AMD 2003 Annual Report Download - page 46

Table of Contents
$2.5 billion, of which approximately $600 million will occur in 2004. In connection with the Fab 36 project, we expect to obtain external financing of
approximately $870 million in the form of loans from a consortium of banks, and up to approximately $675 million in grants and allowances from the Federal
Republic of Germany and the State of Saxony. We also expect to obtain financing of approximately $398 million from the State of Saxony, through an
investment entity, and a group of European investors led by the project engineer and general contractor, M+W Zander. We will provide the balance of the
funding to construct and facilitize Fab 36. In addition, upon the execution of final documentation, which we expect will occur in the first half of 2004, we will be
required to guarantee 100 percent of the obligations of AMD Fab 36 under the loan agreements with the banks and to fund any shortfalls in government grants
and allowances. As of December 28, 2003, we have invested approximately $25 million in exchange for our equity interest in AMD Fab 36.
FASL LLC. During the four-year period commencing on June 30, 2003, we are obligated to provide FASL LLC with additional funding to finance
operations shortfalls, if any. Generally, FASL LLC is first required to seek any required financing from external sources. However, if such third-party financing
is not available, we must provide funding to FASL LLC equal to our pro-rata ownership interest in FASL LLC, which is currently 60 percent. At this time, we
believe that FASL LLC would be able to obtain such external financing when needed. However, there is no assurance that this will happen and currently we
cannot estimate the amount of such additional funding, if any, that we are required to provide during this four-year period.
Outlook
In general, as we look ahead to 2004, we are encouraged by a recovering economy and positive projections for the semiconductor industry. During 2004
we expect to take advantage of additional cost efficiencies from our FASL LLC integration and from FASL LLC’s conversion to 110-nanometer manufacturing
process technology on certain of its products and our conversion to 90-nanometer manufacturing process technology for our microprocessor products. During the
first quarter of 2004, for our Computation Products segment, we expect net sales to decline slightly in accordance with industry seasonal patterns. For our
Memory Products segment, notwithstanding typical seasonal patterns, we expect net sales to be approximately flat for the quarter due to our position in the
market and improving average selling prices, which we expect will be driven by increased average bit densities in the products sold and increased shipments of
products based on MirrorBit technology. In the aggregate, we believe seasonal patterns will prevail and aggregate net sales will decline slightly in the first
quarter of 2004.
We expect our capital investments in 2004 to increase in comparison with 2003. We plan to make capital investments of approximately $1.5 billion during
2004, including Fab 36 construction and some equipment purchases, equipment purchases for FASL LLC’s wafer fabrication and assembly and test facilities and
to complete the transition to 90-nanometer manufacturing process technology at Fab 30. We expect depreciation and amortization expense to be approximately
$1.2 billion for 2004.
We believe that we will be profitable for fiscal 2004 and that gross margins will improve in comparison to 2003. However, economic and industry
conditions remain uncertain and continue to make it particularly difficult to forecast product demand. If economic conditions do not continue to improve in the
near term in accordance with our expectations, or if the semiconductor industry experiences a significant downturn, our revenues and profitability will be
adversely affected.
We believe that cash flows from operations and current cash balances, together with external financing will be sufficient to fund operations and capital
investments in the short term. Should additional funding be required such as to meet payment obligations of our long term debts when due, or to finance the
construction and facilitization of Fab 36, we may need to raise the required funds through borrowings or public or private sales of debt or equity securities. Such
funding may be obtained through bank borrowings or from the issuance of additional debt or equity securities, which may be issued from time to time under an
effective registration
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Source: ADVANCED MICRO DEVIC, 10-K, March 09, 2004