AMD 2004 Annual Report Download - page 25

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and related notes as of December 26, 2004 and
December 28, 2003, and for each of the three years in the period ended December 26, 2004, which are included in this annual report. Certain prior period
amounts have been reclassified to conform to the current period presentation.
Overview
We design, manufacture and market industry-standard digital ICs that are used in diverse product applications such as desktop and mobile PCs,
workstations, servers, communications equipment such as mobile phones and automotive and consumer electronics. Our products consist primarily of
microprocessors and Flash memory devices. We also sell embedded microprocessors for personal connectivity devices and other consumer markets.
In 2004, we continued to focus on customer-centric innovation by developing microprocessor and Flash memory products that assist our customers in
adding functionality and enhancing the performance of their products. We continued to design and develop microprocessor products based on AMD64
technology, which allow our customers to protect their existing investments by continuing to use their 32-bit software applications while transitioning to a 64-bit
platform. As of December 26, 2004, sales of AMD64-based processors represented approximately one-half of our net sales for the Computation Products
segment.
In Flash memory, we continued to manufacture products based on our MirrorBit technology, which we believe will enable our customers to cost
effectively include next-generation applications, such as high-resolution cameras and streaming video, on their mobile phone. We also introduced floating gate
memory products manufactured on 110-nanometer technology and substantially completed the integration of our and Fujitsu’s Flash memory operations in
Spansion.
We also continued to devote resources to develop advanced manufacturing process technologies. During 2004, we successfully transitioned to smaller
manufacturing geometries for both our microprocessor and Flash memory products. As of December 26, 2004, we were manufacturing our microprocessor
products using primarily 90-nanometer technology and we were manufacturing our highest density and performance Flash memory products on 110-nanometer
floating gate and MirrorBit technology.
In 2004, despite a net loss in the fourth quarter, we returned to a full year of profitability. Total net sales for 2004 of $5.0 billion increased 42 percent
compared with net sales of $3.5 billion for 2003. This increase was driven primarily by increased sales of microprocessors and Flash memory products across all
geographies as well as the effects of consolidating Spansion’s results of operations, which include sales by Spansion to Fujitsu, for the twelve months in 2004 as
compared to six months in 2003.
Our transition to smaller manufacturing process geometries for both our microprocessor and Flash memory products contributed to lower manufacturing
costs per unit and higher overall gross margins, which, along with increased net sales, contributed to a net income of $91 million in 2004 compared to a net loss
of $274 million in 2003.
We also substantially completed the construction of Fab 36, our 300-millimeter wafer fabrication facility in Dresden, Germany and we are currently in the
process of installing equipment. We believe the new capacity provided by this facility, which we expect to be in volume production in 2006, will allow us to
satisfy anticipated demand for our microprocessors.
However, in 2004, the cyclical Flash memory market posed unique challenges for us. In the second half of 2004, Memory Products net sales decreased by
$259 million, compared to the first half of 2004. Factors that
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005