AMD 2008 Annual Report Download - page 35

The semiconductor industry is highly cyclical and has experienced severe downturns that materially
adversely affected, and may in the future materially adversely affect, our business.
The semiconductor industry is highly cyclical and has experienced significant downturns, often in
conjunction with constant and rapid technological change, wide fluctuations in supply and demand, continuous
new product introductions, price erosion and declines in general economic conditions. The current uncertainty in
global economic conditions has also impacted the semiconductor market as consumers and businesses have
deferred purchases, which has negatively impacted demand for our products. Our financial performance has
been, and may in the future be, negatively affected by these downturns. We incurred substantial losses in recent
downturns, due to:
• substantial declines in average selling prices;
• the cyclical nature of supply/demand imbalances in the semiconductor industry;
• a decline in demand for end-user products (such as PCs) that incorporate our products;
• excess inventory levels in the channels of distribution, including those of our customers; and
• excess production capacity.
If the current downturn in the semiconductor industry does not improve, we will be materially adversely
affected.
The demand for our products depends in part on continued growth in the industries and geographies into
which they are sold. Fluctuations in demand for our products or a market decline in any of these
industries or geographies would have a material adverse effect on our results of operations.
Our microprocessor and graphics businesses are dependent upon the market for mobile and desktop PCs and
servers. Industry-wide fluctuations in the computer marketplace have materially adversely affected us in the past,
are currently adversely affecting us and may materially adversely affect us in the future. In particular, during the
fourth quarter of 2008, which is typically our strongest quarter during the fiscal year, end user demand for PCs
and servers decreased significantly. In turn, our customers sharply reduced orders for our products in order to
balance their inventory levels to end customer demand, which materially adversely affected us. We believe this
inventory correction trend will continue across the supply chain into at least the first half of 2009, particularly in
connection with notebook PCs.
The growth of our business is also dependent on continued demand for our products from high-growth
global markets. If demand from these markets is below our expectations, sales of our products may decrease,
which could have a material adverse effect on us.
The markets in which our products are sold are highly competitive.
The markets in which our products are sold are very competitive, and delivering the latest and best products
to market on a timely basis is critical to achieving revenue growth. We expect competition to intensify due to
rapid technological changes, frequent product introductions and aggressive pricing by competitors. We believe
that the main factors that determine our competitiveness are product quality, power consumption, reliability,
speed, size (or form factor), cost, selling price, adherence to industry standards, software and hardware
compatibility and stability, brand recognition, timely product introductions and availability. After a product is
introduced, costs and average selling prices normally decrease over time as production efficiency improves, and
successive generations of products are developed and introduced for sale. We expect that competition will
continue to be intense in these markets and our competitors’ products may be less costly, provide better
performance or include additional features that render our products uncompetitive. With respect to our graphics
products, Intel and Nvidia are our competitors. Some competitors may have greater access or rights to companion
technologies, including interface, processor and memory technical information. Competitive pressures could
adversely impact the demand for our products, which could harm our revenue and gross margin.
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