AMD 1998 Annual Report Download - page 16

We completed construction of the plant and administration building for
Dresden Fab 30 at the end of 1997. In 1998, we installed equipment in the
building and began testing. The planned Dresden Fab 30 costs are denominated
in deutsche marks and are, therefore, subject to change based on applicable
conversion rates. We entered into foreign currency hedging transactions for
Dresden Fab 30 in 1997 and 1998 and anticipate entering into additional such
foreign currency hedging transactions in the first quarter of 1999 and in the
future.
Motorola. In 1998, we entered into an alliance with Motorola for the
development of Flash memory and logic technology. The alliance includes a
seven-year technology development and license agreement and a patent cross-
license agreement. The agreements provide that we will co-develop with
Motorola future generation logic process and embedded Flash technologies. The
licenses to each generation of technology vary in scope relative to the
contributions to technology development made by both companies. Subject to
certain conditions, the companies will share:
. ownership to jointly developed technology and any intellectual property
rights relating to such technology;
. development costs for mutually agreed upon facilities, tasks and
technologies; and
. foundry support.
In addition, we will gain access to Motorola's semiconductor logic process
technology, including copper interconnect technology. In exchange, we will
develop and license to Motorola a Flash module design to be used in Motorola's
future embedded Flash products. The licenses to logic process technologies
granted to AMD may be subject to variable royalty rates, which are dependent
on the technology transferred and subject to certain other conditions.
Motorola will have additional rights, subject to certain conditions, to make
stand-alone Flash devices, and to make and sell certain data networking
devices. The rights to data networking devices may be subject to variable
royalty payment provisions.
Marketing and Sales
Our products are marketed and sold under the AMD trademark. We employ a
direct sales force through our principal facilities in Sunnyvale, California,
and field sales offices throughout the United States and abroad (primarily
Europe and Asia Pacific). We also sell our products through third-party
distributors and independent representatives in both domestic and
international markets pursuant to nonexclusive agreements. The distributors
also sell products manufactured by our competitors, including those products
for which we are an alternate source. One of our OEMs, Compaq Computer
Corporation, accounted for approximately 12 percent of 1998 net sales. No
other single distributor or OEM customer accounted for 10 percent or more of
net sales in 1998.
Distributors typically maintain an inventory of our products. In most
instances, our agreements with distributors protect their inventory of our
products against price reductions, as well as products that are slow moving or
have been discontinued. These agreements, which may be canceled by either
party on a specified notice, generally allow for the return of our products if
the agreement with the distributor is terminated. The market for our products
is generally characterized by, among other things, severe price competition.
The price protection and return rights we offer to our distributors could
materially and adversely affect us if there is an unexpected significant
decline in the price of our products.
Our international sales operations entail political and economic risks,
including expropriation, currency controls, exchange rate fluctuations,
changes in freight rates and changes in rates and exemptions for taxes and
tariffs.
Raw Materials
Certain raw materials we use in the manufacture of our products are
available from a limited number of suppliers. For example, a few foreign
companies principally supply several types of the IC packages purchased by us,
as well as by the majority of other companies in the semiconductor industry.
Interruption of supply or increased demand in the industry could cause
shortages in various essential materials. We would have to reduce our
manufacturing operations if we were unable to procure certain of these
materials. This reduction in our manufacturing operations could have a
material adverse effect on us. To date, we have not experienced significant
difficulty in obtaining necessary raw materials.
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999