AMD 2006 Annual Report Download - page 49

Table of Contents
To compete successfully, Spansion must decrease its manufacturing costs and develop, introduce and sell products that meet the increasing demand for
greater Flash memory content in mobile phones, consumer electronics and automotive applications, among other markets, at competitive prices. If Spansion is
unable to compete effectively, it could be materially adversely affected.
If essential equipment or adequate supplies of satisfactory materials are not available to manufacture Spansion’s products, Spansion could be
materially adversely affected.
Spansion’s manufacturing operations depend upon obtaining deliveries of equipment and adequate supplies of materials on a timely basis. Spansion
purchases equipment and materials from a number of suppliers. From time to time, suppliers may extend lead times, limit supply to Spansion or increase prices
due to capacity constraints or other factors. Because the equipment that Spansion purchases is complex, it is difficult for Spansion to substitute one supplier for
another or one piece of equipment for another. Some raw materials Spansion uses in the manufacture of Spansion’s products are available from a limited number
of suppliers. Spansion’s manufacturing operations also depend upon the quality and usability of the materials Spansion uses in its products, including raw
materials and wafers Spansion receives from its suppliers. For example, in the third quarter of fiscal 2006, Spansion had lower than expected yields on 12,000
raw wafers received from one of its suppliers and Spansion’s revenue and gross margins were adversely affected. If the materials Spansion receives from its
suppliers do not meet Spansion’s manufacturing requirements or product specifications, Spansion may be materially adversely affected.
Spansion also relies on purchasing commercial memory die from third-party suppliers to incorporate these die into multi-chip package, or MCP, products.
The availability of these third-party purchased commercial die is subject to market availability, and the process technology roadmaps and manufacturing
capacities of Spansion’s vendors. For example, Spansion’s production was constrained in the first half of fiscal 2004 because of difficulties in procuring adequate
supply of pseudo static RAM, or pSRAM. In addition, some of Spansion’s major suppliers, including Samsung, are also Spansion’s competitors. Interruption of
supply from a competitor that is a supplier or otherwise or increased demand in the industry could cause shortages and price increases in various essential
materials. If Spansion is unable to procure these materials, or if the materials it receives from Spansion’s suppliers do not meet Spansion’s production
requirements or product specifications, Spansion may have to reduce its manufacturing operations or its manufacturing yields may be adversely affected. Such a
reduction and yield issues have in the past and could in the future have a material adverse effect on Spansion.
If the market value of our shares of Spansion common stock remains below our book value of such shares for an extended period of time, then our
results of operations may be adversely affected.
If the market value of our shares of Spansion common stock remains below our book value of such shares and the decline in the market value level is
deemed “other than temporary,” then we may be required to take an impairment charge in the amount of the difference between the book value and the market
value. For the quarter in which we take any such impairment charge, our results of operations could be adversely affected by the amount of such impairment
charge. In addition, the carrying value of our investment in Spansion on our balance sheet would also be reduced. Therefore, sustained decreases in the market
price of Spansion’s common stock could have an adverse effect on us and our results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have not received any written comments that were issued more than 180 days before December 31, 2006, the end of the fiscal year covered by this
report, from the Securities and Exchange Commission staff regarding our periodic or current reports under the Securities Exchange Act of 1934 that remain
unresolved.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007