AMD 2005 Annual Report Download - page 72

Table of Contents
Risks Related to Our Ownership of Spansion Inc. Common Stock
Spansion’s financial position, results of operations and cash flows were consolidated with ours through December 20, 2005, but as a result of its initial
public offering, we currently report our interest in Spansion using the equity method of accounting. We currently own 48,529,403 shares, or approximately 37.9
percent, of Spansion’s outstanding common stock. As a result, our 37.9 percent share of Spansion’s net income (loss) will impact our net income (loss). The
following risks and uncertainties that Spansion faces could affect Spansion’s financial position or results of operations and correspondingly our financial
position and results of operations. These are not the only risks and uncertainties that Spansion faces. Spansion also faces many of the risks and uncertainties that
we face as described above in this “Risk Factors” section, as well as those set forth in Spansion’s Registration Statement on Form S-1, as amended, and other
SEC filings, to which we refer you.
The demand for Spansion’s 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 Spansion’s results of operations.
Spansion is dependent to a large degree upon demand for mobile telephones, consumer electronics such as set top boxes and DVD players, automotive
electronics, industrial electronics such as networking equipment, and PC peripheral equipment such as printers. Sales of Spansion products also depend on OEMs
including increasing amounts of NOR Flash memory content in their products. In 2004 and 2005, demand from the wireless category of the Flash memory
market drove a majority of Spansion’s sales. If demand for these products, or NOR Flash memory content in these products, is below Spansion’s expectations, or
if the functionality of successive generations of these products does not require increasing NOR Flash memory density, Spansion would be materially adversely
affected.
Spansion has lost, and will continue to lose, rights to key intellectual property arrangements once it is no longer a beneficiary of our patent cross-license
agreements and other licenses, which creates a greatly increased risk of patent or other intellectual property infringement claims against Spansion.
As a majority owned subsidiary, Spansion had been the beneficiary of our intellectual property arrangements with third parties, including patent
cross-license agreements with other major semiconductor companies such as Intel, Motorola and IBM, and licenses from third parties for technology
incorporated in Spansion’s products and software used to operate its business. Following Spansion’s initial public offering, it was no longer a beneficiary under a
number of those agreements. As a result, it lost rights to use important intellectual property that it was previously licensed to use and may therefore be subject to
claims that it is infringing intellectual property rights of third parties through the manufacture and sale of its products and the operation of its business. Therefore,
absent negotiating its own license agreements with third parties who own such intellectual property, Spansion will be vulnerable to claims by such parties that its
products or operations infringe such parties’ patents or other intellectual property rights. In addition, third parties may have refrained from asserting intellectual
property infringement claims against Spansion because it had been a majority owned subsidiary of ours. In addition, we believe that Spansion will lose additional
rights under our patent cross-license agreements and other licenses once we no longer hold a majority of Spansion’s shares entitled to vote for the election of
Spansion’s directors, assuming we are still party to such agreements and licenses at such time. The parties to these agreements and licenses, and other third
parties with whom we had no prior intellectual property arrangement, may file lawsuits against Spansion seeking damages (potentially including treble damages)
or an injunction against the sale of Spansion’s products that incorporate allegedly infringed intellectual property or against the operation of Spansion’s business
as presently conducted. Such litigation could be extremely expensive. The award of material damages, including material royalty payments, or the entry of an
injunction, would have a material adverse effect on Spansion.
A lack of market acceptance of MirrorBit technology could have a material adverse effect on Spansion.
Market acceptance of products based on Spansion’s MirrorBit technology is a critical factor impacting Spansion’s ability to increase revenues and market
share as well as to enter new markets. MirrorBit technology is
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Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006