AMD 2012 Annual Report Download - page 29

the number of 45nm wafers available for production. If we experience future supply constraints from our third
party manufacturing suppliers, we may be required to allocate the affected products amongst our customers,
which could have a material adverse effect on our relationships with these customers and on our financial
condition. In addition, if we are unable to meet customer demand due to fluctuating or late supply from our
manufacturing suppliers, it could result in lost sales and have a material adverse effect on our business.
We do not have long-term commitment contracts with some of our third party manufacturing suppliers. We
obtain some of these manufacturing services on a purchase order basis and these manufacturers are not required
to provide us with any specified minimum quantity of product beyond the quantities in an existing purchase
order. Accordingly, we depend on these suppliers to allocate to us a portion of their manufacturing capacity
sufficient to meet our needs, to produce products of acceptable quality and at acceptable manufacturing yields
and to deliver those products to us on a timely basis and at acceptable prices. The manufacturers we use also
fabricate wafers and assemble, test and package products for other companies, including certain of our
competitors. They could choose to prioritize capacity for other users, increase the prices that they charge us on
short notice or reduce or eliminate deliveries to us, which could have a material adverse effect on our business.
Other risks associated with our dependence on third-party manufacturers include limited control over
delivery schedules and quality assurance, lack of capacity in periods of excess demand, misappropriation of our
intellectual property, dependence on several small undercapitalized subcontractors, and limited ability to manage
inventory and parts. Moreover, if any of our third party manufacturing suppliers suffer any damage to facilities,
lose benefits under material agreements, experience power outages, lack sufficient capacity to manufacture our
products, encounter financial difficulties, are unable to secure necessary raw materials from their suppliers, or
suffer any other disruption or reduction in efficiency, we may encounter supply delays or disruptions. If we are
unable to secure sufficient or reliable supplies of products, our ability to meet customer demand may be
adversely affected and this could materially affect our business.
If we transition the production of some of our products to new manufacturers, we may experience delayed
product introductions, lower yields or poorer performance of our products. If we experience problems with
product quality or are unable to secure sufficient capacity from a particular third party manufacturing supplier, or
if we for other reasons cease utilizing one of those suppliers, we may be unable to secure an alternative supply
for any specific product in a short time frame. We could experience significant delays in the shipment of our
products if we are required to find alternative third party manufacturing suppliers, which could have a material
adverse effect on our business.
We rely on GF to manufacture most of our microprocessor and APU products. If GF is not able to satisfy our
manufacturing requirements, our business could be adversely impacted.
The WSA governs the terms by which we purchase products manufactured by GF. Pursuant to the WSA, we
are required to purchase all of our microprocessor and APU product requirements from GF with limited
exceptions. If GF is unable to achieve anticipated manufacturing yields, remain competitive using advanced
process technologies, manufacture our products on a timely basis, or meet our capacity requirements, then we
may experience delays in product launches or supply shortages for certain products and our business could be
materially adversely affected. For example, during the third quarter of 2011, GF experienced yield and other
manufacturing difficulties related to 32nm wafer fabrication, resulting in lower than expected supply of 32nm
products to us. Also in the third quarter of 2011, we experienced supply constraints for our 45nm microprocessor
products from GF due to complexities related to the use of common tools across both 32nm and 45nm
technology nodes and because we made the decision to shift volume away from products manufactured using the
45nm technology node in order to obtain additional 32nm products. Because we were supply constrained with
respect to 32nm and 45nm wafers, our revenues and gross margin in the third quarter of 2011 were adversely
impacted. Also, during the fourth quarter of 2011, we experienced reduced supply of 45nm product from GF
because of a manufacturing disruption that reduced the number of 45nm wafers available for production.
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