AMD 1997 Annual Report Download - page 15

support the project in the form of guarantees of bank debt, investment grants
and subsidies and interest subsidies. In March 1997, AMD Saxony entered into a
loan agreement (the Dresden Loan Agreement) with a consortium of banks led by
Dresdner Bank AG. The plan for Dresden has been revised recently to reflect
planned upgrades in wafer production technology as well as the decline in the
deutsche mark relative to the U.S. dollar, which has increased the proportion
of the project to be funded by the Company rather than the Federal Republic of
Germany, the State of Saxony and the consortium of banks.
In connection with the Dresden Loan Agreement, as amended in February 1998,
the Company has agreed to invest in AMD Saxony over the next two years equity
and subordinated loans, and to guarantee a portion of AMD Saxony's obligations
under the Dresden Loan Agreement until Dresden Fab 30 has been completed. In
addition, after completion of Dresden Fab 30, the Company has agreed to make
funds available to AMD Saxony if the subsidiary does not meet its fixed charge
coverage ratio covenant. The Company has agreed to fund certain contingent
obligations, including various obligations to fund project cost overruns, if
any.
The Company commenced construction in the second quarter of 1997 and
completed construction of the building shell for the plant and administration
building at the end of 1997. The planned Dresden Fab 30 costs are denominated
in deutsche marks and, are therefore subject to change due to foreign exchange
rate fluctuations. The Company entered into foreign currency hedging
transactions for Dresden Fab 30 during the first quarter of 1997 and
anticipates entering into additional such foreign currency hedging
transactions in the first quarter of 1998 and in the future.
MARKETING AND SALES
The Company's products are marketed and sold under the AMD trademark. AMD
employs a direct sales force through its principal facilities in Sunnyvale,
California, and field sales offices throughout the United States and abroad
(primarily Europe and Asia Pacific). AMD also sells its products through
third-party distributors and independent representatives in both domestic and
international markets pursuant to nonexclusive agreements. The distributors
also sell products manufactured by the Company's competitors, including those
products for which AMD is an alternate source. One of the Company's
distributors, Arrow Electronics, Inc., accounted for approximately 12 percent
of 1997 net sales. No other distributor or OEM customer accounted for 10
percent or more of net sales in 1997.
Distributors typically maintain an inventory of the Company's products.
Pursuant to the Company's agreements with distributors, in most instances 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 market for the Company's products is generally characterized
by, among other things, severe price competition, The price protection and
return rights AMD offers to its distributors could materially adversely affect
the Company if there is an unexpected significant decline in the price of the
Company's products.
AMD derives a substantial portion of its revenues from its sales
subsidiaries located in Europe and Asia Pacific. AMD subsidiaries have offices
in Australia, Belgium, Brazil, Canada, China, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Singapore, Sweden, Switzerland, Taiwan and the
United Kingdom. (See Note 11 of Notes to Consolidated Financial Statements.)
The international sales force also works with independent sales
representatives and distributors who sell the Company's products worldwide,
including countries where AMD has sales subsidiaries. The Company's
international sales operations entail political and economic risks, including
expropriation, currency controls, exchange rate fluctuations, changes in
freight rates, and changes in rates and exemptions for taxes and tariffs.
RAW MATERIALS
Certain raw materials used by the Company in the manufacture of its products
are available from a limited number of suppliers. For example, several types
of the integrated circuit packages purchased by AMD, as well
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Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998