I am the Chairman and CEO of Advanced Micro Devices, Inc. ( "AMD" ) and have been since I founded the company, along with seven other cofounders, in 1969.

In 1983, 1984 and 1985, I was named the best CEO in the semiconductor industry by The Wall Street Journal. In 1998, the Semiconductor Industry Association awarded me the Robert N. Noyce Awardthe industrys highest honor for leadership. In 2001, I received the Medal of Achievement from the American Electronics Associationthe nations largest high technology industry association.

Before founding AMD in 1969, I was worldwide marketing director of the Semiconductor Division of Fairchild Camera and Instrument Corporation, the birthplace of the monolithic integrated circuit. I earned a bachelor of science degree in electrical engineering from the University of Illinois in 1958.

AMD is a global supplier of integrated circuits for the personal and networked computer and communications markets. AMD produces microprocessors (the brains of the personal computer), flash memory devices, and support circuitry for communications and networking applications. The companys products allow a wide range of customers to access, process, and communicate information at ever-greater speeds and lower costs. To date, over the last 20 years, AMD has sold approximately 200 million processors designed to power Windows-compatible personal computers.

AMD employs nearly 14,000 people worldwide. AMD has manufacturing facilities in the United States, Europe, Japan and Asia, as well as sales offices in major cities around the globe. Based in Sunnyvale, California, AMD had revenues of approximately $3.9 billion in 2001. AMD derives more than half of its revenue from international markets. Copies of AMDs 2001 Annual Report to Shareholders and filing with the SEC on form 10-K are attached hereto as Exhibits A and B.

I was asked to testify at this hearing by Bill Gates. I agreed to do so and submit this testimony out of my concern that the Court not order relief at the behest of the non-settling States that would have harmful effects on AMD, the computer industry as whole, the U.S. economy, and consumers worldwide.

The computer industrys growth has fueled the United States economy for more than a decade, and has produced countless benefits for consumers. Computers today are faster, more powerful, more versatile, and more functional than ever before, and they continue to improve at a rapid pace. At the same time, the cost of computing has never been lower. It is no exaggeration to say that the top-of-the line AMD microprocessor today has the same if not greater computational power than that an IBM mainframe computer had twenty years ago, at a small fraction of the cost.

The first IBM personal computer was introduced in 1981. At that time, IBM selected Intel to build the microprocessors for its computers, with the requirement that Intel authorize a second source for those microprocessors. AMD became that authorized second source. The first IBM personal computers used either the 8088 or 8086 microprocessor, giving birth to the "x86" instruction set standard. Although there are competing microprocessor architectures, with different instruction sets, the x86 standard remains the most important. The x86 microprocessor standard was non-proprietary and thus available for use by any computer manufacturer.

On the software side, there was competition in 1981 with regard to the operating system that would run the personal computer. IBM offered early customers choices of operating systems, including CP/M 86 from Digital Research and Microsofts MS-DOS (which IBM licensed under the name PC DOS). These operating systems were also non-proprietary; i.e., they also were available for use by any computer manufacturer. Over time, the marketplace chose MS-DOS (and PC DOS), in large part because a wider array of appealing applications was developed for MS-DOS. This market choice became decisive as Microsoft introduced successive and increasingly popular versions of Windows.

AMDs success has primarily been made possible by the tremendous growth of the computer industry over the last twenty years, following the introduction of the IBM personal computer. AMDs revenues in 1980 were $225,593,000. By 1994, the year before the introduction of Windows 95, AMDs revenues had grown to $ 2,155,453,000.

Over the last 20 years, Microsofts operating systemsstarting with MS-DOS and running up through increasingly powerful versions of Windowshave helped to standardize the personal computer industry by supplying a stable and consistent platform that has enjoyed widespread consumer acceptance. That platform functions both as a basis for developing and running general purpose applications and as a basis for using a large number of hardware devices, including microprocessors. Thus, unlike proprietary operating systems that run only on specific hardware designed and manufactured by the same vendor (such as Apples Macintosh operating system or Suns Solaris operating system), Microsofts Windows operating systems run on computers manufactured by thousands of different companies.

