AMD 2002 Annual Report Download - page 41

Table of Contents
processors in April 2003 and our AMD Athlon 64 processors in September 2003. These processors are designed to provide high performance for both 32-bit and
64-bit applications in servers and in desktop and mobile PCs. The success of these processors is subject to risks and uncertainties including our ability to produce
them in a timely manner on new process technologies, including silicon-on-insulator technology, in the volume and with the performance and feature set required
by customers; their market acceptance; the availability, performance and feature set of motherboards and chipsets designed for our eighth-generation processors;
and the support of the operating system and application program providers for our 64-bit instruction set.
If we were to lose Microsoft Corporation’s support for our products, our ability to market our processors would be materially adversely affected. Our
ability to innovate beyond the x86 instruction set controlled by Intel depends on support from Microsoft in its operating systems. If Microsoft does not provide
support in its operating systems for our x86 instruction sets, including our x86-64 technology that will be introduced with our AMD Athlon 64 and AMD
Opteron processors, independent software providers may forego designing their software applications to take advantage of our innovations. If we fail to retain the
support and certification of Microsoft, our ability to market our processors could be materially adversely affected.
The completion and impact of our restructuring program and cost reductions could adversely affect us. On November 7, 2002, we announced that we were
formulating the 2002 Restructuring Plan to address the continuing industry-wide weakness in the semiconductor industry by adjusting our cost structure to
industry conditions. Pursuant to the 2002 Restructuring Plan, we intend to reduce our fixed costs as a percentage of total costs over time from approximately 80
percent to approximately 70 percent. We also expect to reduce our expenses by approximately $100 million per quarter by the second quarter of 2003. As a
result, we expect total expenses in 2003 to be reduced by approximately $350 million based on current product demand forecasts. We cannot, however, be sure
that the goals of the 2002 Restructuring Plan will be realized. The ultimate effects of the 2002 Restructuring Plan could prove to be adverse.
Weak market demand for our Flash memory products, the loss of a significant customer in the high-end mobile telephone market, or any difficulty in our
transition to Mirrorbit technology may have a material adverse effect on us. The demand for Flash memory devices has been weak due to the sustained
downturn in the communications and networking equipment industries and excess inventories held by our customers. In the third and fourth quarters of this year,
our Flash memory product sales grew almost entirely based on strength in the high-end mobile phone market. Our sales in that market are concentrated in a few
customers. In addition, we expect competition in the market for Flash memory devices to continue to increase as competing manufacturers introduce new
products and industry-wide production capacity increases. We may be unable to maintain or increase our market share in Flash memory devices as the market
develops and Intel and other competitors introduce new competing products. A decline in unit sales of our Flash memory devices, lower average selling prices, or
a loss of a significant customer in the high-end mobile phone market, would have a material adverse effect on us.
In July 2002, we commenced production shipments of our first product with MirrorBit technology. Our MirrorBit technology is a new memory cell
architecture that enables Flash memory products to hold twice as much data as standard Flash memory devices. A lack of customer acceptance, any substantial
difficulty in transitioning our Flash memory products to MirrorBit technology or any future process technology could reduce our ability to be competitive in the
market and could have a material adverse effect on us.
We rely on our joint venture with Fujitsu, FASL, and if that joint venture is terminated or amended significantly, we could be materially adversely
affected. We continue to rely on our joint venture with Fujitsu, FASL, to manufacture our Flash memory devices. In addition, beginning in 2002, Fab 25 began
operating as a foundry to FASL and as of year end, Fab 25 was devoted entirely to Flash memory device production for FASL. While the FASL joint venture has
been successful to date, there can be no assurance that we and Fujitsu will elect to continue the joint venture in its current form, in some other form or at all,
which could have a material adverse affect on us.
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Source: ADVANCED MICRO DEVIC, 10-K, March 14, 2003