AMD 1998 Annual Report Download - page 210

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
microprocessor units shipped in the first quarter of 1999 as a result of lower
than expected yields in the first eight weeks of the quarter on wafers started
prior to our implemention of these design enhancements. Additionally, we expect
that we will be unable to increase our microprocessor average selling prices in
the first quarter of 1999 due to Intel's announced price reductions. As a result
of these factors, combined with increases in our planned research and
development spending on technology development through Dresden Fab 30 and our
alliance with Motorola (described below), we will be unable to increase our
microprocessor revenue and expect to incur a significant operating loss in the
first quarter of 1999.
Net Sales Comparison of Years Ended December 27, 1998 and December 28, 1997
Total net sales increased by $186 million, or 8 percent, to $2,542 million in
1998 from $2,356 million in 1997 primarily due to an increase in CPG net sales
of $575 million. This increase was partially offset by a combined decrease in
the other product groups of $389 million.
CPG net sales increased by 84 percent to $1,257 million in 1998 compared to $682
million in 1997. This increase was primarily due to increased shipments of
microprocessors at a higher speed grade mix and higher average selling prices.
CPG sales growth in 1999 is dependent on increased unit shipments at higher
speed grades and higher average selling prices, as to which we cannot give any
assurance.
Memory Group net sales decreased 23 percent to $561 million from the prior year
primarily due to a significant decline in the average selling price of Flash
memory devices. This decrease was partially offset by an increase in unit
shipments of Flash memory devices. Oversupply in the Flash market, combined with
an increase in competition, has caused downward pressure on the average selling
price of Flash memory devices. We expect continued price pressure from intense
competition in Flash memory devices. In addition, average selling prices and
unit shipments of EPROMs declined. We expect future EPROM sales to be flat or
down due to a general shift to Flash memory devices.
Communications Group net sales decreased 27 percent to $519 million from the
prior year primarily due to a significant decrease in unit shipments of nearly
all products. Our offerings of network products, which represented approximately
one-half of the decline in Communications Group net sales, have not kept pace
with the market shift towards higher-performance products. Our sales of tele-
communication products, which represented more than one-third of the decline in
Communications Group net sales, were particularly impacted by the general
economic downturn in Asia.
Vantis net sales decreased 16 percent to $205 million from the prior year due to
a decrease in unit shipments and lower average selling prices of low-density or
simple PLD (SPLD) products. The total available market for SPLD products has
been shrinking for the past three years as older SPLD products are increasingly
replaced by complex PLD (CPLD) and field programmable gate array (FPGA) products
in new designs. This decline in market demand for SPLDs intensified at the
beginning of 1998 and led to increased competition among SPLD suppliers. In
addition, sales of CPLDs decreased slightly despite a significant sales increase
in our newer CPLD products.
Net Sales Comparison of Years Ended December 28, 1997 and December 29, 1996
In 1997, net sales of $2,356 million increased $403 million, or 21 percent, from
1996 primarily due to an increase in CPG net sales. Net sales from non-
microprocessor products increased nominally in 1997 compared to 1996.
CPG net sales doubled to $682 million in 1997 compared to $341 million in 1996
largely due to sales of AMD-K6 microprocessors, which became available at the
end of the first quarter of 1997. This sales growth was partially offset by
decreased sales of earlier generations of microprocessors, which represented
most of our microprocessor sales in 1996.
Memory Group net sales increased 4 percent as substantial Flash memory device
unit growth more than offset declines in the average selling price. EPROM
product net sales decreased due to a decline in both the average selling price
and unit shipments.
Communications Group net sales increased 6 percent primarily due to increased
unit shipments of telecommunication products. This increase was partially offset
by a decline in the average selling price of network products. Vantis net sales
decreased 2 percent due to declines in the average selling price of both SPLD
and CPLD products. These decreases were partially offset by increases in unit
shipments of both SPLD and CPLD products.
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999