The integrating benefits of Microsoft operating systems have contributed to standardization across a broad range of products, making possible the advent of the modern computer industry. With knowledge that their applications will run on essentially any brand of x86-instruction set compatible personal computers, software developers have created literally thousands of applications that call upon hardware functionality exposed by Microsofts operating systems. (This contribution is graphically depicted on Exhibit C, attached hereto.) With knowledge that their devices will work with essentially any brand of personal computer, hardware manufacturers have created huge numbers of compatible printers, scanners, video monitors, pointing devices, etc. (This contribution is graphically depicted on Exhibit D, attached hereto.) With all of this innovation on both the hardware and software side around Windows, consumers have enjoyed steadily-increasing computing capability and steadily-decreasing computing costs.

Standardized platforms promote competition. Thanks to the standardized application programming interfaces ( "APIs" ) and device driver interfaces ( "DDIs" ) of the Windows platform, thousands of software and hardware vendors, creating tens of thousands of software and hardware products, can compete directly on both price and quality. In the absence of this stable and broadly-accepted platformthat is, in a world of many different operating systems that are not fully compatible with one another, with none enjoying as widespread an acceptancesoftware and hardware vendors would have to decide which particular operating system(s) to target as a development platform. This would diminish overall competition as many software and hardware vendors would be unwilling or unable to create products that work with a number of different operating systems. For example, many hardware and software vendors would have to focus on a Compaq version of Windows or a Dell version of Windows because it would be intolerably expensive to design, develop and test their products on a wide range of operating systems. Consumers would have fewer choices, and they would inevitably pay higher prices for lower quality products as a result. Indeed, this was the state of the computer industry twenty years ago, when hardware and software vendors had to choose whether to develop for incompatible desktop computers from Apple, Commodore, Tandy and other suppliers.

One need not, however, delve into the annals of computer history to discover the consequences of fragmentation. The absence of standardization brought about by the fragmentation of UNIX provides a vivid, current example of this problem.

Developed by AT & T in 1969, UNIX then consisted of only one version. Originally, any application written to UNIX could be assured of working on any computer running the UNIX operating system. However, on account of AT & Ts non-restrictive licensing policies that allowed the commercialization of derivative versions, over time UNIX has fragmented into a number of incompatible versions. Most of those UNIX versions are created for use with particular brands of computers, such as AIX from IBM, HP-UX from Hewlett-Packard, SINIX from Siemens, Solaris from Sun, and Inx from Silicon Graphics. Today, an application written to one version of UNIX cannot be guaranteed to run on another version of UNIX. This gives users of UNIX-based computers far less choice in terms of both software and hardware, and the price of UNIX applications tends to be much higher than the price of similar Windows applications.

Microsoft promotes the Windows platform by documenting, publicizing, and making available to hardware and software developers the information they need to make their products run on Windows. There could not be the tens of thousands of hardware and software products available for use with the Windows platform if Microsoft did not make the extensive efforts it makes to assist hardware and software companies in building compatible products. Our experience at AMD has been that Microsoft provides more and better information about its operating systems than other vendors like IBM and Sun.

The existence of Windows as a stable and consistent development platform also makes it economically feasible for AMD and similar companies to undertake the creation of cutting-edge products that require hundreds of millions of dollars of expense to research and develop, and substantially greater amounts of capital costs to put into production. This is because products created for use with the Windows platform can be sold to the hundreds of millions of consumers who take advantage of the integrating benefits of that platform. The size of this group of prospective purchasers makes the recoupment of huge up-front R & D expense and capital costs possible, and the continued willingness and ability of companies like AMD to make such investments are critical to promoting progress in the computer industry.

An example of how the standardization made possible by the Windows platform benefits consumers and promotes innovation in the computer industry is AMDs Athlon XP microprocessor. The Athlon XP microprocessor is AMDs latest microprocessor, and it meets the computation-intensive needs of consumers who use cutting-edge software applications running on high-performance personal computers.

AMD invested hundreds of millions of dollars in the research and development of the Athlon XP microprocessor. This investment could only be recouped because Athlon XP microprocessors are guaranteed to performand perform wellon any personal computer running Microsoft Windows XP or other current or legacy versions of Windows. If AMD could not rely on the stability and consistency of the Windows platform, or upon the widespread availability of that platform, AMD could not have justified the enormous expense of creating the Athlon XP, to the great detriment of consumers. As stated at page 21 of our 2001 Annual Report (attached hereto as Exhibit A): "We Depend on Microsoft Corporation's Support for Our Products and Its Logo License. Our ability to innovate beyond the x86 instruction set controlled by Intel depends on support from Microsoft in its operating systems. If Microsoft does not provide support in its operating systems for our x86 instruction sets, independent software providers may forego designing their software applications to take advantage of our innovations. In addition, we have entered into logo license agreements with Microsoft that allow us to label our products as Designed for Microsoft Windows. If we fail to retain the support and certification of Microsoft, our ability to market our processors could be materially adversely affected."

