Advanced Micro Devices (AMD) has long warned that it operates in a highly competitive environment. What’s new in the company’s latest 10-K is the emergence of its own customers as competitors. In its 2019 10-K, AMD included a relatively standard warning regarding the competitive nature of the industry:

“In addition, we are entering markets with current and new competitors who may be able to adapt more quickly to customer requirements and emerging technologies. We cannot assure you that we will be able to compete successfully against current or new competitors who may have stronger positions in these new markets or superior ability to anticipate customer requirements and emerging industry trends.”

In its latest 10-K, AMD adds a new sentence offering additional detail about potential new competitors:

“In addition, we are entering markets with current and new competitors who may be able to adapt more quickly to customer requirements and emerging technologies. We cannot assure you that we will be able to compete successfully against current or new competitors who may have stronger positions in these new markets or superior ability to anticipate customer requirements and emerging industry trends. Furthermore, we may face competition from some of our customers who internally develop the same products as us.”

This is especially noteworthy as AMD also cites customer concentration as a risk:

“We depend on a small number of customers for a substantial portion of our business and we expect that a small number of customers will continue to account for a significant part of our revenue in the future. If one of our key customers decides to stop buying our products, or if one of these customers materially reduces its operations or its demand for our products, our business would be materially adversely affected.”

Though it’s no secret, AMD identifies two key third party manufacturers on which it relies in its latest 10-K:

“For the production of wafers for certain products, including the production of all our 7 nanometer (nm) products, we use Taiwan Semiconductor Manufacturing Company Limited (TSMC). We purchase wafers for all our CPU and APU products, and wafers for a certain portion of our GPU products manufactured at process nodes larger than 7 nm, with limited exceptions, from GLOBALFOUNDRIES, Inc. (GF).”

Even though TSM has announced a significant increase in CapEx— possibly in anticipation of Intel awarding it new business— AMD is offering a new warning to investors regarding its dependence on TSM for its 7 nanometer line of products:

“For example, if TSMC is not able to manufacture wafers for our 7 nm products in sufficient quantities to meet customer demand, it could have a material adverse effect on our business.”

The warning calls into question TSM’s 7nm capacity which would have implications throughout the semiconductor industry. If capacity issues at TSM spill over into other lines, the impact may be particularly damaging to AMD as it is contractually obligated to purchase wafers regardless of TSM’s ability to turn them into finished goods:

“We are a party to a wafer supply agreement (WSA) with GF that governs the terms by which we purchase products manufactured by GF and is in place until 2024. Pursuant to the WSA, we are required to purchase wafers for all of our CPU and APU product requirements and wafers for a certain portion of our GPU product requirements from GF manufactured at process nodes larger than 7 nm, with limited exceptions. We have agreed to minimum annual wafer purchase targets through 2021.”