AMD 1997 Annual Report Download - page 79

ADVANCED MICRO DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
substantial financial investments and commitments it has made and continues to
make related to microprocessors, depends upon the success of the AMD-K6
microprocessor in 1998, future generations of K86 microprocessors in 1999 and
beyond and future generations of Flash memory devices.
Markets. The markets for the Company's products are characterized by rapid
technological developments, evolving industry standards, changes in customer
requirements, frequent new product introductions and enhancements, short
product life cycles and severe price competition. The market for
microprocessors is primarily dependent upon the market for PCs, and the market
for Flash memory devices is primarily dependent upon the market for
communications devices. From time to time, the PC industry has experienced
significant downturns, often in connection with, or in anticipation of,
declines in general economic conditions. These downturns have been
characterized by diminished product demand, production overcapacity and
resultant accelerated erosion of average selling prices. The Company's
business could be materially and adversely affected by industry-wide
fluctuations in the PC marketplace in the future.
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.
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 Flash memory products should significantly deteriorate. This could
have a material adverse effect on the Company. There can be no assurance that
the Company will be able to commit Fab 25 production to a qualified 0.25
micron process technology in order to fabricate product in sufficient volume
to generate revenue necessary to offset investments in Fab 25 and meet the
anticipated needs and demands of its customers.
Manufacturing Interruptions and Yields. Any substantial interruption with
respect to any of the Company's manufacturing operations, either as a result
of a labor dispute, equipment failure or other cause, could have a material
adverse effect on the Company. For example, the Company's recent results have
been negatively affected by disappointing AMD-K6 microprocessor yields. The
Company may in the future be materially adversely affected by fluctuations in
manufacturing yields. The manufacture of integrated circuits is a complex
process. Normal manufacturing risks include errors and interruptions in the
fabrication process and defects in raw materials, as well as other risks, all
of which can affect yields. Additional manufacturing risks incurred in ramping
up new fabrication areas and/or new manufacturing processes include errors and
interruptions in the fabrication process, equipment performance, process
controls as well as other risks, all of which can affect yields.
F-14
Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998