AMD 2004 Annual Report Download - page 62

Table of Contents
environment. In addition, ample capacity for manufacturing Flash memory products exists due to recent capital investment by some of our competitors, which is
likely to further contribute to a competitive pricing environment. In the past, including the second half of 2004, the net increases of supply, meaning the
difference of capacity additions less capacity reductions due to obsolescence, exceeded demand requirements leading to oversupply situations and downturns in
the industry. In the second half of 2004, fluctuations in the rate at which industry capacity grew relative to the growth rate in demand for Flash memory products,
particularly NOR-based products, contributed to a decrease in our average selling prices and hurt our results of operations. If this continues in the future we
would be materially adversely affected.
To compete successfully, we must transition to technologies that meet the increasing demand for higher Flash memory content in mobile phones,
consumer electronics and automotive applications, among other markets, at competitive prices. We expect competition in the Flash memory market to increase as
existing manufacturers introduce new products, new manufacturers enter the market, industry-wide production capacity increases, to the extent potential
customers choose NAND-based products over NOR-based products and competitors aggressively price their Flash memory products. In addition, we and certain
of our competitors have licensed non-volatile memory technology called NROM technology from a third party. NROM technology allows memory devices to
store two bits of data in a memory cell. NROM technology has similar characteristics to our MirrorBit technology, which may allow these competitors to develop
Flash memory technology that is competitive with MirrorBit technology.
Intel Corporation’s dominance of the microprocessor market, its position in the Flash memory market and its business practices may limit our ability to
compete effectively.
Intel has dominated the market for microprocessors used in desktop and mobile PCs for many years. Intel is also a dominant competitor in the server
segment of the microprocessor market and a significant competitor in the Flash memory market. Intel’s significant financial resources enable it to market its
products aggressively, to target our customers and our channel partners with special incentives, and to discipline customers who do business with us. These
aggressive activities can result in lower unit sales and average selling prices for our products, particularly microprocessors and Flash memory products, and
adversely affect our margins and profitability. As long as Intel remains in this dominant position, we may be materially adversely affected by Intel’s:
• pricing and allocation strategies and actions, including aggressive pricing for Flash memory products and microprocessors to increase market share;
• product mix and introduction schedules;
• product bundling, marketing and merchandising strategies;
• exclusivity payments to its current and potential customers;
• control over industry standards, PC manufacturers and other PC industry participants, including motherboard, memory, chipset and basic input/output
system, or BIOS, suppliers; and
• strong brand, and marketing and advertising expenditures in support of the brand.
For example, with respect to the microprocessor market, Intel exerts substantial influence over PC manufacturers and their channels of distribution through
the “Intel Inside” brand program and other marketing programs. Because of its dominant position in the microprocessor market, Intel has been able to control x86
microprocessor and PC system standards and dictate the type of products the microprocessor market requires of Intel’s competitors. Intel also dominates the PC
system platform, which includes core logic chipsets, graphics chips, motherboards and other components necessary to assemble a PC system. As a result, PC
OEMs are highly dependent on Intel, less innovative on their own and, to a large extent, are distributors of Intel technology. Additionally, Intel is able to drive de
facto standards for x86 microprocessors that could cause us and other companies to have delayed access to such standards. In marketing our microprocessors to
OEMs, we depend on
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005