AMD 2006 Annual Report Download - page 32

Table of Contents
used in the manufacture of our graphics products are currently available from only a limited number of sources and often subject to rapid changes in price and
availability. 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.
If we fail to improve the efficiency of our supply chain in order to respond to increases or changes in customer demand for our products, our business
could be materially adversely affected.
Our ability to meet customer demand for our products depends, in part, on our ability to deliver the products our customers want on a timely
basis. Accordingly, we must continually improve the management of our supply chain by synchronizing the entire supply chain, from sourcing through
manufacturing, distribution and fulfillment. As we continue to grow our business, acquire new OEM customers and strengthen relationships with existing OEM
customers, the efficiency of our supply chain will become increasingly important because OEMs tend to have specific requirements for particular products, and
specific time-frames in which they require delivery of these products. In the second half of 2006, we experienced challenges in the ability of our supply chain to
keep up with the significant ramp in microprocessor units sold across a diverse set of customers and geographies and to deliver products on a timely basis. Also,
the breadth of our product portfolio increased significantly as a result of our acquisition of ATI, which put stress on our supply chain. If we fail to
adequately improve the efficiency of our supply chain and adjust our operations in response to future increases or changes in OEM demand for our products, our
business could be materially adversely affected.
Industry overcapacity could cause us to under-utilize our microprocessor manufacturing facilities and have a material adverse effect on us.
Both we and our competitor, Intel, have added significant capacity in recent years, both by expanding capacity at wafer fabrication facilities and by
transitioning to more advanced manufacturing technologies, and we plan on further increasing our capacity by expanding the production capacity of Fab 36 and
converting Fab 30 into a 300-millimeter wafer manufacturing facility. 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 for which 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 for certain of our products, our costs
cannot be reduced in proportion to the reduced revenues for such a period. When this occurs, our operating results are materially adversely affected. If the
demand for our microprocessor products is not consistent with our increased expectations, we may under-utilize our manufacturing facilities or we may not fully
utilize the reserved capacity at Chartered’s foundry. This may have a material adverse effect on us.
Unless we maintain manufacturing efficiency, our future profitability could be materially adversely affected.
Manufacturing our products involves highly complex processes that require advanced equipment. Our manufacturing efficiency is an important factor in
our profitability, and we cannot be sure that we will be able to
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007