Any relief that would fragment the Microsoft Windows platform and thereby impair the large compatibility benefits provided by that platform would set the computer industry back almost twenty years, all at tremendous cost to consumers and to the national economy. It would also reduce competition among a wide range of hardware and software vendors, and slow the pace of innovation in the computer industry for years to come.

Were computer manufacturers or other Windows licensees enabled to distribute a smorgasbord of different versions of Microsoft Windows with varying functionality and varying sets of APIs exposed, AMD, like other software and hardware vendors, would no longer be able to rely upon the existence of particular software code in Windows or the APIs or DDIs exposed by that software code. This would force AMD, like other software and hardware vendors, either to (i) forego features of their products that depend upon the presence of particular software code or APIs in Windows, or (ii) offer their products specifically for one or perhaps a small number of different versions of the Windows platformnamely, those containing the software code and APIs that the product in question relied upon. Either way, consumers would suffer, losing either functionality or choice, and almost certainly paying higher prices for hardware and software products that work with personal computers.

Unable to rely upon the existence of software code in Windows that exposes needed functionality, many hardware and software vendors could be expected to pursue a "least common denominator" approach. Under such an approach, vendors would only create products that utilize software code present on the most common permutations of Windows operating systems, or would limit themselves to calling upon whatever rudimentary functionality, if any, might remain common to the various so-called versions of "Windows." There would be no other way for software and hardware vendors to guarantee the presence of the software code on which their products rely on all personal computers running on the Windows platform. Unable to take advantage of the full richness of Windows operating systems as designed by Microsoft, these products would be significantly less advanced, and would offer consumers significantly less functionality, as compared to products available for the Microsoft Windows platform today.

Some hardware and software vendors may elect to continue to produce cutting-edge products that take advantage of the full range of functionality supplied by Windows operating systems as designed by Microsoft. However, these products would no longer be able to work with all personal computers running a Windows operating system, absent prohibitively expensive and cumbersome distribution of all Windows functionality by the ISV.

The reason why AMD and most other vendors in the computer industry would not create products for multiple, inconsistent versions of Windows is that it would be expensive, and possibly prohibitively expensive, to do so. Both microprocessors and computer software entail large fixed costs for research, development and testing. For microprocessors in particular, there are huge additional sunken capital costs incurred in building manufacturing facilities. The marginal cost of actually manufacturing the microprocessor "wafer," or burning the computer disk that holds a particular computer program, is itself relatively minimal. Thus, even if the Windows platform were to fragment into only four major versions of each of the four Windows operating systems now on the market, the cost of microprocessors and applications would rise, as multiple versions of Windows would create substantial incremental burdens for testing and validating AMDs products. For hardware and software vendors like AMD to support each of these four hypothetical operating systems, their products would need to be designed, developed, and tested for four different operating systems instead of just one. This, in turn, would increase the cost of these products to consumers. Those software and hardware vendors unable to afford these additional costs would resort, as described above, to creating products designed, developed and tested to run on only a particular version of Windows. Consumer choice would be reduced if an application like Intuits Quicken ran only on a particular OEMs version of Windows. Moreover, a vendor who created an application like personal finance software for one particular version of Windows would no longer be in direct competition with vendors of similar applications who elected to create their products for different versions of Windows. The inevitable result of this decreased competition would be higher prices and lower quality products for consumers.

Some products could also be prevented from ever coming to market at all were the Windows platform to become fragmented. Many companies would no longer be able to afford to undertake the research and development necessary to produce their products in light of the much smaller target market for their products. As explained above, for products such as microprocessors, sunk costs are high and largely do not vary with the size of the market for a new microprocessor. Thus, a product that is economically feasible because of the large number of prospective purchasers who can use the product in connection with the Windows platform of today might not be economically feasible if it had to be designed for multiple versions of Windows, each with limited consumer reach. If an available market is not large enough to offer reasonable hope of cost recoupment, products may not be brought to market and innovation will be slowed.

