AMD 1996 Annual Report Download - page 220

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Competition. The IC industry is intensely competitive and, historically, has
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experienced rapid technological advances in product and system technologies
together with substantial price reductions in maturing products. After a product
is introduced, prices normally decrease over time as production efficiency and
competition increase, and as a successive generation of products is developed
and introduced for sale. Technological advances in the industry result in
frequent product introductions, regular price reductions, short product life
cycles and increased product performance. Competition in the sale of ICs is
based on performance, product quality and reliability, price, compatibility with
industry standards, software and hardware compatibility, marketing and
distribution capability, brand recognition, financial strength and ability to
deliver in large volumes on a timely basis.
Fluctuations in Operating Results. The Company's operating results are subject
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to substantial quarterly and annual fluctuations due to a variety of factors,
including the effects of competition with Intel in the microprocessor industry,
competitive pricing pressures, anticipated decreases in unit average selling
prices of the Company's products, production capacity levels and fluctuations in
manufacturing yields, availability and cost of products from the Company's
suppliers, the gain or loss of significant customers, new product introductions
by AMD or its competitors, changes in the mix of products sold and in the mix of
sales by distribution channels, market acceptance of new or enhanced versions of
the Company's products, seasonal customer demand, the timing of significant
orders and the timing and extent of product development costs. In addition,
operating results could be adversely affected by general economic and other
conditions causing a downturn in the market for semiconductor devices, or
otherwise affecting the timing of customer orders or causing order cancellations
or rescheduling. The Company's customers may change delivery schedules or cancel
orders without significant penalty. Many of the factors listed above are
outside of the Company's control. These factors are difficult to forecast, and
these or other factors could materially adversely affect the Company's quarterly
or annual operating results.
Order Revision and Cancellation Policies. AMD manufactures and markets standard
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lines of products. Sales are made primarily pursuant to purchase orders for
current delivery, or agreements covering purchases over a period of time, which
are frequently subject to revision and cancellation without penalty. As a
result, AMD must commit resources to the production of products without having
received advance purchase commitments from customers. Any inability to sell
products to which it had devoted significant resources could have a material
adverse effect on the Company. Distributors typically maintain an inventory of
the Company's products. Pursuant to the Company's agreements with distributors,
AMD protects its distributors' inventory of the Company's products against price
reductions as well as products that are slow moving or have been discontinued.
These agreements, which may be canceled by either party on a specified notice,
generally contain a provision for the return of the Company's products in the
event the agreement with the distributor is terminated. The price protection and
return rights AMD offers to its distributors may materially adversely affect the
Company.
Key Personnel. The Company's future success depends upon the continued service
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of numerous key engineering, manufacturing, sales and executive personnel. There
can be no assurance that AMD will be able to continue to attract and retain
qualified personnel necessary for the development and manufacture of its
products. Loss of the service of, or failure to recruit, key engineering design
personnel could be significantly detrimental to the Company's product
development programs or otherwise have a material adverse effect on the Company.
Product Defects. One or more of the Company's products may possibly be found to
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be defective after AMD has already shipped such products in volume, requiring a
product replacement, recall, or a software fix which would cure such defect but
impede performance. Product returns could impose substantial costs on AMD and
have a material adverse effect on the Company.
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Source: ADVANCED MICRO DEVIC, 10-K, March 20, 1997