AMD 2006 Annual Report Download - page 28

Table of Contents
The semiconductor industry is highly cyclical and has experienced severe downturns that materially adversely affected, and may in the future
materially adversely affect, our business.
The semiconductor industry is highly cyclical and has experienced significant downturns, often in conjunction with constant and rapid technological
change, wide fluctuations in supply and demand, continuous 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:
• substantial declines in average selling prices;
• the cyclical nature of supply/demand imbalances in the semiconductor industry;
• a decline in demand for end-user products (such as PCs) that incorporate our products;
• excess inventory levels in the channels of distribution, including those of our customers; and
• excess production capacity.
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 microprocessor 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 products may not grow and may even decrease. If demand for computers is below our expectations, we could be materially adversely affected.
The business we acquired from ATI is also dependent upon the market for mobile and desktop PCs, the consumer electronics market and, in particular, the
markets for digital TVs, handheld devices, such as multimedia-enabled mobile phones, and game consoles. A market decline in any of these industries would
have a material adverse effect on our results of operations.
The growth of our business is also dependent on continued demand for our products from high-growth global markets. In 2006, sales of our products to
high-growth markets such as China increased significantly compared to 2005, 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.
The markets in which our products are sold are highly competitive.
The markets in which our products are sold are very competitive and delivering the latest and best products to market on a timely basis is critical to
achieving revenue growth. We expect competition to intensify due to rapid technological changes, frequent product introductions and aggressive pricing by
competitors. We believe that the main factors that determine our competitiveness are product quality, power consumption, reliability, speed, size (or form factor),
cost, selling price, adherence to industry standards, software and hardware compatibility and stability, brand recognition, timely product introductions 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 expect that competition will intensify in these markets and our competitors’ products may be
less costly, provide better performance or
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007