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Michael D. Braun (167416) Kevin Yourman (147159) Attorneys for Plaintiff UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
CLASS ACTION COMPLAINT Plaintiff, by and through his attorneys, alleges the following upon personal knowledge as to himself and his acts. All other allegations are based upon the investigation of his counsel which has included inter alia, review and analysis of filings made by Advanced Micro Devices, Inc. ("AMD" or the "Company") with the Securities and Exchange Commission ("SEC"), press releases issued by AMD, interviews given by officers of AMD, securities analysts' reports concerning AMD and media and Internet reports concerning AMD. JURISDICTION AND VENUE This Court has jurisdiction over the subject matter of this action pursuant to §27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §78aa, and 28 U.S.C. §1331. The claims alleged herein arise under§§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. §240,10b05. (a) Venue is proper in the District pursuant to §27 of the Exchange Act and 28 U.S.C. §1391. Many of the acts and transactions giving rise to the violations of law complained of herein, including the preparation and filing of materially false and misleading annual and quarterly reports, occurred in the District. In addition, at all times relevant hereto, defendant AMD maintained its principal executive offices in this District at One AMD Place, Sunnyvale, California 94088. (b) Assignment of this action to the San Jose Division is appropriate as a substantial part of the events or omissions identified herein occurred in Santa Clara County. In connection with the wrongful acts and conduct alleged herein, defendants, directly and indirectly, used the means and instrumentalities of interstate commerce, including the United States mail and the facilities of a national securities market. PARTIES Plaintiff Howard M. Lasker purchased shares of AMD stock at the prices set forth in the attached certification and was damaged thereby. Defendant AMD supplies integrated circuits ("IC's") for the global personal and networked computer and communications markets. AMD has three fabrication facilities in Austin, Texas, including the state-of-the-art FAB 25 facility which manufactures and produces the AMD-K6 processors on 0.25-micron, five-layer metal process technology. At all times relevant hereto, defendant W. J. Sanders, III ("Sanders") has been the Chairman of AMD's Board of Directors, and the Company's President and Chief Executive Officer. Sanders is a co-founder of AMD and has been Chairman of the Board, President and Chief Executive Officer of the Company. At all times relevant hereto, defendant Atiz Raza ("Raza") has been a director, Executive Vice President, Chief Technical Officer and Member of the Office of Chief Executive Officer. Each of the defendants named in ¶¶6 and 7 above (collectively, the "Individual Defendants"), reviewed or were aware of the false and misleading SEC filings, press releases, and other statements complained of herein at or about the time they were issued or circulated, knew or recklessly disregarded their false and misleading nature, and were in a position to control or influence their contents or otherwise cause corrective or accurate disclosures to have been made. Defendants engaged in the common course of conduct complained of herein from at least November 9, 1998 to March 9, 1999, the day the Company announced that design problems with its flagship microprocessor would result in a production shortfall of at least 500,000 units and a significant loss in AMD's first quarter. The Individual Defendants were each controlling persons of AMD within the meaning of §20 of the Exchange Act by reason of their management positions in the Company and their membership on the Company's Board. Because of their positions in AMD, the Individual Defendants had the power and influence to cause the Company to engage in the unlawful acts and conduct alleged herein. CLASS ALLEGATIONS Plaintiff brings this action on his own behalf and as a class action pursuant to Rule 23(a) and Rule 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class (The "Class") of all persons who purchased AMD common stock from November 9, 1998 through March 9, 1999, inclusive (the "Class Period"). Excluded from the Class are defendants herein, members of the families of each of the Individual Defendants, officers and directors of the Company, parents, subsidiaries and affiliates of AMD, and the legal representatives, heirs, successors or assigns of any such excluded party. Throughout the class Period, AMD common stock shares were actively traded on an efficient market. Shares of AMD common stock were actively traded on the New York Stock Exchange (the "NYSE"). The members of the Class, as purchasers on that market, are so numerous that joinder of all members is impracticable. While the exact number of Class members can only be determined by appropriate discovery, plaintiff believes that class members number in the thousands. During the class Period AMD had approximately 142 million shares of common stock issued and outstanding. Plaintiff's claims are typical of the claims of the members of the Class. Plaintiff and all other members of the Class sustained damages as a result of defendants' wrongful conduct complained of herein. Plaintiff will fairly and adequately protect the interests of the other members of the Class and has retained counsel competent and experienced in class and securities litigation. