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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): July 22, 1996
ADVANCED MICRO DEVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-7882 94-1692300
(STATE OR OTHER (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION)
ONE AMD PLACE, 94088-3453
P.O. BOX 3453
SUNNYVALE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, (408) 732-2400
INCLUDING AREA CODE:
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ITEM 5. OTHER EVENTS.
Cautionary Statement Regarding Forward Looking Statements. The statements in
this report that are forward looking are based on current expectations and
involve numerous risks and uncertainties that could cause actual results to
differ materially. The forward looking statements include those regarding the
availability of capital from the planned sale of the Notes (as defined below)
and from the Credit Agreement described below; the planned construction of the
Dresden Facility as described below; the development, validation, certification,
introduction, market acceptance and pricing of K86(TM) products; the future
impact of the Company's acquisition of NexGen, Inc.; future business prospects
for microprocessor and Flash memory products and other product lines; the
Company's future commitment to research and development; planned build-out and
expected capability of Fab 25; and a proposed project in Japan. The risks and
uncertainties that could cause actual results to differ materially include
possible failure of the offering of the Notes; possible unavailability of the
credit facilities established by the Credit Agreement due to a failure of the
offering of the Notes or some other cause; the possibility that construction of
the Dresden Facility may not proceed due to numerous factors including adverse
business conditions affecting the Company's microprocessor or other product
groups, a reduction in capital available to the Company resulting from a failure
of the offering of the Notes or otherwise, and a failure to negotiate final
agreements satisfactory to the Company; and such other risks and uncertainties
as are set forth below in this report or detailed in the Company's other
Securities and Exchange Commission reports and filings.
FINANCING
On July 22, 1996, Advanced Micro Devices, Inc. ("AMD" or the "Company")
announced that it is commencing an underwritten offering of up to $400,000,000
of its Senior Secured Notes ("Notes") due 2003, pursuant to its shelf
registration statement filed with the Securities and Exchange Commission and
declared effective in 1994. AMD also announced that it has entered into a new
Credit Agreement with Bank of America National Trust and Savings Association, as
administrative agent and lender, ABN AMRO Bank, N.V. as syndication agent and
lender and Canadian Imperial Bank of Commerce as documentation agent and lender,
providing a three year revolving credit facility (subject to a one year
extension) in an aggregate principal amount of $150,000,000 and a four year term
loan of up to $250,000,000 available within the six month period following the
closing of the offering of the Notes. The Company intends to utilize the term
loan facility fully. These new credit facilities, which will become available to
AMD concurrently with the sale of the Notes, will replace certain of AMD's
current credit facilities. AMD intends to use approximately $150,000,000 of the
net proceeds from the sale of the Notes to prepay AMD's existing four year term
bank loan. The indebtedness under the Notes and the new credit facilities will
be secured by substantially all of AMD's real property, plant and equipment at
its integrated circuit manufacturing facility, commonly known as Fab 25, located
in Austin, Texas. A copy of the press release is attached hereto as Exhibit 99.
The Note offering will be made only by means of the prospectus, including the
prospectus supplement, which has been filed with the Securities and Exchange
Commission. A complete description of the Notes is contained in the prospectus,
including the prospectus supplement.
The Company's current business plan envisions substantial outlays requiring
external capital financing which the Company intends to obtain from the proceeds
of the sale of the Notes and borrowings under the Credit Agreement. If the sale
of the Notes is not consummated, the credit facilities provided for in the
Credit Agreement will not become available to the Company. There can be no
assurance that the sale of the Notes will be consummated. Failure to obtain the
requisite external capital financing could have a material adverse effect on the
Company.
DRESDEN FACILITY
AMD is currently planning to construct an 875,000 square foot submicron
integrated circuit manufacturing and design facility in Dresden, in the State
of Saxony, Germany (the "Dresden Facility") over the next five years at a
presently estimated cost in Deutsche marks equivalent to approximately $1.5
billion (under current exchange rates). The governments of the Federal
Republic of Germany and the State of Saxony have agreed to provide financing
assistance for the Dresden Facility through grants and allowances in Deutsche
marks in an aggregate amount equivalent to approximately $350.0 million at
current exchange rates, interest subsidies in Deutsche marks in an aggregate
amount equivalent to approximately $200.0 million at current exchange rates,
and loan guarantees. Between 1996 and 1999, AMD currently intends to invest in
its wholly owned German subsidiary (the "Dresden, Germany Subsidiary") (either
directly or through a wholly owned intermediate holding company, as
appropriate) an aggregate amount in Deutsche marks which is equivalent to
approximately $350.0 million at current exchange rates; of this amount, the
Deutsche mark equivalent of approximately $150.0 million would be invested in
the form of equity and approximately $200.0 million would be invested in the
form of equity or subordinated loans. The Dresden, Germany Subsidiary will
construct, own and operate the Dresden Facility, but AMD, as sole shareholder
of the Dresden, Germany Subsidiary, will control the Dresden, Germany
Subsidiary. The Dresden, Germany Subsidiary has signed an agreement to acquire
the land necessary to commence construction of the Dresden Facility for a
purchase price in Deutsche marks in an amount equivalent to approximately
$10.0 million at current exchange rates. The parcel consists of approximately
120 acres.
