing the tools from the lessors. Flash Partners is obligated to insure and maintain the equipment in accordance with the manufacturers’ recommendations, and other customary terms to protect the leased assets. The master lease agreement contains customary events of default for a Japanese lease facility and is an exhibit to this report. That agreement should be read carefully in its entirety for a comprehensive understanding of its terms and the nature of the obligations we have guaranteed.

• In December 2005, Flash Partners entered into a second master lease agreement with certain financial institutions providing up to 35.0 billion Japanese yen, or approximately $297 million based upon the exchange rate at January 1, 2006, of original lease obligations. There were no amounts outstanding under this lease agreement at the end of fiscal 2005; however the entire amount was drawn down in January 2006. We and Toshiba have each guaranteed, on a several basis, 50% of Flash Partners’ obligations under this master lease agreement. Lease payments are due quarterly and will be completed in 2011. At the end of the lease term, Flash Partners has the option of purchasing the tools from the lessors. Flash Partners is obligated to insure and maintain the equipment in accordance with the manufacturers’ recommendations, and other customary terms to protect the leased assets. The master lease agreement contains customary events of default for a Japanese lease facility and is an exhibit to this report. That agreement should be read carefully in its entirety for a comprehensive understanding of its terms and the nature of the obligations we have guaranteed.


• Operations. Flash Partners’ current production ramp plan contemplates technology transitions from 90-nanometers to 70-nanometers to 55-nanometers. Flash Partners purchases wafers from Toshiba and sells wafers to us and Toshiba at a price equal to manufacturing cost plus a mark-up. Toshiba operates Fab 3, and we have our employees assigned to work in Fab 3. The cost of the wafers that Flash Partners purchases from Toshiba includes Toshiba’s costs of running Fab 3 and the depreciation cost of the Fab 3 building and improvements. Flash Partners does not receive any commitment from Toshiba as to wafer yield or any protection from operational incidents. We and Toshiba are each committed to take 50% of Flash Partners’ wafer output, with each company specifying the type of wafer in its allocation.


Flash Partners is expected to generate cash over time as a result of being paid as part of its manufacturing cost for its non-cash depreciation expense. This cash is currently expected to be used to fund expansion of Flash Partners’ flash memory manufacturing capacity and ultimately to repay loans from us and Toshiba.


• Research and Development. We and Toshiba each have teams that are currently working on the 70-nanometer and 55-nanometer designs. Our research and development cost sharing is similar to that of FlashVision.


We refer to our wafer purchases from the Toshiba ventures and foundry arrangement with Toshiba as captive capacity as compared with our market-priced purchases of flash memory from Samsung and Renesas, which we refer to as non-captive capacity.

   

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