AMD 2001 Annual Report Download - page 219

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
cannot generate the required capital internally or obtain such capital
externally, we could be materially adversely affected.
In March 1997, our indirect wholly owned subsidiary, AMD Saxony, entered into a
loan agreement and other related agreements with a consortium of banks led by
Dresdner Bank AG. These agreements require that we partially fund Dresden Fab 30
project costs in the form of subordinated loans to, and equity investments in,
AMD Saxony. We currently estimate that the construction and facilitization costs
of Dresden Fab 30 will be $2.5 billion when fully equipped by the end of 2003.
We had invested $1.8 billion as of December 30, 2001. If we are unable to meet
our obligations to AMD Saxony as required under these agreements, we will be in
default under the loan agreement, which would permit acceleration of
indebtedness.
We expect FASL JV2 and FASL JV3, including equipment, to cost approximately $2.4
billion when fully equipped. As of December 30, 2001, approximately $1.5 billion
of this cost had been funded. To the extent that additional funds are required
for the full facilitization of FASL JV2 and FASL JV3, we will be required to
contribute cash or guarantee third-party loans in proportion to our 49.992%
interest in FASL. In 2000, FASL further expanded its production capacity through
a foundry arrangement with Fujitsu Microelectronics, Inc. (FMI), a wholly owned
subsidiary of Fujitsu Limited. In connection with FMI equipping its wafer
fabrication facility in Gresham, Oregon (the Gresham Facility) to produce flash
memory devices for sale to FASL, we agreed to guarantee the repayment of up to
$125 million of Fujitsu's obligations as a co-signer with FMI under its global
multicurrency revolving credit facility (the Credit Facility) with a third-party
bank (the Guarantee). On November 30, 2001, Fujitsu announced that it was
closing the Gresham Facility, due to the downturn of the flash memory market. To
date, we have not received notice from Fujitsu that FMI has defaulted on any
payments due under the Credit Facility. Furthermore, subsequent to year end, we
were informed that amounts borrowed by FMI under the Credit Facility do not
become due until the end of March 2002. Accordingly, under the terms of the
Guarantee, we are not at this time, and were not at December 30, 2001, obligated
to make any payments to Fujitsu. However, subsequent to year end, Fujitsu
requested that we pay the entire $125 million under the Guarantee. Although we
disagree with Fujitsu as to the amount, if any, of our obligations under the
Guarantee, Fujitsu has indicated its belief that we are obligated to pay the
full $125 million. If we are unable to fulfill our obligations with respect to
FASL, our business could be materially and adversely affected.
While the FASL joint venture has been successful to date, there can be no
assurance that Fujitsu and AMD will elect to continue the joint venture in its
present form or at all.
Fluctuations in Demand for Our Products Relative to the Capacity of Our
Manufacturing Facilities Could Have a Material Adverse Effect on Us. Because we
cannot quickly adapt our manufacturing capacity to rapidly changing market
conditions, at times we underutilize our manufacturing facilities as a result of
reduced demand for certain of our products. We are substantially increasing our
manufacturing capacity by making significant capital investments in Dresden Fab
30, FASL JV3 and our test and assembly facility in Suzhou, China. If the
increase in demand for our products is not consistent with our expectations,
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Source: ADVANCED MICRO DEVIC, 10-K, March 07, 2002