FREE ESSAY ON ADVANCED MICRO DEVICES

ADVANCED MICRO DEVICES

Table of Contents
Table of Contents 1
Corporate Overview 2
Company History 2
Products 3
Financial Information 4
Market Conditions and Competition 5
Strategies & Goals 6
Foreign Operations 6
International Production Facilities 6
Fujitsu Alliance 7
Foreign Currency Translations 8
Hedging 8
Problematic Issues & Their Solutions 9
Lawsuits 9
Taiwan Earthquake 9
Outlook 10
Appendix A - Balance Sheets 11
Appendix B - Income Statements 12
Appendix C - Foreign Subsidiaries 13
Corporate Overview
Company History
Advanced Micro Devices (AMD), founded May 1st, 1969 and headquartered in Sunnyvale,
California, is one of the largest manufacturers of integrated circuits in the world.
Founded originally by Jerry Sanders and seven others in a single room in 1969 with only
$100,000, AMD now employs approximately 13,000 people worldwide and has annual revenues
in excess of $2.4 billion. 
In 1978, AMD opened up international assembly facilities in Manila, Philippines, and
expanded the Penang, Malaysia factory that they originally opened in 1973 as their first
overseas manufacturing base. By the end of 1981, the company had more than doubled its
sales over 1979. Plants and facilities expanded with an emphasis on building in Texas.
New production facilities were built in San Antonio, and more fabrication space was added
to their Austin, Texas facilities as well. 
In the years following 1981, AMD expanded its global operations tremendously with the
incorporation of AMD Singapore in 1983; as well as by building a facility in Bangkok,
Thailand. By 1994, AMD had become a supplier of flash memory, networking, EPROM,
telecommunications and programmable logic chips. In more recent years, AMD's sixth and
seventh generation chips, including the new Athlon processor have been, and will continue
to be one of the leading chipsets available worldwide. Their international sales
operations entail exchange rate fluctuations, political and economic risks, including
expropriation, currency controls, changes in freight rates and changes in rates and
exemptions for taxes and tariffs.
Products
The company's first products were products that they redesigned from other companies for
greater speed and efficiency. Now AMD produces processors, flash memories, programmable
logic devices, and products for communications and networking applications.
Their processors, the K6 and Athlon, are being used by IBM, Compaq and other computer
manufacturers around the world. On November 29, 1999, a 750MHz Athlon (see front cover
for photograph) processor was brought to market, making it the fastest processor
available in home computers. The 750MHz Athlon processor is priced at $799 in 1,000 unit
quantities. 
The 750MHz AMD Athlon processor is the first processor that is built using AMD's aluminum
0.18-micron manufacturing process, and new AMD Athlon processors are now being built
using that advanced technology. The 0.18-micron manufacturing process shrinks the size of
the AMD Athlon processor die, enabling faster processor speeds and lowering power
consumption. 
AMD is moving away from only supplying low-end chips, to supplying high-end high
performance chips using their 0.18-micron manufacturing process. The Athlon is currently
being manufactured in the Austin, Texas facility, and is expected to begin featuring
copper interconnect technology later this year in its newest facility, Fab 30 in Dresden,
Germany. 
Aside from the numerous processors that AMD produces, they also produce flash memory. It
does simultaneous read/write and is the first hardware capable of reading data during
programming or erasing operations. Programmable logic devices, communications and
networking applications are also among the products made by AMD.
The company has sales offices worldwide and has manufacturing facilities in Sunnyvale,
California; Austin, Texas; Bangkok, Thailand; Penang, Malaysia; Singapore; Suzhou, China
and Aizu-Wakamatsu, Japan. A wafer fabrication facility in Dresden, Germany is scheduled
to begin commercial production in 2000.
Financial Information
The balance sheets and income statements for AMD are provided in Appendices A & B. Total
net sales increased by $186 million, or 8 percent, to $2.542 billion in 1998 from $2.356
billion in 1997. Although sales grew, net loss also grew by $83 million dollars to $103
million in 1998. AMD blames the net loss due to the general downturn in the worldwide
semiconductor market and the current economic conditions in Asia, which negatively
impacted their results of operations. Closing share price for AMD on the NYSE as of
Wednesday, December 1, 1999 was $27.50 US, which gave it a market capitalization of
$4.064 billion.
Market Conditions & Competition
The processor market is characterized by short product life cycles and rapid change. To
compete successfully against Intel, AMD's largest competitor, in this market, AMD must be
able to develop and bring new products to market quickly and in high volume. Intel has
dominated the market for microprocessors used in personal computers for a long time.
