AMD 2005 Annual Report Download - page 63

Table of Contents
In November 2004, we entered into sourcing and manufacturing technology agreements with Chartered Semiconductor Manufacturing whereby Chartered
agreed to become an additional manufacturer of our AMD64-based microprocessors. We expect that Chartered will begin production in 2006. The ability of
Chartered to begin production on a timely basis depends on several factors beyond our control, including Chartered’s ability to implement our technology at their
facilities on a timely basis.
In addition, the additional capacity gained through the use of 300-millimeter wafers at Fab 36 plays a fundamental role in our growth plans for the next
several years. We plan to add production output at Fab 36 on a year-to-year basis. If we are not able to achieve our production plans at Fab 36 on a timely basis,
we may not have sufficient manufacturing capacity to meet demand for our products. If we cannot obtain sufficient manufacturing capacity to meet demand for
our products, either in our own facilities or through foundry or similar arrangements, we could be materially adversely affected.
If essential equipment or materials are not available to manufacture our products, we could be materially adversely affected.
Our manufacturing operations depend upon obtaining deliveries of equipment and adequate supplies of materials on a timely basis. We purchase
equipment and materials from a number of suppliers. From time to time, suppliers may extend lead times, limit supply to us or increase prices due to capacity
constraints or other factors. Because the equipment that we purchase is complex, it is difficult for us to substitute one supplier for another or one piece of
equipment for another. Certain raw materials we use in manufacturing our products are available only from a limited number of suppliers.
For example, we are largely dependent on one supplier for our 200-millimeter and 300-millimeter silicon-on-insulator (SOI) wafers. Although we are in
the process of qualifying alternate sources, we do not believe that they currently have sufficient capacity to meet our requirements for SOI wafers. We are also
dependent on key chemicals from a limited number of suppliers and rely on a limited number of foreign companies to supply the majority of certain types of
integrated circuit packages. Interruption of supply or increased demand in the industry could cause shortages and price increases in various essential materials. If
we are unable to procure certain of these materials, we may have to reduce our manufacturing operations. Such a reduction has in the past and could in the future
have a material adverse effect on us.
Industry overcapacity could cause us to under-utilize our manufacturing facilities and have a material adverse effect on us.
Semiconductor companies with their own manufacturing facilities and specialist semiconductor foundries, which are subcontractors that manufacture
semiconductors designed by others, have added significant capacity in recent years and we expect them to continue to do so. In the past, capacity additions
sometimes exceeded demand requirements leading to oversupply situations and downturns in the industry. Fluctuations in the growth rate of industry capacity
relative to the growth rate in demand for our products contribute to cyclicality in the semiconductor market, which may in the future put pressure on our average
selling prices and materially adversely affect us.
It is difficult to predict future growth or decline in the markets we serve, making it very difficult to estimate requirements for production capacity. If our
target markets do not grow as we anticipate, we may under-utilize our manufacturing facilities, which may result in write-downs or write-offs of inventories and
losses on products whose demand is lower than we anticipate.
In addition, during periods of industry overcapacity, customers do not generally order products as far in advance of the scheduled shipment date as they do
during periods when our industry is operating closer to capacity, which can exacerbate the difficulty in forecasting capacity requirements. Many of our costs are
fixed. Accordingly, during periods in which we under-utilize our manufacturing facilities as a result of reduced demand
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Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006