AMD 2012 Annual Report Download - page 37

software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power
disruptions, natural disasters or accidents could cause breaches of data security and loss of critical data, which in
turn could materially adversely affect our business. Our security procedures, such as virus protection software
and our business continuity planning, such as our disaster recovery policies and back-up systems, may not be
adequate or implemented properly to fully address the adverse effect of such events, which could adversely
impact our operations. We could be subject to litigation and our reputation and brand could be harmed if our
information technology systems are compromised and sensitive or confidential information about our customers,
suppliers, partners and other third parties is lost or misappropriated. In addition, our business could be adversely
affected to the extent we do not make the appropriate level of investment in our technology systems as our
technology systems become out-of-date or obsolete and are not able to deliver the type of data integrity and
reporting we need to run our business. Furthermore, when we implement new systems and or upgrade existing
systems, we could be faced with temporary or prolonged disruptions that could adversely affect our business.
Also, implementing new systems or upgrading our existing systems could be very costly.
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 in part 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.
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.
For example, gross margin in the third quarter of 2012 was adversely impacted by, among other things, an
inventory write-down of $100 million. The inventory write-down was the result of lower anticipated future
demand for certain products and mainly comprised of our Llano products. Because market conditions are
uncertain, these and other factors could materially adversely affect our business.
Our reliance on third-party distributors and add-in-board partners subjects us to certain risks.
We market and sell our products directly and through third-party distributors and AIB partners pursuant to
agreements that can generally be terminated for convenience by either party upon prior notice to the other party.
These agreements are non-exclusive and permit both our distributors and AIBs to offer our competitors’
products. We are dependent on our distributors and AIBs to supplement our direct marketing and sales efforts. If
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