With fewer choices, higher prices, and a proliferation of "least common denominator" product offerings, consumer dissatisfaction would undoubtedly ensue. This would lead to a decline in sales of personal computers, something detrimental to companies like AMD and, I believe, to our Nation from a technological, social and economic standpoint.

I would like to turn next to functional integration. It is also important that the relief, if any, awarded to the non-settling States foster, not deter, product integration. Contrary to some suggestions I have heard in connection with this case, product integration is unambiguously good for consumers. One of the primary means by which advances have been made in the computer industry is by the increasing functionality of hardware and software products. That is particularly true of operating systems like Windows, which serve as platforms for compatible software and hardware products. When the functionality of a product is increased, that processby definitioninvolves the integration of new features not previously contained in the product. The integration of innovative features is a principal means by which both software and hardware products are improved, to the benefit of consumers.

Illustrative of the benefits of product integration is AMD's decision to integrate memory controller functionality into its next generation Microsoft Windows compatible microprocessor, code-named Hammer, which is currently sampling with production shipments planned to begin later this year. Memory controllers once were discrete semiconductor chips that were part of the core logic set of chips surrounding the microprocessor on the motherboard. Today, memory controller functionality is not provided in a separate product, but is integrated in the northbridge chip of the core logic chip set. The northbridge manages direct access memory operations and also arbitrates microprocessor communications with the southbridge chip, which manages peripheral devices. The progress of technology has just now enabled AMD to integrate the memory controller functionality in the processor itself. This integration will enable the reduction of memory access latency by half, which in turn will improve application performance by as much as 20%. From a consumer perspective, the resulting increase in system price/performance will be substantial.

The AMD Hammer processor family is just the latest generation of functional integration driven by technology advance. For example, the AMD northbridge chip that supports the AMD Duron microprocessor has a Unified Memory Architecture (UMA) design, which enables consumers to buy systems with excellent audio-visual functionality at a significantly lower overall system cost. Similarly, not that many years ago floating point arithmetic functionality could only be obtained by adding a math co-processor chip to a motherboard. Today, all state of the art PC microprocessors have integrated floating point functionality. The integration of floating point functionality and memory in the microprocessor have been fundamental to the incredible advance in the feature set and performance of personal computers, workstations and servers during the last five years. In short, the history of the PC is very much a history of hardware and software providers alike providing increasing building blocks of functionality in integrated packages.

Perhaps the most important additional benefit of product integration is enhanced interoperability. Computers are complex machines, and they are dependent upon the successful interoperation of a large number of components from different suppliers. When components that must interoperate are produced by different vendorsand even by the same vendorthere is always a risk they will not work well together. Product integration reduces this risk, as functions that have been provided by two components are now provided by one, eliminating the risk that at least these two components will not work well together. The result is a better tested, more robust solution, that leads to a better computing experience for consumers.

From my two decades of experience in the personal computer industry, I know that Microsofts integration of functionality into its Windows operating systems enables the development of richer applications, just as the integration of functionality into the microprocessor enables more powerful PC platforms. Such newly integrated functionality, made accessible to software developers through published APIs, allows software developers to focus on building increasingly complex applications. Developers need not expend time and effort developing the basic functionality needed for their applicationslike drawing user interface elements on the screen or accessing files on the computers hard diskbecause Microsoft already includes that functionality in Windows. Those software developers can instead focus on adding unique value to their products in order to differentiate themselves from their competitors.

Advances in memory technology have enabled enormous capacity for RAM and hard disk space at affordable prices, and this has expanded the opportunity of software (and operating system) providers to provide much more sophisticated products. Further increases in software functionality and sophistication should not be artificially stunted by relief that takes away Microsofts ability or incentive to take advantage of this improved technology by means of product innovation.

The dramatic improvements in personal computers over the past two decades owe much to the symbiotic relationship between Microsoft and microprocessor manufacturers like AMD. Advances in operating system design spur and are in turn spurred by improvements in microprocessor design. What results is a never-ending cycle of innovation, that drives the computer industry forward, thereby benefiting consumers. Any relief that would inhibit Microsofts ability to respond to advances in microprocessor design or to encourage such advances by adding new features to its operating systems threatens to break this salutary cycle.

