UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o Preliminary Proxy Statement

o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ Definitive Proxy Statement

o Definitive Additional Materials

o Soliciting Material Pursuant to §240.14a-12

SANDISK CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ No fee required.

o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1)	Title of each class of securities to which transaction applies:
	N/A
(2)	Aggregate number of securities to which transaction applies:
	N/A
(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	N/A
(4)	Proposed maximum aggregate value of transaction:
	N/A
(5)	Total fee paid:
	N/A

o Fee paid previously with preliminary materials.

o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)	Amount Previously Paid:
	N/A
(2)	Form, Schedule or Registration Statement No.:
	N/A
(3)	Filing Party:
	N/A
(4)	Date Filed:
	N/A

SANDISK CORPORATION
601 McCarthy Boulevard
Milpitas, California 95035

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of SanDisk Corporation (the “Company”), which will be held on May 24, 2007 at 8:00 a.m., local time, at the Company’s headquarters, 601 McCarthy Boulevard, Milpitas, California 95035.

At the Annual Meeting, you will be asked to consider and vote upon the following proposals: (i) to elect seven (7) Directors of the Company, (ii) to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007, and (iii) a stockholder proposal regarding performance-vesting shares if properly presented at the Annual Meeting.

The enclosed Proxy Statement more fully describes the details of the business to be conducted at the Annual Meeting. After careful consideration, the Company’s Board of Directors has unanimously approved proposals (i) and (ii) described above and recommends that you vote FOR such proposals, and has unanimously rejected proposal (iii) described above and recommends that you vote AGAINST such proposal.

After reading the Proxy Statement, please mark, sign, date and return the enclosed proxy card in the accompanying reply envelope, or follow the instructions included with your proxy card to submit your proxy via the toll-free telephone number or via the internet, whether or not you plan to attend the Annual Meeting in person. Please vote as promptly as possible but no later than prior to the closing of the polls for the Annual Meeting. If you decide to attend the Annual Meeting and would prefer to vote in person, please notify an Assistant Secretary of the Company that you wish to vote in person and your proxy will not be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY, VOTE VIA TELEPHONE OR INTERNET OR ATTEND THE ANNUAL MEETING IN PERSON.

A copy of the Company’s 2006 Annual Report on Form 10-K has been mailed concurrently herewith to all stockholders entitled to notice of and to vote at the Annual Meeting.

We look forward to seeing you at the Annual Meeting.

Sincerely yours,

Eli Harari

Chairman of the Board, Director
and Chief Executive Officer

Milpitas, California
April 10, 2007

IMPORTANT

Please read the attached proxy statement carefully and mark, sign and date the enclosed proxy and return it at your earliest convenience in the enclosed postage-prepaid return envelope, or follow the instructions included with your proxy card to submit your proxy via the toll-free telephone number or via the internet, so that if you are unable to attend the Annual Meeting, your shares may be voted.

TABLE OF CONTENTS

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
GENERAL
VOTING RIGHTS
REVOCABILITY OF PROXIES
SOLICITATION OF PROXIES
STOCKHOLDER PROPOSALS TO BE PRESENTED AT THE NEXT ANNUAL MEETING
PROPOSAL NO. 1 ELECTION OF DIRECTORS
NOMINEES
BUSINESS EXPERIENCE OF NOMINEES FOR ELECTION AS DIRECTORS
BOARD MEETINGS AND COMMITTEES
CONSIDERATION OF DIRECTOR NOMINEES
DIRECTOR COMPENSATION — FISCAL 2006
PROPOSAL NO. 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL NO. 3 STOCKHOLDER PROPOSAL REGARDING PERFORMANCE-VESTING SHARES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
	Equity Compensation Information for Plans or Individual Arrangements with Employees and Non-Employees
FORM 10-K
AUDIT COMMITTEE REPORT
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
SUMMARY COMPENSATION TABLE — FISCAL 2006
OUTSTANDING EQUITY AWARDS AT FISCAL 2006 YEAR-END
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2006
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
CERTAIN TRANSACTIONS AND RELATIONSHIPS
STOCK PERFORMANCE GRAPH
CERTAIN TRANSACTIONS

SANDISK CORPORATION
601 McCarthy Boulevard
Milpitas, California 95035

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held May 24, 2007

To Our Stockholders:

You are cordially invited to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of SanDisk Corporation, a Delaware corporation (the “Company”), to be held on May 24, 2007 at 8:00 a.m., local time, at the Company’s headquarters, 601 McCarthy Boulevard, Milpitas, California 95035, for the following purposes:

1. To elect seven (7) Directors to serve for the ensuing year or until their respective successors are duly elected and qualified. The nominees are Dr. Eli Harari, Irwin Federman, Steven J. Gomo, Eddy W. Hartenstein, Catherine P. Lego, Michael E. Marks and Dr. James D. Meindl.

2. To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007.

3. To consider and vote on a stockholder proposal relating to performance-vesting shares, if properly presented at the Annual Meeting.

4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

The foregoing items of business are more fully described in the Proxy Statement that accompanies this Notice. The Board of Directors has unanimously approved proposals 1 and 2 above as described in the Proxy Statement and recommends that you vote “FOR” such proposals. The Board of Directors has unanimously rejected proposal 3 above as described in the Proxy Statement and recommends that you vote “AGAINST” such proposal.

Only stockholders of record at the close of business on March 27, 2007 are entitled to notice of and to vote at the Annual Meeting and at any adjournment or postponement thereof. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection at the executive offices of the Company.

All stockholders are cordially invited and encouraged to attend the Annual Meeting. In any event, to ensure your representation at the meeting, please carefully read the accompanying Proxy Statement, which describes the matters to be voted on at the Annual Meeting and mark, sign, date and return the enclosed proxy card in the reply envelope provided, or call the toll-free telephone number or use the internet by following the instructions included with your proxy card to submit your proxy. Should you receive more than one proxy because your shares are registered in different names and addresses, please sign and submit all proxy cards or grant each proxy by telephone or through the internet to ensure that all of your shares will be voted. If you attend the Annual Meeting and vote by ballot, your proxy will be revoked automatically and only your vote at the Annual Meeting will be counted. The prompt return of your proxy card or your prompt use of the toll-free telephone number or the internet to grant your proxy will assist us in preparing for the Annual Meeting.

We look forward to seeing you at the Annual Meeting.

By Order of the Board of Directors,

Eli Harari

Chairman of the Board, Director
and Chief Executive Officer

Milpitas, California

April 10, 2007

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. IN ANY EVENT, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, WE URGE YOU TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE, OR CALL THE TOLL-FREE TELEPHONE NUMBER OR USE THE INTERNET BY FOLLOWING THE INSTRUCTIONS INCLUDED WITH YOUR PROXY CARD TO SUBMIT YOUR PROXY.

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
SANDISK CORPORATION
TO BE HELD MAY 24, 2007

GENERAL

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the “Board of Directors” or the “Board”) of SanDisk Corporation, a Delaware corporation (the “Company,” “SanDisk,” “we” or “our”), of proxies to be voted at the Company’s Annual Meeting of Stockholders (the “Annual Meeting”) to be held on May 24, 2007, or at any adjournment or postponement thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. Stockholders of record at the close of business on March 27, 2007 will be entitled to vote at the Annual Meeting. The Annual Meeting will be held at 8:00 a.m., local time, at the Company’s headquarters, 601 McCarthy Boulevard, Milpitas, California 95035.

This Proxy Statement and the enclosed proxy card will be first mailed to stockholders entitled to vote at the Annual Meeting on or about April 10, 2007.

VOTING RIGHTS

The close of business on March 27, 2007 was the record date for stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. At the record date, the Company had approximately 228,392,654 shares of Common Stock outstanding and entitled to vote at the Annual Meeting, held by approximately 590 stockholders of record. Each holder of record at the close of business on March 27, 2007 is entitled to one vote for each share of Common Stock so held. In the election of Directors, however, cumulative voting is authorized for all stockholders if any stockholder gives notice at the meeting, prior to voting for the election of Directors, of his, her or its intention to cumulate votes. Under cumulative voting, a stockholder may cumulate votes and give to one nominee a number of votes equal to the number of Directors to be elected (seven (7) at this meeting) multiplied by the number of votes to which such stockholder is entitled, or may distribute such number among any or all of the nominees. The seven (7) candidates receiving the highest number of votes will be elected. The Board is soliciting discretionary authority to vote proxies cumulatively in the event a stockholder gives notice of an intent to cumulate votes. A majority of the shares of Common Stock entitled to vote will constitute a quorum for the transaction of business at the Annual Meeting.

If any stockholder is unable to attend the Annual Meeting, the stockholder may vote by proxy. The enclosed proxy is solicited by the Board of Directors and, when the proxy card is properly completed and returned, or the proxy is granted by telephone or through the internet, the proxy will be voted as directed by the stockholder. Stockholders are urged to specify their choices on the enclosed proxy card or through the telephone or internet voting process. If you sign and return the proxy card, or grant your proxy by telephone or through the internet, but do not vote on a proposal, in the absence of contrary instructions, the shares of Common Stock represented by such proxy will be voted FOR Proposals 1 and 2 and AGAINST Proposal 3, and will be voted in the proxy holders’ discretion as to other matters that may properly come before the Annual Meeting.

The affirmative vote of a plurality of the shares present or represented at the Annual Meeting and voting is required for the election of Directors (Proposal 1). The affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote is required for the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm (Proposal 2). The affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote is required to approve the stockholder proposal regarding performance-vesting shares (Proposal 3). An automated system administered by the Company’s transfer agent tabulates stockholder votes. Abstentions and broker non-votes are each included in determining the number of shares present and voting at the Annual Meeting for purposes of determining the presence or absence of a quorum, and each is tabulated separately. Abstentions with respect to any matter other than the election of Directors (Proposal 1) will be treated as shares present or represented by proxy and entitled to vote on that matter and will thus have the same effect as negative votes. If shares are not voted by the bank, broker or other

2

financial institution which is the record holder of the shares but who does not receive voting instructions from the beneficial owners of those shares, or if shares are not voted in other circumstances in which proxy authority is defective or has been withheld with respect to any matter, these non-voted shares, or “broker non-votes,” are deemed not to be entitled to vote on the matter and accordingly are not counted for purposes of determining whether stockholder approval of that matter has been obtained with respect to Proposals 2 and 3.

REVOCABILITY OF PROXIES

Any person giving a proxy has the power to revoke it at any time before its exercise. A proxy may be revoked by filing with an Assistant Secretary of the Company an instrument of revocation or a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person.

SOLICITATION OF PROXIES

The Company’s Board of Directors is soliciting proxies for the Annual Meeting. The Company will bear the cost of soliciting proxies. Copies of solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others to forward to such beneficial owners. The Company may reimburse such persons for the costs they incur to forward the solicitation material to such beneficial owners. The original solicitation of proxies by mail may be supplemented by solicitation by telephone, facsimile, or other means by Directors, officers, employees or agents of the Company. No additional compensation will be paid to these individuals for any such services. The Company has retained a proxy solicitation firm, The Altman Group, Inc., to aid it in the solicitation process. The Company will pay The Altman Group, Inc. a fee equal to $6,000 plus reasonable customary expenses. Following the original mailing of the proxies and other soliciting materials, the Company will request brokers, custodians, nominees and other record holders to forward copies of the proxy and other soliciting materials to persons for whom they hold shares and to request authority for the exercise of proxies. In such cases, the Company, upon the request of the record holders, will reimburse such holders for their reasonable expenses.

STOCKHOLDER PROPOSALS TO BE PRESENTED AT THE NEXT ANNUAL MEETING

Proposals of stockholders of the Company that are intended to be presented by such stockholders at the Company’s 2008 Annual Meeting must be received no later than December 11, 2007 in order that they may be included in the proxy statement and form of proxy relating to that meeting. In addition, the proxy solicited by the Board of Directors for the 2008 Annual Meeting will confer discretionary authority to vote on any stockholder proposal presented at that meeting, unless the Company receives notice of such proposal before February 24, 2008.

The Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2006 (the “2006 fiscal year” or “fiscal 2006”) has been mailed concurrently with the mailing of the Notice of Annual Meeting and Proxy Statement to all stockholders entitled to notice of and to vote at the Annual Meeting. The Annual Report on Form 10-K is not incorporated into this Proxy Statement and is not considered proxy soliciting material.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

The current Board of Directors consists of seven (7) members with one vacancy. The Board of Directors has not nominated an individual to fill the vacancy. It is intended that the proxies will be voted for the seven (7) nominees named below for election to the Company’s Board of Directors unless authority to vote for any such nominee is withheld. Each of the seven (7) nominees is currently a Director of the Company and was elected to the Board of Directors by the stockholders at the last annual meeting. Each of the non-employee nominees is independent as defined under Securities and Exchange Commission (“SEC”) and applicable stock exchange rules. Alan F. Shugart resigned as a director on May 25, 2006. During his service on the Board, Mr. Shugart was independent as defined under SEC and applicable stock exchange rules. Directors elected to the Board of Directors will serve for the

3

ensuing year or until their respective successors are duly elected and qualified. Each nominee has been recommended for nomination by the Nominating and Governance Committee, has been nominated by the Board of Directors for election and has agreed to serve if elected, and the Board of Directors has no reason to believe that any nominee will be unavailable or will decline to serve. In the event, however, that any nominee is unable or declines to serve as a Director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the current Board of Directors to fill the vacancy. Unless otherwise instructed, the proxyholders will vote the proxies received by them “FOR” the nominees named below. The seven (7) candidates receiving the highest number of the affirmative votes of the shares entitled to vote at the Annual Meeting will be elected Directors of the Company. The proxies solicited by this Proxy Statement may not be voted for more than seven (7) nominees.

NOMINEES

Set forth below is information regarding the nominees to the Board of Directors.

				First Elected/Appointed
	Position(s) with			As a
Name	the Company	Age		Director
Dr. Eli Harari(1)	Chairman of the Board, Director and Chief Executive Officer		61		1988
Irwin Federman(2)(3)	Vice Chairman of the Board and Lead Independent Director		71		1988
Steven J. Gomo(2)	Director		55		2005
Eddy W. Hartenstein(4)	Director		56		2005
Catherine P. Lego(2)(5)	Director		50		2004
Michael E. Marks(3)(4)	Director		56		2003
Dr. James D. Meindl(3)	Director		73		1989

(1)	Member of the Special Option Committee
(2)	Member of the Audit Committee
(3)	Member of the Compensation Committee
(4)	Member of the Nominating and Governance Committee
(5)	Ms. Lego served as a Director of the Company from 1989 to 2002 and returned to the Board of Directors in May 2004.

BUSINESS EXPERIENCE OF NOMINEES FOR ELECTION AS DIRECTORS

Dr. Harari, the founder of SanDisk, has served as Chief Executive Officer and as a director of SanDisk since June 1988. He was appointed Chairman of the Board in June 2006. Dr. Harari also served as President from June 1998 to June 2006. Dr. Harari founded Waferscale Integration, Inc., a privately held semiconductor company, in 1983 and was its President and Chief Executive Officer from 1983 to 1986, and Chairman and Chief Technical Officer from 1986 to 1988. From 1973 to 1983, Dr. Harari held various management positions with Honeywell Inc., Intel Corporation and Hughes Microelectronics Ltd. Dr. Harari holds a Ph.D. in Solid State Sciences from Princeton University and has more than 100 patents issued in the field of non-volatile memories and storage systems. In December 2006, Dr. Harari, along with SanDisk’s co-founders Sanjay Mehrotra and Jack Yuan, received the 2006 IEEE Reynold B. Johnson Data Storage Device Technology Award “For leadership in the development and commercialization of Flash EEPROM-based data storage products.” Dr. Harari is a board member of Tower Semiconductor Ltd.

Mr. Federman has served as a Director of the Company since September 1988. Mr. Federman has been a general partner in U.S. Venture Partners, a venture capital firm, since April 1990. Mr. Federman was President and CEO of Monolithic Memories, Inc., a semiconductor company, from 1978 to 1987. Prior to serving as President and CEO, Mr. Federman was the Chief Financial Officer of Monolithic Memories, Inc. Mr. Federman also serves as a director for Check Point Software Technologies Ltd., a security software company, Mellanox Technologies, Ltd., a semiconductor

4

company, and various private corporations and charitable trusts. Mr. Federman holds a B.S. in Economics from Brooklyn College and was awarded an Honorary Doctorate of Engineering from Santa Clara University.