Intel can set and control processor standards due to this market dominance and dictate
the type of product the market requires of Intel's competitors.
In addition, Intel may vary prices on its processors and other products at will and
thereby affect the margins and profitability of its competitors due to its financial
strength and dominant position. Given Intel's industry dominance and brand strength,
Intel's decisions on processor prices can impact and have impacted the average selling
prices of the AMD-K6 processors, and consequently can impact and has impacted AMD's
margins. AMD does not have the financial resources to compete with Intel on such a large
scale.
In a processor market predominantly run by Intel, AMD has had its work cut out for it to
stake its own claim in that arena. The company ranks second in the microprocessor market
(after Intel) with about 10% of sales. However, it has grabbed about 60% of the market
for sub-$1,000 PCs. 
Strategies & Goals
AMD's major goals are to gain market share and have profitable growth. However,
consistent long-term growth is very difficult for AMD to achieve because they must
continuously invest in research and development in order to stay competitive in the
rapidly changing processor market. Originally AMD had concentrated on low-end chips, but
with Intel's market dominance, they were being threatened of pushed out of the market.
Now, with the introduction of the high-end Athlon chip, AMD is trying to diversify their
processor line. In an interview with Jerry Sanders November 29, 1999 on CNBC, he stated
that:
"Turns out that when we only offered low-end chips, we got over 50% of the retail market,
but then Intel collapsed the prices. Intel subsidized the prices of their low-end chips
with the higher margins they were making on their high-end chips. Now we have both and
feel it will help defend against future strategies Intel may try to employ against us." 
This strategy will help AMD diversify and protect against these types of strategies that
Intel may try to employ in the future.
Foreign Operations
International Production Facilities
Nearly all product assembly and final testing of AMD products occurs at their
manufacturing facilities in Penang, Malaysia; Bangkok, Thailand; and Singapore; or by
subcontractors in Asia. AMD also recently entered into one of the most potentially
explosive markets in terms of growth. They constructed an assembly and test facility in
Suzhou, China and production began in the first quarter of 1999. For a complete list of
AMD's foreign subsidiaries refer to Appendix C. AMD also depends on foreign foundry
suppliers and joint ventures for the manufacture of a portion of their finished silicon
wafers. Foreign manufacturing and construction of foreign facilities entail political and
economic risks, including political instability, currency controls and fluctuations,
changes in freight and interest rates, and loss or modification of exemptions for taxes
and tariffs. Any disruptions or changes in international politics, or shipping could
potentially have an adverse effect on sales.
Fujitsu Alliance
In 1993, AMD and Fujitsu Limited (Fujitsu) formed a joint venture, Fujitsu AMD
Semiconductor Limited (FASL), for the development and manufacture of non-volatile memory
devices. AMD controls 49.992% of the company and Fujitsu controls the remaining stake.
In connection with FASL, AMD and Fujitsu have entered into various joint development,
cross-license and investment arrangements. Accordingly, the companies are providing their
product designs and process and manufacturing technologies to FASL. In addition, both
companies are collaborating in developing manufacturing processes and designing flash
memory devices for FASL. Interestingly, the right of each company to use the licensed
intellectual property of the other with respect to certain products is limited both in
scope and geographic areas. For instance, AMD and Fujitsu have cross-licensed their
respective intellectual property to produce stand-alone flash memory devices within the
joint venture.
Furthermore, AMD's ability to sell flash memory products incorporating Fujitsu
intellectual property, whether or not produced by FASL, is also limited in certain
territories, including Japan and Asia (excluding Taiwan). Fujitsu is likewise limited in
its ability to sell flash memory devices incorporating AMD intellectual property, whether
or not produced by FASL, in certain territories including the United States and Taiwan. 
Foreign Currency Translations
The functional currency of FASL is the Japanese yen. They translate these financial
statements in the U.S. dollar using the exchange rate at each balance sheet date for
assets and liabilities and a weighted-average exchange rate for each period for income
statement items. Translation adjustments are recorded as a separate component of
stockholders'
equity in the U.S. dollar financial statements. 
Hedging
AMD uses foreign exchange forward and option contracts to reduce their exposure to
currency fluctuations on net monetary assets position in their foreign subsidiaries,
liabilities for products purchased from FASL, fixed asset purchase commitments and
obligations for future investments in AMD Saxony.