Microsoft has entered into alliances to help promote its technology. The broad dissemination of technologies like plug and play (which Microsoft developed with Compaq and others) has helped to expand the computer industry. Alliances are a common and effective means of competition, and naturally contain certain provisions to protect the participants intellectual property and limitations on the ability of their participants to compete with one another with regard to the object of the alliance. Any relief awarded to the non-settling States that would restrict Microsofts ability to enter into such relationships would hinder, not promote, competition in the computer industry.

Microsoft works closely with AMD and other hardware manufacturers to ensure that advancements in our products are properly supported by Windows operating systems. For example, the success of AMDs 3DNow technology was made possible largely as a result of Microsofts cooperation. AMDs 3DNow technology significantly enhances three-dimensional graphics, multimedia and other applications that make intensive use of floating point computations. Microsoft supported AMDs 3DNow technology by exposing it to software developers via the DirectX 6.0 APIs in Windows operating systems. Similarly, Microsoft has integrated support for AMD PowerNow! Technology into its Windows operating systems. This AMD technology optimizes mobile computer battery life, and enables a cooler and quieter-running computer, by dramatically adjusting processor operating frequency and voltage many times per second according to the fluctuating demands of the computing task at hand. A remedy that would inhibit cooperation between Microsoft and hardware manufacturers would inhibit these sorts of mutually beneficial advancements in technology, which greatly benefit consumers.

Over the last six years, Microsoft has begun to expand its operating system business from desktop operating systems into server operating systems that are used in large corporate networks. Any relief awarded that hinders Microsoft from continuing its efforts to provide reliable and scalable server operating systems in competition with established vendors like IBM, Hewlett-Packard and Sun Microsystems would actually lessen competition, not increase it.

The supply of server computers to corporations, governments and other institutions is a dynamic and competitive market in which a number of well-established companies such as Dell, Compaq, IBM, Hewlett-Packard and Sun Microsystems vigorously compete for market share. Some of these companies, such as Sun Microsystems, use a pricing model in which customers are charged a one-time fee for server hardware on a per CPU basis. This has been referred to as a top-down, low-volume, high-price business model. Other companies, such as Hewlett-Packard, offer a utility-pricing model, charging customers an up-front fee for the server hardware and a monthly service fee based on the CPU resources actually used by the customer. These traditional server vendors all provide an operating system bundled with their server hardware that is optimized for use with a particular machine. For example, Sun Microsystems supplies servers powered by its SPARC microprocessors only with Suns Solaris operating system.

Microsoft is bringing increased competition to the server business using a very different approach, offering bottom-up, high-volume, low-price server solutions based on Windows operating systems and x86-compatible microprocessors. This means that the benefits that the Windows platform brings to consumers buying personal computerssuch as the ability to mix and match machines built by different OEMs and the ability to run the large stock of Windows applicationsare now available to information technology professionals running computer networks. Advancements in x86 microprocessor technology made by AMD and others reflected in products like the Athlon XP and Athlon MP processors and the forthcoming Hammer family of processors, coupled with advancements in Microsoft operating system technology reflected in products like Windows 2000 Datacenter Server, now means that x86 servers can go head-to-head with non-x86 servers from IBM and Sun Microsystems, at a fraction of the price.

In the most recent results posted on the Web site of the Transaction Processing Performance Council, of which IBM, Sun Microsystems and other traditional server vendors are members, a Compaq server containing 272 32-bit x86-instruction set compatible microprocessors running a Windows 2000 Advanced Server operating system substantially outperformed a Fujitsu server containing 128 64-bit SPARC microprocessors running Solaris 8.0, with a relative price / performance of $14.96 per tpmC for the Compaq machine and $28.58 per tpmC for the Fujitsu machine. (A copy of these results is annexed hereto as Exhibit E.)

Microsofts development of reliable and scalable server operating systems has enabled AMD to enter and compete more effectively in the server business as well, because most non-Microsoft server operating systems only run on specialized microprocessors like Hewlett-Packards PA-RISC 8700 and IBMs RS64-IV. Now that the Windows 2000 Advanced Server and Windows 2000 Datacenter Server have made x86 microprocessors a viable substitute for the proprietary server microprocessors, AMD can provide the same high-quality, lower-priced alternative to those proprietary products that it has provided historically to Intel in the personal computer business. The advent of more vigorous competition in the server business is undeniably good for consumers, as it promises more choice and lower prices.