AMD 2007 Annual Report Download - page 35

Table of Contents
than we do. Our results of operations would also be adversely affected by the increase in fixed costs and operating expenses if revenues do not increase
proportionately.
Similarly, the operating results of our graphics and consumer electronics businesses are dependent upon achieving planned semiconductor manufacturing
yields. Our graphics and chipset products and products for consumer electronics devices are manufactured at independent foundries, but we have the
responsibility for product design and the design and performance of the tooling required for manufacturing. Semiconductor manufacturing yields are a function
of both product design and process technology, which is typically proprietary to the manufacturer, and low yields can result from either design or process
technology failures. In addition, yield problems require cooperation by and communication between us and the manufacturer and sometimes the customer as
well. The offshore location of our principal manufacturers compounds these risks, due to the increased effort and time required to identify, communicate and
resolve manufacturing yield problems. We cannot assure you that we or our foundries will identify and fix problems in a timely manner, and achieve acceptable
manufacturing yields in the future. Our inability, in cooperation with our independent foundries, to achieve planned production yields for these products could
have a material adverse effect on us. In particular, failure to reach planned production yields over time could result in us not having sufficient product supply to
meet demand and/or higher production costs and lower gross margins. This could materially adversely affect us.
The accounting method for convertible debt securities with net share settlement, like the 6.00% Notes, will be subject to change.
In September 2007, the Financial Accounting Standards Board, or FASB, exposed for comment a proposed FASB Staff Position (FSP) No. APB 14-a,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (including partial cash settlement). This proposed FSP would
change the accounting for certain convertible debt instruments, including our 6.00% Notes. Under the proposed new rules, for convertible debt instruments that
may be settled entirely or partially in cash upon conversion, an entity should separately account for the liability and equity components of the instrument in a
manner that reflects the issuer’s economic interest cost. The effect of the proposed new rules for our 6.00% Notes is that the equity component would be included
in the paid-in-capital portion of stockholders’ equity on our balance sheet and the value of the equity component would be treated as an original issue discount
for purposes of accounting for the debt component of the 6.00% Notes. Higher interest expense would result by recognizing accretion of the discounted carrying
value of the 6.00% Notes to their face amount as interest expense over the term of the 6.00% Notes. If issued as proposed, the final FSP would provide final
guidance effective for the fiscal years beginning after December 15, 2007, would not permit early application, and would be applied retrospectively to all periods
presented.
In November 2007, the FASB announced it expects to begin its redeliberations of the proposed FSP in January 2008. Therefore, it is unlikely that the
proposed effective date for fiscal years beginning after December 15, 2007 will be retained.
We cannot predict the exact accounting treatment that will be imposed (which may differ from the foregoing description) or when any change will be
finally implemented. However, if the final FSP is issued as exposed, we expect to have higher interest expense starting in the period of adoption due to the
interest expense accretion and, if the retrospective application provisions of the proposed FSP are retained in the final FSP, our prior period interest expense
associated with the 6.00% Notes would be higher than previously reported interest expense due to retrospective application.
Conversion of the 5.75% Notes and 6.00% Notes may dilute the ownership interest of our existing stockholders.
The conversion of some or all of the 5.75% Notes and the 6.00% Notes may dilute the ownership interests of our existing stockholders. Although the
capped call transaction that we entered into in connection with the issuance of the 6.00% Notes is expected to reduce potential dilution upon conversion of the
6.00% Notes, the
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008