Mr. Gomo has served as a Director of the Company since December 2005. Mr. Gomo serves as Executive Vice President, Finance and Chief Financial Officer of Network Appliance, Inc. Prior to joining Network Appliance, Inc. in August 2002, Mr. Gomo served as Chief Financial Officer of Gemplus International S.A. from November 2000 to April 2002, as Chief Financial Officer of Asera, Inc. from February 2000 to November 2000, and as Chief Financial Officer of Silicon Graphics, Inc. from February 1998 to February 2000. Previously, Mr. Gomo spent 24 years at Hewlett-Packard Company serving in various positions including finance, financial management, manufacturing and general management. Mr. Gomo holds a bachelor’s degree from Oregon State University and a masters of business administration from Santa Clara University. Mr. Gomo was a director of Macromedia, Inc. from April 2004 to December 2005.

Mr. Hartenstein has served as a Director of the Company since November 2005. Mr. Hartenstein has served as Chairman, President and Chief Executive Officer of HD Partners Acquisition Corporation, a company formed to effect a merger, or other business combination with one or more operating businesses in the media, entertainment or telecommunications industries, since December 2005. Previously, Mr. Hartenstein served as Chairman and Chief Executive Officer of DIRECTV, Inc., a television service provider, from its inception in 1990 through 2003, when News Corporation purchased a controlling interest in the company. He continued as vice chairman of The DIRECTV Group through 2004 when he retired. Mr. Hartenstein received B.S. degrees in Aerospace Engineering and Mathematics from California State Polytechnic University, Pomona and he received an M.S. degree in Applied Mechanics from the California Institute of Technology in 1974. He is a member of the National Academy of Engineering and was inducted into the Broadcasting and Cable Hall of Fame in 2002. Mr. Hartenstein also serves on the boards of XM Satellite Radio Holdings Inc., Thomson S.A. (Thomson Multimedia) and the Consumer Electronics Association.

Ms. Lego served as a Director of the Company from 1989 to 2002 and returned to the Board in May 2004. Ms. Lego has been a General Partner of The Photonics Fund, an early stage venture fund focused on investing in components, modules and systems companies for the fiber optics telecommunications market since December 1999. She was a general partner at Oak Investment Partners from 1981 to 1992. Ms. Lego serves as a director for WJ Communications, Inc., a public semiconductor company in the wireless communications market. Ms. Lego also serves as a director for Lam Research, a provider of wafer fabrication equipment and services for the semiconductor industry, and is a member of their Audit Committee. Ms. Lego received a B.A. from Williams College and an M.S. in Accounting from the New York University Graduate School of Business. She has previously practiced as a Certified Public Accountant.

Mr. Marks has served as a Director of the Company since August 2003. Mr. Marks has been a senior adviser of Kohlberg Kravis Roberts & Co., a private equity firm, since January 2007. From January 2006 until January 2007, Mr. Marks was a member of Kohlberg Kravis Roberts & Co. From January 1994 to January 1, 2006, Mr. Marks served as the Chief Executive Officer of Flextronics, Inc., a leading producer of advanced electronic manufacturing services. He was appointed Chairman of the Board of Flextronics effective upon his retirement as Chief Executive Officer on January 1, 2006, and he previously served as Chairman of the Board of Flextronics from 1993 to January 2003. Mr. Marks has served as a member of the board of directors of Flextronics since 1991, and also serves as a board member of Accellent Inc., a provider of outsourced precision manufacturing and engineering services for the medical device industry, Crocs, Inc., designer, manufacturer and marketer of footwear for men, women and children, Schlumberger Limited, an oil services company, and The V Foundation for Cancer Research. Mr. Marks received a B.A. and M.A. from Oberlin College and his M.B.A. from Harvard Business School.

Dr. Meindl has served as a Director of the Company since March 1989. Dr. Meindl has been the Joseph M. Pettit Chair Professor of Microelectronics at the Georgia Institute of Technology in Atlanta, Georgia since 1993. From 1986 to 1993, Dr. Meindl served as Senior Vice President for Academic Affairs and Provost of Rensselaer Polytechnic Institute. While at Stanford University from 1967 to 1986, he was the John M. Fluke Professor of Electrical Engineering and Director of the Stanford Electronics Laboratory and the Center for Integrated Systems. Dr. Meindl serves as a director of Zoran Corporation, a leading provider of digital solutions-on-a-chip for applications in the growing consumer electronics and digital imaging markets, and Stratex Networks, Inc., formerly DMC Stratex Networks, Inc., a provider of high-speed wireless transmission solutions. He received the 2006 IEEE Medal of Honor, the highest award presented by IEEE. Dr. Meindl holds a B.S., M.S. and Ph.D. in Electrical Engineering from Carnegie-Mellon University.

5

BOARD MEETINGS AND COMMITTEES

The Board of Directors held fourteen (14) meetings during fiscal 2006. During fiscal 2006, each member of the Board of Directors attended or participated in seventy-five percent (75%) or more of the aggregate of (i) the total number of meetings of the Board of Directors held during the fiscal year or the portion thereof following such person’s appointment to the Board and (ii) the total number of meetings held by all committees on which such Director served during the past fiscal year or the portion thereof following such person’s appointment to one or more of those committees. There are no family relationships among executive officers or Directors of the Company. The Board of Directors has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, a Special Option Committee and a Secondary Executive Committee.

Communications with the Board

The Company encourages stockholder communications with its Board of Directors. Any stockholder communications with the Board of Directors may be submitted either via postal mail or email.

Postal Mail

Postal mail submissions should be directed to the following address:

Board of Directors
c/o Investor Relations
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035

Email

Individuals may also communicate with the Board by submitting an email to the Company’s Board at BOD@sandisk.com. Email submitted to this email address will be relayed to all Directors.

Communications Intended for Non-Management Directors

Communications that are intended specifically for non-management Directors should be sent to the postal or email address above to the attention of the Chair of the Nominating and Governance Committee.

Company Policy Regarding Board Member Attendance at Annual Meetings

The Company encourages attendance by each incumbent Director and each nominee to the Board at its Annual Meeting of Stockholders. Six (6) out of the then-current eight (8) Board members attended the Company’s 2006 Annual Meeting of Stockholders.

Audit Committee

The Audit Committee of the Board of Directors held twelve (12) meetings during fiscal 2006. The Audit Committee, which consists of Directors Federman, Gomo and Lego, oversees on behalf of the Board of Directors the integrity of the Company’s financial statements, the appointment, compensation, qualifications, independence and performance of the Company’s independent registered public accounting firm, the Company’s compliance with legal and regulatory requirements and the performance of the Company’s internal accounting, audit and financial controls. The Board of Directors adopted and approved a revised written charter for the Audit Committee in February 2005 that reflects new AICPA and SEC rules on auditor rotation. A current copy of this charter is available on the Company’s website at www.sandisk.com. The Board of Directors has determined that Mr. Federman is an “audit committee financial expert” as defined by the SEC. The Board of Directors has determined that each of the members of this Committee is an “independent director” as defined in Rule 4200 of the Marketplace Rules of the National Association of Securities Dealers, Inc. and also meets the additional criteria for independence of Audit Committee members set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended.

6

Compensation Committee

The Compensation Committee of the Board of Directors is responsible for establishing and governing the compensation and benefit practices of the Company. The Compensation Committee consists of Directors Federman, Marks and Meindl. The Compensation Committee establishes the general compensation policies of the Company, reviews and approves compensation of the executive officers of the Company and oversees all of the Company’s employee benefit plans. The Compensation Committee Charter, which was adopted by the Board of Directors in February 2003 and was amended in February 2007, requires that the Compensation Committee consist of no fewer than two (2) Board members who satisfy the independence requirements of NASDAQ and applicable law. At all times during fiscal 2006, the Compensation Committee consisted of at least two (2) Board members, each of whom the Board has affirmatively determined satisfies these independence requirements.

The Compensation Committee Charter sets forth the purpose of and other matters pertaining to the Compensation Committee. The Compensation Committee Charter is available through the Investor Relations section of the Company’s website at www.sandisk.com. Pursuant to its Charter, the Compensation Committee’s responsibilities include the following:

•  review and approve the corporate goals and objectives relevant to the compensation of the Chief Executive Officer and, in consultation with the Chief Executive Officer, other executive officers;

•  evaluate the Chief Executive Officer’s performance (and, in consultation with the Chief Executive Officer, the other executive officers’ performance) in light of such goals and objectives;

•  set officers’ compensation levels based on such evaluation and other factors deemed appropriate, including the Company’s performance and relative stockholder return, the value of incentive awards to executive officers at comparable companies and the awards given to the Company’s officers in past years;

•  review and approve significant employment, separation, severance and other contracts having any compensatory effect or purpose;

•  review and assist the Board in developing succession plans for executive officers;

•  review and recommend to the Board appropriate director compensation programs for non-employee directors;

•  develop and periodically assess the Compensation Committee’s compensation policies;

•  approve stock option grants and other share-based or incentive awards;

•  have sole authority to retain and terminate any compensation consulting firm used to evaluate executive or director compensation, including to approve the consulting firm’s fees and other retention terms;

•  timely review and approve the disclosures on executive compensation and prepare a report to the Board recommending that such disclosure be included in the Company’s annual proxy statement; and

•  perform any other activities consistent with the Charter.

Our Chief Executive Officer recommends to the Compensation Committee salary, annual bonus and long-term compensation levels for less senior officers, including the other Named Executive Officers (as defined below under “Compensation Discussion and Analysis”), in accordance with the Compensation Committee Charter. Our President and Chief Operating Officer assists the Chief Executive Officer in reviewing performance and formulating these recommendations to the Compensation Committee. Other Named Executive Officers, including our Chief Financial Officer, provide financial and other information to the Compensation Committee to assist in determining appropriate compensation levels. Our other executive officers, including the other Named Executive Officers, do not currently have any role in determining or recommending the form or amount of compensation paid to our Named Executive Officers and our other senior executive officers.

The Board has delegated concurrent authority to the Compensation Committee and the Special Option Committee to grant share-based awards (including stock options and stock units) to employees who are not subject to Section 16 of the Securities Exchange Act of 1934, as amended (“Section 16 officers”). The Special Option

7

Committee may consist of one or more directors, and currently consists of one director, Dr. Harari. The Board has also delegated authority to the Secondary Executive Committee to grant stock options (but not stock units or other equity awards) to non-Section 16 officers. The Secondary Executive Committee may be comprised of one or more officers of the Company, and is currently comprised of two officers, Sanjay Mehrotra, the Company’s President and Chief Operating Officer, and Judy Bruner, the Company’s Executive Vice President, Administration and Chief Financial Officer. Share-based awards to Section 16 officers are made by the Compensation Committee. The Compensation Committee met six (6) times and took action by written consent two (2) times during fiscal 2006. The Special Option Committee took action by written consent fifty (50) times during fiscal 2006. The Secondary Executive Committee took action by written consent sixteen (16) times during fiscal 2006.

As indicated above, pursuant to the Charter, the Compensation Committee is authorized to retain and terminate any compensation consultant engaged to assist in the evaluation of the compensation of our senior executive officers (including all of the Named Executive Officers). The Compensation Committee has not retained the services of a compensation consulting firm. From time to time, management has retained and consulted with its own outside advisors, including compensation consultants, to assist in analyzing the Company’s peer group and preparing recommendations to the Compensation Committee regarding compensation programs and levels.

Nominating and Governance Committee

The Nominating and Governance Committee of the Board of Directors (the “Nominating and Governance Committee”) held three (3) meetings during fiscal 2006 and met subsequent to the end of the last fiscal year to recommend to the full Board each of the nominees for election to the Board of Directors, as presented herein. The Nominating and Governance Committee consists of Directors Marks and Hartenstein. The Nominating and Governance Committee identifies, considers and recommends director nominees to be selected by the Board of Directors for submission to vote at the Company’s annual stockholder meetings and to fill vacancies occurring between annual stockholder meetings, implements the Board’s criteria for selecting new Directors, develops or reviews and recommends corporate governance policies for the Board, and oversees the Board’s annual evaluation process. The Nominating and Governance Committee is also authorized to conduct investigations and to retain, at the expense of the Company, independent legal, accounting, financial, governance or other professional consultants selected by the Nominating and Governance Committee, for any matters relating to the purposes of the Nominating and Governance Committee. The Board of Directors adopted a charter for the Nominating and Governance Committee in February 2003, which was last amended in February 2007. A current copy of this charter is available on the Company’s website at www.sandisk.com. The Board of Directors has determined that each of the members of the Nominating and Governance Committee is an “independent director” as defined in Rule 4200 of the Marketplace Rules of the National Association of Securities Dealers, Inc.

CONSIDERATION OF DIRECTOR NOMINEES

Stockholder-Recommended Nominees

The policy of the Nominating and Governance Committee is to consider properly submitted stockholder recommendations for nominees for membership on the Board as described below under “Identifying and Evaluating Nominees for Directors.” In evaluating the recommended nominees, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth under “Director Qualifications.”

The Nominating and Governance Committee will consider recommendations for nominees from stockholders. Stockholders may recommend individuals for consideration by submitting the materials set forth below to the Chair of the Nominating and Governance Committee at the Company’s address. If the nominees are intended to be considered by the Nominating and Governance Committee for recommendation to the Board for the slate of Directors to be voted on at the Company’s annual meeting (“Annual Meeting Nominees”), the written materials must be submitted within the time permitted for submission of a stockholder proposal for inclusion in the Company’s proxy statement for the subject annual meeting and such submission must also comply with the provisions for stockholder proposals set forth in the Company’s Bylaws. For all other vacancies, the written materials must be submitted at least 30 days prior to the time that the Nominating and Governance Committee meets

8

to consider candidates for any vacancy. Stockholder nominees that are not Annual Meeting Nominees shall be considered if and when the Board determines to fill any vacancy on the Board.

The written materials must include: (1) all information relating to the individual recommended that is required to be disclosed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, with respect to Annual Meeting Nominees, such person’s written consent to being named in the proxy statement as a nominee and, with respect to all nominees, such person’s written consent to serving as a Director if elected); (2) the name(s) and address(es) of the stockholder(s) making the recommendation and the amount of the Company’s securities owned beneficially and of record by such stockholder(s); (3) appropriate biographical information (including a business address and a telephone number) and a statement as to the individual’s qualifications, with a focus on the criteria described below under “Director Qualifications”; (4) a representation that the stockholder is a holder of record of stock of the Company entitled to vote on the date of submission of such written materials; and (5) any material interest of the stockholder in the recommended nomination.

Any stockholder nominations recommended for consideration by the Nominating and Governance Committee should be addressed to:

Chairman of the Nominating and Governance Committee
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035

Director Qualifications

The Nominating and Governance Committee has established the following minimum criteria for evaluating prospective Board candidates:

•  Reputation for integrity, strong moral character and adherence to high ethical standards;

•  Holds or has held a generally recognized position of leadership in the community and/or chosen field of endeavor, and has demonstrated high levels of accomplishment;

•  Demonstrated business acumen and experience, and ability to exercise sound business judgment in matters that relate to the current and long-term objectives of the Company;

•  Ability to read and understand basic financial statements and other financial information pertaining to the Company;

•  Commitment to understand the Company and its business, industry and strategic objectives;

•  Commitment and ability to regularly attend and participate in meetings of the Board of Directors, Board Committees and stockholders, the number of other company boards on which the candidate serves and ability to generally fulfill all responsibilities as a Director of the Company;

•  Willingness to represent and act in the interests of all stockholders of the Company rather than the interests of a particular group;

•  Good health and ability to serve;

•  For prospective non-employee Directors, independence under SEC and applicable stock exchange rules, and the absence of any conflict of interest (whether due to a business or personal relationship) or legal impediment to, or restriction on, the nominee serving as a director; and

•  Willingness to accept the nomination to serve as a Director of the Company.

Other Factors for Potential Consideration

The Nominating and Governance Committee will also consider the following factors in connection with its evaluation of each prospective nominee:

•  Whether the prospective nominee will foster a diversity of skills and experiences;

9

•  Whether the nominee possesses the requisite education, training and experience to qualify as “financially literate” or as an “audit committee financial expert” under applicable SEC and stock exchange rules;

•  For incumbent Directors standing for re-election, the Nominating and Governance Committee will assess the incumbent Director’s performance during his or her term, including the number of meetings attended, level of participation, and overall contribution to the Company; the number of other company boards on which the individual serves; the composition of the Board at that time; any changed circumstances affecting the individual Director which may bear on his or her ability to continue to serve on the Board; and the Company’s retirement policy for directors, as set forth in its Corporate Governance Principles; and

•  Composition of the Board and whether the prospective nominee will add to or complement the Board’s existing strengths.

Identifying and Evaluating Nominees for Directors

The Nominating and Governance Committee initiates the process by preparing a slate of potential candidates who, based on their biographical information and other information available to the Nominating and Governance Committee, appear to meet the criteria specified above and/or who have specific qualities, skills or experience being sought (based on input from the full Board).