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The Dresden, Germany Subsidiary is expected to incur substantial project-
related debt in the form of a syndicated Deutsche mark bank loan in an
aggregate amount up to approximately $1.1 billion at current exchange rates,
the terms of which loan are currently under discussion with Dresdner Bank, as
agent for the prospective lenders. No commitment has been issued by Dresdner
Bank regarding the syndicated loan. This loan will be secured by the Dresden
Facility and substantially all of the Dresden, Germany Subsidiary's other
assets, will be guaranteed as to payment of principal and interest by the
Federal Republic of Germany and the State of Saxony and will be nonrecourse to
the Company. The Company will commit to provide the Dresden, Germany
Subsidiary an additional $100.0 million to $150.0 million, depending on the
outcome of negotiations with Dresdner Bank, for the Dresden, Germany
Subsidiary's use with respect to the Dresden, Germany Subsidiary's syndicated
loan obligations. This obligation will expire once the Dresden Facility is
completed, after which time the Company has been requested by Dresdner Bank to
make available up to $100.0 million for the Dresden, Germany Subsidiary to
draw upon should it fail to meet certain financial covenants. Assuming
successful completion of negotiations, it is currently expected that the
initial draw down on the loan will be made in 1997. Construction of the
Dresden Facility is expected to commence in the first half of 1997 and initial
volume production is planned to begin in 1999.
AMD is currently negotiating substantially all of the agreements relating to
the construction, operation and financing of the Dresden Facility. It is
presently expected that such agreements will be finalized during the fourth
quarter of 1996. The negotiations presently contemplate that, in addition to
the obligations discussed above, AMD (directly or indirectly) may be required
to agree to (1) return all federal and state government grants, allowances and
interest subsidies, or replace all such subsidies that are not made available,
if the Company or the Dresden, Germany Subsidiary fails to meet certain
material obligations to the Federal Republic of Germany or the State of
Saxony; (2) purchase the output of the Dresden facility at transfer prices to
be set pursuant to specific formulas, except where the Dresden facility is
operating at less than 75% capacity because of a lack of market demand for the
products being fabricated there (AMD's product purchase obligation can be
terminated once the syndicated loan has been repaid or under circumstances
relating to a change of control of the Dresden, Germany Subsidiary or the
destruction or abandonment of the Dresden Facility); (3) cause the Dresden,
Germany Subsidiary to undertake bona fide research and development activities
at the design center of the Dresden Facility; (4) grant a non-exclusive
license to the Dresden, Germany Subsidiary to use, at the Dresden Facility and
in products manufactured at the Dresden Facility, intellectual property
developed at the Dresden design center; and (5) make equity contributions or
subordinated loans to the Dresden, Germany Subsidiary to fund cost overruns,
exceeding certain amounts, in constructing the Dresden Facility.
In the event AMD agrees to purchase products from the Dresden, Germany
Subsidiary, the Indenture provides that such purchases must occur at prices
that would provide AMD with a minimum contribution margin.
No assurance can be given that AMD will be able to negotiate final
agreements relating to the construction, operation and financing of the
Dresden Facility on terms satisfactory to it, that the terms of any such
agreements will not be materially different from those described, or that the
financial exposure of AMD in connection with the Dresden Facility will not
materially exceed the proposed terms described herein. Certain terms in the
Indenture limit the amount and timing of the Company's investments in the
Dresden, Germany Subsidiary.
RISK FACTORS
The Company has indicated that its business, results of operation and
financial condition are subject to the following risk factors in addition to the
matters discussed in the second paragraph under "Financing" above:
MICROPROCESSOR PRODUCTS
Intel Dominance. Intel Corporation ("Intel") has long held a dominant
position in the market for microprocessors used in PCs. Intel's dominant
market position has to date allowed it to set x86 microprocessor standards and
thus dictate the type of product the market requires of Intel's competitors.
In addition, Intel's financial strength has enabled it to reduce prices on its
microprocessor products within a short period of time following their
introduction, which reduces the margins and profitability of its competitors.
