AMD 1999 Annual Report Download - page 134

Investment in and Dependence on K86(TM) AMD Microprocessor Products. Our
microprocessor product revenues have significantly impacted, and will continue
in 2000 and 2001 to significantly impact, our overall 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 success of the AMD
Athlon microprocessor, which is our seventh-generation Microsoft Windows
compatible microprocessor, the AMD-K6 microprocessors with 3DNow! technology 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, 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
Athlon and AMD-K6 microprocessors. It is also possible that we may not increase
our microprocessor revenues enough to achieve sustained profitability.
To sell the volume of AMD Athlon and AMD-K6 microprocessors we currently plan
to make in 2000 and 2001, we must increase sales to existing customers and
develop new customers in both consumer and commercial markets. If we lose any
current top tier 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 AMD Athlon and AMD-K6 microprocessors are
subject to other risks and uncertainties, including:
. market acceptance of AMD Athlon microprocessors, including the timely
availability of processor modules as well as motherboards and chipsets designed
for these processors;
. whether we can successfully fabricate higher performance AMD Athlon and
AMD-K6 microprocessors in planned volume and speed mixes;
. the effects of Intel's new product introductions, marketing strategies and
pricing;
. the continued market acceptance for AMD-K6 microprocessors and systems
based on them;
. whether we will have the financial and other resources necessary to
continue to invest in the 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 personal computer (PC) market and
consequent diminished demand for our microprocessors; and
. unexpected interruptions in our manufacturing operations.
Because Intel has dominated the microprocessor market for many years and has
brand strength, we have in the past priced AMD-K6 microprocessors below the
published price of Intel processors offering comparable performance. Thus,
Intel's processor marketing and pricing can impact and have impacted the average
selling prices of the AMD-K6 and AMD Athlon microprocessors, and consequently
can impact and have impacted our overall margins. Our business could be
materially and adversely affected if we are unable to:
. achieve the product performance improvements necessary to meet customer
needs;
. continue to achieve market acceptance of our AMD-K6 and AMD Athlon
microprocessors and increase market share;
. maintain revenues of AMD-K6 microprocessors; and
. successfully ramp production and sales of AMD Athlon microprocessors.
See also the discussions below regarding Intel Dominance and Process
Technology.
Intel Dominance. Intel has dominated the market for microprocessors used in PCs
for many years. Because of its dominant market position, Intel has historically
Source: ADVANCED MICRO DEVIC, 10-K405, March 21, 2000