•  Outside Advisors.  The Nominating and Governance Committee may engage a third-party search firm or other advisors to assist in identifying prospective nominees.

•  Nomination of Incumbent Directors.  The re-nomination of existing Directors is not automatic, but is based on continuing qualification under the criteria set forth above and the Corporate Governance Principles of the Company.

•  Management Directors.  The number of officers or employees of the Company serving at any time on the Board should be limited such that, at all times, a majority of the Directors is “independent” under applicable SEC and stock exchange rules.

After reviewing appropriate biographical information and qualifications, first-time candidates the Nominating and Governance Committee proposes to include on the slate of potential candidates described above, including those proposed to fill any vacancy, will be interviewed by at least one member of the Nominating and Governance Committee and by the Chief Executive Officer. Upon completion of the above procedures, the Nominating and Governance Committee shall determine the list of potential candidates to be recommended to the full Board for nomination at the annual meeting or to fill any vacancy on the Board. The Board of Directors will select the slate of nominees, including any nominee to fill a vacancy, only from candidates identified, screened and approved by the Nominating and Governance Committee.

Special Option Committee

The Special Option Committee of the Board of Directors has the authority to grant options and stock units solely to employees other than officers and Directors. The Special Option Committee, comprised of Director Harari, acted by written consent on 50 occasions during fiscal 2006. The Special Option Committee acts pursuant to limiting guidelines adopted by the Board of Directors.

Secondary Executive Committee

The Secondary Executive Committee of the Board of Directors has the authority to grant stock options (but not stock units or other share-based awards) to non-Section 16 officers. The Secondary Executive Committee may be comprised of one or more officers of the Company and is currently comprised of Mr. Mehrotra and Ms. Bruner. The Secondary Executive Committee acted by written consent on 16 occasions during fiscal 2006. The Secondary Executive Committee acts pursuant to limiting guidelines adopted by the Board of Directors.

10

DIRECTOR COMPENSATION — FISCAL 2006

The following table presents information regarding the compensation paid during fiscal 2006 to individuals who were members of our Board of Directors at any time during fiscal 2006 and who were not also our employees (referred to herein as “Non-Employee Directors”). The compensation paid to any director who was also one of our employees during fiscal 2006 is presented below in the Summary Compensation Table — Fiscal 2006 and the related explanatory tables. Such employee-directors are generally not entitled to receive additional compensation for their services as directors.

	Fees
	Earned or
	Paid in		Stock		Option		All Other
	Cash		Awards		Awards		Compensation		Total
Name	($)		($)(2)(3)(4)		($)(2)(3)(4)		($)		($)
(a)	(b)		(c)		(d)		(e)		(f)
Irwin Federman		67,272		73,218		56,002		—		196,492
Steven J. Gomo		63,993		80,387		115,910		—		260,290
Eddy W. Hartenstein		48,893		123,254		141,640		—		313,787
Catherine P. Lego		70,000		73,218		579,963		—		723,181
Michael E. Marks		59,500		73,218		767,788		—		900,506
Dr. James D. Meindl		47,500		73,218		56,002		—		176,720
Alan F. Shugart(1)		39,750		25,766		30,886		—		96,402

(1)	Mr. Shugart resigned from the Board of Directors effective May 25, 2006.
(2)	The amounts reported in columns (c) and (d) above reflect the aggregate dollar amounts recognized for stock awards and option awards, respectively, for financial statement reporting purposes with respect to fiscal 2006 (disregarding any estimate of forfeitures related to service-based vesting conditions). For a discussion of the assumptions and methodologies used to calculate the amounts reported in columns (c) and (d) above, please see the discussion of stock and option awards contained in Note 5 (“Compensation and Benefits”) to the Company’s Consolidated Financial Statements, included as part of the Company’s 2006 Annual Report filed on Form 10-K, which note is incorporated herein by reference.
(3)	As described below, we granted each of our Non-Employee Directors (other than Mr. Shugart, who resigned from the Board of Directors prior to the grant date, and Mr. Gomo, who had not served as a director for at least six (6) months as of the grant date) an award of 6,250 stock options and 1,338 restricted stock units. Each of the stock option awards had a value (for financial statement reporting purposes) equal to $165,087 on the grant date, and each of the restricted stock unit awards had a value (for financial statement reporting purposes) equal to $78,728 on the grant date. See footnote (2) above for the assumptions used to value these awards.
(4)	The following table presents the number of outstanding and unexercised option awards and the number of unvested stock awards (which term includes restricted stock units for purposes of this Proxy Statement) held by each of our Non-Employee Directors as of December 31, 2006.

	Number of Shares Subject to		Number of Unvested
	Outstanding Option Awards		Shares or
Director	as of 12/31/06		Units as of 12/31/06
Irwin Federman		44,500		7,588
Steven J. Gomo		25,000		23,665
Eddy W. Hartenstein		31,250		30,938
Catherine P. Lego		130,500		71,588
Michael E. Marks		108,500		39,588
Dr. James D. Meindl		76,500		7,588
Alan F. Shugart		—		—

11

Director Compensation

Compensation for Non-Employee Directors during fiscal 2006 generally consisted of an annual retainer, committee membership fees and annual share-based awards.

Annual Retainer and Committee Membership Fees

The following table sets forth the schedule of the annual retainer and committee membership fees for each Non-Employee Director in effect during fiscal 2006:

Type of Fee	Dollar Amount
Annual Board Retainer	$	40,000
Additional Annual Fee to Chair of Audit Committee	$	30,000
Additional Annual Fee to Chairs of Compensation Committee and Nominating and Governance Committee	$	12,000
Additional Annual Fee to non-Chair Member of Audit Committee	$	20,000
Additional Annual Fee to non-Chair Member of Compensation Committee and Nominating and Governance Committee	$	7,500

All Non-Employee Directors are also reimbursed for out-of-pocket expenses they incur serving as directors.

Share-Based Awards

Under our Non-Employee Director compensation policy as currently in effect, a Non-Employee Director who first takes office and who has not been employed by the Company in the preceding twelve (12) months receives, at the time of his or her election or appointment to the Board, (i) an initial option grant to purchase 25,000 shares of the Company’s Common Stock (the “Initial Option Grant”), and (ii) an initial restricted stock unit grant for a number of units determined by dividing $320,000 by the average closing price per share of Common Stock on the NASDAQ Global Select Market for the five (5) trading days ended on, and including, the grant date (the “Initial Unit Grant”). Each Non-Employee Director who has served in that capacity for at least six (6) months at the time of grant also receives an annual award consisting of (i) an option grant to purchase 6,250 shares of Common Stock (the “Annual Option Grant”), and (ii) a restricted stock unit grant for a number of units determined by dividing $80,000 by the average closing price per share of Common Stock on the NASDAQ Global Select Market for the five (5) trading days ended on, and including, the grant date (the “Annual Unit Grant”). The initial and annual awards described above are granted under, and are subject to, the Company’s 2005 Incentive Plan (the “2005 Plan”).

Initial and Annual Stock Option Grants.

The Initial and Annual Option Grants are granted with a per-share exercise price equal to the fair market value of a share of the Company’s Common Stock on the grant date. For these purposes, and in accordance with the terms of the 2005 Plan and the Company’s share-based award grant practices, the fair market value is equal to the closing price of a share of the Company’s Common Stock on the NASDAQ Global Select Market on the grant date.

The stock options granted to Non-Employee Directors are immediately exercisable. However, upon a Non-Employee Director’s cessation of service with the Company, any shares purchased upon exercise of the option that have not vested (as described below) are subject to repurchase by the Company at the lower of (i) the exercise price paid for the shares or (ii) the fair market value of the shares at the time of repurchase (as determined under the 2005 Plan). This type of stock option is generally referred to as an “early exercise” stock option because the holder is permitted to exercise the option prior to the time that the underlying shares vest. Subject to the Non-Employee Director’s continued service, the shares subject to the Initial Option Grant vest, and the Company’s repurchase right lapses, in four (4) substantially equal annual installments on each of the first through fourth anniversaries of the grant date. Subject to the Non-Employee Director’s continued service, the shares subject to the Annual Option Grant vest, and the Company’s repurchase right lapses, in one (1) installment on the earlier of (i) first anniversary of the grant date or (ii) the day immediately preceding the next annual meeting of the Company’s stockholders following the grant date.

12

Once vested, each option will generally remain exercisable for fully vested shares of Common Stock (i.e., shares which are not subject to the Company’s repurchase right) until its normal expiration date. Each of the options granted to our Non-Employee Directors has a term of seven (7) years. However, vested stock options may terminate earlier in connection with a change in control of the Company. Shares subject to the option that have not vested will immediately terminate (or be subject to the Company’s repurchase right to the extent already purchased under the option) upon the cessation of the Non-Employee Director’s service. However, the shares subject to options vest, and the Company’s repurchase right lapses, in full if the Non-Employee Director’s cessation of service is as a result of the director’s death or permanent disability. Non-Employee Directors generally have twelve (12) months to exercise the vested portion of the option following a cessation of service.

The options granted to Non-Employee Directors do not include any dividend or dividend equivalent rights. However, Non-Employee Directors are entitled to dividends with respect to shares purchased under an option (whether or not such shares have vested under the option) at the same rate as of the Company’s other stockholders.

Initial and Annual Restricted Stock Unit Grants.

Each restricted stock unit awarded to our Non-Employee Directors represents a contractual right to receive one share of the Company’s Common Stock if the time-based vesting requirements described below are satisfied. Restricted stock units are credited to a bookkeeping account established by the Company on behalf of each Non-Employee Director.

Subject to the Non-Employee Director’s continued service, the units subject to the Initial Unit Grant vest in four (4) substantially equal annual installments on each of the first through fourth anniversaries of the grant date. Subject to the Non-Employee Director’s continued service, the units subject to the Annual Unit Grant vest in one (1) installment on the earlier of (i) the first anniversary of the grant date or (ii) the day immediately preceding the next annual meeting of the Company’s stockholders following the grant date. Upon the cessation of the Non-Employee Director’s service, any unvested restricted stock units will generally terminate. However, restricted stock units granted to a Non-Employee Director vest in full if the Non-Employee Director’s cessation of service is as a result of the director’s death or permanent disability.

Restricted stock units will generally be paid in an equivalent number of shares of the Company’s Common Stock as they become vested. Non-Employee Directors are not entitled to voting or dividend rights with respect to the restricted stock units, and the restricted stock units generally may not be transferred, except to the Company or to a beneficiary of the Non-Employee Director upon his or her death. Non-Employee Directors are, however, entitled to the following dividend equivalent rights with respect to the restricted stock units. If the Company pays a cash dividend on its Common Stock and the dividend record date occurs after the grant date and before all of the restricted stock units have either been paid or terminated, then the Company will credit the Non-Employee Director’s bookkeeping account with an amount equal to (i) the per-share cash dividend paid by the Company on its Common Stock with respect to the dividend record date, multiplied by (ii) the total number of outstanding and unpaid restricted stock units (including any unvested restricted stock units) as of the dividend record date. These dividend equivalents will be subject to the same vesting, payment and other terms and conditions as the original restricted stock units to which they relate (except that the dividend equivalents may be paid in cash or such other form as the plan administrator may deem appropriate).

The Board of Directors administers the 2005 Plan as to Non-Employee Director awards and has the ability to interpret and make all required determinations under the plan, subject to plan limits. This authority includes making required proportionate adjustments to outstanding awards to reflect any impact resulting from various corporate events such as reorganizations, mergers and stock splits. Pursuant to the terms of the 2005 Plan, stock options and restricted stock units granted to our Non-Employee Directors may vest on an accelerated basis in connection with a change in control of the Company.

Required Vote

The affirmative vote of the holders of a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on Proposal No. 1 is required for approval of Proposal No. 1.

13

Recommendation of the Board of Directors

The Board believes that Proposal No. 1 is in the Company’s best interests and in the best interests of its stockholders and recommends a vote FOR the election of all of the above nominees.

PROPOSAL NO. 2

RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007, and is asking the Company’s stockholders to ratify this appointment. The affirmative vote of the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on this Proposal No. 2 will be required to ratify the selection of Ernst & Young LLP.

In the event the stockholders fail to ratify the appointment, the Audit Committee of the Board of Directors will reconsider its appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007. Even if this appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interest of the Company and its stockholders.

Ernst & Young LLP has audited the Company’s financial statements annually since 1991. Its representatives are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.

Principal Accountant Fees and Services

The following is a summary of the Ernst & Young LLP fees incurred by the Company for professional services rendered during the 2006 and 2005 fiscal years:

	2006		2005
(a) Audit Fees	$	3,424,000	$	1,546,000
(b) Audit-Related Fees		178,000		101,000
(c) Tax Fees		474,000		230,000
(d) All Other Fees		6,000		5,000

(a)	Audit fees consist of professional services provided in connection with the integrated audit of the Company’s financial statements and review of the Company’s quarterly financial statements that include professional services provided in connection with the annual audit of the Company’s internal control over financial reporting. The fees for fiscal 2006 include professional services provided in connection with the msystems and Matrix acquisitions, the convertible debt offering, and new and existing statutory audits of subsidiaries or affiliates of the Company.
(b)	Audit-related fees consist primarily of accounting consultations, services provided in connection with regulatory filings, technical accounting guidance and other attestation services.
(c)	For fiscal years 2006 and 2005, tax fees principally included tax compliance fees, including expatriate compliance services. Total compliance fees were $302,000 and $221,000 for 2006 and 2005, respectively. Tax fees also include tax advice and tax planning fees of $172,000 and $9,000 for fiscal 2006 and 2005, respectively.
(d)	All other fees includes online research tools and other services.

All of the 2006 services described above were pre-approved by the Audit Committee to the extent required by Section 10A of the Securities Exchange Act of 1934, as amended, which requires audit committee pre-approval of audit and non-audit services provided by the Company’s independent auditors. In accordance with Section 10A under the Securities Exchange Act of 1934, as amended, the Audit Committee may delegate to any member of the

14

Audit Committee (referred to as the “Audit Committee Delegate”) the authority to pre-approve services not prohibited by law to be performed by the Company’s independent registered public accounting firm. The Audit Committee has appointed Catherine P. Lego as the Audit Committee Delegate and, as such, Ms. Lego reports any decision to pre-approve permissible services to the full Audit Committee at its next regular meeting. In addition, from time to time, the Audit Committee has adopted and/or revised a Pre-Approval Policy under which particular services or categories of services are pre-approved, subject to certain specified maximum dollar amounts. Such pre-approval is generally granted for a term of twelve (12) months from the date of pre-approval and automatically renews at the end of the one-year period unless revoked or revised by the Audit Committee.

The Audit Committee has concluded that the provision of the audit-related services, tax services and other non-audit services identified above is compatible with the principal accountants’ independence.

Required Vote

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on Proposal No. 2 is required to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007. Should such stockholder approval not be obtained, the Board of Directors will reconsider its appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007.

Recommendation of the Board of Directors

The Board believes that Proposal No. 2 is in the Company’s best interests and in the best interests of its stockholders and recommends a vote FOR the ratification of the appointment of Ernst & Young LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007.

PROPOSAL NO. 3

STOCKHOLDER PROPOSAL REGARDING PERFORMANCE-VESTING SHARES

The AFL-CIO Fund, 815 Sixteenth Street, N.W., Washington, D.C. 20006, a beneficial owner of 7,600 shares of Common Stock, has notified us that it intends to present the following proposal at the meeting:

Shareholder Proposal

RESOLVED, that the shareholders of SanDisk Corporation (“SanDisk” or “Company”) urge the Board of Directors to adopt a policy that a significant portion of future equity compensation grants to senior executives shall be shares of stock that require the achievement of performance goals as a prerequisite to vesting (“performance-vesting shares”).

This policy shall apply to existing employment agreements and equity compensation plans only if the use of performance-vesting shares can be legally implemented by the Company and will otherwise apply to the design of all future plans and agreements.

Supporting Statement

We believe that our Company’s compensation policies should encourage the ownership of stock by senior executives in order to align their interests with those of shareholders. To achieve this goal, we favor granting senior executives actual shares of stock that vest only after meeting specified performance goals. In our opinion, performance-vesting shares are a better form of equity compensation than fixed-price stock options or time-vesting restricted stock.

Fixed-price stock option grants provide senior executives with incentives that may not be in the best interests of long-term shareholders. In our view, stock option grants promise executives all the benefit of share price increases with little of the risk of share price declines. This asymmetrical incentive structure can reward executives for share price volatility, a measure of investment risk. Stock options can also reward short-term decision-making because

15

many executives’ options can be exercised just one year after the grant date. For these reasons, we believe that stock options can create a strong incentive to manipulate a company’s stock price through questionable or even fraudulent accounting.

