AMD 2006 Annual Report Download - page 43

Table of Contents
The demand for Spansion’s products depends in large part on continued growth in the industries into which they are sold. A market decline in any of
these industries, or a decline in demand for Flash memory products in these industries, would have a material adverse effect on Spansion’s results of
operations.
Sales of Spansion’s Flash memory products are dependent to a large degree upon consumer demand for mobile phones. In fiscal 2006, wireless customers,
which primarily consist of mobile phone OEMs represented the largest market for NOR Flash memory. In fiscal 2006 and fiscal 2005, sales to wireless Flash
memory customers drove a majority of Spansion’s sales.
Similarly, sales of Spansion’s products targeting embedded Flash memory customers are dependent upon demand for consumer electronics such as set top
boxes, or STBs, and DVD players, automotive electronics, industrial electronics such as networking equipment, PCs and PC peripheral equipment such as
printers. Sales of Spansion’s products are also dependent upon the inclusion of increasing amounts of Flash memory content in some of these products. In fiscal
2005 and fiscal 2006, sales to embedded Flash memory customers drove a significant portion of Spansion’s sales.
If demand for mobile phones or products in the embedded portion of the Flash memory market, or the Flash memory content of these products, is below
Spansion’s expectations, if the functionality of successive generations of such products does not require increasing Flash memory density or if such products no
longer require Flash memory due to alternative technologies or otherwise, Spansion would be materially adversely affected.
Spansion has lost key intellectual property arrangements because it is no longer a beneficiary of our patent cross-license agreements and other licenses,
which creates a greatly increased risk of patent or other intellectual property infringement claims against Spansion.
As a majority owned subsidiary through December 20, 2005, Spansion had been the beneficiary of our intellectual property arrangements with third
parties, including patent cross-license agreements with other major semiconductor companies such as Intel, Motorola and IBM, and licenses from third parties for
technology incorporated in Spansion’s products and software used to operate its business. As a result of the conversion of Spansion’s outstanding shares of Class
D common stock into shares of Spansion’s Class A common stock in November 2006, Spansion ceased to be a beneficiary under most of the remainder of these
license agreements. As a result, Spansion may be subject to claims that it is infringing intellectual property rights of third parties through the manufacture and
sale of Spansion’s products and the operation of Spansion’s business. Therefore, absent negotiating its own license agreements with the third parties who own
such intellectual property, Spansion will be vulnerable to claims by such parties that Spansion’s products or operations infringe such parties’ patents or other
intellectual property rights.
Spansion will continue to attempt to negotiate its own agreements and arrangements with third parties for intellectual property and technology that are
important to Spansion’s business, including the intellectual property that it previously had access to through its relationship with us. Spansion will also attempt to
acquire new patents as Spansion’s success in negotiating patent cross-license agreements with other industry participants will depend in large part upon the
strength of its patent portfolio relative to that of the third party with which it is negotiating. If the third-party benefits from an existing patent cross-license
agreement with us or Fujitsu, in many cases it will retain the rights that it has under that agreement, including rights to utilize the patents that we and Fujitsu
transferred to Spansion in connection with Spansion’s reorganization as Spansion LLC in June 2003. In many cases, any such third party will also retain such
rights to utilize any patents that have been issued to Spansion or acquired by Spansion subsequent to Spansion’s reorganization and prior to Spansion’s IPO or, in
some cases, at the time of the conversion of the Class D common stock. Spansion’s negotiating position will therefore be impaired, because the other party will
already be entitled to utilize a large number of Spansion’s patents, while Spansion no longer has the right to utilize that party’s patents. As a result, Spansion may
be unable to obtain access to the other party’s patent portfolio on favorable terms or at all. Similarly, with respect to licenses from third parties for technology
incorporated in Spansion’s products or software used to operate Spansion’s business,
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007