UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2001
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-31623
SIMPLETECH, INC.
(Exact Name of Registrant as Specified in Its Charter)
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California |
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33-0399154 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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3001 Daimler Street |
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Santa Ana, California 92705-5812 |
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(Address of principal executive offices, including zip code) |
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(949) 476-1180 |
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Registrant’s Telephone Number, Including Area Code: |
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Securities registered pursuant to Section 12(b) of the Act: None |
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Securities registered pursuant to Section 12(g) of the Act: |
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Title of each class |
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Name of each exchange on which registered |
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Common Stock, $0.001 par value |
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The Nasdaq National Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S–K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10–K or any amendment to this Form 10–K. o
As of March 1, 2002, the approximate aggregate market value of voting stock held by non-affiliates of the registrant was $41,511,389 (based upon the closing price for shares of the Registrant’s Common Stock as reported by The National Market System of the National Association of Securities Dealers Automated Quotation System on that date). Shares of Common Stock held by each officer, director, and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 1, 2002, there were approximately 38,227,105 shares of Common Stock outstanding.
Documents Incorporated By Reference
Certain information required in Part III hereto is incorporated by reference to the Proxy Statement for the Registrant’s 2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.
SIMPLETECH, INC.
FORM 10–K ANNUAL REPORT
TABLE OF CONTENTS
ABOUT THIS ANNUAL REPORT
In this Report, “SimpleTech,” “we,” “us” and “our” refer to SimpleTech, Inc., a California corporation, and our subsidiaries. We own or have rights to product names and trademarks that we use in conjunction with the sale of our products, including Simple®, SimpleTech®, IC Tower™ and CompactFlash™. The CompactFlash Association makes the CompactFlash name and logo available royalty-free to its member companies. References in this Report to CompactFlash are references only to our products unless otherwise indicated. This report also contains other product names, trade names and trademarks that belong to other organizations.
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This Annual Report on Form 10-K, including information incorporated herein by reference, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “will,” “estimate,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. Although we believe that such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Important language regarding factors which could cause actual results to differ materially from such expectations are disclosed in this Report, including without limitation under the caption “Risk Factors” beginning on page 16 of this Report. All forward-looking statements attributable to SimpleTech are expressly qualified in their entirety by such language. We do not undertake any obligation to update any forward-looking statements.
ITEM 1. BUSINESS
Overview
SimpleTech is a technology solutions provider offering products based on dynamic random access memory, or DRAM, static random access memory, or SRAM, and Flash memory technologies. We design, manufacture and market a comprehensive line of over 2,500 memory and storage products, as well as connectivity products that connect memory cards and hard drive upgrade kits to PCs. These products are used in high-performance computing, networking and communications, consumer electronics and industrial applications. Examples of these applications include desktop and notebook computers, servers, routers, switches, digital cameras, digital video recorders, MP3 digital audio players, personal digital assistants, or PDAs, embedded controls and medical instruments. Our patented IC Tower stacking technology allows multiple memory chips to be stacked together to increase the capabilities of memory modules without increasing the product footprint. This technology allows our customers to design memory intensive systems on a more competitive basis. Our CompactFlash cards provide portable digital devices, such as digital cameras and MP3 digital audio players, with increased storage capabilities in a smaller size product. We believe our design, manufacturing, testing and logistics expertise, along with our proprietary technologies, enable us to respond to our customers’ rapidly changing product and service requirements. We provide our customers with timely access to higher speed and higher density memory products, increasing their ability to bring products to market quickly and decreasing their capital requirements and production and inventory costs.
We offer memory solutions through our Industrial and Commercial Divisions. Commercial Division channels include value added resellers, or VARs, mail order customers, commercial and industrial distributors, and retailers. We believe our comprehensive line of products allows our customers to efficiently manage their inventory purchases by consolidating their sources for memory, storage and connectivity products. Our Industrial Division sells primarily custom memory products for newly manufactured systems, with most sales based on a coordinated design effort between us and our Industrial Division customers. Our principal Industrial Division customers, including sales through their fulfillment partners, were Adtron, Alcatel Italia SPA, Cisco Systems, Lucent Technologies and Unisys in 2001 and Cisco Systems, Lucent Technologies, Motorola, Silicon Graphics and Unisys in 2000. Our Commercial Division designs and manufactures industry accepted memory storage and connectivity products used as upgrades in or enhancements to computing systems and consumer electronics. Our principal Commercial Division customers included CDW Computer Centers, Costco Wholesale, Ingram Micro, Insight Direct and Sam’s Club in 2001 and CDW Computer Centers, Costco Wholesale, Ingram Micro, Insight Direct and PC Connection in 2000. Unisys and CDW Computer Centers accounted for more than 10.0% of our total
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revenues in 2001, and Cisco Systems and CDW Computer Centers accounted for more than 10.0% of our total revenues in 2000. No other customer accounted for more than 10.0% of our total revenues in 2001 and 2000.
