AMD 1998 Annual Report Download - page 219

Microprocessor Products
Fluctuations in PC Market. Since most of our microprocessor products are used in
PCs and related peripherals, our future growth is closely tied to the
performance of the PC industry. Industry-wide fluctuations in the PC marketplace
have in the past, and may in the future, materially and adversely affect our
business.
Investment in and Dependence on K86 (TM) AMD Micro processor Products. Our
microprocessor product revenues have in the past significantly impacted, and
will continue in 1999 and 2000 to significantly impact, our revenues, profit
margins and operating results. We plan to continue to make significant capital
expenditures to support our microprocessor products both in the near and long
term. These capital expenditures will be a substantial drain on our cash flow
and cash balances.
Our ability to increase microprocessor product revenues, and benefit fully from
the substantial financial investments and commitments we have made and continue
to make related to microprocessors, depends upon the success of the AMD-K6-2 and
AMD-K6-III microprocessors with 3DNow! technology (the AMD-K6 family of micro-
processors or the AMD-K6 microprocessors), the AMD-K7 microprocessor, which is
our seventh-generation Microsoft Windows compatible microprocessor planned for
introduction by the end of the first half of 1999, and future generations of K86
microprocessors. The microprocessor market is characterized by short product
life cycles and migration to ever higher performance microprocessors. To compete
successfully against Intel in this market, we must transition to new process
technologies at a faster pace than before and offer higher performance
microprocessors in significantly greater volumes. We must achieve acceptable
yields while producing microprocessors at higher speeds. In the past, including
the last few months, we have experienced significant difficulty in achieving
microprocessor yield and volume plans. Such difficulties have in the past and
may in the future adversely affect our results of operations and liquidity. If
we fail to offer higher performance microprocessors in significant volume on a
timely basis in the future, our business could be materially and adversely
affected. We may not achieve the production ramp necessary to meet our
customers' volume requirements for higher performance AMD-K6 and AMD-K7
microprocessors. It is also possible that we may not increase our microprocessor
revenues enough to achieve sustained profitability in the AMD segment of our
business.
To sell the volume of AMD-K6 and AMD-K7 micro processors we currently plan to
make in 1999 and 2000, we must increase sales to existing customers and develop
new customers. If we lose any current top-tier Original Equipment Manufacturer
(OEM) customer, or if we fail to attract additional customers through direct
sales and through our distributors, we may not be able to sell the volume of
units planned. This result could have a material adverse effect on our business.
Our production and sales plans for the AMD-K6 and AMD-K7 microprocessors are
subject to other risks and uncertainties, including:
. the timing of introduction and market acceptance of the AMD-K7
microprocessor;
. whether we can successfully fabricate higher-performance AMD-K6 and
AMD-K7 microprocessors in planned volume mixes;
. the effects of Intel new product introductions, marketing strategies
and pricing;
. the continued development of worldwide market acceptance for the AMD-K6
microprocessors and systems based on them;
. whether we will have the financial and other resources necessary to
continue to invest in our microprocessor products, including leading-edge
wafer fabrication equipment and advanced process technologies;
. the possibility that our newly introduced products may be defective;
. adverse market conditions in the PC market and consequent diminished
demand for our microprocessors; and
. unexpected interruptions in our manufacturing operations.
Because Intel dominates the industry and has brand strength, we price the AMD-K6
microprocessors below the published price of Intel processors offering
comparable performance. Thus, Intel's decisions on processor prices can impact
and have impacted the average selling prices of the AMD-K6 microprocessors, and
consequently can impact and have impacted our margins. Our business could be
materially and adversely affected if we fail to:
. achieve the product performance improvements necessary to meet customer
needs;
. continue to achieve market acceptance of our AMD-K6 microprocessors and
increase market share;
. substantially increase revenues of the AMD-K6 family of microprocessors;
and
. successfully introduce and ramp production of the AMD-K7 microprocessor.
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Source: ADVANCED MICRO DEVIC, 10-K, March 29, 1999