AMD 2006 Annual Report Download - page 37

Table of Contents
Our receipt of royalty revenues is dependent upon the success of third-party products.
Our graphics technology for the game console market is being used in the Nintendo GameCube, Nintendo Wii and Microsoft® Xbox 360™ game consoles.
The only revenues that we receive from these technology platforms are in the form of non-recurring engineering revenues, as well as royalties paid to us by
Nintendo and Microsoft based upon the market success of their products. Accordingly, our royalty revenues will be directly related to the sales of these products.
We anticipate royalties in future years resulting from our agreements with Nintendo and Microsoft. However, we have no control over the marketing efforts of
Nintendo and Microsoft and we cannot assure you that sales of those products will achieve expected levels in the current or future fiscal years. Consequently, the
revenues from royalties expected by us from these technology platforms may not be fully realized, and our operating results may be adversely affected.
Our entry into new consumer markets is subject to a number of uncertainties.
As a result of the ATI acquisition, we sell products for the consumer electronics market, including digital TVs and color mobile phones. There are a
significant number of competitors targeting this market. The delay in acceptance of digital TV technology has also provided further opportunities for competitors
to enter this market. In addition, as the telecommunications, cable and consumer electronics industries and their suppliers undergo a period of convergence, we
expect that competition will increase in these markets. Our ability to succeed in these new consumer markets is subject to a number of uncertainties, including
acceptance of our graphics and multimedia processors, the development of new technologies sufficient to meet market demand, the need to develop customer
relationships, different sales strategies and channels, new and different industry standards from those in the PC market and changing strategic alliances. We
cannot assure you that we will be able to successfully compete in this new market. If we are unable to successfully introduce products and compete in this
market, we could be materially adversely affected.
Our inability to continue to attract and retain qualified personnel may hinder our product development programs.
Our future success depends upon the continued service of numerous qualified engineering, manufacturing, marketing, sales and executive personnel,
including the more than 4,000 employees we acquired through the ATI acquisition. If we are not able to continue to attract, retain and motivate qualified
personnel necessary for our business, the progress of our product development programs could be hindered, and we could be materially adversely affected.
We outsource to third parties certain supply-chain logistics functions, including physical distribution of our products, and co-source some information
technology services.
We rely on a third-party provider to deliver our products to our customers and to distribute materials for some of our manufacturing facilities. In addition,
we rely on a third party in India to provide certain information technology services to us, including helpdesk support, desktop application services, business and
software support applications, server and storage administration, data center operations, database administration, and voice, video and remote access. Our
relationships with these providers are governed by fixed term contracts. We cannot guarantee that these providers will fulfill their respective responsibilities in a
timely manner in accordance with the contract terms, in which case our internal operations, the distribution of our products to our customers and the distribution
of materials for some facilities could be materially adversely affected. Also, we cannot guarantee that our contracts with these third-party providers will be
renewed, in which case we would have to transition these functions in-house or secure new providers, which could have a material adverse effect on us.
In addition, we decided to outsource or co-source these functions to third parties primarily to lower our operating expenses and to create a more variable
cost structure. However, if the costs related to administration, communication and coordination of these third-party providers are greater than we expect, then we
will not realize our anticipated cost savings.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007