Questions have been raised regarding the use of stock options. Former Federal Reserve Chairman Alan Greenspan blamed poorly-structured options for the ‘infectious greed’ of the 1990s because “they failed to properly align the long-term interests of shareholders and managers.” A July 15, 2006 article in The Wall Street Journal noted that even though our Company did not regularly grant stock options in September, two of SanDisk’s top executives received option grants shortly after the 9/11 terrorist attacks after the price of the Company stock had gone down 30.9% from the September 10 closing price.

Similarly, we oppose granting executives time-vesting restricted stock that does not include any performance requirements. In our view, time-vesting restricted stock rewards tenure, not performance. Instead, we believe vesting requirements should be tailored to measure each individual executive’s performance through disclosed benchmarks, in addition to the Company’s share price. To align their incentives with those of long-term shareholders, we also believe that senior executives should be required to hold a significant portion of these performance-vesting shares for as long as they remain executives of the Company.

Former SEC Chairman Richard Breeden has stated that “there is not a strong reason for granting restricted stock rather than simply paying cash unless there are performance hurdles to vesting.”

SanDisk’s Statement in Opposition to Proposal No. 3

The Board of Directors believes this proposal does not serve the best interests of SanDisk or its stockholders and recommends a vote AGAINST it.

Executive compensation at SanDisk is overseen by the Board of Directors through the Compensation Committee. The Compensation Committee consists exclusively of independent directors who make decisions they believe are in the best interests of the Company and our stockholders. Our Board and Compensation Committee support the concept of performance-based compensation as an important component of executive compensation. As discussed in this Proxy Statement, the Company’s current executive compensation programs are intended to achieve three fundamental objectives: (1) attract, retain and motivate qualified executives; (2) hold executives accountable for performance; and (3) align executives’ interests with the interests of our stockholders. In particular, we believe that the incentive programs for our senior executives should be determined within a framework based on the achievement of designated financial and other targets.

We believe that we have already implemented a flexible overall compensation program for senior executives which links compensation to performance. Under our cash bonus program approved by our stockholders at our 2006 Annual Meeting of Stockholders, our senior executives receive cash bonuses if the Company achieves certain pre-established company performance goals based on specific criteria set forth in our 2005 Incentive Plan. The Compensation Committee selects the applicable criteria which under our 2005 Incentive Plan may include return on total stockholder equity, earnings per share, net income or operating income (before or after certain delineated charges), EBITDA, cost reduction goals and other specified performance goals. Since the adoption of this performance-based bonus program, we have disclosed the performance-based criteria in effect for that year for our senior executives. We also use stock option and restricted stock unit grants to align our executives’ long-term interests with those of our stockholders, to help hold executives accountable for performance and to help attract, retain and motivate executives. These grants typically vest over a four year period which further aligns the long-term interests of our senior executives with those of our stockholders. These elements of our current executive compensation program are designed to reward annual performance, long-term performance, and the creation of stockholder value. We believe that adopting a policy that requires a significant portion of future equity compensation grants to senior executives to automatically be performance-vesting restricted stock is unnecessary in light of our current compensation programs and would put us at a competitive disadvantage by severely restricting the Compensation Committee’s discretion to select from among those compensation vehicles that best compensate our senior executives in a manner that is designed to enable us to achieve our goals of long-term success and increased stockholder value.

16

We also believe that time-vesting stock options and restricted stock units are forms of incentive compensation that are inherently performance-based, since their eventual value to the recipient is directly linked to our stock price, which is largely driven by company performance. The Company’s 2005 Incentive Plan, which was originally approved by stockholders at the 2005 Annual Meeting of Stockholders, and which was amended with the approval of our stockholders at our 2006 Annual Meeting of Stockholders to increase the number of shares of Common Stock reserved for issuance thereunder, provides us additional flexibility in making awards to senior executives by allowing the use of not only time and performance-vesting stock options, restricted stock and restricted stock units, but also stock appreciation rights. Our Compensation Committee has used a mix of both stock options and restricted stock units as long-term equity incentives for our senior executives when it deemed such rewards to be in the best interests of the Company and its stockholders.

We acknowledge that performance-vesting awards have become more popular in recent years and that these types of awards can be useful in certain circumstances. In fiscal 2007 and beyond, the Compensation Committee may consider these types of equity incentive tools among the various alternatives for long-term equity incentive compensation. However, we believe that it is in the best interests of our stockholders to allow the Compensation Committee the flexibility and discretion to use and introduce all available compensation and equity incentive tools as appropriate, based on the circumstances and information available at the time. This stockholder proposal would unduly limit the Compensation Committee’s flexibility by requiring that a significant portion of equity compensation be in one particular form.

Recommendation of the Board of Directors

For the reasons set forth above, the Board believes that Proposal No. 3 is not in the Company’s best interests or the best interests of its stockholders and recommends a vote AGAINST Proposal No. 3.

17

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the ownership of the Company’s Common Stock as of March 1, 2007 by (i) all persons known by the Company, based solely on inspection of 13G filings made with the SEC, to be beneficial owners of five percent (5%) or more (as set forth in the Beneficial Ownership Table included below) of its outstanding Common Stock, (ii) each Director of the Company, (iii) the Named Executive Officers (as defined below under “Compensation Discussion and Analysis”), and (iv) all current executive officers and Directors of the Company as a group. Unless otherwise indicated, the principal address of each of the stockholders below is c/o SanDisk Corporation, 601 McCarthy Boulevard, Milpitas, California 95035.

Unless otherwise indicated and pursuant to applicable community property laws, the persons named in the following table have sole voting and investment power with respect to all shares of Common Stock. The number of shares beneficially owned includes Common Stock of which such individual has the right to acquire beneficial ownership either currently or within 60 days after March 1, 2007, including, but not limited to, upon the exercise of a stock option.

Percentage of beneficial ownership is based upon 227,972,422 shares of Common Stock outstanding on March 1, 2007. For each individual, this percentage includes Common Stock of which such individual has the right to acquire beneficial ownership either currently or within 60 days after March 1, 2007, including, but not limited to, upon the exercise of a stock option; however, such Common Stock will not be deemed outstanding for the purpose of computing the percentage owned by any other individual. Such calculation is required by General Rule 13d-3(d)(1)(i) under the Securities Exchange Act of 1934, as amended.

	Amount and Nature of Beneficial Ownership
	Number of		Percentage Owned
Name or Group of Beneficial Owners	Shares		(%)
Entities Controlled by Capital Group International, Inc.(1)		32,903,820		14.43
Entities Controlled by ClearBridge Advisors, LLC(2)		15,881,535		6.97
Delaware Management Holdings(3)		12,506,143		5.49
Judy Bruner(4)		313,032		*
Yoram Cedar(5)		405,576		*
Nelson Chan(6)		223,205		*
Irwin Federman(7)		123,844		*
Steven J. Gomo(8)		26,639		*
Dr. Eli Harari(9)		5,156,045		2.26
Eddy W. Hartenstein(10)		32,784		*
Catherine P. Lego(11)		399,548		*
Michael E. Marks(12)		140,500		*
Sanjay Mehrotra(13)		658,788		*
Dr. James D. Meindl(14)		127,089		*
Dr. Randhir Thakur(15)		89,270		*
All directors and current executive officers as a group (11 persons)(16)		7,473,115		3.28

*

Less than 1% of the outstanding Common Stock.

(1)

The principal address of Capital Group International, Inc. (“CGII”) is 11100 Santa Monica Blvd., Los Angeles, California 90025. Pursuant to a joint Schedule 13G/A filed with the SEC on February 12, 2007 by and on behalf of CGII, Capital Guardian Trust Company (“CGTC”) and Capital International Limited (“CIL”), CGII reported that it had sole voting power over 27,351,810 shares of Common Stock and sole dispositive power over 32,903,820 shares of Common Stock, CGTC reported that it had sole voting power over 10,243,710 shares of Common Stock and sole dispositive power over 12,905,750 shares of Common

18

	Stock, and CIL reported that it had sole voting power over 9,825,200 shares of Common Stock and sole dispositive power over 10,850,580 shares of Common Stock. Each of the above entities has disclaimed beneficial ownership of such shares of Common Stock pursuant to Rule 13d-4 under the Securities Exchange Act of 1934, as amended.
(2)	The principal address of ClearBridge Advisors, LLC (“CA”) is 399 Park Avenue, New York, New York 10022. Pursuant to a joint Schedule 13G/A filed with the SEC February 8, 2007 by and on behalf of CA, ClearBridge Asset Management Inc. (“CAM”) and Smith Barney Fund Management LLC (“SBFM”), CA reported that it had shared voting power over 13,353,997 shares of Common Stock and shared dispositive power over 14,827,963 shares of Common Stock, CAM reported that it had shared voting power over 33,691 shares of Common Stock and shared dispositive power over 819,981 shares of Common Stock, and SBFM reported that it had shared voting and dispositive power over 233,591 shares of Common Stock.
(3)	The principal address of Delaware Management Holdings (“DMH”) is 2005 Market Street, Philadelphia, Pennsylvania 19103. Pursuant to a joint Schedule 13G filed with the SEC on February 7, 2007 by and on behalf of DMH and Delaware Management Business Trust (“DMBT”), DMH reported that it had sole voting power over 12,449,765 shares of Common Stock, shared voting power over 218 shares of Common Stock and sole dispositive power over 12,506,143 shares of Common Stock, and DMBT reported that it had sole voting power over 12,449,765 shares of Common Stock, shared voting power over 218 shares of Common Stock and sole dispositive power over 12,506,143 shares of Common Stock.
(4)	Comprised of 13,346 shares held as community property in the name of Ms. Bruner and her spouse. Also includes 299,686 shares subject to outstanding option granted to Ms. Bruner, which were exercisable on March 1, 2007 or within 60 days after that date. Excludes 37,500 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(5)	Includes 12,969 shares held in the name of a trust for the benefit of Mr. Cedar and his spouse. Also includes 389,499 shares subject to outstanding options granted to Mr. Cedar, which were exercisable on March 1, 2007 or within 60 days after that date. Excludes 18,750 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(6)	Includes 208,750 shares subject to outstanding options owned by Mr. Chan, which were exercisable on March 1, 2007 or within 60 days after that date. Also includes 318 shares owned by Mr. Chan’s spouse and 1,571 shares subject to outstanding options granted to Mr. Chan’s spouse, which were exercisable on March 1, 2007 or within 60 days after that date. Mr. Chan disclaims beneficial ownership of the securities held by his spouse.
(7)	Includes 44,500 shares subject to immediately exercisable options granted to Mr. Federman, but some of the shares subject to those options are currently unvested and would, if purchased, be subject to a repurchase right of the Company that lapses over time. Excludes 1,338 restricted stock units that will not vest on March 1, 2007 or within 60 days of that date.
(8)	Includes 25,000 shares subject to immediately exercisable options granted to Mr. Gomo, but some of the shares subject to those options are currently unvested and would, if purchased, be subject to a repurchase right of the Company that lapses over time. Excludes 4,915 shares restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(9)	Includes 2,850,322 shares held in the name of a trust for the benefit of Dr. Harari and his spouse. Also includes 2,188,090 shares subject to outstanding options granted to Dr. Harari, which were exercisable on March 1, 2007, or within 60 days after that date. Also includes 100,404 shares held in the name of a trust for the benefit of his children. Excludes 75,000 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(10)	Includes 31,250 shares subject to immediately exercisable options granted to Mr. Hartenstein, but some of the shares subject to those options are currently unvested and would, if purchased, be subject to a repurchase right of the Company that lapses over time. Excludes 5,938 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(11)	Includes 263,580 shares held in the name of a trust of which Ms. Lego is co-trustee. Also includes 130,500 shares subject to immediately exercisable options granted to Ms. Lego, but some of the shares

19

	subject to those options are currently unvested and would, if purchased, be subject to a repurchase right of the Company that lapses over time. Excludes 1,338 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(12)	Includes 2,500 shares held in the name of a trust for the benefit of Mr. Marks and his spouse, 15,000 shares held by a limited liability company controlled by Mr. Marks, 6,000 shares held in the name of a trust for the benefit of his son and 6,000 shares held in the name of a trust for the benefit of his daughter. Also includes 108,500 shares subject to immediately exercisable options granted to Mr. Marks, but some of the shares subject to those options would, if exercised, be subject to a repurchase right of the Company that lapses over time. Excludes 1,338 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(13)	Includes 29,604 shares held in the name of a trust for the benefit of Mr. Mehrotra and his spouse. Also includes 629,184 shares subject to outstanding options granted to Mr. Mehrotra, which were exercisable on March 1, 2007 or within 60 days after that date. Excludes 56,250 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(14)	Comprised of 50,589 shares held as community property in the name of Dr. Meindl and his spouse and 76,500 shares subject to immediately exercisable options granted to Dr. Meindl, but some of the shares subject to those options are currently unvested and would, if purchased, be subject to a repurchase right of the Company that lapses over time. Excludes 1,338 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(15)	Includes 75,000 shares subject to outstanding options granted to Mr. Thakur, which were exercisable on March 1, 2007 or within 60 days after that date. Excludes 37,500 restricted stock units that will not vest on March 1, 2007 or within 60 days after that date.
(16)	Includes shares subject to options exercisable within 60 days after March 1, 2007, including those identified in notes (4), (5), (7), (8), (9), (10), (11), (12), (13), (14) and (15).

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s Directors, executive officers, and persons who own more than ten percent (10%) of a registered class of the Company’s equity securities, to file initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company with the SEC. Officers, Directors and stockholders holding more than ten percent (10%) of the outstanding capital stock of the Company are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file.

Based upon (i) the copies of Section 16(a) reports which the Company received from such persons for their 2006 fiscal year transactions in the Common Stock and their Common Stock holdings, and (ii) the written representations received from one or more of such persons that no annual Form 5 reports were required to be filed by them for the 2006 fiscal year, the Company believes that all executive officers, stockholders holding more than 10% of the outstanding capital stock of the Company and Board members complied with all their reporting requirements under Section 16(a) for such fiscal year except that a late Form 4 report was filed for Dr. Randhir Thakur on March 13, 2007 reporting a sales transaction that occurred on September 23, 2006.

20

Equity Compensation Information for Plans or Individual Arrangements with Employees and Non-Employees

The following table provides information as of March 1, 2007 with respect to the shares of the Company’s Common Stock that may be issued under the Company’s existing equity compensation plans. Other than as described in footnotes (4) and (6) to the following table, there are no assumed plans under which any options to acquire such shares or other equity-based awards may be granted.

						(C)
						Number of
	(A)					Securities Remaining
	Number of					Available for
	Securities to					Future Issuance
	be Issued			(B)		Under Equity
	Upon Exercise			Weighted Average		Compensation Plans
	of Outstanding			Exercise Price		(Excluding Securities
	Options and			of Outstanding		Reflected in
Plan Category	Rights			Options(1)		Column A)
Equity Compensation Plans Approved by Stockholders(2)		20,857,184	(3)(4)(5)(6)(7)	$	32.59		17,978,767	(8)
Equity Compensation Plans Not Approved by Stockholders		N/A			N/A		N/A
Total		20,857,184		$	32.59		17,978,767

(1)	Weighted average exercise price of outstanding options; excludes restricted stock units.
(2)	Consists solely of the 2005 Incentive Plan (the “2005 Plan”), including options incorporated from predecessor plans, the 2005 Employee Stock Purchase Plan, the 2005 International Employee Stock Purchase Plan (together with the 2005 Employee Stock Purchase Plan, the “Purchase Plans”).
(3)	Excludes purchase rights accruing under the Company’s Purchase Plans, which have a combined stockholder-approved reserve of 10,000,000 shares. Under the Purchase Plans, each eligible employee may purchase up to 1,500 shares of Common Stock at the end of each six-month offering period (the last U.S. business day in January and July each year) at a purchase price per share equal to 85% of the lower of (i) the closing selling price per share of Common Stock on the employee’s entry date into that six-month offering period or (ii) the closing selling price per share on the purchase date.
(4)	Excludes 135,594 shares subject to outstanding options with a weighted average exercise price of $6.92 and a weighted average estimated remaining life of 7.30 years and 65,321 shares subject to outstanding restricted stock units under equity compensation plans or arrangements assumed by the Company in connection with its acquisition of Matrix Semiconductor, Inc., which had originally granted those options and restricted stock units.
(5)	Includes 7,610,266 shares subject to options and 426,400 shares subject to restricted stock units outstanding under the 2005 Plan. Also includes 12,820,518 shares subject to outstanding options under predecessor plans.
(6)	Excludes 4,706,149 shares subject to outstanding options and Stock Appreciation Rights with a weighted average exercise price of $33.76 and a weighted average estimated remaining life of 8.26 years under equity compensation plans or arrangements assumed by the Company in connection with its acquisition of msystems Ltd., which had originally granted those options and Stock Appreciation Rights.
(7)	Weighted average estimated remaining life of the outstanding options is 6.10 years.
(8)	Consists of shares available for future issuance under the 2005 Plan and the Purchase Plans. As of March 1, 2007, 13,390,096 shares of Common Stock were available for issuance under the 2005 Plan and 4,588,671 shares of Common Stock were available for issuance under the combined share reserve for the Purchase Plans.

