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SanDisk CEO Eli Harari Interviewed By ON24 Financial Internet News Channel

янв 10, 2001

SUNNYVALE, CA, Jan. 10, 2001 - SanDisk Corporation (NASDAQ: SNDK) announced today that Eli Harari, president and CEO at SanDisk, was interviewed by ON24.com at the Consumer Electronics Show in Las Vegas, released yesterday over the Internet at approximately 4:40PM EST.

SanDisk is a leading provider of removable flash storage cards used in consumer electronics products such as digital cameras, Internet music players, hand held organizers, PocketPCs and cell phones.  

SanDisk is reproducing the entire transcript of the interview between ON24 host, Anthony Moor, and SanDisk's CEO, Dr. Eli Harari. The transcript also includes supplemental information provided by SanDisk. 
 (Beginning of transcript)

Anthony Moor:
Anthony Moor with On24 news. I'm in Las Vegas, NV at the Consumer Electrnics Show. Now anybody who has gotten into these new digital media has recognized immediately the need for more memory. Particularly when you're coming to things like digital cameras. Well, SanDisk is the company that makes a lot of those small little cards that stick into those digital cameras, PDAs, etc., and Eli Harari is the president & CEO of SanDisk. You have a number of these little cards, which I see in front of you here…what is the sort of new buzz that you're trying to bring to the CES this year, and what does that say for what your company's trying to do the in the next 12 months?

Eli Harari:
Take a look around the CES show - there are literally hundreds of new applications…new platforms that use our new card -the SD Card, SecureDigital Card. In fact, we have an entire pavilion. And we have very interesting new applications that have been in development over the last 18months. For example, Nintendo is showing their new game machine that will use SD card to import new games. Palm is showing in their part of the pavilion major new applications for their SD card. In fact, Palm has announced publicly working together with the Secure Digital Association and with SanDisk that they will announce major new products in the first half of this year. And we think that this, together with a whole slew of new applications in cell phones and music players, in-digital cameras, and digital camcorders, for the SecureDigital card, is going to drive tremendously the growth of this new format-form factor this year.

SanDisk supplemental information; A number of the new applications for SD cards demonstrated at the SD Pavilion at the CES show, including the Nintendo game console using the SD card are in the concept stage.

Anthony Moor:
Now you folks are among the first to actually get this form factor out…others are coming on line. And over the course of the last 3-6months or so some analysts are suggesting that because new capacity is coming on line from some of your competitors that there's going to be a glut of these flash cards. Also they're saying, you know, there weren't quite as many digital cameras sold the last holiday season as one would like. What do you see in terms of the demand versus supply in the next 12 months?

Eli Harari:
Every one of these new applications that we're talking about, once it takes off and catches on, drives tremendous new demand that did not exist in the past. The technology used is becoming very, very pervasive. This is not a PC play or desktop play. It's consumer electronics, it's wireless, its Internet. We're talking about literally tens of new major markets that are only just beginning now. The SD card was introduced 18 months ago, but realistically it's only the first half of this year that we're starting to see the roll out of some really exciting products. We think that by the second half of this year many of these applications will drive very significant new demand and we think, in fact, that there is going to be a shortage of flash memory, particularly for storage of content at the high capacity…we're talking about 256megabit (mb) and 512mb plus chips that are driving these applications, and in that regime there are very few suppliers. In fact, we think that together with our partner, Toshiba, SanDisk and Toshiba will have the ability to have a very strong market presence…market leadership.

SanDisk supplemental information: Dr. Harari's comments with regards to shortage of flash memory was made specifically with regard to high density (256mb, 512mb) Flash memory in the second half of this year (2001).

Anthony Moor:
This is because you have a joint venture with them building on a new factory. Talk to me a little how that's going. This is the FlashVision Company?

Eli Harari:
The FlashVision Company is proceeding very beautifully, it's a little bit ahead of schedule. We expect to start full production as scheduled by the middle of this year. The first product is one that we already announced. It's a 512mb Nand-flash chip; it's the most cost effective flash memory I believe for the next 12-18 months. I don't think that there's anything out there in this time frame that can even touch it and we think that as quickly as we can ramp it up and start production we're going to be able to meet those requirements for new capacity.

SanDisk supplemental information: SanDisk believes that the 512mb NAND Flash chip will be the first flash memory chip of such density to reach the market in high volumes, and will provide the lowest cost per megabyte (MB) at the time of its introduction.

Eli Harari:
I just came back from Japan. This is a very good example of the D30, it's the new class of digital cameras made by Canon. There's going to be a whole bunch of these other digital cameras in the range of $2,000 to $3,000. And the nice thing about these cameras is that although they're digital, they're completely interchangeable with existing lenses. These really really drive up memory capacity. You cannot really use a 16MB or even a 32MB card in these applications. So we think that this is just an example of a niche application but actually quite a large installed base that we think can drive very significant volume of compact flash cards at 64MB and higher.

SanDisk supplemental information: The Canon D30 can also operate with CompactFlash cards of capacities below 64MB.

Anthony Moor:
Just because we're at a consumer show, why don't you lift up one of these cards to show me what they look like? I think people should see this.