They had $13 million (notional amount) of short-term foreign currency forward contracts
denominated in the Japanese yen, German mark and British pound outstanding as of December
27, 1998. They also had entered into various foreign currency option arrangements. In
1997, AMD purchased $150 million of call option contracts to hedge their obligations to
provide loans to, or invest equity in, AMD Saxony, of which $75 million were outstanding
as of December 27, 1998. In 1998, AMD entered into a no-cost collar arrangement to hedge
Dresden Fab 30 project costs through which they purchased $300 million of put option
contracts and sold $300 million of call option contracts. AMD had $220 million of no-cost
collar option contracts outstanding as of December 27, 1998. 
The reason that AMD uses these contracts is to minimize the impact of foreign currency
exchange rate movements on their operating results and on the cost of capital asset
acquisition.
Problematic Issues & Their Solutions
Market Share
AMD is up against a tough competitor in Intel as described earlier in the Market
Conditions & Competition section, however, they have taken measures to try to gain market
share. AMD must try to gain market share and at the same time strive to reach and sustain
profitability. With the introduction of the Athlon, AMD has broadened their product line
in the microprocessor arena. This will help them make gains in market share and brand
recognition. By introducing the fastest chip available in a personal computer, AMD has
turned more then a few heads in the industry, garnering more respect and recognition.
These Athlon chips, being high-end, will have a higher profit margin and, if widely
accepted, should lead AMD closer to profitability.
Lawsuits
For quite some time AMD had been plagued by lawsuits filed against them by numerous
companies claiming patent and copyright infringement. The largest of these claims could
have put AMD right out of business had the plaintiff, Intel, won. Intel and AMD were
locked in a tough five-year arbitration battle, over the rights to make and sell the
Am386 family of microprocessors. The judgment on this case came in February 1992, with
AMD awarded full rights to make and sell the Am386. 
Three years later, in 1995, AMD reached an agreement with Intel to settle all previously
outstanding legal disputes between the two companies and not in court. In December 1995,
AMD signed a cross-licensing agreement with Intel that will expire on New Years Eve 2000.
The agreement gives AMD and Intel the right to use each other's patents and some specific
copyrights. If AMD uses Intel technologies in their products, through the cross licensing
agreement, they are required to pay royalties.
Taiwan Earthquake
Taiwan is currently recovering from a major earthquake that occurred on September 21,
1999. The earthquake resulted in an interruption of power to their suppliers'
manufacturing facilities that contributed to a severe shortage of motherboards in the
last week of the third quarter of 1999 which adversely affected their sales of AMD Athlon
microprocessors. Overall sales growth in the fourth quarter of 1999 and in the first
quarter of 2000 is dependent upon a successful production ramp on 0.25-micron and
0.18-micron technology, market acceptance of their AMD Athlon microprocessor and
availability of chipsets and motherboards from Taiwanese and other suppliers, as to which
they cannot give any assurance. The effects of the earthquake in Taiwan may continue to
have an adverse impact on their business. AMD is currently trying to make up for lost
production time and hence sales due to this earthquake.
Outlook & Recommendations
AMD is currently devoting their attention to producing a wider array of processors to
help defend against possible strategies that Intel might wish to pursue to try and hurt
AMD. Not only are they defending against these strategies, they are also gaining respect,
recognition and building towards profitability. The earthquake in Taiwan may have
disrupted their Athlon production somewhat, however, this is a one in a million event
that is not foreseeable and not likely to occur often. AMD is doing the right thing by
broadening their product lines through investing heavily in research and development.
Having a first mover advantage in the processor market may mean hundreds of millions of
dollars to the company's bottom line if they are able to continue the trend they have
started with the 750MHz Athlon chip. 
AMD should try their best to maintain this first mover advantage as the personal
computing and hence processor market, in accordance with Moore's Law, is a rapidly
changing market and the benefits of being the first to offer the newest, fastest chips
available are extremely great as the margins on high-end chips are immense. 