AMD believes that the process technologies used in the fabrication of the
Company's microprocessors are currently somewhat behind those of Intel. The
Company expects Intel to continue to invest heavily in research and
development and new manufacturing facilities and to maintain its dominant
position through advertising campaigns designed to engender brand loyalty to
Intel among PC purchasers. In addition to its dominant microprocessor market
share, Intel also dominates the PC platform in other manners. For example,
Intel has obtained a dominant market share in sales of 64-bit or Pentium-class
core logic chip sets, has emerged as the world's largest motherboard
manufacturer, has become a significant manufacturer of personal computers,
incorporating Intel microprocessors, chip sets, motherboards and other Intel-
designed components, for resale by third-party original equipment
manufacturers ("OEMs") under such OEMs' names, and has purchased an equity
interest in Phoenix
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Technologies Ltd., a company which has a significant share of the market for
BIOS software (basic input/output system software encoded in read-only memory
which controls access to devices connected to a PC, such as the monitor and
the serial communications port). The Company does not have the financial
resources to compete with Intel on such a large scale. As long as Intel
remains in this dominant position, its product introduction schedule, product
pricing strategy and customer brand loyalty may continue to have a material
adverse effect on the Company, as they have had in the past.
As Intel has expanded its role in designing and setting standards for PC
systems, many PC OEMs have reduced their system development expenditures and
have begun to purchase microprocessors in conjunction with chip sets or in
assembled motherboards. In marketing its microprocessors to these OEMs and
dealers, AMD is dependent upon companies other than Intel for the design and
manufacture of core-logic chip sets, motherboards, BIOS software and other
components. In recent years, these third-party designers and manufacturers
have lost market share to Intel. In addition, these companies are able to
produce chip sets, motherboards, BIOS software and other components to support
each new generation of Intel's microprocessors only to the extent that Intel
makes its related proprietary technology available. Any delay in the
availability of such technologies would make it increasingly difficult for
them to retain or regain market share. To compete with Intel in this market in
1996 and beyond, the Company intends to form closer relationships with third-
party designers and manufacturers of core-logic chip sets, motherboards, BIOS
software and other components, expand its chip set and system design
capabilities, and sell a portion of the Company's processors along with chip
sets and license system designs incorporating the Company's processors and
products resulting from AMD's relationships with such third party designers
and manufacturers to OEMs. There can be no assurance, however, that such
efforts by the Company will be successful. The Company expects that as Intel
introduces future generations of microprocessors, chip sets and motherboards,
the design of chip sets and higher level board products which support Intel
microprocessors will become increasingly dependent on the Intel microprocessor
design and may become incompatible with non-Intel PC systems. If the
infrastructure of third-party designers and manufacturers which supports non-
Intel PC platforms were to fail to continue to support the Company's products
or to offer products competitive with Intel's, the Company could experience
difficulties marketing its microprocessors, which could have a material
adverse effect on the Company.
Dependence on New AMD Microprocessor Products. Am486(R) microprocessor
products contributed a significant portion of AMD's revenues, profits and
margins in 1994 and 1995. AMD expects Am486 microprocessor revenues, profits and
margins in 1996 to be significantly below those of 1995. As the product life
cycle of fourth-generation x86 products declines, AMD's ability to maintain or
expand its current levels of revenues from microprocessor products, and its
ability to benefit fully from the substantial financial commitments it has made
to process technologies and integrated circuit manufacturing facilities
dedicated to the production of microprocessors, will depend upon its success in
developing and marketing in a timely manner its next generations of
microprocessor products, the K86 RISC Superscalar(TM) products. The Company
recently began shipping its first K86(TM) products including the 100 Megahertz
("MHz") AMD-K5(TM) products which are designed to be competitive with the
Pentium, Intel's fifth generation microprocessor. The Company anticipates that
the AMD-K5 microprocessor, which was introduced relatively late in the life
cycle of fifth generation microprocessor products, will be a transitional
product, unlikely to result in the levels of revenue for the Company realized
from the Am486 microprocessor. The Company's AMD-K5 products have not, to date,
achieved substantial market acceptance, which has had and continues to have a
material adverse effect on the Company. The Company acquired NexGen, Inc.
("NexGen") in January 1996, in part, to accelerate the introduction of its
microprocessor products, particularly its sixth generation products. The Company
is modifying NexGen's sixth-generation design using AMD's design, verification
and manufacturing technologies. With these changes, AMD intends to develop and
produce the AMD-K6(TM) microprocessor. AMD does not expect any sales of the AMD-
K6 products in 1996. The Company intends to begin volume shipments of the AMD-K6
products in the first half of 1997, although no assurance can be given that such
shipments will occur. The Company's production and sales plans for K86
microprocessors, including the AMD-K6 microprocessor, are subject to numerous
risks and uncertainties, including the timing of the introduction of future AMD-
K5 products and of AMD-K6 products, the development of market acceptance for
such products particularly with leading OEMs of PCs, the effects of marketing
and
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pricing strategies adopted by Intel, the possible adverse effects of existing
and future customer inventory levels, the pace at which the Company is able to
ramp production of fifth and sixth generation microprocessors in its newest
integrated circuit manufacturing facility in Austin, Texas ("Fab 25"), the
possibility that products newly introduced by the Company may be found to be
defective, possible adverse conditions in the personal computer market and
unexpected interruptions in the Company's manufacturing operations. A failure
of the Company's K86 products, particularly the AMD-K6, to achieve market
acceptance, would have a material adverse effect on the Company.