Industry Background
The development of high-performance PCs and servers and the evolution of the Internet infrastructure have increased the demand for greater capabilities in the storage, manipulation, transfer and management of digital data. Digital computing and processing have extended beyond traditional computer systems, such as PCs and servers, to include a wide array of networking and communications, consumer electronics and industrial applications, including routers, switches, digital cameras, digital video recorders, MP3 digital audio players, PDAs, embedded controls and medical instruments. The increased functionality and decreased size of many of these products have led to a greater demand for higher density memory products with smaller size, lower power consumption and higher speeds at a lower cost.
The memory market can be divided into several types of integrated circuit, or IC, devices that are designed to perform specific functions within computer and other electronic systems. Three significant types of memory IC devices are DRAM, SRAM and Flash. DRAM and SRAM are considered volatile memory since they require a constant power supply to retain data. Since Flash is able to retain data without a power source, it is considered non-volatile memory. Within each of these categories, manufacturers are offering an increasing variety of memory products that are designed for different applications and performance requirements. This increasing variety has placed greater demands on manufacturers of computer and other electronic systems to maintain engineering expertise.
DRAM is a high-density, low cost per bit, random access memory component which stores digital information in the form of bits and provides high speed storage and retrieval of data. SRAM performs memory functions similar to DRAM, but is much faster and does not require the memory modules to be electronically refreshed. Flash memory is a solid-state, non-volatile technology that can be used as an alternative to rotating disk drives. Flash is noiseless, considerably lighter, more rugged and consumes substantially less power than a rotating disk drive.
The SimpleTech Solution
SimpleTech designs, manufactures and markets a comprehensive line of memory, storage and connectivity products used in high-performance computing, networking and communications, consumer electronics and industrial applications.
Our products offer the following features:
· High density. Our patented IC Tower stacking technology allows us to design and manufacture CompactFlash cards and DRAM memory modules in which multiple memory chips are stacked together to increase the capabilities of memory modules without increasing the product footprint. This technology allows our customers to design memory intensive systems on a more competitive basis. As the component chips increase in capacity, our ability to increase density in the same footprint also increases.
· Small footprint. We are able to manufacture high-density DRAM and Flash memory products with some of the smallest footprints on the market.
· High performance and reliability. Our memory products utilize sophisticated error detection and correction processes to provide high data reliability and integrity. In
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addition, our memory products are designed to withstand high levels of shock and vibration as well as extreme temperature fluctuations typically associated with mobile computing and industrial applications.
· Low power consumption. During read and write operations, our Flash memory products use less power than most rotating disk drives. At all other times during system operation, our Flash memory products require no power. This low-power consumption translates into longer battery life for many mobile computing and consumer electronic devices.
We offer our Industrial Division customers a comprehensive technology solution from concept to design to the creation of prototypes through high volume production and testing. We believe our quick-turn design capabilities and automated manufacturing and test processes allow our Industrial Division customers to quickly and cost-effectively bring products to market. This outsourcing also allows our Industrial Division customers to focus their resources on activities and technologies in which they add the greatest value, such as system design, sales, marketing and distribution. We believe our technical capabilities and volume manufacturing strengths allow our Industrial Division customers to cost-effectively design and implement customized, advanced memory chip technology in high volume product applications.
Our Commercial Division customers include VARs, mail order customers, commercial and industrial distributors, and retailers. We believe our comprehensive line of products allows our Commercial Division customers to efficiently manage their inventory purchases by consolidating their sources for memory, storage and connectivity products. We are able to strengthen our relationships with these Commercial Division customers and develop the SimpleTech brand name through various marketing programs. We also provide ongoing customer support, including on-line pricing and navigation tools, toll-free technical support and account manager training programs. For further details regarding our various marketing programs, see “Business—Sales and Marketing.”
Design, Manufacturing and Test Engineering
Design and production. The typical production cycle consists of a design stage followed by a prototype stage and ends with full production of the final product. The length of the design stage has been reduced due to rapid improvements in technology. In recent years customers have demanded shorter design and production cycles. In response, we have developed quick-turn design and manufacturing services. By working with our Industrial Division customers early in the design and prototype stages, we are able to resolve critical design issues effectively and efficiently, thus shortening the time from prototype design to volume manufacturing. In addition, working closely with our Industrial Division customers throughout the design and production stages allows us to gain important insights into their future product requirements. We believe our quick-turn design and manufacturing services also allow us to introduce upgrade products to the aftermarket on a timely basis to coincide with new product releases by these customers.