Eli Harari:
This is the SD card - truly the size of a stamp. This has been designed by Palm into their future products. So this will take a regular Palm device. When you plug it, in it becomes a one hour or two hour music player. This is designed now into the majority of digital camcorders that act also as digital cameras and being designed now into a very large number of cell phones that will become Internet connected, as well as music players.

Anthony Moor:
I have to say, you know, it's amazingly small. One of the concerns that some people have is that you're going to see price pressure on a lot of this stuff. What do you have to say about that?

Eli Harari:
I think people really have the price pressure all wrong, in my opinion. Flash memory today is still too expensive. Flash memory price and cost has got to come down. Our strategy from day one has been to drive the technology…to drive the technology passionately. We're really passionate about driving the cost down. The cost has got to come down over the next 5 years by a factor of between 5 and a factor of 10.

Anthony Moor:
So you've built this into the business model.

Eli Harari:
Yes, that's the whole game. Consumer Electronics is price elastic. You need to meet price points. The only way you can do so is drive the technology, drive the manufacturing, drive the volume. Maintain very high quality. If we could achieve that and do it faster than any competitor, we're going to be able to expand our market. We'll actually benefit from the reduced cost and reduced prices. The key is to reduce your cost faster than the declining prices and faster than any competitor.

Anthony Moor:
Do you feel your benchmarks so far have been met then? I'm not familiar with your gross margins, but wondering if your gross margins are suggesting this is happening?

Eli Harari:
I'm very very pleased with where we are today. And with what we have planned in the next 12-24 months.

Anthony Moor:
You do have long-term positive outlooks from most of the analysts. I wanted to read you just one quote from Merrill Lynch. Again this is about the short term, and you've answered this to some degree. But I want to throw it out there so you can hear it. They said that the retail and OEM channel is filling up with Compact Flash which would cause pricing to come down as capacity ramps at some of your competitors. Is this what you're talking about when you say the price is going down?

Eli Harari:
We agree that the price is coming down. We think that's very positive. That's not a negative. In Consumer Electronics price coming down means more people are going to be able to afford it, more people are going to use it, and more applications are going to be enabled by it. The key is you have to have control of your media…your flash memory. And we have that. We both develop it and we manufacture it. We assemble it and we test it. We are vertically integrated in all aspects. We have the lowest cost in the industry.

SanDisk supplemental information: Dr. Harari's statement refers specifically to the manufacturing cost of flash cards of capacities 8MB or higher (SanDisk does not supply cards of lower capacity), compared to SanDisk's estimation of the manufacturing costs of other flash card competitors. SanDisk believes this cost advantage is due primarily to the Double Density technology employed by SanDisk in its current products, as well as SanDisk's economies of scale, including high volume subcontractor card assembly and test in China, Taiwan and the Philippines.

Eli Harari:
Now the question is what are our competitors going to do? Some desperate competitors can do crazy things. We've seen that in other industries. I think that for the next 5-10 years the markets are going to grow faster that any one of us combined can bring to bear new capacity. And I think it's going to be a very exciting ride for the next 5-10 years. Very much like Intel's early years when they finally got the microprocessor design wins rolling out there. Just on an incredible expansion.

SanDisk supplemental information: This is a forward-looking projection based on one or more market forecasts for the flash memory markets addressed by SanDisk.

Anthony Moor:
I know you're in a quiet period, so answer to the degree that you can. Are you comfortable with the kinds of assessments that are out there on Wall Street for the coming quarters?

Eli Harari:
I can't comment on that. We really are in our quiet period.

 I really want your listeners to understand that this capacity issue…it's a demand supply equation. Once Matsushita (Panasonic) and Sony roll out their…basically every appliance that they have will use either a Sony memory stick that uses flash memory or the SD card which uses flash memory. These two giants themselves can consume, I believe, the entire existing flash capacity today. Then of course there's the rest of the world…the Kodaks, the Canons, the HPs. I think the challenge will be for us to be able to meet the demand rather than the other way around.

SanDisk supplemental information: Dr. Harari's statement on the flash capacity demand- supply equation is a forward-looking projection on the future flash memory requirements forecasted for these and other major companies in the next 5-10 years.

Anthony Moor:
We'll be looking forward to your progress. Hope you will be joining us in the coming months….

(End of transcript) 
The matters discussed in this news release contain forward-looking statements that are subject to risks and uncertainties and actual results may vary. Specific factors which could cause the forward looking statements herein not to be achieved include the ability of the Company to manufacture its products in volume, market acceptance of new products such as the SecureDigital (SD) Card, expected competition from much larger suppliers of SD cards and other Flash memory cards, risks associated with introducing new technologies, competition from other flash memory suppliers that may offer more cost competitive flash memory than SanDisk, timely and uninterrupted supply of products and materials from various suppliers and third party manufacturers as well as other factors. In addition, the capacity shortages referred to in the interview may not occur when predicted or at all. Should overall market supply of flash products in the future exceed demand, SanDisk's gross margins may be adversely impacted and this may result in higher inventory of unsold product. Other risks for SanDisk include those items described under the caption "Factors That May Affect Future Results" in the company's annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. There can be no assurances that the Nand flash components described in this release, including the 512mb Nand device will be widely accepted in their target markets, nor that they will achieve competitively low manufacturing costs. The Company assumes no obligation to update the information in this release. 

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