AMD 1994 Annual Report Download - page 398

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The company's K86 products will not be re-engineered versions of microprocessors
developed by Intel, and pursuant to the settlement agreement with Intel the
company does not have the right to use Intel microcodes in AMD product
generations following the 486. There can be no assurance that the company will
be able to introduce its K86 products in a timely manner to meet competition,
that these microprocessors will not face severe price competition, or that
superior competitive products will not be introduced. There can be no assurance
that the K86 products will achieve market acceptance or desired operating
results, including but not limited to profitability. Any such failure could
adversely affect the company's future operations.
The company has entered into a number of licenses and cross-licenses
relating to several of the company's products. As is common in the semiconductor
industry, from time to time the company has been notified that it may be
infringing other parties' patents or copyrights. While patent and copyright
owners in such instances often express a willingness to resolve the dispute or
grant a license, no assurance can be given that all necessary licenses will be
honored or obtained on satisfactory terms, nor that the ultimate resolution of
any material dispute concerning the company's present or future products will
not have an adverse impact on the company's future results of operations or
financial condition.
Due to the factors noted above, the company's future operations, financial
condition, and stock price may be subject to volatility. In addition, an actual
or anticipated shortfall in revenue, gross margins, or earnings from securities
analysts' expectations could have an immediate adverse effect on the trading
price of the company's common stock in any given period.
FINANCIAL CONDITION
Cash, cash equivalents, and short-term investments decreased by $110.3
million from 1993 to 1994. This decrease was primarily attributable to
investments in expanding manufacturing capacity both directly through
additional property, plant, and equipment, and indirectly through the FASL
joint venture. The company also paid $34 million in settlement of a
securities class action. The company plans to continue to make significant
capital investments in 1995.
Working capital decreased by $115.1 million from $509.6 million in 1993 to
$394.5 million in 1994. This decrease was primarily due to lower cash, cash
equivalents, and short-term investments resulting from capital acquisitions, and
secondarily due to a liability recorded for the Intel settlement. The payment of
this litigation liability is expected to be made in the first half of 1995.
In 1993, the company commenced construction of its 700,000 square-foot
submicron semiconductor manufacturing complex in Austin, Texas. Known as Fab 25,
the new facility is expected to cost approximately $1.3 billion when fully
equipped. The first phase of construction and initial equipment installation is
expected to cost approximately $700 million through 1995, of which approximately
$400 million was incurred through 1994. Volume production is presently scheduled
to begin in late 1995.
The company and Fujitsu Limited are cooperating in building and operating
an approximately $800 million wafer fabrication facility in Aizu-Wakamatsu,
Japan, through their joint venture (FASL). Each company will contribute equally
toward funding and supporting FASL. AMD is expected to contribute approximately
half of its share of funding in cash and may be required to guarantee third-
party loans made to FASL for the remaining half. However, to the extent debt
cannot be secured by FASL, AMD is required to contribute its portion in cash.
The company is also required under the terms of the joint venture to contribute
approximately one-half of any additional amounts as may be necessary to sustain
FASL's operations. At the end of 1994, the company's total cash investment in
FASL was $142.3 million as compared to $3.2 million at the end of 1993. The
company anticipates that this investment will increase to approximately $162
million by the end of 1995. Volume production is presently scheduled to commence
in the second half of 1995.
The joint venture costs are denominated in yen and therefore are subject to
change due to fluctuations of foreign exchange rates. Therefore, the company
enters into foreign currency options to hedge its firm commitments relating to
the company's FASL investment. The maturities of these currency options are
generally less than six months. As of December 25, 1994, the company held
approximately $13 million (notional amount) in foreign currency options (see
Notes 1, 2, and 3 to the Consolidated Financial Statements).
As of the end of 1994, the company had the following financing
arrangements: unsecured committed bank lines of credit of $250 million,
unutilized; long-term secured equipment lease lines of $110 million, of which
$107 million were utilized; and short-term, unsecured uncommitted bank credit in
the amount of $128 million, of which $32 million was utilized. On January 5,
1995, the company obtained a $150 million four-year term loan from a consortium
of eight commercial banks.
The company's current capital plan and requirements are based on various
product-mix, selling-price and unit-demand assumptions and are, therefore,
Source: ADVANCED MICRO DEVIC, 10-K, March 07, 1995