AMD 2002 Annual Report Download - page 37

Table of Contents
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). Variable interest entities often are created
for a single specified purpose, for example, to facilitate securitization, leasing, hedging, research and development, or other transactions or arrangements.
Formerly “Consolidation of Certain Special Purpose Entities” in its draft form, this interpretation of Accounting Research Bulletin No. 51, “Consolidated
Financial Statements,” defines what these variable interest entities are and provides guidelines on how to identity them and also on how an enterprise should
assess its interests in a variable interest entity to decide whether to consolidate that entity. Generally, FIN 46 applies to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For existing variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003, the provision of this interpretation will apply no later than the beginning of the first
interim or annual reporting period beginning after June 15, 2003. Currently, we do not have any variable interest entities, and we do not expect the adoption of
FIN 46 will have a material impact on our results of operations or financial condition.
Risk Factors
We have recently experienced substantial declines in revenues and increases in operating losses, and we may experience additional declines in revenues
and increases in operating losses in the future. Our historical financial results have been, and our future financial results are anticipated to be, subject to
substantial fluctuations. Our total revenues for 2002 were $2,697 million compared to $3,892 million for 2001. This decline was due primarily to reduced
demand for our products resulting from the current economic slowdown and our decision primarily in the third and fourth quarters of 2002 to limit shipments and
to accept receipt of product returns from certain customers, each as part of our efforts to reduce excess PC processor inventory in the overall supply chain. We
incurred a net loss of $1.3 billion for 2002 compared to a net loss of $61 million for 2001. Reduced end-user demand, underutilization of our manufacturing
capacity and other factors could adversely affect our business in the near term and we may experience additional declines in revenue and operating losses. We
cannot assure you that we will be able to return to profitability or that, if we do, we will be able to sustain it.
The semiconductor industry is highly cyclical and is currently experiencing a severe downturn, that is adversely affecting, and may continue to adversely
affect, our business. The highly cyclical semiconductor industry has experienced significant downturns, often in connection with maturing product cycles,
manufacturing overcapacity and declines in general economic conditions. The most recent downturn, which began in the fourth quarter of 2000 and continues
today, has been severe and prolonged, and future downturns may also be severe and prolonged. Our financial performance has been negatively affected by these
downturns, including the incurrence of substantial losses during the current downturn, as a result of:
• the cyclical nature of the supply/demand imbalances in the semiconductor industry;
• a decline in demand for end-user products that incorporate our semiconductors;
• excess inventory levels in the channels of distribution, including our customers;
• excess production capacity; and
• accelerated declines in average selling prices.
If current conditions do not improve in the near term or if these conditions in the semiconductor industry occur in the future, as they likely will to a lesser
or greater degree, our business will continue to be adversely affected.
Fluctuations in the personal computer market may continue to materially adversely affect us. Our business is, and particularly our PC processor product
lines are, tied to the personal computer industry. Industry-wide fluctuations in the PC marketplace, including the current industry downturn that commenced in
2001 and has continued throughout 2002 have materially adversely affected us and may materially adversely affect us in the
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Source: ADVANCED MICRO DEVIC, 10-K, March 14, 2003