Dependence on Market Acceptance of x86 Standard and Dominance of
Windows. Customer acceptance of AMD's K86 products will depend upon the
continued demand for x86-based personal computers, including the continued
development of application software programs for such computers. There can be
no assurance of the continued acceptance of the x86 standard or that software
developers will continue to develop software compatible with this standard.
AMD's K86 products will face competition not only from x86 products
manufactured by Intel and others but also from products based upon an
increasing number of different architectures which have been developed or are
under development by Hewlett-Packard, IBM, Motorola, Silicon Graphics, Sun
Microsystems, Digital Equipment Corporation and other manufacturers of
integrated circuits. Several of these manufacturers, such as Motorola, Digital
Equipment Corporation, Silicon Graphics and Sun Microsystems, produce
microprocessors which are designed to be compatible with such operating
systems as WindowsNT(R) and UNIX but not with Windows(R). Currently, as a
result of the dominance of the Windows operating system, which operates with
x86 based PCs, AMD is able to market its microprocessors without significant
competition from these manufacturers. AMD would lose much of this advantage if
the Microsoft Windows operating system should be displaced as the dominant
operating system software by one or more other systems, such as Windows NT or
UNIX. A reduction in the market acceptance of either the x86 standard or the
Windows operating system could have a material adverse effect on the Company.
Compatibility Certifications. For its future generations of K86
microprocessors, AMD intends to obtain Windows and Windows 95 certifications
from Microsoft and other appropriate certifications from recognized testing
organizations. A failure to obtain certification from Microsoft would prevent
the Company from describing and labeling its K86 microprocessors as Microsoft
Windows compatible. This could substantially impair the Company's ability to
market the products and could have a material adverse effect on the Company.
Acquisition of NexGen. AMD believes that its acquisition of NexGen is
important to the development and introduction of its K86 products,
particularly the AMD-K6 microprocessor. Achieving the anticipated benefits of
the acquisition will depend in part upon whether the integration of the two
companies' businesses is accomplished in an efficient and effective manner,
and there can be no assurance that this will occur. The inability of
management to integrate the operations of the two companies successfully could
have a material adverse effect on the Company. In addition, as commonly occurs
with mergers of technology companies, aggressive competitors may undertake
formal initiatives during the integration phase to attract customers and to
recruit key employees through various incentives. AMD has acquired and is
currently developing new technologies to manufacture its sixth generation
microprocessor which will utilize NexGen's sixth generation design as modified
by AMD. A costly reconfiguration of its facilities may be required to
implement these new technologies. There can be no assurance that AMD will be
successful in implementing these new technologies even with a reconfiguration
of its facilities. If the new technologies cannot be successfully implemented
or if AMD encounters other difficulties in manufacturing its sixth generation
microprocessors, such an event would have a material adverse effect on the
Company.
Fluctuation in PC Market. Since most of AMD's microprocessor products are
used in personal computers and related peripherals, AMD's future growth is
closely tied to the performance of the PC industry. The Company could be
materially and adversely affected by industry-wide fluctuations in the PC
marketplace in the future.
Possible Rights of Others. Prior to its acquisition by AMD, NexGen granted
limited manufacturing rights regarding certain of its current and future
microprocessors, including the Nx586(R) and Nx686(TM), to IBM and Compaq. The
Company does not intend to produce any NexGen products as it is the Company's
position that its
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forthcoming AMD-K6 products are AMD products and not NexGen products. There
can be no assurance that neither IBM nor Compaq will seek to establish rights
with respect to the products. If either IBM or Compaq or both were deemed to
have rights to produce AMD's AMD-K6 products for their own use and IBM were
deemed to have the right to produce limited volumes of such products for sale
to third parties, such production could reduce the potential market for
microprocessor products produced by AMD, the profit margin achievable with
respect to such products, or both.