21

FORM 10-K

The Company filed an Annual Report on Form 10-K with the SEC on February 28, 2007. Stockholders may obtain a copy of this report, without charge, by writing to Investor Relations at the Company’s principal executive offices located at 601 McCarthy Boulevard, Milpitas, California 95035. The Annual Report on Form 10-K is also available on the Company’s website at www.sandisk.com.

AUDIT COMMITTEE REPORT

The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The following is the report of the Audit Committee with respect to the Company’s audited financial statements for the fiscal year ended December 31, 2006 included in the Company’s Annual Report on Form 10-K for that year.

The Audit Committee has reviewed and discussed the audited financial statements with management of the Company.

The Audit Committee has discussed with the Company’s independent registered accounting firm, Ernst & Young LLP, the matters required to be discussed by SAS 61 (“Codification of Statements on Auditing Standards, AU Section 380”), as amended, which include, among other items, matters related to the conduct of the audit of the Company’s financial statements.

The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1 (“Independence Discussions with Audit Committees”), as amended, and has discussed with Ernst & Young LLP the independence of Ernst & Young LLP from the Company.

Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for filing with the Securities and Exchange Commission.

Submitted by the Audit Committee

of the Board of Directors

Catherine P. Lego (Chair)

Irwin Federman

Steven J. Gomo

COMPENSATION DISCUSSION AND ANALYSIS

This section contains a discussion of the material elements of compensation awarded to, earned by or paid to the principal executive and principal financial officers of the Company, our three other most highly compensated individuals who were serving as executive officers as of December 31, 2006, and Nelson Chan, who would have been among our three other most highly compensated individuals but for the fact that he was not serving as an executive officer as of December 31, 2006. These individuals are referred to as the “Named Executive Officers” in this Proxy Statement.

The Company’s current executive compensation programs are determined and approved by the Compensation Committee of the Board. None of the Named Executive Officers is a member of the Compensation Committee. As contemplated by the Charter of the Compensation Committee, the Company’s Chief Executive Officer recommends to the Compensation Committee the base salary, annual bonus and long-term compensation levels for the other

22

Named Executive Officers. Our President and Chief Operating Officer assists the Chief Executive Officer in reviewing performance and formulating recommendations to the Compensation Committee. Our other Named Executive Officers, including our Chief Financial Officer, provide financial and other information to the Compensation Committee to assist in determining appropriate compensation levels. Our other executive officers, including the other Named Executive Officers, do not currently have any role in determining or recommending the form or amount of compensation paid to our Named Executive Officers and our other senior executive officers.

Executive Compensation Program Objectives and Overview

The Company’s current executive compensation programs are intended to achieve three fundamental objectives: (1) attract, retain and motivate qualified executives; (2) hold executives accountable for performance; and (3) align executives’ interests with the interests of our stockholders. In structuring our current executive compensation programs, we are guided by the following basic philosophies:

•  Competition.  The Company should provide competitive compensation opportunities so that we can attract, retain and motivate qualified executives.

•  Alignment with Stockholder Interests.  A substantial portion of compensation should be contingent on the Company’s performance. As an executive officer’s level of responsibility increases, a greater portion of the officer’s total compensation should be dependent on the Company’s performance and stock price appreciation.

•  Pay for Performance.  A substantial portion of compensation should be tied to individual performance.

As described in more detail below, the material elements of our current executive compensation program for Named Executive Officers include a base salary, an annual cash incentive opportunity, a long-term share-based incentive opportunity, 401(k) retirement benefits and severance protection for certain actual or constructive terminations of the Named Executive Officers’ employment.

We believe that each element of our executive compensation program helps us to achieve one or more of our compensation objectives. The table below lists each material element of our executive compensation program and the compensation objective or objectives that it is designed to achieve.

Compensation Element	Compensation Objectives Designed to be Achieved
Base Salary	• Attract, retain and motivate qualified executives
Annual Cash Incentive Opportunity	• Hold executives accountable for performance
	• Align executives’ interests with those of stockholders
	• Attract, retain and motivate qualified executives
Long-Term Share-Based Incentives	• Align executives’ interests with those of stockholders
	• Hold executives accountable for performance
	• Attract, retain and motivate qualified executives
401(k) Retirement Benefits	• Attract, retain and motivate qualified executives
Severance and Other Benefits Upon Termination of Employment	• Attract, retain and motivate qualified executives

As illustrated by the table above, base salaries, 401(k) retirement benefits and severance and other termination benefits are all primarily intended to attract, retain and motivate qualified executives. These are the elements of our current executive compensation program where the value of the benefit in any given year is generally not variable. We believe that in order to attract, retain and motivate top-caliber executives, we need to provide executives with predictable benefit amounts that reward the executive’s continued service. Some of the elements, such as base salaries, are generally paid out on a short-term or current basis. The other elements are generally paid out on a longer-term basis, such as upon retirement or other termination of employment. We believe that this mix of longer-

23

term and short-term elements allows us to achieve our dual goals of attracting and retaining executives (with the longer-term benefits geared toward retention and the short-term awards focused on recruitment).

Our annual cash incentive opportunity is primarily intended to hold Named Executive Officers accountable for performance, although we also believe it aligns Named Executive Officers’ interests with those of our stockholders and helps us attract, retain and motivate executives. Our long-term equity incentives are primarily intended to align Named Executive Officers’ interests with those of our stockholders, although we also believe they help hold executives accountable for performance and help us attract, retain and motivate executives. These are the elements of our current executive compensation program that are designed to reward performance and the creation of stockholder value, and therefore the value of these benefits is dependent on performance. Each Named Executive Officer’s annual bonus opportunity is paid out on an annual short-term basis and is designed to reward performance for that period. Long-term equity incentives are generally paid out or earned on a longer-term basis and are designed to reward performance over one or more years.

The individual compensation elements are intended to create a total compensation package for each Named Executive Officer that we believe achieves our compensation objectives and provides competitive compensation opportunities. From time to time, management has retained Buck Consultants, an independent compensation consulting firm, to review and identify our appropriate peer group companies, and to obtain and evaluate current executive compensation data for these companies. We selected the following companies as our peer group companies in fiscal 2006: Advanced Micro Devices Inc.; Apple Inc.; Applied Materials, Inc.; Broadcom Corp.; Cisco Systems, Inc.; Cypress Semiconductor Corporation; Dell Inc.; Google Inc.; Hewlett-Packard Company; Intel Corporation; Juniper Networks, Inc.; Logitech International SA; Marvell Technology Group Ltd.; NVIDIA Corp.; Palm, Inc.; Seagate Technology; Xilinx, Inc.; Yahoo! Inc.; Plantronics, Inc.; and Creative Labs, Inc. We believe that these peer group companies, which were selected from within and outside the Company’s industry, are comparable in size and growth pattern with the Company and compete with the Company for executive talent. This peer group was expanded to 20 companies compared to the 16 companies used last year. Although the peer group differs from the S&P Semiconductor Company Stock Index, which the Company has selected as the industry index for purposes of the stock performance graph appearing later in this Proxy Statement, we believe these peer group companies provide relevant comparative compensation data for the Company. Consistent with our compensation philosophies described above, our goal is to provide each Named Executive Officer with a current executive compensation program that is competitive in light of the compensation paid to comparable executives at our peer group companies. To that end, we generally target base salaries and long-term incentives at approximately the 50th percentile within our peer group companies. We generally target total cash compensation at approximately the 60th percentile within our peer group companies; however, we have the ability to, and do, exercise discretion to set compensation levels that are above or below these benchmarks. As indicated in the Charter of the Compensation Committee, in determining the appropriate levels of compensation to be paid to Named Executive Officers, we may consider amounts realized from prior compensation.

Current Executive Compensation Program Elements

Base Salaries

None of our Named Executive Officers has an employment agreement or other contractual right to receive a fixed base salary. The Compensation Committee generally reviews the base salaries for each Named Executive Officer in the first quarter of each year. In determining the appropriate fiscal 2006 base salary for our Named Executive Officers, we considered the base salary levels in effect for comparable executives at our peer group companies (based on their published 2005 fiscal year data), the experience and personal performance of the officer and internal comparability considerations. The weight given to each of these factors differed from individual to individual, as the Compensation Committee deemed appropriate. Based on our review in fiscal 2006, we determined that the appropriate base salary for each Named Executive Officer for fiscal 2006 was the amount reported for such officer in column (c) of the Summary Compensation Table — Fiscal 2006 below. In line with our target benchmark, the fiscal 2006 compensation level for Named Executive Officers ranged from the 50th percentile to the 60th percentile of the base salary levels in effect for comparable executives at our peer group companies (based on their published 2005 fiscal year data). In connection with the Company’s overall cost reduction program,

24

the Compensation Committee approved a base salary reduction for Named Executive Officers of 15% (20% for the Chief Executive Officer), effective March 1, 2007.

Annual Cash Incentive Award

None of our Named Executive Officers has an employment agreement or other contractual right to a fixed actual or target bonus for any given year. Historically, the Company utilized a formula to set aside pre-tax net income to fund a discretionary bonus pool. Each executive officer’s participation in that bonus pool was based upon a target bonus, which generally ranged from 75% to 100% of the officer’s base salary. However, actual bonuses paid from the pool were calculated based upon the Company’s achievement of pre-tax net income and revenue growth targets under the Company’s Operating Plan for the fiscal year and upon the officer’s individual performance. The Compensation Committee also retained discretion to recommend an additional discretionary bonus in recognition of special contributions during the fiscal year. Cash bonuses paid to the Company’s executive officers generally were not “performance-based” for purposes of Section 162(m) of the Internal Revenue Code and were therefore subject to the deductibility limitations of Section 162(m), as explained in more detail below under “Section 162(m) Policy.”

In fiscal 2006, the Company amended the 2005 Plan to provide for the grant of cash incentive awards intended to qualify as performance-based under Section 162(m) in lieu of discretionary cash bonuses to Named Executive Officers beginning in fiscal 2006. The Company continued to utilize a bonus formula to fund a bonus pool for fiscal 2006; however, the amount of the pool allocated to Named Executive Officers was determined under the cash incentive awards. The remaining portion of the bonus pool was allocated among other employees in generally the same manner as in years prior to fiscal 2006.

The Named Executive Officers’ cash incentive award for fiscal 2006 contained a target incentive amount, expressed as a percentage of base salary, which was approved by the Compensation Committee upon the recommendation of the Chief Executive Officer. The percentage target bonus for each Named Executive Officer was generally determined by reference to comparable bonus opportunities at our peer group companies, internal comparability with percentage targets of other executives and the executive’s level of responsibility, experience and knowledge. The target incentive amounts generally increase as an executive’s responsibilities increase, reflecting our compensation philosophy that, as an executive officer’s level of responsibility increases, a greater portion of that officer’s total compensation should be dependent on the Company’s performance. For fiscal 2006, Dr. Harari’s target bonus was 100% of base salary, Mr. Mehrotra’s target bonus was 85% of base salary and the remaining Named Executive Officers’ respective target bonuses were 75% of their respective base salaries.

The performance goals for fiscal 2006 under the cash incentive awards were after-tax net income and revenue growth relative to the Company’s Operating Plan (excluding stock compensation and acquisition- related charges), reflecting the Compensation Committee’s belief that net income and revenue growth are the financial metrics that most closely correlate to growth in stockholder value and are straightforward to administer and communicate. In addition to establishing target incentive amounts for Named Executive Officers, the Compensation Committee approved a matrix used to calculate a multiplier of the target incentive amount based on the Company’s achievement of the two performance goals. The multiplier ranged from a minimum of 0% of target for performance below a threshold level to a maximum of 375% of target for exceptional performance. Based on the Company’s achievement of the performance goals in fiscal 2006 and the bonus matrix, the multiplier for fiscal 2006 was 205% of target. Under the terms of the cash incentive awards, the Compensation Committee may exercise discretion to reduce (but not increase) the amount of the bonus otherwise payable to a Named Executive Officer based on the formula described above. For fiscal 2006, the Compensation Committee exercised its discretion to pay bonuses at a rate less than the maximum multiplier provided for under the bonus matrix based on the Company’s 2006 fiscal performance. Specifically, for fiscal 2006, the Compensation Committee approved bonuses at 150% of target (as opposed to 205%) for the Chief Executive Officer, President and Chief Financial Officer, and approved bonuses at 138% of target (as opposed to 205%) for the other Named Executive Officers employed by the Company at fiscal year-end. In exercising this discretion with respect to Named Executive Officers, the Compensation Committee generally considers a variety of factors, including whether a larger portion of the bonus pool should be allocated to other employees, the Named Executive Officer’s position and the Named Executive Officer’s individual performance for the year. No specific weightings were assigned to these factors, and the assessment was more subjective than

25

formulaic. These discretionary adjustments represented the means by which individual performance was factored into the incentive payout amount, consistent with our philosophy that a substantial portion of compensation should be tied to Company and individual performance.

In February 2007, the Compensation Committee reviewed the Company’s performance with respect to after-tax net income and revenue growth, certified the level of performance achieved and approved incentive payouts under the cash incentive awards based on that review. The amount of the payout approved by the Compensation Committee under each Named Executive Officer’s cash incentive awards for fiscal 2006 is presented in column (g) of the Summary Compensation Table — Fiscal 2006 below. The Compensation Committee also approved increases to the fiscal 2007 individual bonus targets for Dr. Harari (from 100% to 125%), Mr. Mehrotra (from 85% to 95%) and Ms. Bruner (from 75% to 85%).

Long-Term Share-Based Incentive Awards

The Company’s policy is that the Named Executive Officers’ long-term compensation should be directly linked to the value provided to our stockholders. Therefore, 100% of the Named Executive Officers’ long-term compensation is currently awarded in the form of share-based instruments that are in or valued by reference to our Common Stock. Prior to fiscal 2006, the Company historically made annual equity incentive grants solely in the form of stock options. Commencing in fiscal 2006, the annual awards were granted in the form of stock options and restricted stock units. The number of shares of the Company’s Common Stock subject to each annual award is intended to create a meaningful opportunity for stock ownership in light of the Named Executive Officer’s current position with the Company, the size of comparable awards to comparable executives at our peer group companies, the individual’s potential for increased responsibility and promotion over the award term, and the individual’s personal performance in recent periods. The Compensation Committee also takes into account the number of unvested equity awards held by the Named Executive Officer in order to maintain an appropriate level of equity incentive for that individual. However, the Compensation Committee does not adhere to any specific guidelines as to the relative equity award holdings of the Company’s Named Executive Officers.

Stock Options.  The Company makes a portion of its long-term incentive awards to Named Executive Officers in the form of stock options with an exercise price that is equal to the fair market value of the Company’s Common Stock on the grant date. Thus, the Named Executive Officers will only realize value on their stock options if our stockholders realize value on their shares. The stock options also function as a retention incentive for our executives as they vest over a four (4) year period following the grant date. In fiscal 2006, the Compensation Committee granted stock options to each of our Named Executive Officers (other than Dr. Thakur who was not eligible for a grant at the time the grants were made). The material terms of these options are described below under “Grants of Plan-Based Awards.”

Restricted Stock Units.  Commencing in fiscal 2006, the Company makes a portion of its long-term incentive grants to Named Executive Officers in the form of restricted stock units. A restricted stock unit represents a contractual right to receive one share of the Company’s Common Stock if the applicable vesting requirements are satisfied. The Company has determined that it is advisable to grant restricted stock units in addition to stock options (and in lieu of larger stock option grants) in order to minimize stock expense to the Company and dilution. The restricted stock units also function as a retention incentive as they vest over four (4) years following the grant date. In fiscal 2006, the Compensation Committee granted restricted stock units to each of our Named Executive Officers (other than Dr. Thakur who was not eligible for a grant at the time the grants were made). The material terms of the unit awards are described below under “Grants of Plan-Based Awards.”

