AMD 2007 Annual Report Download - page 34

Table of Contents
Industry overcapacity could cause us to under-utilize our microprocessor manufacturing facilities and have a material adverse effect on us.
Both we and our competitor, Intel, have added significant capacity in recent years, both by expanding capacity at wafer fabrication facilities and by
transitioning to more advanced manufacturing technologies. In the past, capacity additions sometimes exceeded demand requirements leading to oversupply
situations and downturns in the industry. Fluctuations in the growth rate of industry capacity relative to the growth rate in demand for our products contribute to
cyclicality in the semiconductor market, which may in the future put pressure on our average selling prices and materially adversely affect us.
It is difficult to predict future growth or decline in the markets we serve, making it very difficult to estimate requirements for production capacity. If our
target markets do not grow as we anticipate, we may under-utilize our manufacturing facilities, which may result in write-downs or write-offs of inventories and
losses on products for which demand is lower than we anticipate.
In addition, during periods of industry overcapacity, customers do not generally order products as far in advance of the scheduled shipment date as they do
during periods when our industry is operating closer to capacity, which can exacerbate the difficulty in forecasting capacity requirements. Many of our costs are
fixed. Accordingly, during periods in which we under-utilize our manufacturing facilities as a result of reduced demand for certain of our products, our costs
cannot be reduced in proportion to the reduced revenues for such a period. When this occurs, our operating results are materially adversely affected. If the
demand for our microprocessor products is not consistent with our increased expectations, we may under-utilize our manufacturing facilities or we may not fully
utilize the reserved capacity at Chartered’s foundry. This may have a material adverse effect on us.
Unless we maintain manufacturing efficiency, our future profitability could be materially adversely affected.
Manufacturing our microprocessor products involves highly complex processes that require advanced equipment. Our manufacturing efficiency is an
important factor in our profitability, and we cannot be sure that we will be able to maintain or increase our manufacturing efficiency to the same extent as our
competitors. We continually modify manufacturing processes and transition to more advanced manufacturing process technologies in an effort to improve yields
and product performance and decrease costs. We may fail to achieve acceptable yields or experience product delivery delays as a result of, among other things,
capacity constraints, delays in the development or implementation of new process technologies, changes in our process technologies, upgrades or expansion of
existing facilities, or impurities or other difficulties in the manufacturing process. Any decrease in manufacturing yields could result in an increase in our per unit
costs or force us to allocate our reduced product supply among our customers, which could potentially harm our customer relationships, reputation, revenue and
gross profit.
Improving our microprocessor manufacturing efficiency in future periods is dependent on our ability to:
• develop advanced product and process technologies;
• successfully transition to advanced process technologies;
• ramp product and process technology improvements rapidly and effectively to commercial volumes across our facilities; and
• achieve acceptable levels of manufacturing wafer output and yields, which may decrease as we implement more advanced technologies.
During periods when we are implementing new process technologies, manufacturing facilities may not be fully productive. A substantial delay in the
technology transitions to smaller process technologies could have a material adverse effect on us, particularly if our competitors transition to more cost effective
technologies earlier
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008