AMD 2006 Annual Report Download - page 48

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Spansion is party to intellectual property litigation and may become party to other intellectual property claims or litigation that could cause it to incur
substantial costs or pay substantial damages or prohibit it from selling its products.
Tessera, Inc. filed a lawsuit against Spansion alleging that it has infringed certain of Tessera’s patents. Tessera has sought to enjoin such alleged
infringement and to recover an unspecified amount of damages. In addition, Fujitsu has informed Spansion that Texas Instruments has asserted that a number of
its products infringe some of Texas Instruments’ patents. Fujitsu has also provided Spansion with formal notice that they believe Spansion has a duty to defend or
indemnify Fujitsu against Texas Instruments’ claims under the terms of its distribution agreement. Since then, Spansion and Fujitsu have been discussing the
issues raised by this notice and if Fujitsu were to terminate the distribution agreement with Spansion, it could have a material adverse effect on Spansion.
Defending these alleged infringement claims and similar claims could be extremely expensive and time-consuming and an award of damages or an injunction
could have a material adverse effect on Spansion.
Intense competition in the Flash memory market could materially adversely affect Spansion.
Spansion’s principal competitors in the Flash memory market are Intel Corporation, Samsung Electronics Co., Ltd., STMicroelectronics, Silicon Storage
Technology, Inc., Macronix International Co., Ltd., Toshiba Corporation, Sharp Electronics Corp., Renesas Technology Corp., Micron Technology, Inc. and
Hynix Semiconductor Inc. In the future, Spansion’s principal competitors may also include SanDisk Corporation and IM Flash Technology, LLC, the joint
venture between Intel and Micron Technology, Inc. The Flash memory market is characterized by intense competition. The basis of competition is cost, selling
price, performance, quality, customer relationships and ability to provide value-added solutions. In particular, in the past, Spansion’s competitors have
aggressively priced their products in order to increase market share, which resulted in decreased average selling prices for Spansion’s products in the second half
of fiscal 2004 and the first quarter of fiscal 2005 and adversely impacted its results of operations. Some of Spansion’s competitors, including Intel, Samsung,
STMicroelectronics, Toshiba, Sharp and Renesas, are more diversified than Spansion is and may be able to sustain lower operating margins in their Flash
memory business based on the profitability of their other, non-Flash memory businesses. In addition, recent capital investments by competitors have resulted in
substantial industry manufacturing capacity, which may further contribute to a competitive pricing environment.
Moreover, some of Spansion’s competitors are able to manufacture on 300-millimeter wafers or may choose to utilize more advanced manufacturing
process technologies than Spansion uses today to offer products competitive to Spansion’s at a lower cost.
Spansion has stated that it expects competition in the market for Flash memory devices to intensify as existing manufacturers introduce new products, new
manufacturers enter the market, industry-wide production capacity increases and competitors aggressively price their Flash memory products to increase market
share. Competition also may increase if NOR memory vendors merge, if NAND memory vendors acquire NOR businesses or other NAND businesses, or if
Spansion’s competitors otherwise consolidate their operations. Furthermore, Spansion faces increasing competition from NAND Flash memory vendors in some
portions of the integrated Flash memory market.
Spansion has also stated that it expects to face competition as it addresses new applications with the introduction of Spansion’s MirrorBit ORNAND- and
MirrorBit Quad-based products. These products are intended to allow Spansion to compete in the data storage portion of the integrated category and select
portions of the removable category of the Flash memory market that might otherwise be served by NAND-based Flash memory products or other non-volatile
storage technologies such as ROM or optical discs. As a result, Spansion may compete with a number of established NAND-based Flash memory vendors and
other incumbent suppliers of alternative technology in marketing and selling these products. Moreover, Spansion’s MirrorBit ORNAND- and MirrorBit
Quad-based products may not have the price, performance, quality and other features necessary to compete successfully for these applications.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007