AMD 2006 Annual Report Download - page 33

Table of Contents
maintain or increase our manufacturing efficiency to the same extent as our competitors. We continually modify manufacturing processes in an effort to improve
yields and product performance and decrease costs. We may fail to achieve acceptable yields or experience product delivery delays as a result of, among other
things, capacity constraints, and delays in the development or implementation of new process technologies, changes in our process technologies, upgrades or
expansion of existing facilities, or impurities or other difficulties in the manufacturing process. For example, beginning in mid-2007 we plan to incrementally
bring down 200-millimeter output at Fab 30 in order to transition this facility to 300-millimeter manufacturing. While this facility is being converted, we will
have some fixed costs that cannot be scaled down in proportion.
Improving our microprocessor manufacturing efficiency in future periods is dependent on our ability to:
• develop advanced product and process technologies;
• successfully transition to advanced process technologies;
• ramp product and process technology improvements rapidly and effectively to commercial volumes across our facilities; and
• achieve acceptable levels of manufacturing wafer output and yields, which may decrease as we implement more advanced technologies.
We have begun to ramp 65-nanometer production and our goal is to be substantially converted to 65-nanometer in Fab 36 by mid-2007. During periods
when we are implementing new process technologies, manufacturing facilities may not be fully productive. A substantial delay in the technology transitions to
smaller process technologies could have a material adverse effect on us, particularly if our competitors transition to more cost effective technologies earlier than
we do. Our results of operations would also be adversely affected by the increase in fixed costs and operating expenses related to increases in production capacity
if revenues do not increase proportionately.
Similarly, the operating results of our graphics and consumer electronics businesses are dependent upon achieving planned semiconductor manufacturing
yields. Our graphics and chipset products and products for consumer electronics devices are manufactured at independent foundries, but we have the
responsibility for product design and the design and performance of the tooling required for manufacturing. Semiconductor manufacturing yields are a function
of both product design and process technology, which is typically proprietary to the manufacturer, and low yields can result from either design or process
technology failures. In addition, yield problems require cooperation by and communication between us and the manufacturer and sometimes the customer as
well. The offshore location of our principal manufacturers compounds these risks, due to the increased effort and time required to identify, communicate and
resolve manufacturing yield problems. We cannot assure you that we or our foundries will identify and fix problems in a timely manner, and achieve acceptable
manufacturing yields in the future. Our inability, in cooperation with our independent foundries, to achieve planned production yields for these products could
have a material adverse effect on us. In particular, failure to reach planned production yields over time could result in us not having sufficient product supply to
meet demand and/or higher production costs and lower gross margins for our graphics and consumer electronics businesses. This could materially adversely
affect us.
If we lose Microsoft Corporation’s support for our products, our ability to sell our microprocessors could be materially adversely affected.
Our ability to innovate beyond the x86 instruction set controlled by Intel depends partially on Microsoft designing and developing its operating systems to
run on or support our microprocessor products. If Microsoft does not continue to design and develop its operating systems so that they work with our x86
instruction sets, independent software providers may forego designing their software applications to take advantage of our innovations and customers may not
purchase PCs with our microprocessors. If we fail to retain the support of Microsoft, our ability to market our microprocessors would be materially adversely
affected.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007