401(k) Retirement Benefits

The Company provides retirement benefits to the Named Executive Officers under the terms of its tax-qualified 401(k) plan. In fiscal 2006, the Company made a discretionary matching contribution on behalf of each participant equal to one-half of the first 6% of compensation contributed to the plan by the participant. These Company contributions function as a retention incentive as they vest ratably over the first four (4) years of service with the Company (as determined under the plan). The Named Executive Officers participate in the plan on

26

substantially the same terms as our other participating employees. The Company does not maintain any deferred compensation, defined benefit or supplemental retirement plans for its Named Executive Officers.

Severance and Other Benefits Upon Termination of Employment or Change in Control

In order to achieve our compensation objective of attracting, retaining and motivating qualified executives, we believe that we need to provide our Named Executive Officers with severance protections that are consistent with the severance protections offered by our peer group companies. For Named Executive Officers, our philosophy is that severance should only be payable upon certain terminations of employment in connection with a change in control of the Company. We believe that the occurrence, or potential occurrence, of a change in control transaction will create uncertainty regarding the continued employment of Named Executive Officers. This uncertainty results from the fact that many change in control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage the Named Executive Officers to remain employed with the Company during an important time when their prospects for continued employment following the transaction are often uncertain, we provide Named Executive Officers (other than Dr. Thakur, who is not a party to a change in control agreement) with severance benefits pursuant to a change in control benefits agreement if their employment is terminated by us without cause or by the executive for good reason within twelve (12) months following a change in control. We believe that a protected period of twelve (12) months following a change in control is in line with the severance protections provided to comparable executives at our peer group companies. We also believe that these Named Executive Officers should receive their change in control severance benefits if their employment is constructively terminated in connection with a change in control. Given that none of the Named Executive Officers has an employment agreement that provides for a fixed position or duties, or for a fixed base salary or actual or target annual bonus, absent some form of constructive termination severance trigger, potential acquirors could constructively terminate a Named Executive Officer’s employment and avoid paying severance. For example, following a change in control, an acquiror could materially demote a Named Executive Officer, reduce significantly his or her salary and/or eliminate his or her annual bonus opportunity to force the Named Executive Officer to terminate his or her own employment and thereby avoid paying severance. Because we believe that constructive terminations in connection with a change in control are conceptually the same as actual terminations, and because we believe that acquirors would otherwise have an incentive to constructively terminate Named Executive Officers to avoid paying severance, the change in control agreements we have entered into with certain of our Named Executive Officers permit the Named Executive Officers to terminate their employment in connection with a change in control for certain “good reasons” that we believe result in the constructive termination of the Named Executive Officers’ employment. In the event the employment of a Named Executive Officer is terminated under the circumstances described above, we believe that providing these Named Executive Officers with a change in control agreement with cash severance benefits based on one (1) times (two (2) times for the Chief Executive Officer) salary and bonus levels is consistent with our peer group companies and provides them with financial security during a period of time when they are likely to be unemployed and seeking new employment.

In the event that a Named Executive Officer becomes entitled to severance under the principles described above, in addition to cash severance benefits, we believe that it is also appropriate to provide Named Executive Officers with other severance protections, such as (1) continued medical insurance coverage for twenty-four (24) months following termination; (2) accelerated vesting of outstanding equity awards (with accelerated options to remain exercisable for twelve (12) months following termination, subject to the maximum term of the option); and (3) executive outplacement benefits for twelve (12) months following termination (including resume assistance, career evaluation and assessment, individual career counseling, financial counseling, access to one or more on-line employment databases, private office and office support). Similar to cash severance benefits, we believe these other severance benefits are consistent with the severance arrangements of our peer group companies and provide the Named Executive Officers with financial and personal security during a period of time when they are likely to be unemployed.

As part of their severance benefits under a change in control agreement, Named Executive Officers are also reimbursed for the full amount of any excise taxes imposed on their severance payments and any other payments under Section 4999 of the Internal Revenue Code. We provide the Named Executive Officers with a “gross-up” for any parachute payment excise taxes that may be imposed because we have determined the appropriate level of

27

severance protections for each Named Executive Officer without factoring in the adverse tax effects on the Named Executive Officers that may result under Section 4999 of the Internal Revenue Code. The excise tax gross-up is intended to make the Named Executive Officers whole for any adverse tax consequences they may become subject to under Section 4999 of the Internal Revenue Code, and to preserve the level of severance protections that we have determined to be appropriate.

We generally do not believe that Named Executive Officers should be entitled to severance benefits merely because a change in control transaction occurs. The payment of severance benefits is generally only triggered by an actual or constructive termination of employment in connection with a change in control. However, we determined that it was advisable to provide for one (1) year of accelerated vesting of equity awards in the event of a change in control pursuant to the change in control agreements. In addition, under the terms of our stock incentive plans, if there is a liquidation, sale of all or substantially all of our assets, or merger or reorganization that results in a change in control of the Company, and such outstanding awards will not be continued or assumed following the transaction, then, like all other employees, Named Executive Officers may receive immediate vesting and/or payout of their outstanding long-term incentive compensation awards. Although this vesting will occur whether or not a Named Executive Officer’s employment terminates, we believe it is appropriate to fully vest share-based awards in these change in control situations because such a transaction may effectively end the Named Executive Officers’ ability to realize any further value with respect to the share-based awards.

Please see the “Potential Payments Upon Termination or Change in Control” section below for a description of the potential payments that may be made to the Named Executive Officers in connection with their termination of employment or a change in control.

Stock Ownership Guidelines

Each Board member and executive officer (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) is required to own the Company’s Common Stock, with a minimum stock ownership requirement, if any, to be determined by the Board from time to time.

Section 162(m) Policy

Section 162(m) of the Internal Revenue Code disallows a tax deduction to publicly-held companies for compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in any year. The limitation applies only to compensation which is not considered to be performance-based, either because it is not tied to the attainment of performance milestones or because it is not paid pursuant to a stockholder-approved plan. The Compensation Committee believes that in establishing the cash and equity incentive compensation programs for the Company’s executive officers, the potential deductibility of the compensation payable under those programs should be only one of a number of relevant factors taken into consideration, and not the sole governing factor. Accordingly, the Compensation Committee may provide one or more executive officers with the opportunity to earn incentive compensation, whether through cash bonus programs tied to the Company’s financial performance or share-based awards in the form of restricted stock or restricted stock units, which may be in excess of the amount deductible by reason of Section 162(m) or other provisions of the Internal Revenue Code. The Compensation Committee believes it is important to maintain incentive compensation at the requisite level to attract and retain the executive officers essential to the Company’s financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.

28

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The Compensation Committee has certain duties and powers as described in its Charter. The Compensation Committee is currently composed of the three (3) Non-Employee Directors named at the end of this report each of whom is independent as defined by the NASDAQ Global Select Market listing standards.

The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this proxy statement. Based upon this review and our discussions, the Compensation Committee has recommended to our Board of Directors that this Compensation Discussion and Analysis section be included in the Company’s 2006 Annual Report on Form 10-K filed with the SEC.

Compensation Committee of the Board of Directors

Irwin Federman (Chair)

Michael E. Marks

Dr. James D. Meindl

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Of the Compensation Committee members whose names appear on the Compensation Committee Report above, Mr. Marks and Dr. Meindl were committee members during all of fiscal 2006. Mr. Federman was appointed to the Compensation Committee, effective May 26, 2006. Mr. Shugart served as a member of the Compensation Committee prior to his resignation from the Company’s Board of Directors on May 25, 2006. No current member of the Compensation Committee is a current or former executive officer or employee of the Company or had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee during the fiscal year ended December 31, 2006.

29

SUMMARY COMPENSATION TABLE — FISCAL 2006

The following table presents information regarding compensation of our Named Executive Officers for services rendered during 2006.

															Change in
															Pension Value
													Non-Equity		and
													Incentive		Nonqualified
							Stock			Option			Plan		Deferred		All Other
			Salary		Bonus		Awards			Awards			Compensation		Compensation		Compensation		Total
Name and Principal Position	Year		($)		($)		($)(2)			($)(2)			($)(3)		Earnings		($)(4)		($)
(a)	(b)		(c)		(d)		(e)			(f)			(g)		(h)		(i)		(j)
Dr. Eli Harari,		2006		800,419		—		949,729			7,012,742			1,200,000		—		6,600		9,969,490
Chief Executive Officer and Chairman of the Board
Judy Bruner,		2006		397,425		—		474,864			2,518,586			451,530		—		—		3,842,405
Executive Vice President, Administration & Chief Financial Officer
Sanjay Mehrotra,		2006		469,623		—		712,296			4,006,202			605,660		—		6,600		5,800,381
President and Chief Operating Officer
Yoram Cedar,		2006		367,414		—		237,432			2,196,894			375,875		—		6,600		3,184,215
Executive Vice President, Mobile Business Unit & Corporate Engineering
Dr. Randhir Thakur,		2006		365,863		—		1,675,023			931,013			375,882		—		—		3,347,781
Executive Vice President, Technology & Worldwide Operations
Nelson Chan,		2006		459,132		—		551,125	(5)		4,246,130	(5)		—		—		706,600		5,962,987
Former Executive Vice President, Consumer Products & Corporate Marketing(1)

(1)	Effective December 8, 2006, Mr. Chan resigned as Executive Vice President of Consumer Products & Corporate Marketing of the Company.
(2)	The amounts reported in columns (e) and (f) above reflect the aggregate dollar amounts recognized for stock awards and option awards, respectively, for financial statement reporting purposes with respect to fiscal 2006 (disregarding any estimate of forfeitures related to service-based vesting conditions). Detailed information about the amount recognized for specific awards is reported in the table under “Outstanding Equity Awards at Fiscal 2006 Year-End” below. For a discussion of the assumptions and methodologies used to calculate the amounts reported in columns (e) and (f), please see the discussion of equity incentive awards granted during fiscal 2006 contained in Note 5 (“Compensation and Benefits”) to the Company’s Consolidated Financial Statements, included as part of the Company’s 2006 Annual Report on Form 10-K filed with the SEC, which note is incorporated herein by reference.
(3)	The amounts reported in column (g) above reflect the aggregate dollar amounts paid to Named Executive Officers under the terms of the fiscal 2006 cash incentive award granted under the 2005 Plan. The payouts were made in March 2007. The material terms of these cash incentive awards are described below under “Description of Plan-Based Awards.” The Named Executive Officers’ annual bonus for fiscal 2005, which was paid in March 2006, is not reported in this table as it related to the Named Executive Officers’ performance during fiscal 2005 and was reported as part of the Named Executive Officers’ compensation for fiscal 2005 in the Proxy Statement for the Company’s 2006 annual meeting.
(4)	Amounts shown in column (i) include matching contributions to the Company’s 401(k) Plan on behalf of certain Named Executive Officers in the amount of $6,600; and, for Mr. Chan, an amount equal to $700,000, which represents the amounts paid to Mr. Chan in fiscal 2006 in connection with the termination of his employment. A more detailed explanation of the nature and amount of payments made or to be made to Mr. Chan in connection with the termination of his employment with the Company is found below under

30

“Potential Payments Upon Termination or Change in Control.” The Company provides Named Executive Officers with certain perquisites and personal benefits not included in this table pursuant to SEC rules.

(5)

The following awards previously granted to Mr. Chan were forfeited in connection with the termination of Mr. Chan’s employment with the Company effective December 8, 2006: (i) of the 250,000 options granted to Mr. Chan on January 16, 2004, 15,626 unvested options were forfeited; (ii) of the 50,000 options granted to Mr. Chan on August 12, 2004, 9,375 unvested options were forfeited; (iii) of the 150,000 options granted to Mr. Chan on January 3, 2005, 46,875 unvested options were forfeited; (iv) of the 80,000 options granted to Mr. Chan on February 16, 2006, 45,000 unvested options were forfeited; and (v) of the 50,000 restricted stock units granted to Mr. Chan on February 16, 2006, 37,500 unvested units were forfeited.

Dr. Harari is the Chairman of the Board of Directors. As an employee-director, Dr. Harari does not receive additional compensation for his services as a director.

Compensation of Named Executive Officers

The Summary Compensation Table — Fiscal 2006 above quantifies the value of the different forms of compensation earned by or awarded to our Named Executive Officers in fiscal 2006. The primary elements of each Named Executive Officer’s total compensation reported in the table are base salary, an annual bonus and long-term equity incentives consisting of stock options and restricted stock units. Named Executive Officers also earned or were paid the other benefits listed in column (i) of the Summary Compensation Table — Fiscal 2006, as further described in footnote (4) to the table.

The Summary Compensation Table — Fiscal 2006 should be read in conjunction with the tables and narrative descriptions that follow. A description of the material terms of each Named Executive Officer’s base salary and annual bonus is provided immediately following this paragraph. The Grants of Plan-Based Awards in Fiscal 2006 table, and the description of the material terms of the stock options and restricted stock units granted in fiscal 2006 that follows it, provides information regarding the long-term equity incentives awarded to Named Executive Officers in fiscal 2006. The Outstanding Equity Awards at Fiscal 2006 Year-End and Option Exercises and Stock Vested in Fiscal 2006 tables provide further information on the Named Executive Officers’ potential realizable value and actual value realized with respect to their equity awards. The discussion of the potential payments due upon a termination of employment or change in control that follows is intended to further explain the potential future payments that are, or may become, payable to our Named Executive Officers under certain circumstances.

Description of Employment Agreements, Salary and Bonus Amounts

As indicated above, none of the Named Executive Officers is employed pursuant to an employment agreement. As a result, their base salary and bonus opportunities are not fixed by contract. Instead, in the first quarter of each fiscal year, the Compensation Committee establishes the base salary level for each of our Named Executive Officers for the year. In making its determination, the Compensation Committee considers the factors discussed above under “Current Executive Compensation Program Elements — Base Salaries.” In fiscal 2006, instead of granting discretionary cash bonuses, the Company granted Named Executive Officers a cash incentive award under the 2005 Plan. In determining the terms of such awards, the Compensation Committee considered the factors discussed above under “Current Executive Compensation Program Elements - Annual Cash Incentive Award.” The material terms of the cash incentive awards granted to each Named Executive Officer in fiscal 2006 are described below under “Description of Plan-Based Awards.”

Consistent with the Company’s philosophy that a substantial portion of compensation should be contingent on the Company’s performance, base salary for Named Executive Officers in fiscal 2006 comprised a relatively low percentage (generally between 8% and 12%) of total compensation. Equity and non-equity incentive compensation for Named Executive Officers in fiscal 2006, the value of which, as described below under “Description of Plan-Based Awards”, is significantly dependent upon on Company performance, comprised a much larger percentage (generally between 88% and 92%) of total compensation. The Company believes this allocation of base salary and incentive compensation in proportion to total compensation is appropriate to balance the Company’s dual goals of aligning the interests of executives and stockholders and providing predictable benefit amounts that reward an executive’s continued service.

31

GRANTS OF PLAN-BASED AWARDS IN FISCAL 2006

The following table presents information regarding the equity and non-equity incentive awards granted to the Named Executive Officers during fiscal 2006 under the Company’s 2005 Plan. The material terms of each grant are described below under “Description of Plan-Based Awards.”

											All Option
									All Stock		Awards:		Exercise		Grant Date
									Awards:		Number of		or Base		Fair Value of
			Estimated Possible Payouts Under						Number of		Securities		Price of		Stock and
			Non-Equity Incentive Plan Awards						Shares of Stock		Underlying		Option		Option
	Grant		Threshold		Target		Maximum		or Units		Options		Awards		Awards
	Date		($)(3)		($)		($)		(#)		(#)		($/Sh)		($)
Name(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)		(i)
Dr. Eli Harari		3/30/06		336,000		800,000		3,000,000		—		—		—		—
		5/25/06		—		—		—		—		150,000		58.84		5,239,740
		5/25/06		—		—		—		100,000		—		—		5,884,000
Judy Bruner		2/16/06		—		—		—		—		80,000		59.04		2,111,944
		3/30/06		126,428		301,019		1,128,822		—		—		—		—
		5/25/06		—		—		—		50,000		—		—		2,942,000
Sanjay Mehrotra		2/16/06		—		—		—		—		100,000		59.04		2,639,930
		3/30/06		169,585		403,773		1,514,149		—		—		—		—
		5/25/06		—		—		—		75,000		—		—		4,413,000
Yoram Cedar		2/16/06		—		—		—		—		20,000		59.04		527,986
		3/30/06		114,534		272,700		1,022,625		—		—		—		—
		5/25/06		—		—		—		25,000		—		—		1,471,000
Dr. Randhir Thakur(1)		3/30/06		114,536		272,705		1,022,642		—		—		—		—
Nelson Chan(2)		2/16/06		—		—		—		—		80,000		59.04		2,111,944
		3/30/06		126,430		301,023		1,128,836		—		—		—		—
		5/25/06		—		—		—		50,000		—		—		2,942,000

(1)	Dr. Thakur did not receive any equity awards under the 2005 Plan during fiscal 2006 because he was not eligible at the time grants were made.
(2)	The non-equity incentive plan award, and a portion of the other stock and option awards, granted to Mr. Chan during fiscal 2006 were forfeited in connection with the termination of his employment with the Company effective December 8, 2006. The amounts and benefits payable to Mr. Chan in connection with his termination of employment are described in more detail below under “Potential Payments Upon Termination or Change in Control.”
(3)	The amount set forth in column (c) represents the minimum amount payable under the Named Executive Officer’s non-equity incentive plan award for a minimum level of performance with respect to the two performance measures subject to the award. If this minimum level of performance with respect to the performance measures had not been achieved, no amount would have been payable under the award.

