AMD 1995 Annual Report Download - page 229

MANAGEMENT'S
discussion and analysis
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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strength has enabled it to reduce prices on its microprocessor products within a
short period of time following their introduction, which reduces the margins and
profitability of its competitors who are forced to reduce prices to maintain
competitiveness. The company expects Intel to continue to spend substantial sums
on research and development, on new manufacturing facilities, and to maintain
its dominant position through advertising campaigns designed to engender brand
loyalty to Intel among PC purchasers. As long as Intel remains in this dominant
position, its product introduction schedule and product pricing strategy may
adversely and materially affect AMD's business, operating results, and financial
condition.
The substantial resources which the company has devoted to the development
of the AMD-K5(TM) microprocessor, the first member of the K86 family, in 1995
has impacted the company's efforts to develop successive generation products,
such as those designed to compete with the Pentium Pro and Intel's subsequent
generation products. To the extent that the introduction of each generation of
K86 products is delayed, the company's revenues and profits will be materially
adversely affected.
On January 17, 1996, the company acquired NexGen in a tax-free
reorganization in which NexGen was merged directly into the company. The merger
will be accounted for under the pooling-of-interests method. The shareholders of
NexGen receive eight-tenths (0.8) of a share of the common stock of AMD for each
outstanding share of the common stock of NexGen. The company expects to issue
approximately 33.6 million shares of its common stock to the holders of NexGen
common stock, options, rights to purchase under the employee stock purchase plan
and warrants.
The dilution resulting from the merger could reduce the earnings per share
of common stock unless and until earnings growth or other business benefits
sufficient to offset the effect of the issuance can be achieved. There can be no
assurance that such benefits will be achieved. Achieving the anticipated
benefits of the merger will depend in part upon whether the integration of the
two companies' businesses is accomplished in an efficient and effective manner,
and there can be no assurance that this will occur. The inability of management
to integrate the operations of the two companies successfully could have a
material adverse effect on the business and results of operations of the
company. As commonly occurs with mergers of technology companies, aggressive
competitors may undertake formal initiatives during the integration phase to
attract customers and to recruit key employees through various incentives.
Prior to the merger, NexGen granted limited manufacturing rights regarding
certain of its current and future products, including the Nx586(R) and
Nx686(TM), to IBM and Compaq. The rights of IBM and Compaq to produce NexGen
products for their own use and the rights of IBM to produce limited volumes of
NexGen products for sale to third parties could reduce the potential market for
NexGen products produced by the company, the profit margin achievable with
respect to such products, or both.
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. Based on the trading
history of its stock, the company believes that factors such as quarterly
fluctuations in the company's financial results, announcements of new products
by the company or its competitors, and general conditions in the semiconductor
industry have caused and are likely to continue to cause the market price of AMD
common stock to fluctuate substantially. Technology company stocks in general
have experienced extreme price and volume fluctuations that often have been
unrelated to the operating performance of the companies. This market volatility
may adversely affect the market price of AMD common stock. In addition, an
actual or anticipated shortfall in revenue, gross margin, or earnings from
securities analysts' expectations could have an immediate effect on the trading
price of the company's common stock in any given period.
Am486, MACH, and Nx586 are registered trademarks of AMD.
K86, K86 RISC SUPERSCALAR, AMD-K5, AMD-K6, SLAC and Nx686
are trademarks of AMD.
Microsoft and Windows are registered trademarks of Microsoft Corporation.
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Source: ADVANCED MICRO DEVIC, 10-K405, March 21, 1996