Appendix A - Balance Sheets 
ADVANCED MICRO DEVICES LIMITED
BALANCE SHEETS
MARCH 31, 1999 AND 1998
--------------------------------------------------------------------------------
(Thousands except share and per share amounts)
1999 1998 
----- ----
ASSETS 
Current assets: 
Cash and cash equivalents $ 8 $ 11,453 
Accounts receivable from affiliates 64,007 74,837 
Inventories: 
Raw materials and supplies 4,471 4,921 
Work-in-process 57,760 35,693 
Finished goods 2,339 8,471 
---------- --------- 
Total inventories 64,570 49,085 
Other current assets 299 1,960 
---------- --------- 
Total current assets 128,884 137,335 
Property, plant and equipment: 
Equipment 944,936 764,921 
Buildings 131,016 117,449 
Construction in progress 3,866 5,708 
---------- --------- 
Total property, plant and equipment 1,079,818 888,078 
Accumulated depreciation (507,449) (288,342) 
---------- --------- 
Property, plant and equipment, net 572,369 599,736 
Other assets 11,895 9,955 
---------- --------- 
TOTAL $ 713,148 $ 747,026 
========== ========= 
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities: 
Loan payable to affiliates $ 114,036 $ 93,868 
Accounts payable 34,998 105,473 
Payables to affiliates 29,200 33,331 
Accrued liabilities 11,307 8,047 
Income taxes payable 17 31,908 
---------- --------- 
Total current liabilities 189,558 272,627 
Deferred income taxes 59,610 62,097 
Other accrued liabilities 1,269 772 
Commitments - - 
Stockholders' equity: 
Common stock, par value $500; 800,000 shares authorized; 
636,000 shares issued and outstanding in 1999 and 1998 318,790 318,790 
Retained earnings 214,978 203,931 
Accumulated other comprehensive loss (71,057) (111,191) 
---------- --------- 
Total stockholders' equity 462,711 411,530 
---------- --------- 
TOTAL $ 713,148 $ 747,026 
========== ========= 
Appendix B - Income Statements 
Three Years Ended December 27, 1998
(Thousands except per share amounts) 1998 1997 1996
-----------------------------------------------------------------------------------------
Net sales $2,542,141 $ 2,356,375 $ 1,953,019
Expenses:
Cost of sales 1,718,703 1,578,438 1,440,828
Research and development 567,402 467,877 400,703
Marketing, general and administrative 419,678 400,713 364,798
2,705,783 2,447,028 2,206,329
Operating loss (163,642) (90,653) (253,310)
Litigation settlement (11,500) - -
Interest income and other,
net 34,207 35,097 59,391
Interest expense (66,494) (45,276) (14,837)
---------- ----------- ----------- 
Loss before income taxes and equity
in joint venture (207,429) (100,832) (208,756)
Benefit for income taxes (91,878) (55,155) (85,008)
---------- ----------- ----------- 
Loss before equity in joint venture (115,551) (45,677) (123,748)
Equity in net income of joint venture 11,591 24,587 54,798
---------- ----------- ----------- 
Net loss $ (103,960) $ (21,090) $ (68,950)
========== =========== =========== 
Net loss per common share:
Basic $(0.72) $(0.15) $(0.51)
========== =========== =========== 
Diluted $(0.72) $(0.15) $(0.51)
========== =========== =========== 
Shares used in per share
calculation:
Basic 143,668 140,453 135,126
Diluted 143,668 140,453 135,126
Appendix C - Foreign Subsidiaries 
Advanced Micro Devices S.A.N.V. Belgium 
AMD Trading Company Limited Bermuda 
AMD South America Limitada (2) Brazil 
Advanced Micro Devices (Canada) Limited Canada Advanced Micro Devices (Suzhou) Limited
(3) China Advanced Micro Devices S.A. France 
Vantis SAS (1) France Advanced Micro Devices GmbH Germany AMD Saxony Holding GmbH Germany
AMD Saxony Manufacturing GmbH (4) Germany Vantis GmbH Germany AMD Foreign Sales
Corporation Guam Advanced Micro Devices S.p.A. Italy 
Vantis S.r.l. (1) Italy 
AMD Japan Ltd. Japan 
Vantis Japan K.K. (1) Japan Advanced Micro Devices Sdn. Bhd. Malaysia Advanced Micro
Devices Export Sdn. Bhd. (5) Malaysia Advanced Micro Devices Services Sdn. Bhd. (6)
Malaysia AMD (Netherlands) B.V. (7) Netherlands Advanced Micro Devices (Singapore) Pte.
Ltd. Singapore AMD Holdings (Singapore) Pte. Ltd. (8) Singapore Advanced Micro Devices AB
Sweden Advanced Micro Devices S.A. (9) Switzerland AMD (Thailand) Limited (7) Thailand
Advanced Micro Devices (U.K.) Limited United Kingdom Vantis (UK) Limited (1) United
Kingdom Vantis II (UK) Limited (1) United Kingdom