Description of Plan-Based Awards

During fiscal 2006, each Named Executive Officer (other than Dr. Thakur) was awarded a time-based stock option award and a time-based restricted stock unit award. In addition, each Named Executive Officer was granted a cash incentive award. Each of these awards was granted under, and is subject to the terms of, the 2005 Plan. The plan is administered by the Compensation Committee. The Compensation Committee has authority to interpret the plan provisions and make all required determinations under the plan. This authority includes making required proportionate adjustments to outstanding awards upon the occurrence of certain corporate events such as reorganizations, mergers and stock splits, and making provision to ensure that any tax withholding obligations incurred in respect of awards are satisfied. Awards granted under the plan are generally only transferable to a beneficiary of a Named Executive Officer upon his or her death. However, the Compensation Committee may establish procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable securities laws and, with limited exceptions set forth in the plan document, are not made for value.

Under the terms of the 2005 Plan, if there is a change in control of the Company, each Named Executive Officer’s outstanding share-based awards granted under the plan will generally become fully vested and, in the case

32

of options, exercisable to the extent such outstanding awards are not substituted or assumed in connection with the transaction. Any options that become vested in connection with a change in control generally must be exercised prior to the change in control, or they will be canceled in exchange for the right to receive a cash payment in connection with the change in control transaction. In addition, if there is a change in control of the Company, the Compensation Committee may terminate the performance period applicable to the cash incentive award and pro-rate (based on the number of days during the performance period prior to the transaction) the bonus and performance targets based on year-to-date performance.

Stock Options

Each stock option reported in column (g) of the table above was granted with a per-share exercise price equal to the fair market value of a share of the Company’s Common Stock on the grant date. For these purposes, and in accordance with the terms of the 2005 Plan and the Company’s option grant practices, the fair market value is equal to the closing price of a share of Common Stock on the NASDAQ Global Select Market on the applicable grant date.

Each stock option granted to our Named Executive Officers in fiscal 2006 is subject to a four (4) year vesting schedule, with 25% of the option vesting on February 16, 2007, and the remaining 75% of the option vesting in twelve (12) substantially equal installments on each successive three (3) month anniversary of February 16, 2007. Once vested, each stock option will generally remain exercisable until its normal expiration date. Each of the stock options granted to our Named Executive Officers in fiscal 2006 has a term of seven (7) years. Outstanding options, however, may terminate earlier in connection with a change in control transaction or a termination of the Named Executive Officer’s employment. Subject to any accelerated vesting that may apply, the unvested portion of the stock option will immediately terminate upon a termination of the Named Executive Officer’s employment. The Named Executive Officer will generally have three (3) months to exercise the vested portion of the stock option following a termination of employment. This period is extended to twelve (12) months if the termination is on account of the Named Executive Officer’s death or permanent disability. However, if a Named Executive Officer’s employment is terminated by the Company for “misconduct” (as determined under the plan), outstanding stock options (whether vested or unvested) will immediately terminate.

The stock options granted to Named Executive Officers during fiscal 2006 do not include any dividend or dividend equivalent rights.

Restricted Stock Units

Each restricted stock unit awarded to our Named Executive Officers in fiscal 2006 represents a contractual right to receive one share of the Company’s Common Stock if the time-based vesting requirements described below are satisfied. Restricted stock units are credited to a bookkeeping account established by the Company on behalf of each Named Executive Officer.

Each restricted stock unit award is subject to a four (4) year vesting schedule, with 25% of the restricted stock unit vesting on February 16, 2007, and the remaining 75% of the restricted stock unit vesting in three (3) substantially equal installments on each successive one (1) year anniversary of February 16, 2007. Subject to any accelerated vesting that may apply, upon the termination of a Named Executive Officer’s employment, any then-unvested restricted stock units will generally terminate.

Restricted stock units will generally be paid in an equivalent number of shares of the Company’s Common Stock as they become vested. Named Executive Officers are not entitled to voting or dividend rights with respect to the restricted stock units. Non-Employee Directors are, however, entitled to the following dividend equivalent rights with respect to the restricted stock units. If the Company pays a cash dividend on its Common Stock and the dividend record date occurs after the grant date and before all of the restricted stock units have either been paid or terminated, then the Company will credit the Named Executive Officer’s bookkeeping account with an amount equal to (i) the per-share cash dividend paid by the Company on its Common Stock with respect to the dividend record date, multiplied by (ii) the total number of outstanding and unpaid restricted stock units (including any unvested restricted stock units) as of the dividend record date. These dividend equivalents will be subject to the same vesting, payment and other terms and conditions as the original restricted stock units to which they relate

33

(except that the dividend equivalents may be paid in cash or such other form as the plan administrator may deem appropriate).

Non-Equity Incentive Plan Award

Each non-equity incentive plan award granted to our Named Executive Officers in fiscal 2006 consisted of an annual cash incentive opportunity under the 2005 Plan. The award provided for the payment of a cash bonus based on the Company’s performance for fiscal 2006 in the areas of after-tax net income and revenue growth.

In connection with the award, each Named Executive Officer was awarded a target incentive amount, expressed as a percentage of base salary. The target incentive amounts for the Named Executive Officers were 100% of base salary for Dr. Harari, 85% of base salary for Mr. Mehrotra and 75% of base salary for the remaining Named Executive Officers. In addition to establishing target incentive amounts, the Compensation Committee approved a matrix used to calculate a multiplier of the target amount based on the level of the Company’s achievement of the two performance goals. The multiplier ranged from a minimum of 0% of target for performance below a threshold level, 42% for performance at a threshold level and a maximum of 375% of target for exceptional performance. Based on the Company’s achievement of the performance goals in fiscal 2006 and the bonus matrix, the multiplier for fiscal 2006 was 205% of target. Under the terms of the cash incentive awards, the Compensation Committee may exercise discretion to reduce (but not increase) the amount of the bonus otherwise payable to a Named Executive Officer based on the formula described above. For fiscal 2006, the Compensation Committee exercised its discretion to pay bonuses at a rate less than the maximum multiplier provided for under the bonus matrix based on the Company’s fiscal 2006 performance. Specifically, for fiscal 2006, the Compensation Committee approved bonuses at 150% of target (as opposed to 205%) for the Chief Executive Officer, President and Chief Financial Officer, and approved bonuses at 138% of target (as opposed to 205%) for the other Named Executive Officers employed by the Company at year-end. In determining whether to exercise this discretion, the Compensation Committee considered the factors discussed above under “Current Executive Compensation Program Elements — Annual Cash Incentive Award” in the Compensation Discussion and Analysis section.

In February 2007, the Compensation Committee reviewed the Company’s performance with respect to after-tax net income and revenue growth for fiscal 2006, certified the level of performance achieved and approved incentive payouts under the awards based on its review. The amount of the payout approved by the Compensation Committee under each Named Executive Officer’s incentive award for fiscal 2006 is presented in column (g) of the Summary Compensation Table — Fiscal 2006 above.

34

OUTSTANDING EQUITY AWARDS AT FISCAL 2006 YEAR-END

The following table presents information regarding the outstanding share-based awards held by each Named Executive Officer as of December 31, 2006, including the vesting dates for the portions of these awards that had not vested as of that date. This table also includes the amounts recognized for each of these awards for financial statement reporting purposes for fiscal 2006 as reflected in the Summary Compensation Table — Fiscal 2006 above. For purposes of clarity, awards that were granted prior to December 31, 2006 but that were not outstanding as of December 31, 2006 (for example, because the awards were forfeited, exercised, paid or otherwise settled prior to December 31, 2006) are also included in the table below if a charge was recognized for financial statement reporting purposes for fiscal 2006 with respect to the award. Additional information regarding these awards is presented in the footnotes below and in the table below under “Option Exercises and Stock Vested in Fiscal 2006.”

	Option Awards(1)													Stock Awards(2)
																			Market
	Number of		Number of									Allocable		Number of					Value of		Allocable
	Securities		Securities									Financial		Shares or					Shares or		Financial
	Underlying		Underlying									Charge		Units of					Units of		Charge
	Unexercised		Unexercised			Option						Recognized		Stock That			Stock		Stock That		Recognized
	Options		Options			Exercise		Option		Option		for Fiscal		Have Not			Award		Have Not		for Fiscal
	(#)		(#)			Price		Grant		Expiration		2006		Vested			Grant		Vested		2006
Name	Exercisable		Unexercisable			($)		Date		Date		($)		(#)			Date		($)(3)		($)
(a)	(b)		(c)			(d)		(e)		(f)		(g)		(h)			(i)		(j)		(k)
Dr. Eli Harari		368,000		—			3.125		12/15/98		12/14/08		—		100,000	(12)		5/25/06		4,303,000		949,729
		368,776		—			6.405		1/22/02		1/21/12		27,641
		400,000		—			6.13		6/27/02		6/26/12		222,969
		562,500		37,500	(4)		8.865		1/21/03		1/20/13		985,012
		138,814		187,500	(5)		34.585		1/16/04		1/15/14		3,724,266
		87,500		112,500	(6)		24.18		1/3/05		1/2/15		586,386
		75,000		125,000	(7)		26.09		5/27/05		5/26/12		620,728
		—		150,000	(8)		58.84		5/25/06		5/25/13		845,740
Totals		2,000,590		612,500									7,012,742		100,000					4,303,000		949,729
Judy Bruner		7,000		—			6.215		7/1/02		6/30/12		73,974		50,000	(12)		5/25/06		2,151,500		474,864
		174,250		168,750	(9)		20.12		6/21/04		6/20/14		1,618,436
		54,687		70,313	(6)		24.18		1/3/05		1/2/15		366,491
		—		80,000	(8)		59.04		2/16/06		2/16/13		459,684
Totals		235,937		319,063									2,518,585		50,000					2,151,500		474,864
Sanjay Mehrotra		33,750		—			2.50		8/21/98		8/20/08		—		75,000	(12)		5/25/06		3,227,250		712,296
		120,060		—			3.125		12/15/98		12/14/08		—
		254,748		—			5.41		9/21/01		9/20/11		—
		—		—			6.405		1/22/02		1/21/12		259
		31,250		15,626	(4)		8.865		1/21/03		1/20/13		410,422
		32,500		93,750	(5)		34.585		1/16/04		1/15/14		1,862,133
		14,063		32,813	(10)		21.19		8/12/04		8/11/14		279,204
		37,500		168,750	(6)		24.18		1/3/05		1/2/15		879,579
		—		100,000	(8)		59.04		2/16/06		2/15/13		574,605
Totals		523,871		410,939									4,006,202		75,000					3,227,250		712,296
Yoram Cedar		60,000		—			17.9063		12/14/99		12/13/09		—		25,000	(12)		5/25/06		1,075,750		237,432
		40,000		—			17.1875		12/21/00		12/20/10		—
		20,000		—			10.945		6/20/01		6/19/11		—
		2,500		—			5.41		9/21/01		9/20/11		—
		4,500		—			6.405		1/22/02		1/21/12		777
		15,000		—			6.13		6/27/02		6/26/12		4,342
		43,750		6,250	(4)		8.865		1/21/03		1/20/13		143,508
		28,125		46,876	(5)		34.585		1/16/04		1/15/14		931,066
		28,125		21,875	(10)		21.19		8/12/04		8/11/14		186,136
		65,625		84,375	(6)		24.18		1/3/05		1/2/15		439,790
		25,000		55,000	(11)		44.79		9/23/05		9/22/12		376,354
		—		20,000	(8)		59.04		2/16/06		2/15/13		114,921
Totals		332,625		234,376									2,196,894		25,000					1,075,750		237,432
Dr. Randhir Thakur		62,500		137,500	(11)		44.32		9/23/05		9/22/12		931,013		37,500	(13)		9/23/05		1,613,625		1,675,023
Totals		62,500		137,500									931,013		37,500					1,613,625		1,675,023
Nelson Chan		—		—			6.405		1/22/02		1/21/12		3,941					5/25/06		—		551,125
		—		—			7.555		7/15/02		7/14/12		60,755
		105,000		—			8.865		1/21/03		1/20/13		529,696
		204,374		—			34.585		1/16/04		1/15/14		1,995,727
		40,625		—			21.19		8/12/04		8/11/14		462,517
		103,125		—			24.18		1/3/05		1/2/15		1,131,028
		35,000		—			59.04		2/16/06		2/15/13		62,466
Totals		488,124		—									4,246,130		—					—		551,125

35

(1)	Each stock option grant reported in the table above with a grant date before May 27, 2005 was granted under, and is subject to, the Company’s 1995 Stock Option Plan. Each stock option grant reported in the table above with a grant date on or after May 27, 2005 was granted under, and is subject to, the 2005 Plan. The option expiration date shown in column (f) above is the normal expiration date, and the latest date that the options may be exercised. The options may terminate earlier in certain circumstances described below. For each Named Executive Officer, the unexercisable options shown in column (c) above are also unvested and will generally terminate if the Named Executive Officer’s employment terminates.
	The exercisable options shown in column (b) above, and any unexercisable options shown in column (c) above that subsequently become exercisable, will generally expire earlier than the normal expiration date if the Named Executive Officer’s employment terminates. Unless exercised, exercisable stock options will generally terminate within three months after the date of termination of employment. However, if a Named Executive Officer dies or becomes totally disabled while employed with the Company, or if their employment is terminated by us without cause or by the executive for good reason with twelve (12) months following a change in control, exercisable stock options will generally remain exercisable for 12 months following the Named Executive Officer’s death, disability or termination. In addition, the stock options (whether exercisable or not) will immediately terminate if a Named Executive Officer’s employment is terminated by the Company for “misconduct” (as determined under the plan). The options may become fully vested and may terminate earlier than the normal expiration date if there is a change in control of the Company.
(2)	The stock awards held by our Named Executive Officers are subject to accelerated vesting in connection with certain changes in control of the Company and upon certain terminations of employment in connection with a change in control of the Company, as described in more detail above under “Grants of Plan-Based Awards” and below under “Potential Payments Upon Termination or Change in Control.” Except as otherwise indicated in those sections, unvested stock awards will generally be forfeited if a Named Executive Officer’s employment terminates.
(3)	The market or payout value of stock awards reported in column (j) is computed by multiplying the number of shares or units of stock reported in column (h) by $43.03, the closing market price of our common stock on December 29, 2006, the last trading day of 2006.
(4)	The unvested portions of these option awards were scheduled to vest in full on January 21, 2007.
(5)	The unvested portions of these option awards were scheduled to vest in five (5) substantially equal installments on January 16, 2007 and each successive three (3) month anniversary of January 16, 2007.
(6)	The unvested portions of these option awards were scheduled to vest in nine (9) substantially equal installments on January 3, 2007 and each successive three (3) month anniversary of January 3, 2007.
(7)	The unvested portion of this option award was scheduled to vest in ten (10) substantially equal installments on February 16, 2007 and each successive three (3) month anniversary of February 16, 2007.
(8)	Of the unvested portions of these option awards, 25% of the options were scheduled to vest on February 16, 2007. The remaining 75% of the options are scheduled to vest in twelve (12) substantially equal installments on each successive three (3) month anniversary of February 16, 2007.
(9)	The unvested portion of this option award was scheduled to vest in six (6) substantially equal installments on March 21, 2007 and each successive three (3) month anniversary of March 21, 2007.
(10)	The unvested portions of these option awards were scheduled to vest in seven (7) substantially equal installments on February 12, 2007 and each successive three (3) month anniversary of February 12, 2007.
(11)	The unvested portions of these option awards were scheduled to vest in eleven (11) substantially equal installments on March 23, 2007 and each successive three (3) month anniversary of March 23, 2007.
(12)	The unvested portions of these stock awards were scheduled to vest in four substantially equal installments on February 16, 2007, February 16, 2008, February 16, 2009 and February 16, 2010.
(13)	The unvested portion of this stock award was scheduled to vest in full on September 23, 2007.

