AMD 2004 Annual Report Download - page 26

Table of Contents
contributed to this decline included aggressive pricing by competitors and an imbalance in the supply and demand for Flash memory products. In addition,
decreased demand from the wireless handset market in Asia, in part due to channel inventory accumulation by wireless handset OEMs in China, contributed to a
decline in Memory Products net sales during the third quarter of 2004. The down-turn in the overall Flash memory market, lower than expected sales in Japan
and a delay in our qualification of a Flash memory product for the wireless category contributed to lower Memory Products net sales during the fourth quarter of
2004.
For 2005, we believe critical success factors include: continuing to increase market acceptance of our AMD64 technology, particularly in the enterprise
segment; taking products based on our second-generation MirrorBit technology to market and effectively ramping such products to mass production on a timely
basis; strengthening our relationships with key customers and establishing relationships with new customers that are industry leaders in their markets;
successfully developing and continuing to transition to the latest manufacturing process technologies for both our microprocessor and Flash memory products;
developing and introducing new microprocessor products for the mobile, server and workstation markets, including dual-core processors, on a timely basis and
increasing our share of those markets; developing and introducing new Flash memory products on a timely basis; controlling costs; increasing the adoption of
MirrorBit technology; and expanding our participation in high-growth global markets, including China, Latin America, India and Eastern Europe.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist you in understanding our
financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that resulted in those changes, and how
certain accounting principles, policies and estimates affect our financial statements.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted United States accounting principles. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related
to our revenues, inventories, asset impairments, restructuring charges and income taxes. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, the actual results may differ from
these estimates or our estimates may be affected by different assumptions or conditions.
We believe the following critical accounting policies are the most significant to the presentation of our financial statements and require the most difficult,
subjective and complex judgments.
Revenue Reserves. We record a provision for estimated sales returns and allowances on product sales and a provision for estimated future price
reductions in the same period that the related revenues are recorded. We base these estimates on actual historical sales returns, allowances, historical price
reductions, market activity, and other known or anticipated trends and factors. These estimates are subject to management’s judgment, and actual provisions
could be different from our estimates and current provisions, resulting in future adjustments to our revenues and operating results.
Inventory Valuation. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes
analysis of sales levels by product and projections of future demand. These projections assist us in determining the carrying value of our inventory and are also
used for near-term factory production planning. Inventories on hand in excess of forecasted demand of generally six months or less, are not valued. In addition,
we write off inventories that are considered obsolete. We adjust remaining specific inventory balances to approximate the lower of our standard manufacturing
cost or market value. Among other
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005