AMD 2001 Annual Report Download - page 17

In the event we are unable to meet our obligations to AMD Saxony as required
under the Dresden Loan Agreements, we will be in default under the Dresden Loan
Agreements and the Loan Agreement, which default would permit acceleration of
certain indebtedness, which could have a material adverse effect on us. We
cannot assure that we will be able to obtain the funds necessary to fulfill
these obligations. Any such failure would have a material adverse effect on us.
We entered into foreign currency hedging transactions for Dresden Fab 30 in
1999, 2000 and 2001 and anticipate entering into additional foreign currency
hedging transactions in 2002 and in future years. We use foreign currency
forward and option contracts to reduce our exposure to currency fluctuations on
our foreign currency exposures in our foreign sales subsidiaries, liabilities
for products purchased from FASL and for foreign currency denominated fixed
asset purchase commitments. The objective of these contracts is to minimize the
impact of foreign currency exchange rate movements on our operating results and
on the cost of capital asset acquisition. Our accounting policy for these
instruments is based on our designation of such instruments as hedging
transactions. We generally do not use derivative financial instruments for
speculative or trading purposes.
Motorola. In 1998, we entered into an alliance with Motorola for the
development of logic and Flash memory process technology. The alliance includes
a technology development and license agreement and a patent cross-license
agreement. Licenses under the agreement may be subject to variable royalty
rates. We are currently working with Motorola to cease our joint process
development efforts in the second half of 2002.
UMC Alliance. On January 31, 2002, we announced an alliance with United
Microelectronics Corporation (UMC) under which UMC and AMD will establish a
joint venture to own and operate a state-of-the-art, 300-mm wafer fabrication
facility in Singapore for high-volume production of PC processors and other
logic products. As part of the alliance, we and UMC will collaborate in the
development of advanced process technologies for semiconductor logic products.
We separately announced a foundry agreement under which UMC will produce PC
processors to augment Dresden Fab 30 production capacity for devices produced
on 130-nanometer and smaller-geometry technology.
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. No single distributor or OEM customer
accounted for ten percent or more of our net sales in 2001. In 2000 and 1999,
one of our OEM customers accounted for approximately 11 and 13 percent of net
sales. No distributor accounted for ten percent or more of net sales in 2000 or
1999.
Distributors typically maintain an inventory of our products. Generally, we
sell to distributors under terms allowing the distributors certain rights of
return and price protection on unsold merchandise held by them. 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, we are dependent on
key chemicals from a limited number of suppliers and rely on a few foreign
companies to supply the majority of certain types of the IC packages we
purchase. Interruption of supply or increased demand in the industry could
cause shortages and price increases in various essential materials. If
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Source: ADVANCED MICRO DEVIC, 10-K, March 07, 2002