AMD 1997 Annual Report Download - page 29

industry. The Company could be materially and adversely affected by industry-
wide fluctuations in the PC marketplace in the future. For example, economic
conditions in Asia could lead to reduced worldwide demand for PCs and the
Company's processors.
Possible Rights of Others. Prior to its acquisition by AMD, NexGen granted
limited manufacturing rights regarding certain of its current and future
microprocessors, including the Nx586(TM) and Nx686(TM), to other companies.
The Company does not intend to produce any NexGen products. The Company
believes that its AMD-K6 microprocessors 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 microprocessors. If another company were
deemed to have rights to produce the Company's AMD-K6 microprocessors 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.
Flash Memory Products
Importance of Flash Memory Device Business; Increasing Competition. The
market for Flash memory devices continues to experience increased competition
as additional manufacturers introduce competitive products and industry-wide
production capacity increases. The Company expects that the marketplace for
Flash memory devices will continue to be increasingly competitive. A
substantial portion of the Company's revenues is derived from sales of Flash
memory devices, and the Company expects that this will continue to be the case
for the foreseeable future. During 1996 and 1997, the Company experienced
declines in the selling prices of Flash memory devices. There can be no
assurance that the Company will be able to maintain its market share in Flash
memory devices or that price declines may not accelerate as the market
develops and as more competitors emerge. A decline in the Company's Flash
memory device business or declines in the gross margin percentage in this
business could have a material adverse effect on the Company.
Manufacturing
Capacity. The Company's manufacturing facilities have been underutilized
from time to time as a result of reduced demand for certain of the Company's
products. The Company's operations related to microprocessors have been
particularly affected by this situation. Any future underutilization of the
Company's manufacturing facilities could have a material adverse effect on the
Company. The Company is increasing its manufacturing capacity by making
significant capital investments in Fab 25 and in Dresden Fab 30. In addition,
the building construction of FASL II, a second Flash memory device
manufacturing facility, is complete and equipment installation is in progress.
The Company is also building a new test and assembly facility in Suzhou,
China. There can be no assurance that the industry projections for future
growth upon which the Company is basing its strategy of increasing its
manufacturing capacity will prove to be accurate. If demand for the Company's
products does not increase, underutilization of the Company's manufacturing
facilities will likely occur and could have a material adverse effect on the
Company.
In contrast to the above, there also have been situations in the past in
which the Company's manufacturing facilities were inadequate to enable the
Company to meet demand for certain of its products. In addition to having its
own fabrication facilities, AMD has foundry arrangements for the production of
its products by third parties. Any inability of AMD to generate sufficient
manufacturing capacities to meet demand, either in its own facilities or
through foundry or similar arrangements with others, could have a material
adverse effect on the Company.
Process Technology. Manufacturers of integrated circuits constantly seek to
improve the process technologies used to manufacture their products. In order
to remain competitive, the Company must make continuing substantial
investments in improving its process technologies. In particular, the Company
has made and continues to make significant research and development
investments in the technologies and equipment used to fabricate its
microprocessor products and its Flash memory devices. Portions of these
investments might not be recoverable if the Company fails to successfully ramp
production in Fab 25 to 0.25 micron process technology, if the Company's
microprocessors fail to continue to gain market acceptance or if the market
for its
25
Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998