AMD 2010 Annual Report Download - page 105

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NOTE 8: Concentrations of Credit and Operation Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily
of investments in debt securities, trade receivables and derivative financial instruments used in hedging activities.
The Company places its investments with high credit quality financial institutions and, by policy, limits the
amount of credit exposure with any one financial institution. The Company invests in time deposits and
certificates of deposit from banks having combined capital, surplus and undistributed profits of not less than
$200 million. At the time an investment is made, investments in commercial paper and money market auction
rate securities of industrial firms and financial institutions are rated A1, P1 or better. Investments in tax-exempt
securities, including municipal notes and bonds, are rated AA, Aa or better, and investments in repurchase
agreements must have securities of the type and quality listed above as collateral.
The Company believes that concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the Company’s customer base, thus
spreading the trade credit risk. Accounts receivable from the Company’s top three customers accounted for
approximately 18%, 11% and 8% of the total consolidated accounts receivable balance as of December 25, 2010
and 16%, 12%, and 9% of the total consolidated accounts receivable balance as of December 26, 2009. However,
the Company does not believe the receivable balance from these customers represents a significant credit risk
based on past collection experience. The Company manages its exposure to customer credit risk through credit
limits, credit lines, monitoring procedures and credit approvals. Furthermore, the Company performs in-depth
credit evaluations of all new customers and, at intervals, for existing customers. From this, the Company may
require letters of credit, bank or corporate guarantees or advance payments, if deemed necessary.
The Company’s existing derivative financial instruments are with two large international financial
institutions of investment grade credit rating. The Company does not believe that there is significant risk of
nonperformance by these counterparties because the Company monitors their credit rating on an ongoing basis.
By using derivative instruments, the Company is subject to credit and market risk. If a counterparty fails to fulfill
its performance obligations under a derivative contract, the Company’s credit risk will equal the fair value of the
derivative instrument. Generally, when the fair value of a derivative contract is positive, the counterparty owes
the Company, thus creating a receivable risk for the Company. Based upon certain factors, including a review of
the credit default swap rates for the Company’s counterparties, the Company determined its counterparty credit
risk to be immaterial. At December 25, 2010, the Company’s obligations under the contracts exceed the
counterparties’ obligations by approximately $3 million.
The Company’s third party foundry, GF, is largely dependent on one supplier for silicon-on-insulator (SOI)
wafers to manufacture the Company’s products. The Company is also dependent on certain equipment and
materials from a limited number of suppliers and relies on a limited number of foreign companies to supply the
majority of certain types of integrated circuit packages for its internal back-end manufacturing operations.
Similarly, certain non-proprietary materials or components such as memory, PCBs, substrates and capacitors
used in the manufacture of the Company’s graphics products are currently available from only a limited number
of sources. Interruption of supply or increased demand in the industry could cause shortages and price increases
in various essential materials. If the Company or its third party manufacturing suppliers are unable to procure
certain of these materials, or its foundries are unable to procure materials for manufacturing its products, its
business would be materially adversely affected.
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