MANUFACTURING
Underutilized Capacity. The Company's manufacturing facilities are currently
underutilized as a result of reduced demand for certain of the Company's
products and may remain so until the Company has developed new products and
such products have achieved market acceptance. The Company's operations
related to microprocessors are particularly affected by this situation. The
underutilization of the Company's manufacturing facilities is having, and
could continue to have, a material adverse effect on the Company. The Company
plans to increase its manufacturing capacity by making significant capital
investments in Fab 25 and in a microprocessor manufacturing facility to be
constructed in Dresden, Germany. In addition, the Company's joint venture with
Fujitsu, Ltd., Fujitsu AMD Semiconductor Limited ("FASL"), which has built a
flash memory device manufacturing facility in Aizu-Wakamatsu, Japan, plans to
construct a second Flash memory device manufacturing facility. There can be no
assurance that the industry projections regarding future growth in the markets
for integrated circuits upon which the Company is basing its strategy of
increasing its manufacturing capacity will prove to be accurate. If demand for
the Company's products does not increase, the underutilization of the Company's
manufacturing facilities will likely increase and have a material adverse effect
on the Company.
Process Technology. Manufacturers of integrated circuits are constantly
seeking to improve the process technologies used to manufacture their
products. In order to remain competitive, the Company must make continuing
substantial investments in improving its process technologies. In particular,
the Company has made and continues to make significant research and
development investments in the technologies and equipment used in the
fabrication of its microprocessor products and by FASL in the fabrication of
Flash memory devices. Portions of these investments might not be recoverable
if the Company's K86 microprocessors fail to gain market acceptance or if the
market for its Flash memory products should significantly deteriorate. This
could have a material adverse effect on the Company. In addition, any
inability of the Company to remain competitive with respect to process
technology could have a material adverse effect on the Company.
Commitments to Facilities Dedicated to Specific Products. The Company has
made and plans to continue to make substantial capital investments in
integrated circuit manufacturing facilities dedicated to the production of
specific product lines. AMD has invested over $860.0 million in Fab 25 and
ancillary facilities as of June 30, 1996, and currently expects to have
invested over $1.2 billion by the end of 1997 and over $1.6 billion by the end
of 1999, although the Company is not obligated to make such further
investments. Fab 25 is currently dedicated to the production of Microsoft
Windows compatible microprocessors. Other facilities of the Company are also
dedicated to the production of specific product lines. In addition, the
Company currently plans to construct a semiconductor manufacturing facility in
Dresden, Germany, at an estimated cost of $1.5 billion over five years, which
will be dedicated to the production of microprocessors. Significant time and
expense would be incurred were the Company to alter any of its facilities so
that they could be used to produce other integrated circuit products. Any such
alteration, resulting from a need to respond to changes in the markets for the
Company's products or otherwise, could have a material adverse effect on the
Company.
Manufacturing Constraints. While the Company's manufacturing facilities are
currently underutilized, there have been situations in the past in which the
Company's manufacturing facilities were inadequate to enable the Company to
meet demand for certain of its products. In addition to having its own
fabrication facilities, AMD has foundry arrangements for the production of its
products by third parties. Any inability of AMD to generate sufficient
manufacturing capabilities to meet demand, either in its own facilities or
through foundry or similar arrangements with others, could have a material
adverse effect on the Company.
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Manufacturing Interruptions. Any substantial interruption with respect to
any of AMD's manufacturing operations, either as a result of a labor dispute,
equipment failure or other cause, could have a material adverse effect on the
Company. The Company may also be materially adversely affected by fluctuations
in manufacturing yields.
Essential Manufacturing Materials. Certain of the raw materials used by AMD
in the manufacture of its products are available from a limited number of
suppliers. For example, several types of the integrated circuit packages
purchased by AMD, as well as by the majority of other companies in the
semiconductor industry, are principally supplied by Japanese companies.
Shortages could occur in various essential materials due to interruption of
supply or increased demand in the industry. If AMD were unable to procure
certain of such materials from any source, it would be required to reduce its
manufacturing operations which could have a material adverse effect on the
Company.
International Manufacturing. Nearly all product assembly and final testing
of AMD's products are performed at its manufacturing facilities in Penang,
Malaysia; Singapore; and Bangkok, Thailand; or by subcontractors in Asia.
Foreign manufacturing entails political and economic risks, including
political instability, expropriation, currency controls and fluctuations,
changes in freight and interest rates, and loss or modification of exemptions
for taxes and tariffs. For example, if AMD were unable to assemble and test
its products abroad, or if air transportation between the United States and
AMD's overseas facilities were disrupted, there could be a material adverse
effect on the Company.
