AMD 2005 Annual Report Download - page 68

Table of Contents
Uncertainties involving the ordering and shipment of, and payment for, our products could materially adversely affect us.
We typically sell our products pursuant to individual purchase orders. We generally do not have long-term supply arrangements with our customers.
Generally, our customers may cancel orders 30 days or more prior to shipment without incurring a significant penalty. We base our inventory levels on
customers’ estimates of demand for their products, which are difficult to predict. This difficulty may be compounded when we sell to OEMs indirectly through
distributors, as our forecasts for demand are then based on estimates provided by multiple parties. In addition, our customers may change their inventory
practices on short notice for any reason. The cancellation or deferral of product orders, the return of previously sold products or overproduction due to failure of
anticipated orders to materialize could result in excess or obsolete inventory, which could result in write-downs of inventory. Because market conditions are
uncertain, these and other factors could materially adversely affect us.
Our reliance on third-party distributors subjects us to certain risks.
We market and sell our products directly and through third-party distributors pursuant to agreements that can generally be terminated for convenience by
either party upon prior notice to the other party. These agreements are non-exclusive and permit our distributors to offer our competitors’ products. Our third
party distributors have been a significant factor in our ability to increase sales of our products in certain high growth international markets. Accordingly, we are
dependent on our distributors to supplement our direct marketing and sales efforts. If any significant distributor or a substantial number of our distributors
terminated their relationship with us or decided to market our competitors’ products over our products, our ability to bring our products to market would be
impacted and we would be materially adversely affected.
Additionally, distributors typically maintain an inventory of our products. In most instances, our agreements with distributors protect their inventory of our
products against price reductions, as well as provide return rights for any product that we have removed from our price book or that is not more than twelve
months older than the manufacturing code date. Some agreements with our distributors also contain standard stock rotation provisions permitting limited levels
of product returns. We defer the gross margins on our sales to distributors, resulting from both our deferral of revenue and related product costs, until the
applicable products are re-sold by the distributors. However, in the event of an unexpected significant decline in the price of our products, the price protection
rights we offer to our distributors would materially adversely affect us because our revenue would decline.
Our operations in foreign countries are subject to political and economic risks, which could have a material adverse effect on us.
All of our wafer fabrication capacity for microprocessors is located in Germany. Nearly all product assembly and final testing of our products is performed
at manufacturing facilities in China, Malaysia and Singapore. We also depend on foreign foundry suppliers for the production of certain of our embedded
microprocessors for personal connectivity devices and we depend on an international joint venture for the manufacture of optical photomasks for use in
manufacturing our microprocessors. In addition, we have international sales operations and as part of our business strategy, we are continuing to seek expansion
of product sales in high growth markets. Our international sales as a percentage of our total consolidated net sales was 79 percent in 2005 and China was one of
our largest and fastest growing markets.
The political and economic risks associated with our operations in foreign countries include, without limitation:
• expropriation;
• changes in a specific country’s or region’s political or economic conditions;
• changes in tax laws, trade protection measures and import or export licensing requirements;
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Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006