AMD 2000 Annual Report Download - page 389

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our obligations under the Loan Agreement are secured by a pledge of most of our
accounts receivable, inventory, general intangibles and the related proceeds.
Manufacturing
Capacity. We underutilize our manufacturing facilities from time to time as a
result of reduced demand for certain of our products. In the past, there have
been times when our operations related to microprocessors have been particularly
affected by this situation. If we underutilize our manufacturing facilities in
the future, our gross margins may suffer. We are substantially increasing our
manufacturing capacity by making significant capital investments in Fab 25 and
Dresden Fab 30. FASL is currently constructing FASL JV3. We are continuing to
increase production in our test and assembly facility in Suzhou, China. We are
basing our strategy of increasing our manufacturing capacity on industry
projections for future growth. If these industry projections are inaccurate, or
if demand for our products does not increase consistent with our plans and
expectations, we will likely underutilize our manufacturing facilities and our
business could be materially and adversely affected.
In contrast to the above, there also have been situations in the past in which
our manufacturing facilities were inadequate to meet the demand for certain of
our products. Our inability to obtain sufficient manufacturing capacities to
meet demand, either in our own facilities or through foundry or similar
arrangements with others, could have a material adverse effect on our business.
At this time, the risk is that we will have insufficient capacity to meet demand
for Flash memory products and underutilized capacity relative to demand for our
microprocessor offerings.
Process Technology. In order to remain competitive, we must make continuing
substantial investments in improving our process technologies. In particular, we
have made and continue to make significant research and development investments
in the technologies and equipment used to fabricate our microprocessor products
and our Flash memory devices. Portions of these investments might not be fully
recovered if we fail to continue to gain market acceptance or if the market for
our Flash memory products should significantly deteriorate. Likewise, we are
making a substantial investment in Dresden Fab 30. We have developed and
installed 0.18-micron process technology and copper interconnect technology in
Dresden Fab 30 in order to manufacture AMD Athlon microprocessors. We have
entered into a strategic alliance with Motorola to co-develop logic process and
embedded Flash technologies. The logic process technology which is the subject
of the alliance includes the copper interconnect and silicon on insulator
technology that is required for AMD Athlon microprocessors and subsequent
generations of microprocessors. The successful development and implementation of
silicon on insulator technology is, for example, critical to the success of the
Hammer family of processors currently under development. We cannot be certain
that the strategic alliance will be successful or that we will be able to
develop or obtain the leading-edge process technologies that will be required in
Fab 25 or Dresden Fab 30 to fabricate microprocessors successfully.
Manufacturing Interruptions and Yields. Any substantial interruption of our
manufacturing operations, either as a result of a labor dispute, equipment
failure or other cause, could materially and adversely affect our business
operations. We also have been and may in the future be
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Source: ADVANCED MICRO DEVIC, 10-K405, March 20, 2001