AMD 2004 Annual Report Download - page 69

Table of Contents
Also as a result of terrorism, the United States has been and may continue to be involved in armed conflicts that could have a further impact on our sales,
our supply chain and our ability to deliver products to our customers. Political and economic instability in some regions of the world may also result and could
negatively impact our business. The consequences of armed conflicts are unpredictable, and we may not be able to foresee events that could have a material
adverse effect on us. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility to the United
States economy and worldwide financial markets. Any of these occurrences could have a material adverse effect on us and also may result in volatility of the
market price for our securities.
Unfavorable currency exchange rate fluctuations could adversely affect us.
As a result of our foreign operations, we have sales, costs, assets and liabilities that are denominated in foreign currencies, primarily the European Union
euro and the Japanese yen. For example:
• a significant portion of our manufacturing costs for our microprocessor products is denominated in euro while sales of those products are denominated
primarily in U.S. dollars;
• certain manufacturing costs for our Spansion Flash memory products are denominated in yen;
• some fixed asset purchases are denominated in euro and yen;
• sales of our Flash memory products in Japan are denominated in yen; and
• certain costs of our Fab 36 project are denominated in euro.
As a consequence, movements in exchange rates could cause our U.S. dollar-denominated expenses to increase as a percentage of net sales, affecting our
profitability and cash flows. Whenever we believe appropriate, we hedge a portion of our foreign currency exchange exposure to protect against fluctuations in
currency exchange rates. As of December 26, 2004 we had an aggregate of $483 million (notional amount) of short-term foreign currency forward contracts and
purchased call option contracts denominated in euro and yen. However, generally, we hedge only a portion of our foreign currency exchange exposure.
Moreover, we determine our total foreign currency exchange exposure using projections of long-term expenditures for items such as equipment and materials
used in manufacturing. We cannot assure you that our hedging activities will eliminate foreign exchange rate exposure. Failure to do so could have an adverse
effect on our business, financial condition, results of operations and cash flow.
In addition, even where revenues and expenses are matched, we must translate euro and yen denominated results of operations, assets and liabilities for our
foreign subsidiaries to U.S. dollars in our consolidated financial statements. Consequently, increases and decreases in the value of the U.S. dollar versus the euro
or yen will affect our reported results of operations and the value of our assets and liabilities in our consolidated balance sheet, even if our results of operations or
the value of those assets and liabilities has not changed in their original currency. These transactions could significantly affect the comparability of our results
between financial periods and/or result in significant changes to the carrying value of our assets, liabilities and shareholders’ equity.
Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.
We market and sell our products directly to OEMs and through authorized third-party distributors. From time to time, our products are diverted from our
authorized distribution channels and are sold on the “gray market.” Gray market products entering the market result in shadow inventory that is not visible to us,
thus making it difficult to forecast demand accurately. Also, when gray market products enter the market, we and our distribution channel compete with heavily
discounted products, which adversely affects demand for our products. In addition, our inability to control gray marketing activities could result in customer
satisfaction issues, because any time products are purchased outside our authorized distribution channel, there is a risk that our customers are
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005