AMD 2005 Annual Report Download - page 61

Table of Contents
new product introductions, price erosion and declines in general economic conditions. Our historical financial results have also been subject to substantial
fluctuations. Our financial performance has been, and may in the future be, negatively affected by these downturns. We incurred substantial losses in recent
downturns, due to:
• the cyclical nature of supply/demand imbalances in the semiconductor industry;
• a decline in demand for end-user products that incorporate our semiconductors;
• excess inventory levels in the channels of distribution, including our customers;
• excess production capacity; and
• substantial declines in average selling prices.
For example, in 2001 and 2002 we implemented restructuring plans due to weak customer demand associated with the downturn in the semiconductor industry. If
the semiconductor industry were to experience a downturn in the future, we would be materially adversely affected.
The demand for our products depends in part on continued growth in the industries and geographies into which they are sold. A market decline in any
of these industries or geographies would have a material adverse effect on our results of operations.
Our business is dependent upon the market for mobile and desktop PCs, and servers. Industry-wide fluctuations in the computer marketplace have
materially adversely affected us in the past and may materially adversely affect us in the future. Depending on the growth rate of computers sold, sales of our
microprocessors may not grow and may even decrease. If demand for computers is below our expectations, we could be materially adversely affected. In
addition, potential market share increases by customers who exclusively purchase microprocessors from Intel Corporation, such as Dell, Inc., could further
materially adversely affect us.
The growth of our business is also dependent on continued demand for our products from high-growth global markets. In 2005, sales of our products to
high-growth markets such as China, Eastern Europe and India increased compared to 2004, and these markets are an important area of future growth for us. If
demand from these markets is below our expectations, sales of our products may not grow, and may even decrease, which would have a material adverse effect
on us.
Intense competition in the microprocessor market could materially adversely affect us.
Our principal competitor in the microprocessor market is Intel Corporation. Microprocessor products compete on performance, quality, reliability, cost,
selling price, adherence to industry standards, software and hardware compatibility, brand recognition and availability. After a product is introduced, costs and
average selling prices normally decrease over time as production efficiency improves, and successive generations of products are developed and introduced for
sale.
We may not be able to compete effectively if we fail to reduce our manufacturing costs and develop, introduce and sell on a timely basis, new products or
enhanced versions of existing products at competitive prices.
We depend on third-party companies for the design and manufacture of core-logic chipsets, graphics chips, motherboards, BIOS software and other
components.
Our microprocessors are not designed to function with motherboards and chipsets designed to work with Intel microprocessors because our patent-cross
license agreement with Intel does not extend to Intel’s proprietary bus interface protocol. Accordingly, we depend on third-party companies for the design and
manufacture of core-logic chipsets, graphics chips, motherboards, BIOS software and other components that support our microprocessor offerings. In recent
years, many of these third-party designers and manufacturers have lost
56
Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006