AMD 2011 Annual Report Download - page 25

We do not have long-term commitment contracts with some of our third party manufacturing suppliers. We
obtain these manufacturing services on a purchase order basis and these manufacturers are not required to
provide us with any specified minimum quantity of product. Accordingly, we depend on these suppliers to
allocate to us a portion of their manufacturing capacity sufficient to meet our needs, to produce products of
acceptable quality and at acceptable manufacturing yields and to deliver those products to us on a timely basis at
acceptable prices. The manufacturers we use also fabricate wafers and assemble, test and package products for
other companies, including certain of our competitors. They could choose to prioritize capacity for other users,
increase the prices that they charge us on short notice or reduce or eliminate deliveries to us, which could have a
material adverse effect on our business.
Other risks associated with our dependence on third-party manufacturers include limited control over
delivery schedules and quality assurance, lack of capacity in periods of excess demand, misappropriation of our
intellectual property, dependence on several small undercapitalized subcontractors, and limited ability to manage
inventory and parts. Moreover, if any of our third party manufacturing suppliers suffer any damage to facilities,
lose benefits under material agreements, experience power outages, lack sufficient capacity to manufacture our
products, encounter financial difficulties, are unable to secure necessary raw materials from their suppliers, or
suffer any other disruption or reduction in efficiency, we may encounter supply delays or disruptions. If we are
unable to secure sufficient or reliable supplies of products, our ability to meet customer demand may be
adversely affected and this could materially affect our business.
If we transition the production of some of our products to new manufacturers, we may experience delayed
product introductions, lower yields or poorer performance of our products. If we experience problems with
product quality or are unable to secure sufficient capacity from a particular third party manufacturing supplier, or
if we for other reasons cease utilizing one of those suppliers, we may be unable to secure an alternative supply
for any specific product in a short time frame. We could experience significant delays in the shipment of our
products if we are required to find alternative third party manufacturing suppliers, which could have a material
adverse effect on our business.
We rely on GF to manufacture most of our microprocessor products. If GF is not able to satisfy our
manufacturing requirements, our business could be adversely impacted.
The WSA governs the terms by which we purchase products manufactured by GF. Pursuant to the WSA, we
are required to purchase all of our microprocessor unit and APU product requirements from GF with limited
exceptions. If GF is unable to remain competitive using advanced process technologies or is unable to
manufacture our products on a timely basis, at competitive prices, or meet our capacity requirements, our
business could be materially adversely affected.
For example, during the third quarter of 2011, GF experienced yield and other manufacturing difficulties
related to 32nm wafer fabrication, resulting in lower than expected supply of 32nm products to us. Also in the
third quarter, we experienced supply constraints for our 45nm microprocessor products from GF due to
complexities related to the use of common tools across both 32nm and 45nm technology nodes and because we
made the decision to shift volume away from products manufactured using the 45nm technology node in order to
obtain additional 32nm products. Because we were supply constrained with respect to 32nm and 45nm wafers,
our revenues and gross margin in the third quarter of 2011 were adversely impacted. Also, during the fourth
quarter of 2011, we experienced reduced supply of 45nm product from GF because of a manufacturing disruption
that reduced the number of 45nm wafers available for production. If GF is unable to achieve anticipated
manufacturing yields for 45nm or 32nm wafers or future technology nodes, then we may experience supply
shortages for certain products which may have a material adverse impact on our revenue and gross margins and
our ability to effectively manage our business.
In addition, GF relies on ATIC for its funding needs. If ATIC failed to adequately fund GF on a timely
basis, or at all, GF’s ability to manufacture products for us would be materially adversely effected.
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