OTHER RISK FACTORS
Debt Restrictions. The Credit Agreement contains, and the indenture to be
entered into in connection with the sale of the Notes (the "Indenture") will
contain, significant covenants that will limit the Company's and its
subsidiaries' ability to engage in various transactions and, in certain cases,
require satisfaction of specified financial performance criteria. In addition,
the occurrence of certain events (including, without limitation, failure to
comply with the foregoing covenants, material inaccuracies of representations
and warranties, certain defaults under or acceleration of other indebtedness and
events of bankruptcy or insolvency) would, in certain cases after notice and
grace periods, constitute events of default permitting acceleration of the
indebtedness under the Credit Agreement and the Notes. The limitations imposed
by the Credit Agreement and the Indenture will be substantial, and failure to
comply with such limitations could have a material adverse effect on the
Company.
Importance of Flash Memory Device Business; Recent Pricing Weakness. The
market for Flash memory devices has recently experienced rapid growth and is
likely to become increasingly competitive as additional manufacturers
introduce competitive products and production capacity in the industry
increases. The Company's primary competition with respect to Flash memory
devices is Intel. A substantial portion of the Company's revenues are derived
from sales of Flash memory devices, and the Company expects that this will
continue to be the case. In the first quarter of 1996, the Company experienced
declines in the selling prices of Flash memory devices, and in the second
quarter, both demand for the products and their selling prices declined. There
can be no assurance that the Company will be able to maintain its market share
in Flash memory devices or that price declines may not accelerate as the
market develops and as new competitors emerge. A decline in the Company's
Flash memory device business could have a material adverse effect on the
Company.
Dependence on Third Party for PLD Software. Customers utilizing programmable
logic devices ("PLD's") must use special software packages, generally provided
by the suppliers of the programmable logic devices, to program the
programmable logic devices. AMD provides its programmable logic device
customers with software which it licenses from MINC, Inc. ("MINC") and is
dependent upon MINC for continuing improvements in the quality of the
software. AMD has recently taken actions to strengthen its relationship with
MINC and to increase its efforts to continue to improve the software and the
Company's ability to support the software itself, but there can be no
assurance that these actions will be successful. If the software were to
become unavailable to AMD or if MINC were to fail to make continuing upgrades
of the software to keep pace with competitive software, AMD's PLD business
could be adversely affected, which could have a material adverse effect on the
Company.
Technological Change and Industry Standards. The market for AMD's products
is generally characterized by rapid technological developments, evolving
industry standards, changes in customer requirements, frequent new product
introductions and enhancements, short product life cycles and severe price
competition. The establishment of industry standards is a function of market
acceptance. Currently accepted industry standards may change at any time.
AMD's success depends substantially upon its ability, on a cost-effective and
timely basis, to continue to enhance its existing products and to develop and
introduce new products that take advantage of technological advances and
adhere to evolving industry standards. An unexpected change in one or more of
the technologies related to its products, in market demand for products based
on a particular technology or in
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accepted industry standards could have a material adverse effect on the
Company. There can be no assurance that AMD will be able to develop new
products in a timely and satisfactory manner to address new industry standards
and technological changes, or to respond to new product announcements by
others, or that any such new products will achieve market acceptance.
Product Incompatibility. While AMD submits its products to rigorous internal
and external testing, there can be no assurance that AMD's products will be
compatible with all industry standard software and hardware. Any inability of
AMD's customers to achieve such compatibility or compatibility with other
software or hardware after AMD's products are shipped in volume could have a
material adverse effect on the Company. There can be no assurance AMD will be
successful in correcting any such compatibility problems that are discovered
or that such corrections will be acceptable to customers or made in a timely
manner. In addition, the mere announcement of an incompatibility problem
relating to the Company's products could have a material adverse effect on the
Company.
Competition. The integrated circuit industry is intensely competitive and,
historically, has experienced rapid technological advances in product and
system technologies together with substantial price reductions in maturing
products. After a product is introduced, prices normally decrease over time as
production efficiency and competition increase, and a successive generation of
products is developed and introduced for sale. Technological advances in the
industry result in frequent product introductions, regular price reductions,
short product life cycles and increased product capabilities that may result
in significant performance improvements. Competition in the sale of integrated
circuits is based upon performance, product quality and reliability, price,
adherence to industry standards, software and hardware compatibility,
marketing and distribution capability, brand recognition, financial strength
and ability to deliver in large volumes on a timely basis.
In each particular market in which it participates, the Company faces
competition from different groups of companies. AMD, Fujitsu and Intel are the
world's largest producers of Flash memory devices. Sharp and Atmel Corporation
are also participants in the market. With respect to the Company's erasable
programmable read only memories ("EPROM's"), voice and data communications
products and embedded processors, the Company's primary competitors are: SGS
Thomson and Texas Instruments with respect to EPROMs; Siemens, NEC, LM
Erickson, Alcatel and other large producers of voice communications equipment
with respect to line cards; National Semiconductor, 3Com and Intel with
respect to networking products; and Motorola, Intel, Texas Instruments and SGS
Thomson with respect to embedded processors. In the market for high speed
programmable logic devices, the Company's principal competitors are Altera,
Lattice Semiconductor and other smaller companies focused on programmable
logic device development and production. With respect to microprocessors,
Intel holds a dominant position which has to date allowed it to set x86
microprocessor standards and thus dictate the type of product the market
requires of Intel's competitors. The Company's principal competitors with
respect to the Company's network and I/O products include: National
Semiconductor, Intel, 3Com, Digital Equipment Corporation, Fujitsu and Seeq
with respect to Ethernet local area network products; and Western Digital and
Hyundai with respect to SCSI disk host controllers.