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Because the damages suffered by individual class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the plaintiff class members individually to seek redress for the wrongful conduct alleged herein. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are:
whether the documents, releases and public statements made by defendants omitted to state and/or misrepresented material facts concerning the business and revenue of AMD; whether defendants acted knowingly or recklessly in omitting and/or misrepresenting material facts; whether the market price of AMD common stock during the Class period was artificially inflated due to the material omissions and/or misrepresentations complained of herein; and whether the members of the class have sustained damages, and, if so, the appropriate measure thereof. Plaintiff knows of no difficulty that will be encountered in the management of this litigation that would preclude its maintenance as a class action. The names and addresses of the record owners of AMD common stock purchased during the Class Period are available from the Company's transfer agent(s). Notice may be provided to such record owners via first class mail using techniques and a form of notice similar to those customarily used in class actions.
FACTUAL ALLEGATIONS On November 9, 1998, AMD issued a press release on the Business Wire news line, in which the Company announced the signing of an agreement with Supercom, Inc. to distribute AMD's K6 processor. David Shefler, AMD's Vice president of Sales and Marketing for the Americas, gloated about the "growing success of the AMD K6 family of processor products," and totally failed to disclose that AMD was having serious production problems with the K6 chips in that it could not produce sufficient quantity of chips at the 400 MHz speed that was becoming the industry standard. On November 16, 1998, AMD issued a press release touting the fact that the 400 MHz 380 MHz and 366 MHz K6 processors would now carry 3D Now! Technology. Investors were not informed that design problems precluded AMD from producing K6 processors at the 350-400 MHz speeds in sufficient volume to meet the pdemand and to allow AMD's average selling price for its K6 processor to increase. These statements were false and misleading in that they failed to disclose facts known to or recklessly disregarded by defendants that AMD was experiencing severe design and production problems, particularly in the production of 350-450 MHz chips. On January 13, 1999, AMD issued a press release announcing, inter alia, its financial results for the fourth quarter and full year 1998. In the press release, AMD reported record revenues of $788 million, and net income of $22.3 million or $.15 per diluted share. The release indicated that all of the revenue growth resulted from increased sales of AMD-K6®-2 processors with 3DNOW!™ technology. Commenting on the earnings, defendant Sanders stated "growing customer acceptance of the AMD-K6-2 processor with the 3DNOW! Technology enabled AMD to continue to gain share in the market for Microsoft® Windows® computing. Unit shipments of AMD-K6 family processors grew by 1.7 million, or 45 percent to 5.5 million units from the immediate-immediate-prior quarter to $488 million." Defendant Sanders' quote in the press release continued: A key objective in the just-completed quarter was progressing on our speed roadmap and satisfying strategic customer requirements for processors with speeds up to 400 megahertz (MHz). We accomplished this objective. We introduced and shipped in volume 366 MHz, 380 MHz, and 400 MHz versions of the AMD-K6-2 processor with 3DNow! Technology. We shipped hundreds of thousands of 400 MHz processors, but were unable to satisfy strong overall market demand. We expect to substantially increase shipments of 400 MHz processors in the current quarter. We continued to gain unit market share during the just-completed quarter. We estimate that AMD-K^ family processors account for 16 percent of all processor units for Microsoft Windows computing in the fourth quarter of 1998 - a doubling of market share from the comparable quarter of 1997. Although AMD's earnings for the fourth quarter resulted in the second quarterly profit in a row, the earnings fell short of analysts consensus estimates, largely because the Company ran into problems when it manufactured K6-2 processors running at 400 MHz. Also on January 13, 1999, AMD held a conference call for analysts