AMD 1996 Annual Report Download - page 12

COMPUTATION PRODUCTS GROUP
CPG products ($341 million, or 17%, of 1996 net sales) include
microprocessors and the majority of CPG's net sales are derived from Microsoft
Windows compatible microprocessors which are used primarily in personal
computers.
The Company currently participates in the microprocessor market through its
fourth- and fifth-generation Microsoft Windows compatible microprocessors. In
1994 and 1995, the Company's most significant microprocessor product was the
Am486 microprocessor, a fourth-generation CISC x86 microprocessor. In 1996,
Am486 microprocessor sales decreased significantly due to average selling
price and unit volume declines. Accordingly, Am486 microprocessor revenues in
1996 were significantly below those of 1995 as the product life cycle of the
fourth-generation x86 products aged. The Company's fifth- and future
generations of microprocessor products, known as the K86 microprocessors, are
based on Superscalar RISC architecture. The K86 products are designed to be
compatible with operating system software such as Windows, UNIX, DOS and
Windows NT. In the first quarter of 1996, the Company began shipping the AMD-
K5PR75/1/ microprocessor, the first member of the K86 family, and during the
third quarter of 1996, the Company began shipping the AMD-K5PR100. The AMD-K5
is a fifth-generation, superscalar device that has been certified by Microsoft
as being fully compatible with its operating system. The Company introduced
PR133 and PR150 versions of its AMD-K5 microprocessor in the fourth quarter of
1996, and the PR166 version in January of 1997. The AMD-K5 microprocessor was
introduced relatively late in the life cycle of fifth-generation
microprocessor products and will not result in the levels of revenue for the
Company realized from the Am486 microprocessor.
The Company's ability to maintain or expand its current levels of revenues
from microprocessor products, and its ability to benefit fully from the
substantial financial commitments it has made to process technologies and
integrated circuit manufacturing facilities dedicated to the production of
microprocessors, depends primarily upon its success in developing and
marketing in a timely manner its sixth-generation microprocessor products, the
AMD-K6 processors. The AMD-K6 microprocessor has been designed as a
superscalar device to be competitive in performance to Intel Corporation's
forthcoming single chip version of its sixth-generation microprocessor, the
Pentium Pro, which is being designed by Intel specifically for desktop PCs and
is expected to be introduced in 1997. The Company intends to begin volume
shipments of the AMD-K6 products in the second quarter of 1997, although no
assurance can be given that such products will be successfully or timely
developed or that subsequent product orders or related shipments will occur. A
failure of the Company's K86 products, particularly the AMD-K6, to be timely
introduced or to achieve market acceptance, would have a material adverse
effect on the Company. AMD is also devoting substantial resources to the
development of its seventh-generation Microsoft Windows compatible
microprocessor, the AMD-K7 processor.
Intel has long held a dominant position in the market for microprocessors
used in PCs. Intel Corporation's dominant market position has allowed it to
set x86 microprocessor standards and thus dictate the type of product the
market requires of Intel Corporation's competitors. In addition, Intel
Corporation's financial strength has enabled it to reduce prices on its
microprocessor products within a short period of time following their
introduction, which reduces the margins and profitability of its competitors.
In addition to its dominant microprocessor market share, Intel also dominates
the PC platform. The Company does not have the financial resources to compete
with Intel on such a large scale.
As Intel has expanded its dominance in designing and setting standards for
PC systems, many PC original equipment manufacturers (OEMs) have reduced their
system development expenditures and have begun to purchase microprocessors in
conjunction with chip sets or in assembled motherboards. In marketing its
microprocessors to these OEMs and dealers, AMD is dependent upon companies
other than Intel for the design
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/1"PR"/refers to the performance rating assigned to the microprocessors by AMD
based upon tests conducted employing the Ziff-Davis Winstone 96 benchmark,
which compares the systems performance provided by a microprocessor to the
systems performance provided by Pentium processors of various clock speeds.
A performance rating of 166, for example, indicates that the microprocessor
has been determined to deliver systems performance equal to or greater than
that provided by a 166 Megahertz Pentium.
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Source: ADVANCED MICRO DEVIC, 10-K, March 20, 1997