AMD 2006 Annual Report Download - page 46

Table of Contents
would cause dilution to its stockholders. Spansion’s inability to obtain needed financing or to generate sufficient cash from operations may require it to abandon
projects or curtail capital expenditures. If Spansion cannot generate sufficient operating cash flows or obtain external financing, it may be delayed in achieving,
or may not achieve, needed manufacturing capacity, and Spansion could be materially adversely affected.
If Spansion is unable to timely and efficiently expand its manufacturing capacity to implement 300-millimeter wafer capacity at SP1, Spansion’s
business, results of operations or financial condition could be materially adversely affected.
Spansion intends to expand its manufacturing capacity to produce approximately 15,000 to 20,000 300-millimeter wafers per month at SP1. Spansion’s
goal is to have 65- and 45-nanometer process technology on 300-millimeter wafer capacity in place in fiscal 2008. In fiscal 2006 Spansion commenced a plan to
spend approximately $1.2 billion over three years to construct and equip its planned flash memory manufacturing facility in Aizu-Wakamatsu, Japan, which
Spansion refers to as SP1. However, the actual cost and capacity achieved will vary depending on various factors, including available financing and future
product demand. Financing for the construction of and equipment for SP1 may not be available when needed or, if available, may not be available on satisfactory
terms. If Spansion does not achieve its desired capacity at the anticipated cost, or if Spansion cannot obtain suitable financing, Spansion may be delayed in
achieving, or may not achieve, such capacity, and Spansion could be materially adversely affected.
The timing for implementing 300-millimeter capacity in SP1 will also depend in part on Spansion’s ability to execute its plan for constructing and
equipping the facility and other factors that may be beyond its control, such as delivery schedules for the required machinery and equipment and construction
schedules. If Spansion is delayed in implementing this capability or is unable to obtain foundry services at competitive rates or to timely and efficiently ramp
production on 300-millimeter wafers, it will not achieve anticipated cost savings associated with this technology and its gross margins could decline. Even if
Spansion is successful in implementing this capacity, if the demand for its products is not sufficient to support the additional capacity when it becomes available,
it could be materially and adversely affected.
If Spansion’s cost reduction efforts are not effective, Spansion’s business could be materially adversely affected.
Spansion continues to undertake a number of actions in an effort to significantly reduce its expenses. These actions include and have included streamlining
operations, continuing to align manufacturing utilization to the level of demand for Spansion products, controlling increasing testing costs and working with us
and Fujitsu to reduce costs under services agreements. We cannot assure you that any of these actions will occur as anticipated or at all, or that Spansion will be
able to achieve significant cost reductions. If Spansion’s cost reduction efforts are unsuccessful, Spansion would be materially adversely affected.
Manufacturing capacity constraints may have a material adverse affect on Spansion.
There may be situations in which Spansion’s manufacturing capacity is inadequate to meet the demand for some of its products. Spansion increasingly
depends on foundry, subcontractor and similar arrangements with third parties to meet demand. Spansion’s arrangements with third-party suppliers do not
necessarily include capacity guarantees. If a third-party manufacturer on which it relies does not have the capacity to deliver an adequate amount of product to
meet actual demand, Spansion may not be able to obtain the manufacturing capacity, either in its own facilities or through other third-party arrangements, to meet
such demand. During fiscal 2006, demand for certain of Spansion’s products exceeded the available supply. As a result, Spansion was unable to meet the demand
of some of its customers for these products. This could adversely impact Spansion’s relationships with customers, cause harm to Spansion’s reputation in the
marketplace, cause these customers to move future business to Spansion’s competitors or cause Spansion to make financial concessions to its customers. Any of
these occurrences could have a material adverse effect on Spansion. Also, in the third and fourth quarters of fiscal 2005 and the third quarter of fiscal 2006,
Spansion experienced capacity constraints for
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007