AMD 1997 Annual Report Download - page 22

Communications Group net sales increased primarily due to increased unit
shipments of the Company's telecommunication products. This increase was
partially offset by a decline in the average selling price of network
products.
CPG net sales doubled largely due to sales of AMD-K6 microprocessors, which
became available at the end of the first quarter of 1997. This sales growth
was partially offset by decreased sales of earlier generations of
microprocessors. These earlier generations of product represented most of the
Company's microprocessor sales in 1996. CPG sales growth in 1998 is dependent
on a successful transition to the 0.25 micron process technology in Fab 25 in
order to meet customer microprocessor needs for performance and volume.
Vantis net sales decreased due to declines in the average selling price of
both SPLDs and CPLDs. These decreases were partially offset by increases in
unit shipments of both CPLDs and SPLDs.
REVENUE COMPARISON OF YEARS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995
Memory Group net sales were relatively flat. In 1996, the market for the
Company's Flash memory devices saw increasing competition, resulting in
falling prices which offset the substantial increase in unit shipments.
Communications Group net sales decreased in 1996, primarily due to a decline
in unit shipments of logic products and secondarily due to a decline in the
average selling prices of network products. These decreases were partially
offset by increases in unit shipments of telecommunication products.
The decline in CPG sales was due to increased market acceptance of higher
performance fifth-generation microprocessors from Intel Corporation (Intel),
coupled with the Company's delay in introducing competitive fifth-generation
microprocessors. The Company's fifth-generation microprocessor, the AMD-K5
microprocessor, was introduced relatively late in the life cycle of fifth-
generation products.
Vantis net sales decreased in 1996 due to lower unit shipments. The Company
believes this decrease was caused by decreased market demand in the simple
programmable logic market.
COMPARISON OF EXPENSES, GROSS MARGIN PERCENTAGE AND INTEREST INCOME AND OTHER,
NET
The following is a summary of expenses, gross margin percentage and interest
income and other, net for 1997, 1996 and 1995:
1997 1996 1995
-------- -------- --------
(MILLIONS EXCEPT FOR
GROSS MARGIN PERCENTAGE)
Cost of sales.................................. $ 1,578 $ 1,441 $ 1,417
Gross margin percentage........................ 33% 26% 43%
Research and development....................... $ 468 $ 401 $ 417
Marketing, general and administrative.......... 401 365 413
Interest income and other, net................. 35 59 32
Interest expense............................... 45 15 3
Gross margin percentage in 1997 increased primarily due to increased sales
in microprocessors manufactured in Fab 25, resulting in the 21 percent
increase in sales despite relatively disappointing yields on the AMD-K6
microprocessor. The decline in gross margin in 1996 was primarily due to lower
sales, underutilization of Fab 25, and increased purchases by the Company of
Flash memory devices from its manufacturing joint venture with Fujitsu
Limited, Fujitsu AMD Semiconductor Limited (FASL), at contract prices that
were higher than the costs of similar products manufactured internally. The
Company expects almost all purchases of Flash memory devices in the future
will be from FASL.
Research and development expenses increased in 1997 due to a higher
proportion of research and development activities in the Submicron Development
Center, primarily to support CPG and the Memory Group. The decrease from 1995
to 1996 was due to the commencement of production at Fab 25 in the third
quarter of 1995, when Fab 25 costs transitioned from research and development
to cost of sales.
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Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998