AMD 2006 Annual Report Download - page 40

Table of Contents
equipment and materials used in manufacturing. We cannot assure you that these activities will be effective in reducing foreign exchange rate exposure. Failure
to do so could have an adverse effect on our business, financial condition, results of operations and cash flow.
In addition, the majority of our product sales are denominated in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the local
currency can cause increases or decreases in the cost of our products in the local currency of such customers. An appreciation of the U.S. dollar relative to the
local currency could reduce sales of our products.
Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.
We market and sell our products directly to OEMs and through authorized third-party distributors. From time to time, our products are diverted from our
authorized distribution channels and are sold on the “gray market.” Gray market products entering the market result in shadow inventory that is not visible to us,
thus making it difficult to forecast demand accurately. Also, when gray market products enter the market, we and our distribution channel compete with heavily
discounted gray market products, which adversely affect demand for our products. In addition, our inability to control gray market activities could result in
customer satisfaction issues, because any time products are purchased outside our authorized distribution channel, there is a risk that our customers are buying
counterfeit or substandard products, including products that may have been altered, mishandled or damaged, or used products represented as new. Our inability to
control sales of our products on the gray market could have a material adverse effect on us.
If we cannot adequately protect our technology or other intellectual property in the United States and abroad, through patents, copyrights, trade
secrets, trademarks and other measures, we may lose a competitive advantage and incur significant expenses.
We rely on a combination of protections provided by contracts, including confidentiality and nondisclosure agreements, copyrights, patents, trademarks
and common law rights, such as trade secrets, to protect our intellectual property. However, we cannot assure you that we will be able to adequately protect our
technology or other intellectual property from third party infringement or from misappropriation in the United States and abroad. Any patent licensed by us or
issued to us could be challenged, invalidated or circumvented or rights granted thereunder may not provide a competitive advantage to us. Furthermore, patent
applications that we file may not result in issuance of a patent or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite
our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and
other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property on a worldwide basis in a cost-effective manner. Foreign
laws may provide less intellectual property protection than afforded in the United States. If we cannot adequately protect our technology or other intellectual
property in the United States and abroad, we would be materially adversely affected.
We are party to litigation, including intellectual property litigation, and may become a party to other claims or litigation that could cause us to incur
substantial costs or pay substantial damages or prohibit us from selling our products.
From time to time we are a defendant or plaintiff in various legal actions. Litigation can involve complex factual and legal questions and its outcome is
uncertain. In addition, as a result of our acquisition of ATI, we have assumed responsibility for ATI’s legal proceedings which include a securities litigation
proceeding and a consumer class action. In November 2006, we received a subpoena for documents and information in connection with the U.S. Department of
Justice’s criminal investigation into potential antitrust violations related to graphics processing units and cards. We also sell products to consumers, which could
increase our exposure to consumer actions such as product liability claims. Any claim that is successfully asserted against us may cause us to pay substantial
damages.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007