discussing AMD's earnings. During this call, defendant Sanders stated that due to yield problems, many K6 chips that were produced to run at 40 MHz didn't meet production standards. Sanders said the problem had been fixed, although it had "at least a $20 million impact on our bottom line this quarter." During the call, defendant Sanders stated that he expected an improved mix of chips running at speeds of 350 MHz or faster in the first quarter, when he expects margins to creep back up to "the low to mid 40's." In an AF news article dated January 14, 1999, it was reported that AMD expected shipments of 5.5 million units of its AMD-K6 family of chips in the first quarter following resolution of manufacturing problems. The article quoted Sanders as stating that during the fourth quarter of 1999, as a result of the chips not meeting specifications, the company only shipped 34 percent of its total units with processing speeds of 350 MHz or above, compared with expectations of 50 percent or more. On January 18, 1999, AMD filed a Form 8-K with the SEC. This 8-K attached the January 13, 1999 press release. The quoted statements made by defendant Sanders and AMD set forth in ¶¶18-25 were false and misleading when made. Defendants knew that a serious design flaw in AMD's K6 processor line had forced AMD to retool its manufacturing line late in 1998 and would result in a material decrease in production of its K6 personal computer microprocessor of 500,000 units during the first quarter and a corresponding negative effect on AMD's earnings for the first quarter. On February 4, 1999, defendants reported that, based on a reassessment of competitive conditions, they expected to incur an operating loss in the first quarter because price reductions planned by Intel Corp. would prevent AMD from raising its own prices, pressuring its gross margins. As a result of this announcement, shares of AMD fell $1.938 or 9.3 percent to $19. AMD said it didn't think it would be able to increase its average selling prices in the quarter despite plans for "a richer mix." The February 4, 1999 announcement was false and misleading when made. Defendants knew that production of its flagship K6 personal computer microprocessor chips was lower than planned and fewer than the Company built in the fourth quarter of 1998. Defendant were also aware that the shortage of chips in the fastest K6 class would cost AMD a big chunk of its expected revenue, which would in turn lead to a larger operating loss in the first quarter. Defendants' attributing the first quarter operating loss to competitive conditions was misleading in light of the fact that defendants knew of the decreased production of AMD's K6 processor chips and the corresponding negative effect on AMD's earnings. In a surprise to the market, defendant Atiz Raza, speaking at a Morgan Stanley Dean Witter Semiconductor and Systems Conference in Laguna Niguel, California, on Monday, March 8, after the market closed , announced that AMD would fall short of its goal of shipping 5.5 million units of the K6 family in the first quarter. Raza told the conference that AMD planned to ship no more than 5 million units in the quarter due to lower manufacturing yields in the first 8 weeks of the quarter. Yields refers to the number of working parts that are not thrown away in the manufacturing process. Raza said that the manufacturing problems occurred in the middle range of the K6 family of microprocessors. The shortage of chips will cost AMD a larger part of its expected revenue. Raza stated that AMD now expects to post a "significant loss" in its first quarter because of these manufacturing problems. Piper Jaffray analyst Ashaq Kumar, commenting on this latest announcement, stated "normally they shoot themselves in the foot, maybe this time they shot themselves in the head." Charles Boucher, an analyst at Donaldson Lufkin Jenrette Inc. stated, "it's a very disappointing announcement, just when you thought things couldn't get worse." As a result of this announcement, shares of AMD slid as much as 14% to $17. STATUTORY SAFE HARBOR The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. The statements are historical of present tense statements. To the extent that any of the statements were "forward-looking statements," none of these statements was accompanied by meaningful cautionary statements identifying specific factors indicating defendants' production problems were not of could not ever be solved. To the extent that the statutory safe harbor might otherwise apply to any statements pleaded herein because they are "forward-looking," the defendants' are liable for those statements because at the time each of those statements were made, the speaker knew the statement was false and the statement was authorized and/or approved by an executive officer of AMD who knew that those statements were false when made. COUNT I Plaintiff repeats and realleges each of the allegations set forth in the foregoing paragraphs. Throughout the Class Period, defendants individually