AMD 1997 Annual Report Download - page 28

with chipsets or in assembled motherboards. The trend has been for PC OEMs to
be increasingly dependent on Intel, less innovative on their own, and more of
a distribution channel for Intel technology. In marketing its microprocessors
to these OEMs and dealers, AMD depends upon companies other than Intel for the
design and manufacture of core-logic chipsets, motherboards, basic
input/output system (BIOS) software and other components. In recent years,
these third-party designers and manufacturers have lost significant market
share to Intel. In addition, these companies are able to produce chipsets,
motherboards, BIOS software and other components to support each new
generation of Intel Corporation's microprocessors only if Intel makes
information about its products available to them in time to address market
opportunities. Delay in the availability of such information makes and will
continue to make it increasingly difficult for them to retain or regain market
share. To compete with Intel in this market in the future, the Company intends
to continue to form closer relationships with third-party designers and
manufacturers of core-logic chipsets, motherboards, BIOS software and other
components. The Company similarly intends to expand its chipset and system
design capabilities, and to offer OEMs licensed system designs incorporating
the Company's processors and companion products. There can be no assurance,
however, that such efforts by the Company will be successful. The Company
expects that, as Intel introduces future generations of microprocessors,
chipsets and motherboards, the design of chipsets, memory and other
semiconductor devices, and higher level board products which support Intel
microprocessors, will become increasingly dependent on the Intel
microprocessor design and may become incompatible with non-Intel processor-
based PC systems.
Intel Corporation's Pentium II is sold only in the form of a "Slot 1"
daughtercard that is not physically or interface protocol compatible with
"Socket 7" motherboards currently used with Intel Pentium and AMD-K6
processors. Thus, Intel is decreasing its support of the Socket 7
infrastructure as it transitions away from its Pentium processors. Because the
AMD-K6 microprocessor is designed to be Socket 7 compatible, and will not work
with motherboards designed for Slot 1 Pentium II processors, the Company
intends to continue to work with third-party designers and manufacturers of
motherboards, chipsets and other products to assure the continued availability
of Socket 7 infrastructure support for the AMD-K6 microprocessor, including
support for enhancements and features the Company plans to add to the
processor. There can be no assurance that Socket 7 infrastructure support for
the AMD-K6 microprocessor will endure over time as Intel moves the market to
its Slot 1 designs. AMD has no plans to develop microprocessors that are bus
interface protocol compatible with the Pentium II processors, because the
Company's patent cross-license agreement with Intel does not extend to AMD
processors that are bus interface protocol compatible with Intel Corporation's
Pentium Pro, Pentium II and subsequent generation processors. Similarly, the
Company's ability to compete with Intel in the market for seventh-generation
and future generation microprocessors will depend not only upon its success in
designing and developing the microprocessors, but also in ensuring either that
the microprocessors can be used in PC platforms designed to support Intel
microprocessors as well as AMD microprocessors or that alternative platforms
are available which are competitive with those used with Intel processors. A
failure for any reason of the designers and producers of motherboards,
chipsets and other system components to support the Company's x86
microprocessor offerings could have a material adverse effect on the Company.
Dependence on Microsoft and Compatibility Certifications. The Company's
ability to innovate beyond the x86 instruction set controlled by Intel depends
on support from Microsoft in its operating systems. There can be no assurance
that Microsoft will provide support in its operating systems for x86
instructions innovated by the Company and designed into its processors but not
used by Intel in its processors. This uncertainty may cause independent
software providers to forego designing their software applications to take
advantage of AMD innovations, which would adversely affect the Company's
ability to market its processors. In addition, AMD has obtained Windows,
Windows 95 and Windows NT certifications from Microsoft and other appropriate
certifications from recognized testing organizations for its K86
microprocessors. A failure to maintain certifications from Microsoft would
prevent the Company from describing and labeling its K86 microprocessors as
Microsoft Windows compatible. This could substantially impair the Company's
ability to market the products and could have a material adverse effect on the
Company.
Fluctuations in PC Market. Since most of the Company's microprocessor
products are used in personal computers and related peripherals, the Company's
future growth is closely tied to the performance of the PC
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Source: ADVANCED MICRO DEVIC, 10-K405, March 03, 1998