AMD 1997 Annual Report Download - page 27

Company will achieve the production ramp necessary to meet customer needs for
higher performance AMD-K6 microprocessors in the volumes customers require, or
that the Company will increase revenues sufficient to achieve profitability in
the microprocessor business. The failure to convert Fab 25 to 0.25 micron
process technology on a timely basis could adversely affect unit production
yields and volumes, result in the failure to meet customer demands, cause
customers to cease purchasing AMD-K6 microprocessors, and could impact the
viability of the Company's microprocessor business, any of which would have a
material adverse effect on the Company.
The Company's production and sales plans for the AMD-K6 microprocessors are
subject to other risks and uncertainties, including: whether the Company can
successfully fabricate higher performance AMD-K6 processors in planned volume
mixes; whether it can significantly improve production yields on wafers still
being processed on 0.35 micron process technology; the effects of Intel new
product introductions, marketing strategies and pricing; the continued
development of worldwide market acceptance for the AMD-K6 processor and
systems based on it; whether the Company will have the financial and other
resources necessary to continue to invest in the microprocessor business,
including leading-edge wafer fabrication equipment and advanced process
technologies; the possibility that products newly introduced by the Company
may be found to be defective; possible adverse market conditions in the
personal computer market and consequent diminished demand for the Company's
processors; and unexpected interruptions in the Company's manufacturing
operations.
In view of Intel Corporation's industry dominance and brand strength, AMD
prices the AMD-K6 microprocessor at least 25 percent below the published price
of Intel processors offering comparable performance. Thus, Intel Corporation's
decisions on processor prices can impact and has impacted the average selling
prices of the AMD-K6 microprocessors, and consequently can impact and has
impacted the Company's margins. A failure to significantly improve production
yields and volumes, achieve the production ramp and product performance
improvements necessary to meet customer needs, continue to achieve market
acceptance of the Company's AMD-K6 microprocessors and increase market share,
or to increase AMD-K6 revenues substantially 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 success of
the AMD-K7 and future generation microprocessors depends greatly on the
Company achieving success and increasing market share with the AMD-K6
processor. See also discussions below regarding Intel Dominance and Process
Technology.
Intel Dominance. Intel has long held a dominant position in the market for
microprocessors used in personal computers. Intel Corporation's dominant
market position enables it to set and control 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 and dominant
position enable it to vary prices on its microprocessors at will and thereby
affect the margins and profitability of its competitors. Intel Corporation's
strength also enables it to exert substantial influence and control over PC
manufacturers through the Intel Inside advertising rebate program and to
invest hundreds of millions of dollars in, and as a result exert influence
over, many other technology companies. The Company expects Intel to continue
to invest heavily in research and development, new manufacturing facilities,
other technology companies and to maintain its dominant position through the
Intel Inside program, through other contractual constraints on customers,
industry suppliers and other third parties, and by controlling industry
standards. As an extension of its dominant microprocessor market share, Intel
also now dominates the PC platform, which has made it difficult for PC
manufacturers to innovate and differentiate their product offerings. The
Company does not have the financial resources to compete with Intel on such a
large scale. As long as Intel remains in this dominant position, its product
introduction schedule, product pricing strategy, customer brand loyalty and
control over industry standards, PC manufacturers and other PC industry
participants, may have a material adverse effect on the Company.
As Intel has expanded its dominance over the entirety of the PC system
platform, many PC manufacturers have reduced their system development
expenditures and have begun to purchase microprocessors in conjunction
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Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998