AMD 2015 Annual Report Download - page 29

In addition, we are entering markets with current and new competitors who may be able to adapt more
quickly to customer requirements and emerging technologies. We cannot assure you that we will be able to
compete successfully against current or new competitors who may have stronger positions in these new markets
or superior ability to anticipate customer requirements and emerging industry trends. We may face delays or
disruptions in research and development efforts, or we may be required to significantly invest greater resources
in research and development than anticipated.
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 for standard products 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 our products are sold indirectly through downstream channel distributors and
customers, as our forecasts for demand are then based on estimates provided by multiple parties throughout the
downstream channel.
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 or a reduction in our gross margin include:
• a sudden or significant decrease in demand for our products;
• a production or design defect in 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 products, including for our older products as
our new products are introduced; or
• our competitors taking aggressive pricing actions.
For example, in the third quarter of 2015, we recorded an inventory write-down of $65 million consisting
primarily of older generation APUs, which adversely impacted our operating results. Since market conditions are
uncertain, these and other factors could materially adversely affect our business.
Our receipt of revenue from our semi-custom SoC products is dependent upon our technology being designed
into third-party products and the success of those products.
The revenue that we receive from our semi-custom SoC products is in the form of non-recurring engineering
fees charged to third parties for design and development services and revenue received in connection with sales
of our semi-custom SoC products to these third parties. As a result, our ability to generate revenue from our
semi-custom products depends on our ability to secure customers for our semi-custom design pipeline, our
customers’ desire to pursue the project, and our semi-custom SoC products being incorporated into those
customer’s products. Any revenue from sales of our semi-custom SoC products is directly related to sales of the
third-party’s products and reflective of their success in the market. Moreover, we have no control over the
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