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Table of Contents
adverse effect on Spansion. For example, in the first half of 2004, Spansion was not able to meet demand for certain of its lower density embedded Flash memory
products because in 2003 it underestimated demand for these products, and was unable to install additional wafer fabrication capacity on a timely basis. Spansion
has stated its belief that this adversely impacted its relationships with customers who received reduced allocations, or did not receive allocations, of its embedded
products, and Spansion has stated its belief that its competitors were able to take advantage of this situation to increase their market share. More recently, in the
third quarter of 2005, Spansion experienced capacity constraints for final test and assembly of certain products. While Spansion is working internally and with
subcontractors to realign and increase capacity to meet anticipated demand, Spansion does not expect to be able to do so in the short term. These capacity
constraints limit Spansion’s ability to respond to rapid and short-term surges in demand for its products. Spansion’s inability to obtain sufficient manufacturing
capacity to meet demand, either in its own facility or through foundry, subcontractor or similar arrangements with third parties, could have a material adverse
effect on Spansion.
Spansion is party to intellectual property litigation and may become party to other intellectual property claims or litigation that could cause it to incur
substantial costs or pay substantial damages or prohibit it from selling its products.
Tessera, Inc. filed a lawsuit against Spansion alleging that it has infringed certain of Tessera’s patents. Tessera has sought to enjoin such alleged
infringement and to recover an unspecified amount of damages. In addition, Fujitsu has informed Spansion that it has been informed by Texas Instruments that
Texas Instruments believes that several of Spansion’s products infringe some of Texas Instruments’ patents. Fujitsu has also informed Spansion that it expects
Spansion to defend and indemnify Fujitsu against Texas Instruments’ claims in accordance with the terms of Spansion’s distribution agreement with Fujitsu.
Defending these claims and similar claims could be extremely expensive and time-consuming for Spansion, and defending these claims or others or the award of
damages or an injunction could have a material adverse effect on Spansion.
Intense competition in the Flash memory market could materially adversely affect Spansion.
Spansion’s principal competitors in the Flash memory market are Intel Corporation, Samsung Electronics Co., Ltd., STMicroelectronics, Silicon Storage
Technology, Inc., Macronix International Co., Ltd., Toshiba Corporation, Sharp Electronics Corp. and Renesas Technology Corp. and may also include the joint
venture between Intel and Micron Technology, Inc. The principal bases of competition in the Flash memory market are cost, selling price, performance, quality
and customer relationships. In particular, in the past, Spansion’s competitors have aggressively priced their products in order to increase market share, which
resulted in decreased average selling prices for Spansion’s products and adversely impacted Spansion’s results of operations. In addition, recent capital
investments by competitors have resulted in substantial industry manufacturing capacity, which may further contribute to a competitive pricing environment.
Also, Spansion and certain of its competitors have licensed Flash memory technology called NROM technology from a third party. NROM technology has
similar characteristics to Spansion’s MirrorBit technology which may allow these competitors to develop new Flash memory technology that is competitive with
Spansion’s MirrorBit technology.
Spansion may not be able to compete effectively if it fails to reduce its manufacturing costs and develop, introduce and sell on a timely basis, new products
or enhanced versions of existing products at competitive prices.
If Spansion is unable to timely and efficiently implement 300-millimeter wafer capacity for the manufacture of its Flash memory products, Spansion
could be materially adversely affected.
Spansion has stated its intention to develop manufacturing capacity on 300-millimeter wafers for its Flash memory products. The timing for implementing
300-millimeter capacity will depend in part on the demand for
70
Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006