AMD 2003 Annual Report Download - page 50

Table of Contents
quarter of 2000, was severe and prolonged, and future downturns may also be severe and prolonged. Our financial performance has been negatively affected by
these downturns, including the incurrence of substantial losses during the most recent downturn, as a result of:
• the cyclical nature of the supply/demand imbalances in the semiconductor industry;
• a decline in demand for end-user products that incorporate our semiconductors;
• excess inventory levels in the channels of distribution, including our customers;
• excess production capacity; and
• accelerated declines in average selling prices.
If conditions do not continue to improve in the near term in accordance with our expectations, or if these conditions in the semiconductor industry occur in
the future, as they likely will to a lesser or greater degree, our business will be adversely affected.
Fluctuations in the personal computer market may continue to materially adversely affect us. The Computation Products segment of our business is
dependent upon the PC market. Industry-wide fluctuations in the PC marketplace have materially adversely affected us in the past and may materially adversely
affect us in the future. Depending on the growth rate of PCs sold, sales of our microprocessors may not grow and may even decrease. If end user demand for PCs
is below our expectations, we may be adversely affected.
In addition, current trends of consolidation within the personal computer industry, as evidenced by the Hewlett-Packard/Compaq merger, as well as
potential market share increases by customers who exclusively purchase microprocessors from Intel Corporation, such as Dell, Inc., could further materially
adversely affect us.
We plan for significant capital expenditures in 2004, and if we cannot generate the capital required for these capital expenditures and other ongoing
operating expenses through operating cash flow and external financing activities, we may be materially adversely affected. We plan for capital expenditures of
approximately $1.5 billion in 2004. Our ability to fund these expenditures depends on generating sufficient cash flow from operations and the availability of
external financing, including third-party loans and investments for the Fab 36 project and third-party financing for FASL LLC’s expansion plans. Our capital
expenditures for 2004 include approximately $600 million for the Fab 36 project and approximately $160 million for the Fab 30 project. In addition, FASL LLC
expects to spend approximately $583 million in connection with its plans to increase the manufacturing capacity of its wafer fabrication and assembly and test
facilities and for other research and development activities.
During the four-year period commencing on June 30, 2003, we are also obligated to provide FASL LLC with additional funding to finance operational
cash flow needs. 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.
In addition, a significant amount of the costs of the Fab 36 project are denominated in euro. When we initially forecasted our budget for the Fab 36 project,
we modeled certain financial assumptions, including that the foreign exchange rate, over time, would be one euro to one U.S. dollar. Since our initial forecast, the
U.S. dollar has depreciated against the euro. If the U.S. dollar continues to depreciate against the euro, the costs of the Fab 36 project would be higher than we
planned, which could have a material adverse effect on us.
These capital expenditures, together with ongoing operating expenses, will be a substantial drain on our cash flow and will decrease our cash balances. The
timing and amount of our capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for
products, product mix, changes in semiconductor industry conditions and competitive factors. We regularly assess markets for external
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Source: ADVANCED MICRO DEVIC, 10-K, March 09, 2004