AMD 2010 Annual Report Download - page 35

If we fail to maintain the efficiency of our supply chain as we respond to increases or changes in customer
demand for our products, our business could be materially adversely affected.
Our ability to meet customer demand for our products depends, in part, on our ability to deliver the products
our customers want on a timely basis. Accordingly, we rely on our supply chain for the manufacturing,
distribution and fulfillment of our products. As we continue to grow our business, acquire new OEM customers
and strengthen relationships with existing OEM customers, the efficiency of our supply chain will become
increasingly important because OEMs tend to have specific requirements for particular products, and
specific time-frames in which they require delivery of these products. If we are unable to consistently deliver the
right products to our customers on a timely basis in the right locations, our customers may reduce the quantities
they order from us, which could have a material adverse affect on our business.
We outsource to third parties certain supply-chain logistics functions, including portions of our product
distribution, transportation management, and information technology support 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, our manufacturing suppliers
and to our customers. In addition, we rely on third parties 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.
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 our business if the transition is not executed
appropriately.
Uncertainties involving the ordering and shipment of 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 significant fees. 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. Our ability to forecast demand is even further complicated when we
sell 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 short
notice for any reason. We may build inventories during periods of anticipated growth, and the cancellation or
deferral of product orders or overproduction due to failure of anticipated orders to materialize, could result in
excess or obsolete inventory, which could result in write-downs of inventory and an adverse effect on gross
margins. Factors that may result in excess or obsolete inventory, which could result in write-downs of the value
of our inventory, a reduction in the average selling price, and/or a reduction in our gross margin include:
• a sudden and significant decrease in demand for our products;
• a higher incidence of inventory obsolescence because of rapidly changing technology and customer
requirements;
• a failure to accurately estimate customer demand for our older products as our new products are
introduced; or
• our competitors taking aggressive pricing actions.
Because market conditions are uncertain, these and other factors could materially adversely affect our
business.
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