36

OPTION EXERCISES AND STOCK VESTED IN FISCAL 2006

The following table presents information regarding the exercise of stock options by Named Executive Officers during fiscal 2006, and on the vesting during fiscal 2006 of stock awards previously granted to the Named Executive Officers.

	Option Awards				Stock Awards
	Number of Shares				Number of Shares
	Acquired on		Value Realized on		Acquired on		Value Realized on
	Exercise		Exercise		Vesting		Vesting
Name	(#)		($)(1)		(#)		($)(1)
(a)	(b)		(c)		(d)		(e)
Dr. Eli Harari		990,612		36,968,935		—		—
Judy Bruner		57,000		2,663,895		—		—
Sanjay Mehrotra		375,000		18,767,478		—		—
Yoram Cedar		24,999		662,349		—		—
Dr. Randhir Thakur		—		—		37,500		2,076,750
Nelson Chan		255,000		12,609,136		12,500		551,125

(1) The dollar amounts shown in column (c) above for option awards are determined by multiplying (i) the number of shares of the Company’s Common Stock to which the exercise of the option related, by (ii) the difference between the per-share closing price of our Common Stock on the date of exercise and the exercise price of the options. The dollar amounts shown in column (e) above for stock awards are determined by multiplying the number of shares or units, as applicable, that vested by the per-share closing price of the Company’s Common Stock on the vesting date.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The following section describes the benefits that may become payable to Named Executive Officers (other than Mr. Chan) in connection with certain terminations of their employment with the Company and/or a change in control of the Company. As prescribed by the SEC’s disclosure rules, in calculating the amount of any potential payments to these Named Executive Officers, we have assumed that the applicable triggering event (i.e., termination of employment or change in control) occurred on December 31, 2006 and that the price per share of the Company’s Common Stock is equal to the closing price per share on December 29, 2006, the last trading day in 2006. For Mr. Chan, the following section describes the benefits that have become payable to him under a separation agreement entered into with the Company in connection with the termination of his employment on December 8, 2006.

In addition to the change in control and termination benefits described below, outstanding share-based awards held by our Named Executive Officers may also be subject to accelerated vesting in connection with certain changes in control of the Company under the terms of our equity incentive plans as noted under “Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal 2006 Year-End” above. For Named Executive Officers other than Dr. Thakur, the estimated value of accelerated vesting under the Company’s equity incentive plans is covered below under the description of these Named Executive Officers’ severance arrangements. Dr. Thakur is not covered under any severance arrangement with the Company. Had a change in control of the Company occurred on December 31, 2006 under circumstances in which the Company’s equity incentive plans provide for accelerated vesting, the Company estimates that the value of accelerating the vesting of Dr. Thakur’s share-based awards would have been approximately $1,613,625.

As described below, if the benefits payable to a Named Executive Officer (other than Mr. Chan and Dr. Thakur) in connection with a change in control of the Company would be subject to the excise tax imposed under Section 280G of the Internal Revenue Code of 1986 (“Section 280G”), the Company will make an additional payment (a “gross-up payment”) to the executive so that the net amount of such payment (after taxes) he or she receives is sufficient to pay the excise tax due. For purposes of calculating the Section 280G excise tax, we have assumed that the Named Executive Officer’s outstanding equity awards would be accelerated and terminated in exchange for a cash payment upon the change in control. Based on this assumption, and as indicated in the chart

37

below, had the Named Executive Officers (other than Mr. Chan and Dr. Thakur) terminated employment under their respective change in control agreements on December 31, 2006, the Company estimates that no gross-up payment would have been payable to the Named Executive Officers. The value of this acceleration of vesting would be higher if the accelerated awards were assumed by the acquiring company rather than terminated upon the transaction; however, the Company estimates that this increase in value would not have been significant enough to trigger a gross-up payment. For purposes other than calculating the Section 280G excise tax, we have calculated the value of any option or stock award that may be accelerated in connection with a change in control of the Company to be the full value of such award (i.e., the full “spread” value for option awards and the full price per share of Common Stock for stock awards).

Change of Control Benefits Agreements with Named Executive Officers Other than Nelson Chan and Dr. Randhir Thakur

As indicated above, the Company has entered into a change of control agreement with each Named Executive Officer other than Mr. Chan and Dr. Thakur. The agreements are substantially identical (except as noted below with respect to Dr. Harari) and provide for certain benefits to be paid to the Named Executive Officer in connection with a change of control and/or termination of employment with the Company under the circumstances described below.

Change of Control Benefits.  Upon a “Change of Control” (as defined in the change in control agreement) of the Company, for purposes of the Named Executive Officer’s vesting in then outstanding and unvested equity awards, the Named Executive Officer will be treated as having completed one (1) additional year of vesting service as of the date of the Change of Control. The remaining unvested portions of the equity awards will continue to vest in accordance with their normal terms, but subject to the Named Executive Officer’s additional year of deemed vesting service. If a Change in Control of the Company had occurred on December 31, 2006, the Company estimates that the value of the one (1) year acceleration of equity awards for each Named Executive Officer with a change in control agreement other than Mr. Chan would have been as follows: Dr. Harari ($5,413,188), Ms. Bruner ($3,704,313), Mr. Mehrotra ($3,797,300) and Mr. Cedar ($1,779,031). The Company estimates that this acceleration of vesting by itself would not trigger excise taxes under Section 280G for any Named Executive Officer.

Severance Benefits — Termination of Employment in Connection with Change in Control.  In the event a Named Executive Officer’s employment is terminated by the Company (or a successor) without “Cause” (and not on account of the Named Executive Officer’s death or disability) or by the Named Executive Officer for “Good Reason” (as those terms are defined in the change in control agreement) within twelve (12) months following a Change of Control of the Company, the Named Executive Officer will be entitled to severance pay that includes: (i) a lump sum cash payment equal to one (1) times (two (2) times for Dr. Harari) the sum of (A) the Named Executive Officer’s annual base salary as of the Change of Control or termination of employment, whichever is greater, plus (B) the Named Executive Officer’s target annual bonus for the year of termination; (ii) for a period of twenty-four (24) months following the termination date, continuation of the same or equivalent life, health, disability, vision, dental and other insurance coverage for the Named Executive Officer and his or her spouse and eligible dependents as the Named Executive Officer was receiving immediately prior to the Change of Control; (iii) accelerated vesting of the Named Executive Officer’s equity awards to the extent outstanding on the termination date and not otherwise vested, with accelerated options to remain exercisable for twelve (12) months following the termination (subject to the maximum term of the option); (iv) for a period of twelve (12) months following the termination, executive-level outplacement benefits (which shall include at least resume assistance, career evaluation and assessment, individual career counseling, financial counseling, access to one or more on-line employment databases, private office and office support); and (v) in the event that the Named Executive Officer’s benefits are subject to the excise tax imposed under Section 280G, a gross-up payment so that the net amount of such payment (after taxes) he or she receives is sufficient to pay the excise tax due.

38

The following table lists the Named Executive Officers (other than Mr. Chan and Dr. Thakur) and the estimated amounts they would have become entitled to under their change of control agreement had their employment with the Company terminated on December 31, 2006 under circumstances described above.

			Estimated Total
	Estimated Total		Value of Health		Estimated Total		Estimated Value of		Estimated Total
	Value of Cash		Coverage		Value of Equity		Outplacement		Value of Excise Tax
	Payment		Continuation		Acceleration		Benefits		‘‘Gross-Up”
Name	($)		($)		($)		($)		($)
(a)	(b)		(c)		(d)		(e)		(f)
Dr. Eli Harari		3,200,000		25,000		11,405,750		50,000		—
Judy Bruner		702,378		37,500		7,342,963		50,000		—
Sanjay Mehrotra		878,800		37,500		8,450,404		50,000		—
Yoram Cedar		636,300		37,500		3,753,368		50,000		—

Separation Agreement with Nelson Chan

The Company and Mr. Chan entered into a separation agreement in connection with the termination of Mr. Chan’s employment with the Company effective December 8, 2006. The separation agreement, which contains a general release of claims in favor of the Company, provides that in connection with his termination of employment, Mr. Chan is entitled to severance pay that includes: (i) a lump sum payment equal to $700,000 (which represents one (1) year of Mr. Chan’s base salary as of the separation date plus his target bonus for 2006); (ii) accelerated vesting of then-unvested stock options that were scheduled to vest on or before December 8, 2007 (with the remaining unvested stock options to be terminated, and such vested stock options to remain exercisable following the separation in accordance with the terms of the applicable equity incentive plan), the value of which the Company estimates at approximately $1,433,957; and (iii) accelerated vesting of then-unvested restricted stock units that were scheduled to vest on or before February 16, 2007 (with the remaining unvested units to be forfeited), the value of which the Company estimates at approximately $551,125.

The separation agreement contains a general release of claims by Mr. Chan and a covenant not to sue and provides that, as a condition to the severance benefits described above, Mr. Chan must comply with the terms of the Proprietary Information and Inventions Agreement he previously entered into with the Company, which contains an assignment of inventions and developments provision and restrictions relating to the use of the Company’s proprietary information. The separation agreement also contains perpetual confidentiality and non-disparagement provisions and a twelve (12) month non-solicitation of employees provision.

39

CERTAIN TRANSACTIONS AND RELATIONSHIPS

Under the Company’s related party transaction policies and procedures, information about transactions involving related persons is assessed by the Audit Committee. Related persons include (i) the Company’s directors, executive officers and nominees to become a director, (ii) any beneficial owner of more than 5% of any class of the Company’s voting securities, (iii) any immediate family members of the foregoing persons, or (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or in which all the related persons, in the aggregate, have a 10% or greater beneficial ownership interest. If the determination were made that a related person has a material interest in any Company transaction (a “related party transaction”), then the Audit Committee would review, approve, ratify or, at its discretion, take other action with respect to the transaction. Any related party transaction would be required to be disclosed in accordance with SEC rules. If the related person at issue is a member of the Audit Committee, or an immediate family member of a member of the Audit Committee, then that member would not participate in those discussions.

In reviewing a proposed related party transaction, the Audit Committee considers all the relevant facts and circumstances of the transaction available to the Audit Committee on a case-by-case basis, including (i) the nature and terms of the transaction, (ii) the relationship with the related person, (iii) whether the terms of the transaction are fair to the Company and on terms at least as favorable as would apply if the other party was not a related person, (iv) whether there are demonstrable business reasons for the Company to enter into the related party transaction, (v) whether the related party transaction would impair the independence of a director, and (vi) whether the related party transaction would present an improper conflict of interest for any director, executive officer or employee of the Company, taking into account the size of the transaction, the overall financial position of the director, executive officer or employee, the direct or indirect nature of the interest of the director, executive officer or employee in the transaction, the ongoing nature of any proposed relationship, and any other factors the Audit Committee deems appropriate.

40

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total stockholder return on the Common Stock with that of the Standard & Poors (“S&P”) 500 Stock Index, a broad market index published by S&P, a selected S&P Semiconductor Company stock index compiled by Morgan Stanley & Co. Incorporated and the Philadelphia Semiconductor Index. The comparison for each of the periods assumes that $100 was invested on January 2, 2002 in the Company’s Common Stock, the stocks included in the S&P 500 Stock Index, the stocks included in the S&P Semiconductor Company Stock Index and the stocks included in the PHLX Semiconductor Sector.

These indices, which reflect formulas for dividend reinvestment and weighting of individual stocks, do not necessarily reflect returns that could be achieved by an individual investor.

COMPARISON OF CUMULATIVE TOTAL RETURN FROM
JANUARY 2, 2002 TO DECEMBER 31, 2006
AMONG SANDISK CORPORATION, S&P 500 STOCK INDEX,
S&P SEMICONDUCTOR COMPANY STOCK INDEX AND
THE PHLX SEMICONDUCTOR SECTOR

Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate this Proxy Statement or future filings made by the Company under those statutes, the Stock Performance Graph and reference to the Audit Committee Charter and independence of the Audit Committee members are not deemed filed with the SEC and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by the Company under those statutes.

41

CERTAIN TRANSACTIONS

The Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate”) authorizes the Company to provide indemnification of the Company’s Directors and officers, and the Company’s Restated Bylaws (the “Bylaws”) require the Company to indemnify its Directors and officers, to the fullest extent permitted by the Delaware General Corporation Law (the “DGCL”). In addition, each of the Company’s current Directors and executive officers has entered into a separate indemnification agreement with the Company. Finally, the Certificate and Bylaws limit the liability of Directors to the Company or its stockholders to the fullest extent permitted by the DGCL.

The Company intends that all future transactions between the Company and its officers, Directors, principal stockholders and their affiliates be approved by the Audit Committee, and be on terms no less favorable to the Company than could be obtained from unaffiliated third parties.

OTHER BUSINESS

The Board of Directors knows of no other business that will be presented for consideration at the Annual Meeting. If other matters are properly brought before the Annual Meeting, however, it is the intention of the persons named in the accompanying proxy to vote the shares represented thereby on such matters in accordance with their best judgment.

BY ORDER OF THE BOARD OF DIRECTORS,

Eli Harari
Chairman of the Board, Director
and Chief Executive Officer

April 10, 2007

42

Proxy – SanDisk Corporation

THIS PROXY IS SOLICITED ON BEHALF OF SANDISK CORPORATION’S BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 24, 2007

Eli Harari and Judy Bruner, or either of them, are hereby appointed as the lawful agents and proxies of the undersigned (with all powers the undersigned would possess if personally present, including full power of substitution and resubstitution) to represent and to vote all shares of Common Stock of SanDisk Corporation (the “Company”) which the undersigned is entitled to vote at the Company’s Annual Meeting of Stockholders to be held on May 24, 2007 at 8:00 a.m., local time, and at any adjournments or postponements thereof, as follows:

The Board of Directors recommends a vote FOR the election of Directors, FOR proposal 2 and AGAINST proposal 3. This proxy will be voted as directed, or, if no direction is indicated, will be voted FOR proposal 1, FOR proposal 2 and AGAINST proposal 3, and, at the discretion of the persons named as proxies, upon such other matters as may properly come before the meeting or any postponement or adjournment thereof. This proxy may be revoked at any time before it is voted.

(Continued and to be voted on reverse side.)

Telephone and Internet Voting Instructions

You can vote by telephone OR Internet! Available 24 hours a day 7 days a week!

Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote
your proxy.

• Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time on a touch tone telephone. There is NO CHARGE to you for the call.

• Follow the simple instructions provided by the recorded message.

• Go to the following web site:

• WWW.COMPUTERSHARE.COM/EXPRESSVOTE

• Enter the information requested on your computer screen and follow the simple instructions.

C0123456789

12345

If you vote by telephone or the Internet, please DO NOT mail back this proxy card. Proxies submitted by telephone or the Internet must be received by 5:30 p.m., Central Daylight Time on May 23, 2007.

THANK YOU FOR VOTING

SanDisk Corporation

MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6

MMMMMMMMMMMM

000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext

C 1234567890 J N T

o Mark this box with an X if you have made changes to your name or address details above.

Annual Meeting Proxy Card

A. Election of Directors       PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.

1. The Board of Directors recommends a vote “FOR” the election of the Nominees listed below.

	For	Withhold		For	Withhold
01 – Dr. Eli	o	o	04 – Eddy W.	o	o
Harari			Hartenstein
02 – Irwin	o	o	05 – Catherine	o	o
Federman			P. Lego
03 – Steven J.	o	o	06 – Michael E.	o	o
Gomo			Marks
			07 – Dr. James	o	o
			D. Meindl

B. Issues

The Board of Directors recommends a vote “FOR” the following proposal.

		For	Against	Abstain
2.	To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 30, 2007.	o	o	o

The Board of Directors recommends a vote “AGAINST” the following proposal.

		For	Against	Abstain
3.	To consider a stockholder proposal regarding performance-vesting shares.	o	o	o

C. Authorized Signatures – Sign Here – This section must be completed for your instructions to be executed.

NOTE: Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy. All joint holders must sign. When signing as attorney, trustee, executor, administrator, guardian or corporate officer, please provide your FULL title.

Signature 1 – Please keep signature within the box

Signature 2 – Please keep signature within the box

Date (mm/dd/yyyy)

MATERIALS ELECTION

o     As of July 1, 2007, SEC rules permit companies to send you a Notice indicating that their proxy materials are available on the Internet and how you can request a mailed copy. Check the box to the left if you want to receive future proxy materials by mail at no cost to you. Even if you do not check the box, you will still have the right to request a free set of proxy materials upon receipt of a Notice.

1 U P X H H H P P P P 0052011