Manufacturing. Our manufacturing processes are highly automated and involve the use of specialized equipment for the production of memory products. Our manufacturing systems have been optimized to support the placement of a large number of IC devices on each memory board. We believe we are able to achieve a high manufacturing yield and minimize direct labor costs as a result of our design efficiencies, high level of automation and general manufacturing expertise. Because our manufacturing systems can be easily configured for different memory products, we have the ability to offer our customers short manufacturing and test cycles on small and large projects. We also have developed an automated method of manufacturing our IC Tower stacking products which we believe results in further manufacturing efficiencies. Our manufacturing process is ISO 9001 certified.
Test engineering. An important aspect of our manufacturing operations is our focus on test engineering. We test 100% of our memory products upon completion of manufacturing, which results in
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lower returns due to product defects. We believe our test engineering expertise will continue to grow in importance as the speed and complexity of memory products increase. Our test engineering group develops proprietary processes which, together with our continued investment in advanced testing equipment, enable us to consistently produce high-quality products.
Research and Development
Our research and development efforts are focused on developing reliable, high-performance and cost-effective memory products to address the needs of traditional and emerging memory applications. We believe the timely development of new products is essential to maintaining our competitive position. Our engineering staff works closely with our Industrial Division customers and provides services throughout the production cycle, including component selection, schematic design, layout, manufacturing and test engineering expertise. We design our products to be compatible with existing industry standards and, where appropriate, develop and promote new standards. An important aspect of our engineering operations is to understand the challenges presented by our Industrial Division customers’ custom design requirements and satisfy them by utilizing our proprietary technologies and our technical expertise. In the course of meeting our customers’ challenges, we are often required to develop new technologies and processes which are later added to our design library for use by our other customers. Our design library consists of over 1,000 designs that are available for a wide variety of custom and industry-accepted product configurations. We focus primarily on new high speed memory modules, improvements in manufacturing processes and technologies, and improvements in test routines and related software. We plan to continue to direct our research and development efforts toward the design of new memory products which address the requirements of our Industrial and Commercial Division customers.
In the Flash market, our research and development is directed toward the design and introduction of new Flash products that provide improved storage capacities, higher speed read and write capabilities, smaller sizes and new interfaces. These products are intended for networking and communications, consumer electronics and industrial applications.
Our IC Tower stacking technology enables us to produce high-density DRAM and Flash products by manufacturing products in a three-dimensional form. These products offer higher density capabilities in the same footprint than the traditional two-dimensional designs. We stack unmodified memory devices to produce higher density and smaller form factor DRAM modules and Flash cards. This capability enables us to shorten our customers’ design cycles for high-density products to lead times normally associated with non-stacked memory solutions.
In January 2002, we completed a $2.3 million acquisition of the assets, including intellectual property, of Irvine Networks, LLC, and hired their engineering staff. Irvine Networks has been developing innovative content processing technology for Web-based server platforms. As a result of our acquisition of Irvine Networks, we expect our research and development expenses to increase significantly in 2002 to approximately $8 to $9 million.
Products
We design, manufacture and market a comprehensive line of more than 2,500 memory, storage and connectivity products using our proprietary design and manufacturing technologies. Substantially all of our DRAM, SRAM and Flash memory products comply with industry standards and are based on a variety of industry architectures. Sales of memory products accounted for 90.2% of our revenues in 2001, 91.0% of our revenues in 2000 and 89.8% of our revenues in 1999.
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DRAM Products
We offer DRAM products including a wide range of single in-line memory modules, or SIMMs, dual in-line memory modules, or DIMMs, and small outline dual in-line memory modules, or SO DIMMs. Our standard DRAM products are available in various configurations of up to 184 pins and densities of up to 512 megabytes. We also offer many of these products in 3.3 volt or 5.0 volt configurations utilizing different DRAM architectures such as DDR, SDRAM, RDRAM, EDO and FPM.
The following table describes certain of our non-stacking DRAM products as of March 1, 2002:
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Density |
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Architecture |
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Speed |
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Applications |
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184-pin DIMM |
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64-512MB |
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DDR |
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200-266 |
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Servers and workstations |
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Rambus DIMM |
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64-512MB |
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RDRAM |
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600-800 |
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Desktop PCs, embedded controls and workstations |
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168-pin and 184 -pin Registered DIMM |
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64-512MB |
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DDR, SDRAM |
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66-133 |
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Desktop PCs, embedded controls, networking and communications equipment, printers, routers, servers and workstations |
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168-pin and 184 -pin DIMM |
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16-512MB |
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DDR, SDRAM, EDO, FPM |
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10-133 |
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Desktop PCs, embedded controls, networking and communications equipment, printers, routers, servers and workstations |
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144-pin SO DIMM |
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16-256MB |
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SDRAM, EDO, FPM |
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10-133 |
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Embedded controls, networking and communications equipment, notebook PCs, printers and routers |
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100-pin DIMM |
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16-64MB |
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SDRAM, EDO, FPM |
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33-133 |
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Networking and communications equipment, printers and terminals |
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72-pin SO DIMM |
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16-64MB |
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EDO, FPM |
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10-33 |
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Networking and communications equipment, and notebook PCs |
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72-pin SIMM |
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16-128MB |
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EDO, FPM |
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10-33 |
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Desktop PCs, embedded controls, networking and communications equipment, printers, routers and servers |
Flash Products
We manufacture three types of Flash products: Flash modules, Linear Flash PC Cards and data storage Flash products. Flash modules and Linear Flash PC Cards are commonly used in program and code storage applications such as networking and communications and embedded applications. Data storage Flash products are commonly used where data storage is the primary function, such as in digital cameras, MP3 digital audio players, certain networking and communications and embedded applications, and ruggedized computers built to withstand shock and vibration.