Fluctuations in Operating Results. AMD's operating results are subject to
substantial quarterly and other fluctuations due to a variety of factors,
including the effects of competition with Intel in the microprocessor
industry, competitive pricing pressures, anticipated decreases in unit average
selling prices of AMD's products, fluctuations in manufacturing yields,
availability and cost of products from AMD's suppliers, the gain or loss of
significant customers, new product introductions by AMD or its competitors,
changes in the mix of products sold and in the mix of sales by distribution
channels, market acceptance of new or enhanced versions of AMD's products,
seasonal customer demand, the timing of significant orders and the timing and
extent of product development costs. In addition, operating results could be
adversely affected by general economic and other conditions affecting the
timing of customer orders, a downturn in the market for PCs, and order
cancellations or rescheduling. AMD's customers may change delivery schedules
or cancel orders without significant penalty. Many of the factors listed above
are outside of AMD's control. These factors are difficult to forecast, and
these or other factors could materially adversely affect AMD's quarterly or
annual operating results.
8
<PAGE>
Order Revision and Cancellation Policies. AMD manufactures and markets a
standard line of products. Sales are made primarily pursuant to purchase
orders for current delivery, or agreements covering purchases over a period of
time, which are frequently subject to revision and cancellation without
penalty. As a result, AMD must commit resources to the production of products
without having received advance purchase commitments from customers. Any
inability to sell products to which it had devoted significant resources could
have a material adverse effect on the Company. Distributors typically maintain
an inventory of AMD's products. Pursuant to the Company's agreements with the
distributors, AMD protects its distributors' inventory of AMD's products
against price reductions as well as products that are slow moving or have been
discontinued. These agreements, which may be canceled by either party on a
specified notice, generally contain a provision for the return of AMD's products
in the event the agreement with the distributor is terminated. The price
protection and return rights AMD offers to its distributors may materially
adversely affect the Company.
Key Personnel. AMD's future success depends upon the continued service of
numerous key engineering, manufacturing, sales and executive personnel. There
can be no assurance that AMD will be able to continue to attract and retain
qualified personnel necessary for the development and manufacture of its
products. Loss of the service of, or failure to recruit, key engineering
design personnel could be significantly detrimental to AMD's product
development programs or otherwise have a material adverse effect on the
Company.
Product Defects. One or more of AMD's products may possibly be found to be
defective after AMD has already shipped such products in volume, requiring a
product replacement, recall, or a software fix which would cure such defect
but impede performance. Product returns could impose substantial costs on AMD
and have a material adverse effect on the Company.
Intellectual Property Rights; Potential Litigation. Although AMD attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that AMD will be able to
protect its intellectual property adequately or that competitors will not be
able to develop similar technology independently. There can be no assurance
that any patent applications that AMD may file will be issued or that foreign
intellectual property laws will protect AMD's intellectual property rights.
There can be no assurance that any patent licensed by or issued to AMD will
not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to AMD. Furthermore, there can
be no assurance that others will not independently develop similar products,
duplicate AMD's products or design around the patents issued to or licensed by
AMD.
From time to time, AMD has been notified that it may be infringing
intellectual property rights of others. If any such claims are asserted
against AMD, AMD may seek to obtain a license under the third party's
intellectual property rights. AMD could decide, in the alternative, to resort
to litigation to challenge such claims. Such challenges could be extremely
expensive and time consuming and could materially adversely affect the
Company. For example, for many years the Company was involved in intellectual
property litigation with Intel which was settled in 1995. The litigation
required substantial resources of the Company. No assurance can be given that
all necessary licenses can be obtained on satisfactory terms, or that
litigation may always be avoided or successfully concluded.
Environmental Regulations. The failure to comply with present or future
governmental regulations related to the use, storage, handling, discharge or
disposal of toxic, volatile or otherwise hazardous chemicals used in the
manufacturing process could result in fines being imposed on AMD, suspension
of production, alteration of AMD's manufacturing processes or cessation of
operations. Such regulations could require AMD to acquire expensive
remediation equipment or to incur other expenses to comply with environmental
regulations. Any failure by AMD to control the use, disposal or storage of, or
adequately restrict the discharge of, hazardous substances could subject AMD
to future liabilities and could have a material adverse effect on the Company.
