AMD 2008 Annual Report Download - page 41

Our receipt of royalty revenues is dependent upon the success of third-party products.
Our graphics technology for game consoles is being used in the Nintendo GameCube, Nintendo Wii and
Microsoft®Xbox 360™ game consoles. The revenues that we receive from these products are in the form of
non-recurring engineering fees charged for design and development services, as well as per unit royalties paid to
us by Nintendo and Microsoft. Our royalty revenues are directly related to the sales of these products and
reflective of their success in the market. We have no control over the marketing efforts of Nintendo and
Microsoft and we cannot make any assurances that sales of those products will achieve expected levels in the
current or future fiscal years. Consequently, the revenues from royalties expected by us from these products may
not be fully realized, and our operating results may be adversely affected.
Our inability to continue to attract and retain qualified personnel may hinder our product development
programs.
Our future success depends upon the continued service of numerous qualified engineering, manufacturing,
marketing, sales and executive personnel. If we are not able to continue to attract, retain and motivate qualified
personnel necessary for our business, the progress of our product development programs could be hindered, and
we could be materially adversely affected.
We outsource to third parties certain supply-chain logistics functions, including portions of our product
distribution and transportation management, and co-source some information technology services.
We rely on third-party providers to operate our regional product distribution centers and to manage the
transportation of our work-in-process and finished products among our facilities and to our customers. In
addition, we rely on a third party in India to provide certain information technology services to us, including
helpdesk support, desktop application services, business and software support applications, server and storage
administration, data center operations, database administration, and voice, video and remote access. Our
relationships with these providers are governed by fixed term contracts. We cannot guarantee that these providers
will fulfill their respective responsibilities in a timely manner in accordance with the contract terms, in which
case our internal operations and the distribution of our products to our customers could be materially adversely
affected. Also, we cannot guarantee that our contracts with these third-party providers will be renewed, in which
case we would have to transition these functions in-house or secure new providers, which could have a material
adverse effect on us if the transition is not executed appropriately.
Uncertainties involving the ordering and shipment of, and payment for, our products could materially
adversely affect us.
We typically sell our products pursuant to individual purchase orders. We generally do not have long-term
supply arrangements with our customers or minimum purchase requirements except that orders generally must be
for standard pack quantities. Generally, our customers may cancel orders more than 30 days prior to shipment
without incurring a significant penalty. We base our inventory levels on customers’ estimates of demand for their
products, which may not accurately predict the quantity or type of our products that our customers will want in
the future or ultimately end up purchasing. For example, during the fourth quarter of 2008 our customers sharply
reduced orders for our products in order to balance their inventory levels to end customer demand. We believe
this inventory correction trend will continue across the supply chain into at least the first half of 2009, which
would increase our uncertainty regarding demand for our products and could materially adversely affect us. With
respect to our graphics products, we do not have any commitment or requirements for minimum product
purchases in our sales agreement with AIB customers, upon whom we rely to manufacture, market and sell our
desktop GPUs. These sales are subject to uncertainty because demand by our AIBs can be unpredictable and
susceptible to price competition. Our ability to forecast demand is even further complicated when we sell to
OEMs indirectly through distributors, as our forecasts for demand are then based on estimates provided by
multiple parties. Moreover, PC and consumer markets are characterized by short product lifecycles, which can
lead to rapid obsolescence and price erosion. In addition, our customers may change their inventory practices on
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