AMD 2010 Annual Report Download - page 19

Competition
Generally, the IC industry is intensely competitive. Products typically compete on product quality, power
consumption, reliability, performance, size (or form factor), cost, selling price, adherence to industry standards,
software and hardware compatibility and stability, brand recognition, timely product introductions and
availability. Technological advances in the industry result in frequent product introductions, regular price
reductions, short product life cycles and increased product capabilities that may result in significant performance
improvements. Our ability to compete depends on our ability to develop, introduce and sell new products or
enhanced versions of existing products on a timely basis and at competitive prices, while reducing our costs.
Competition in the Microprocessor Market
Intel Corporation has dominated the market for microprocessors for many years. Intel’s market share and
significant financial resources enable it to market its products aggressively, to target our customers and our
channel partners with special incentives, and to discipline customers who do business with us. These aggressive
activities have in the past and are likely in the future to result in lower unit sales and a lower average selling price
for our products, and adversely affect our margins and profitability.
As long as Intel remains in this dominant position, we may be materially adversely affected by Intel’s:
• business practices, including rebating, and allocation strategies and pricing actions, designed to limit
our market share and margins;
• product mix and introduction schedules;
• product bundling, marketing and merchandising strategies;
• exclusivity payments to its current and potential customers and channel partners;
• control over industry standards, PC manufacturers and other PC industry participants, including
motherboard, memory, chipset and basic input/output system, or BIOS, suppliers and software
companies as well as the graphics interface for Intel platforms; and
• marketing and advertising expenditures in support of positioning the Intel brand over the brand of its
OEM customers.
Intel exerts substantial influence over computer manufacturers and their channels of distribution through
various brand and other marketing programs. As a result of Intel’s dominant position in the microprocessor
market, Intel has been able to control x86 microprocessor and computer system standards and benchmarks and to
dictate the type of products the microprocessor market requires of us. Intel also dominates the computer system
platform, which includes core logic chipsets, graphics chips, motherboards and other components necessary to
assemble a computer system. OEMs that purchase microprocessors for computer systems are highly dependent
on Intel, less innovative on their own and, to a large extent, are distributors of Intel technology. Additionally,
Intel is able to drive de facto standards for x86 microprocessors that could cause us and other companies to have
delayed access to such standards.
Intel also leverages its dominance in the microprocessor market to sell its integrated chipsets. Intel
manufactures and sells integrated graphics chipsets bundled with their microprocessors and is a dominant
competitor with respect to this portion of our business. Moreover, computer manufacturers are increasingly using
integrated graphics chipsets rather than discrete graphics components, particularly for notebooks, because they
cost less than traditional discrete graphics components while offering satisfactory graphics performance for most
mainstream PCs. Intel could also take actions that place our discrete GPUs at a competitive disadvantage,
including giving one or more of our competitors in the graphics market, such as Nvidia Corporation (Nvidia),
preferential access to its proprietary graphics interface or other useful information.
Intel has substantially greater financial resources than we do and accordingly spends substantially greater
amounts on research and development than we do. We expect Intel to maintain its dominant position and to
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