International Sales. AMD derives a substantial portion of its revenues from
its subsidiaries located in Europe and Asia. AMD's international sales
operations entail political and economic risks, including expropriation,
currency controls, exchange fluctuations, changes in freight rates and changes
in rates for taxes and tariffs.
9
<PAGE>
Domestic and International Economic Conditions. AMD's business is subject to
general economic conditions, both in the United States and abroad. A
significant decline in economic conditions in any significant geographic area
could have a material adverse effect upon the Company.
Volatility of Stock Price; Ability to Access Capital. Based on the trading
history of its stock, AMD believes factors such as quarterly fluctuations in
AMD's financial results, announcements of new products by AMD or its
competitors and general conditions in the semiconductor industry have caused
and are likely to continue to cause the market price of AMD common stock to
fluctuate substantially. Technology company stocks in general have experienced
extreme price and volume fluctuations that often have been unrelated to the
operating performance of the companies. This market volatility may adversely
affect the market price of AMD's common stock and consequently limit the
Company's ability to raise capital. In addition, an actual or anticipated
shortfall in revenue, gross margins or earnings from securities analysts'
expectations could have an immediate effect on the trading price of AMD common
stock in any given period.
Earthquake Danger. AMD's corporate headquarters, a portion of its
manufacturing facilities, assembly and research and development activities and
certain other critical business operations are located near major earthquake
fault lines. The Company could be materially adversely affected in the event
of a major earthquake.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c)Exhibits:
99 Press release dated July 22, 1996
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
ADVANCED MICRO DEVICES, INC.
(Registrant)
Date: July 25, 1996
By: /s/ Marvin D. Burkett
___________________________________
Marvin D. Burkett
Senior Vice President, Chief
Financial and Administrative
Officer and Treasurer
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- -------------- -------
<S> <C>
99 Press release dated July 22, 1996
</TABLE>
12
<PAGE>
[LETTERHEAD OF ADVANCED MICRO DEVICES]
NEWS RELEASE EXHIBIT 99
For further information:
Scott Allen
(408) 749-3311
AMD COMMENCES UNDERWRITTEN OFFERING,
ENTERS INTO NEW CREDIT AGREEMENT
SUNNYVALE, CA - JULY 22, 1996 - AMD announced today that it is commencing
an underwritten offering of up to $400,000,000 of its senior secured notes due
2003, pursuant to its shelf-registration statement filed with the Securities and
Exchange Commission declared effective in 1994. Donaldson, Lufkin & Jenrette
Securities Corporation and BA Securities, Inc. are acting as underwriters of the
offering. The rate of interest on the notes will be determined prior to their
sale.
AMD also announced that it has entered into a new credit agreement with
Bank of America NT&SA as administrative agent and lender, and ABN AMRO Bank,
N.V. and Canadian Imperial Bank of Commerce as lenders. The new credit
agreement provides a three-year revolving credit facility (subject to a one-year
extension with the approval of the lenders) in an aggregate principal amount of
$150,000,000, and a four-year term loan available in one drawdown or in multiple
draws within a six month period following the closing in an aggregate principal
amount of $250,000,000. These new credit facilities, which will become
available to AMD when the senior secured notes are sold, will replace certain of
AMD's current credit facilities. AMD intends to use approximately $150,000,000
of the net proceeds from the sale of the senior secured notes to prepay the
company's existing four-year term bank loan. The senior secured notes and the
indebtedness under the new credit agreement will be secured by substantially all
of AMD's real property, plant and equipment at one of its fabrication
facilities, Fab 25, located in Austin, Texas.
(more)
<PAGE>
2
The offering of the senior secured notes will be made only by means of a
prospectus, including a prospectus supplement, to be filed with the Securities
and Exchange Commission. A copy of the prospectus describing the senior secured
notes may be obtained from Donaldson, Lufkin & Jenrette Securities Corporation
and BA Securities, Inc. in New York, New York, and Chicago, Illinois,
respectively.
AMD is a global supplier of integrated circuits for the personal and
networked computer and communications markets. A Fortune 500 company, AMD
produces processor, flash memories, programmable logic devices, and products for
communications and networking applications. Founded in 1969, AMD is based in
Sunnyvale, California, and has sales and manufacturing facilities worldwide.
(NYSE:AMD)
####
WORLD WIDE WEB: Press announcements and other information about AMD are
available on the Internet via the World Wide Web. Type http://www.amd.com at
the URL prompt.
AMD, the AMD logo and combinations thereof are trademarks of Advanced Micro
Devices, Inc.
AMD news release #96CORP19 #9676