and in concert, directly and indirectly, by the use and means of instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about AMD, including its true financial results, as specified herein. Defendants employed devices, schemes, and artifices to defraud while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct that included the making of , or participation in the making of, untrue and/or misleading statements of material facts and/or omitting to state material facts necessary in order to make the statements made about AMD not misleading. Specifically, defendants knew or, but for their recklessness, should have known that the Company's serious design flaw with its K6 microprocessor line as resulting in production problems, a decrease in production form the prior quarter and a significant loss in the quarter. AMD and the Individual Defendants, as directors and/or top executive officers of the Company, are liable as direct participants in the wrongs complained of herein. Through their positions of control and authority as officers and/or directors of the Company, the Individual Defendants were able to and did control the content of the public statement disseminated by AMD. With knowledge of the falsity and/or misleading nature of the statements contained therein and in reckless disregard of the true production status and its effects on the financial results of the Company, the defendants caused the heretofore complained of public statements to contain misstatements and omissions of material facts as alleged herein. Defendants acted with scienter throughout the Class Period, in that they either had actual knowledge of the misrepresentations and/or omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose the true facts, even though such facts were available to them. The Individual Defendants were among the senior management of the Company, and were therefore directly responsible for the false and misleading statements and/or omissions disseminated to the public through press released, news, reports, and filings with the SEC. Indeed, the Individual Defendants signed the three Forms 10-Q that contained the financial fraud alleged herein. As a result of those deceptive practices and false and misleading statements and/or omissions, the market price of AMD common stock was artificially inflated throughout the Class Period. In ignorance of the false and misleading nature of the representations and/or omissions described above and the deceptive and manipulative devices employed by defendants, plaintiff and the other members of the Class, reliance on either the integrity of the market or directly on the statements and reports of defendants, purchased AMD common stock at artificially inflated prices and were damaged thereby. Had plaintiff and the other members of the Class known of the material adverse information not disclosed by defendants, or been aware of the truth behind defendants' material misstatements, they would not have purchased AMD common stock at artificially inflated prices. By virtue of the foregoing, defendants have violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. COUNT II Plaintiff repeats and realleges each of the allegations set forth in the foregoing paragraphs. Each of the Individual Defendants acted as a controlling person of the company within the meaning of §20 of the Exchange Act during the Class Period. Specifically, defendant Sanders had the power and authority to cause the Company to engage in the wrongful conduct complained of herein by virtue of his position as Executive Vice President and Chief Technological Officer. These defendants were each in a position to control or influence the contents of, or otherwise cause corrective disclosures to have been made in, the Company's SEC filings, along with the Company's other public statements that contained materially false and misleading statements that were disseminated during the Class Period. By reason of the wrongful conduct alleged herein, the Individual Defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of their wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of AMD common stock during the Class Period. PRAYER FOR RELIEF WHEREFORE, plaintiff, on behalf of himself and the other members of the Class, prays for judgment as follows: Declaring this action to be a proper class action maintainable pursuant to Rule 23 of the Federal Rules of Civil Procedure and declaring plaintiff to be a proper Class representative; Awarding plaintiff and the other members of the Class compensatory damages as a result of the wrongs alleged in Counts I and II of the Complaint; Awarding plaintiff and the other members of the Class their costs and expenses in this litigation, including reasonable attorneys' fees and experts' fees and other costs and disbursements; and Awarding plaintiff and the other members of the Class such other and further relief as the Court may deem just and proper. JURY DEMAND Plaintiff demands a trial by jury. DATED: March 18, 1999 Michael D. Braun Kevin Yourman |