AMD 1993 Annual Report Download - page 362

1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Net sales of $1,648.3 million for 1993 rose by 9 percent from sales of $1,514.5
million for 1992. This growth was principally related to a sharp increase in
sales of flash memory devices and higher sales in most other product lines
partially offset by a decline in Am386(R) microprocessor sales. AMD's non-X86
business grew approximately 23 percent compared to 1992. Even though volume
shipments did not commence until the second half of 1993, the company achieved
substantial sales of Am486(TM) devices in 1993. However, revenues generated by
Am486 products were insufficient to offset declining sales of Am386 devices.
Net sales in 1992 increased by 23 percent from sales of $1,226.6 million in
1991, primarily due to significant growth in Am386 microprocessor sales. Net
sales for the rest of the product lines were relatively flat, except for
network and telecommunications products, and embedded processors, which rose by
21 percent from 1991 to 1992.
Sales of CMOS products continued to grow in both absolute dollars and as a
percentage of sales from 1991 through 1993. Sales of products manufactured with
CMOS process technology accounted for approximately 76 percent of net sales in
1993, 70 percent in 1992 and 56 percent in 1991. Sales to international
customers were 54 percent in 1993, and 55 percent in 1992 and 1991. The
European market showed strong growth in 1993, while the Asia-Pacific market
decreased slightly as compared to 1992.
Am386 and Am486 microprocessors were AMD's most significant X86 products in
1993. Since its introduction in 1991, the Am386 family has been a major
contributor to AMD revenues. Am386 family sales ramped up to their highest
levels in 1992; however, this product has been on a downward trend through 1993
because of its maturing life cycle. Over the past three years, the Am386 family
has experienced significant price erosion in response to intense competition
and the introduction of more advanced technology. Nevertheless, unit shipments
reached their peak in the first quarter of 1993. Management anticipates Am386
microprocessor revenue will continue on its downward trend in 1994, resulting
from both unit-shipment and average-selling-price declines, since the market
has transitioned to 486 technology as the microprocessor standard.
The company's Am386 and Am486 products have been the subject of litigation
with Intel Corporation (see 1993 Annual Report on Form 10K, Item 3, Legal
Proceedings). An unfavorable decision in the 287, 386 or 486 microcode
litigation could result in a material monetary damages award to Intel and/or
preclude the company from continuing to produce those Am386 and Am486 products
adjudicated to contain any copyrighted Intel microcode. Therefore, such
litigations could have a materially adverse impact on the financial condition
and results of operations of the company.
During 1993, the company's X86 business transitioned from Am386 to Am486
products. The company began shipments of its Am486DX microprocessors during the
second quarter of 1993. Since this time, Am486DX unit shipments have grown
significantly, exceeding 550,000 units, while average selling prices have
remained relatively constant. Management anticipates a further increase in
Am486DX unit shipments in 1994; however, as volume increases, normal price
declines are anticipated due to competitive pressures. The company has
initiated an aggressive manufacturing plan in the Submicron Development Center
(SDC); nevertheless, Am486 product demand is expected to exceed production
capacity during 1994. In February 1994, the company entered into a foundry
agreement with Digital Equipment Corporation (DEC) for AMD's Am486
microprocessor family. The agreement is for two years with an option for
extension at the end of that period. However, both parties have certain rights
to terminate this agreement earlier in the event of adverse developments in the
company's microprocessor-related litigations. Initial shipments of Am486
products from wafers manufactured by DEC are expected to begin in the fourth
quarter of 1994. The company anticipates that shipments of Am486
microprocessors from the foundry will reach an annual run-rate of 2 million
units in the first half of 1995. AMD may enter into additional foundry
arrangements in order to supplement internal capacity based on business
conditions. Regardless of these foundry arrangements, the company's production
capacity is expected to increase in 1995 due to the completion of its 700,000
square-foot submicron semiconductor manufacturing complex in Austin, Texas (Fab
25).
An adverse result in the 287 microcode litigation or the 486 microcode
litigation could preclude the company from shipping its Am486DX products
adjudicated to contain any copyrighted Intel microcode. In that event, the
company's revenues and earnings will be materially adversely impacted until the
company is able to manufacture and introduce new members of its Am486 family in
lieu of the DX that obtain the same level of market acceptance and
profitability currently generated by the Am486DX.
The company is in the process of developing new Am486 products. Development
of such Am486 products is expected to be completed by the end of 1994.
The company is also currently developing its next generation of
microprocessors, referred to as the K series, based on superscalar RISC-type
architecture. Development of these products is expected to be completed in the
fourth quarter of 1994 or early 1995.
In addition to the above-mentioned litigations, the future outlook for AMD's
microprocessor business is highly dependent upon microprocessor market
conditions, which are subject to both demand and price elasticity. Future
Source: ADVANCED MICRO DEVIC, 10-K, March 07, 1994