Flash modules. We offer standard, custom and application-specific Flash modules, including 168-pin Asynchronous DIMMs, 144-pin SO DIMM, 80-pin Asynchronous SIMMs and 72-pin
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DRAM/Flash combination SIMMs. Our Flash modules are available in densities of up to 256 megabytes. We offer additional options such as on-board active reset control and system reset. Many of these products are available in 3.3 volt or 5.0 volt configurations.
The following table describes certain of our Flash modules as of March 1, 2002:
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Density |
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Architecture |
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Applications |
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168-pin DIMM |
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4-16MB |
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3.3 volt or 5.0 volt |
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Networking and communications equipment, printers and switches |
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144-pin SO DIMM |
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32-256MB |
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3.3 volt |
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Networking |
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80-pin SIMM |
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2-256MB |
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12.0 volt/5.0 volt programming, 5.0 volt only, 3.3 volt only, reset options |
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Networking and communications equipment, printers and switches |
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72-pin DRAM/Flash SIMM |
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8MB Flash 56MB DRAM |
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Plugs into the DRAM socket; reads and writes like DRAM |
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Networking and communications equipment |
Linear Flash PC Cards. We offer standard, custom and application-specific Linear Flash PC Cards, with densities ranging from 512 kilobytes to 64 megabytes.
The following table describes certain of our Linear Flash PC Cards as of March 1, 2002:
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Density |
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Features |
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Applications |
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68-pin PC Card |
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512KB-64MB |
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Plug and play, compatible to Intel based series 1, 2, 2+ and Value Series 100 and 200 PC Cards |
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Medical equipment, networking and communications equipment, notebook PCs, PDAs and test equipment |
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68-pin PC Card |
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1MB-64MB |
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Plug and play, compatible to series C and D AMD cards |
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Medical equipment, networking and communications equipment, PDAs and test equipment |
Data storage Flash products. We offer a broad line of data storage Flash products in various capacities, sizes and operating voltages and temperatures. Our current product families include CompactFlash, ATA Flash PC Cards, solid-state Flash drives and Flash Disk Modules. Our data storage Flash products are compatible with a majority of today’s industry-standard computing and communications systems.
CompactFlash. Our CompactFlash products provide full PC Card ATA functionality but are only one-fourth the size of a standard PC Card. CompactFlash’s small size, durability, low-
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power consumption and ability to operate at either 3.3 volts or 5.0 volts make it well-suited for a range of current and next-generation, small size consumer applications such as audio recorders, digital cameras, MP3 digital audio players and PDAs. CompactFlash products provide interoperability with systems based on the PC Card ATA standard by using a low-cost passive adapter.
ATA Flash PC Cards. Our ATA Flash PC Cards are used in storage, data backup and data logging applications. Our products are available in PC Card Type I, II and III form factors.
Solid-state Flash drives. Our solid-state Flash drives are available in 2.5 inch and 3.5 inch hard disk form factors and are targeted at applications that require embedded data storage devices. Our solid-state Flash drives offer rugged, portable, low-power data storage and are compatible replacements for rotating hard drives, making them ideal for notebook computers, communication devices, and networking and communications applications requiring embedded storage.
Flash Disk Modules. Our Flash Disk Module products offer a transparent design, replacing or augmenting conventional IDE hard disk drives by leveraging from a miniature module footprint that allows these products to be used as components in embedded systems. Specifically, the product line is available in a 40-pin configuration which addresses similar functionality to a 2.5 inch hard disk drive, a 44-pin configuration which addresses similar functionality to 3.5 inch hard disk drive, and a standard 144-pin SO DIMM configuration.
The following table describes certain of our data storage Flash products as of March 1, 2002:
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Density |
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Form Factor |
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CompactFlash |
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8-640MB |
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Type I (36.4mm x 42.8mm x 3.3mm) |
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ATA Flash PC Card |
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8MB-2GB |
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Type I (54.0mm x 85.6mm x 3.3mm) |
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