AMD 1996 Annual Report Download - page 217

transitional product, and will not result in the levels of revenue that the
Company realized from the Am486 microprocessor. The Company's AMD-K5 products
have not, to date, achieved substantial market acceptance, which has had and
continues to have a material adverse effect on the Company. The Company intends
to begin volume shipments of its sixth-generation microprocessor, the AMD-K6
processor, in the second quarter of 1997, although no assurance can be made that
such shipments will occur. The Company's production and sales plans for K86
microprocessors are subject to numerous risks and uncertainties, including the
introduction and volume production of higher performance AMD-K5 products and of
AMD-K6 products, the possibility that volume shipments of the AMD-K6 may be
delayed due to the time required to verify operating systems and application
software compatibility, the development of market acceptance for the AMD-K5 and
the AMD-K6 products particularly with leading PC OEMs, the effects of marketing
and pricing strategies adopted by Intel, the possible adverse effects of
existing and future customer inventory levels, the pace at which the Company is
able to ramp production of fifth- and sixth-generation microprocessors in Fab
25, the possibility that products newly introduced by the Company may be found
to be defective, possible adverse conditions in the personal computer market and
unexpected interruptions in the Company's manufacturing operations. A failure of
the Company's K86 products, particularly the AMD-K6 processor, 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(R) Windows(R) compatible microprocessor, the
AMD-K7 processor.
Dependence on Market Acceptance of x86 Standard and Dominance of Windows.
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Customer acceptance of the Company's K86 products will depend upon the continued
demand for x86-based personal computers, including the continued development of
application software programs for such computers. There can be no assurance of
the continued acceptance of the x86 standard or that software developers will
continue to develop software compatible with this standard. The Company's K86
products will face competition not only from x86 products manufactured by Intel
and others but also from products based upon an increasing number of different
architectures which have been developed or are under development by IBM,
Motorola, Silicon Graphics, Sun Microsystems, Digital Equipment Corporation and
other manufacturers of integrated circuits. Several of these manufacturers, such
as Motorola, Digital Equipment Corporation, Silicon Graphics and Sun
Microsystems, produce microprocessors which are designed to be compatible with
such operating systems as Windows NT(R) and UNIX but not with Windows
or Windows 95. Currently, as a result of the dominance of the Windows operating
system, which operates with x86-based PCs, AMD is able to market its
microprocessors without significant competition from these manufacturers. AMD
would lose much of this advantage if the Microsoft Windows operating system
should be displaced as the dominant operating system software by one or more
other systems, such as Windows NT or UNIX. A reduction in the market acceptance
of either the x86 standard or the Windows operating system could have a material
adverse effect on the Company.
Compatibility Certifications. For its future generations of K86 microprocessors,
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AMD intends to obtain Windows, Windows 95 and Windows NT certifications from
Microsoft and other appropriate certifications from recognized testing
organizations. A failure to obtain certifications from Microsoft would prevent
the Company from describing and labeling its K86 microprocessors as Microsoft
Windows compatible. This could substantially impair the Company's ability to
market the products and could have a material adverse effect on the Company.
Fluctuation in PC Market. Since most of the Company's microprocessor products
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are used in personal computers and related peripherals, the Company's future
growth is closely tied to the performance of the PC industry. The Company could
be materially and adversely affected by industry-wide fluctuations in the PC
marketplace in the future.
Possible Rights of Others. Prior to its acquisition by AMD, NexGen granted
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limited manufacturing rights regarding certain of its current and future
microprocessors, including the Nx586 and Nx686(TM), to other companies. The
Company does not intend to produce any NexGen products. The Company believes
that its forthcoming AMD-K6 processors are AMD products and not NexGen products.
There can be no assurance that another company will not seek to establish rights
with respect to the processors. If another company were deemed to have rights to
produce the Company's AMD-K6 processors for its own use or for sale to third
parties, such production could reduce the potential market for microprocessor
products produced by AMD, the profit margin achievable with respect to such
products, or both.
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Source: ADVANCED MICRO DEVIC, 10-K, March 20, 1997