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# EXHIBIT 1

ATI LOGO

# ATI TECHNOLOGIES INC.

RENEWAL ANNUAL
INFORMATION FORM

For the Fiscal Year
Ended August 31, 2004

January 14, 2005

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# TABLE OF CONTENTS

|         |  |                                                        |  | Page | 
|-------- |  | ------------------------------------------------------ |  | ---- | 
|ITEM 1.  |  | CORPORATE STRUCTURE                                    |  | 5    | 
|         |  |                                                        |  |      | 
|ITEM 2.  |  | GENERAL DEVELOPMENT OF THE BUSINESS                    |  | 6    | 
|         |  | 2.1 THREE YEAR HISTORY                                 |  | 6    | 
|         |  | 2.2 ACQUISITIONS                                       |  | 8    | 
|         |  |                                                        |  |      | 
|ITEM 3.  |  | NARRATIVE DESCRIPTION OF THE BUSINESS                  |  | 10   | 
|         |  | 3.1 OVERVIEW                                           |  | 10   | 
|         |  | 3.2 OUR MARKETS                                        |  | 10   | 
|         |  | 3.3 BUSINESS STRATEGY                                  |  | 12   | 
|         |  | 3.4 PRODUCTS AND TECHNOLOGY                            |  | 14   | 
|         |  | 3.5 RESEARCH AND DEVELOPMENT                           |  | 16   | 
|         |  | 3.6 SALES                                              |  | 17   | 
|         |  | 3.7 COMPETITION                                        |  | 19   | 
|         |  | 3.8 MANUFACTURING                                      |  | 20   | 
|         |  | 3.9 CUSTOMER SERVICE AND SUPPORT                       |  | 20   | 
|         |  | 3.10 HUMAN RESOURCES                                   |  | 21   | 
|         |  | 3.11 FACILITIES                                        |  | 21   | 
|         |  | 3.12 RISKS AND UNCERTAINTIES                           |  | 22   | 
|         |  | 3.13 LEGAL PROCEEDINGS AND REGULATORY MATTERS          |  | 34   | 
|         |  |                                                        |  |      | 
|ITEM 4.  |  | DIVIDEND POLICY                                        |  | 36   | 
|         |  |                                                        |  |      | 
|ITEM 5.  |  | DESCRIPTION OF CAPITAL STRUCTURE                       |  | 36   | 
|         |  | 5.1 GENERAL DESCRIPTION OF SHARE CAPITAL               |  | 36   | 
|         |  | 5.2 EQUITY PLANS                                       |  | 36   | 
|         |  |                                                        |  |      | 
|ITEM 6.  |  | MARKET FOR SECURITIES                                  |  | 39   | 
|         |  |                                                        |  |      | 
|ITEM 7.  |  | DIRECTORS AND OFFICERS                                 |  | 40   | 
|         |  | 7.1 DIRECTORS                                          |  | 40   | 
|         |  | 7.2 CORPORATE OFFICERS                                 |  | 41   | 
|         |  |                                                        |  |      | 
|ITEM 8.  |  | AUDIT COMMITTEE INFORMATION                            |  | 44   | 
|         |  |                                                        |  |      | 
|ITEM 9.  |  | AUDITORS, TRANSFER AGENT AND REGISTRAR                 |  | 45   | 
|         |  |                                                        |  |      | 
|ITEM 10. |  | ADDITIONAL INFORMATION                                 |  | 46   | 
|         |  | 10.1 ANNUAL
REPORT AND MANAGEMENT INFORMATION CIRCULAR |  | 46   | 
|         |  | 10.2 BASE SHELF PROSPECTUS                             |  | 46   | 

2

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# GLOSSARY OF TECHNICAL
TERMS AND OTHER INFORMATION

Certain technical terms used in this
Annual Information Form are defined as follows:

2.5G and 3G. 2.5G means
second generation wireless technology (2G) with incomplete third generation (3G)
technology added to it. 3G refers to the phase of wireless communications, which is
currently becoming more prevalent, and features faster wireless data transfer speeds,
enhanced roaming and multimedia capabilities and a feature set including cellular voice,
e-mail, paging and internet functionality.

AGP means accelerated
graphics port. This is a dedicated expansion port located on a motherboard which allows
higher throughput from the graphics card to the processor for faster 3D graphics
rendering.

AIB means add-in board.
AIB refers to graphics boards that can be added to a computer at any time, including by an
OEM at the time it is manufactured, by a reseller at the time of distribution or by an
end-user.

ASIC means
application-specific integrated circuit. An ASIC is a circuit designated for a very
specific purpose, such as the processors used in PDAs or designed for graphics. ASICs
contrast with more general-purpose devices, such as memory chips, that can be used in many
different applications.

ASP means average selling
price.

CPU means central
processing unit, the central unit in a computer which contains the logic circuitry that
performs the instructions of a computers programs.

DVD means digital
versatile disc. DVDs are similar to compact discs, but store up to 12 times as much data.

DTV means digital television
(including set-top boxes). Digital television refers to the standard of transmitting and
receiving television signals using digital rather than analog transmission.

IGP means integrated
graphics processor. An IGP includes both the functionality of a chipset (which controls
the functions and features on a motherboard) and graphics.

I/O means input/output.
I/O refers to any operation in a computer where data is transferred either in or out of
the computer.

ITC means investment tax
credit.

JPEG refers to the
photographic image compression standard formulated by the Joint Photographic Experts
Group.

MPEG refers to the
digital video and digital audio compression standard formulated by the Moving Picture
Experts Group.

OEM means original
equipment manufacturer.

ODM means original design
manufacturer.

PC means personal
computer and generally refers to a computer meant for use by one person at a time.

PCB means printed circuit
board. PCBs are imprinted with one or more layers of circuitry and are used to hold and
link together microchips and other components. Examples of common PCBs include
motherboards, and AGP graphics cards.

PCI Express refers to the
third-generation, high-speed, general purpose I/O architecture that provides greater
bandwidth to support the increasing demands on todays PCs and facilitates
graphically intensive applications such as video editing and high-definition content.

PDA means personal
digital assistant, a small, mobile, hand-held device that provides capabilities such as
computing, communication and information storage and retrieval. Common features include
phone, e-mail and calendar and contact management.

SI means system
integrator, a manufacturer of whitebox, clone or non-branded PCs.

VPU means visual
processing unit, an advanced semiconductor chip that provides greater graphics
functionality, such as cinematic rendering in real time.

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All dollar amounts
referred to in this document are stated in U.S. dollars, unless otherwise indicated.

The information in this
Annual Information Form is disclosed as at December 31, 2004, unless otherwise indicated.

In this Annual
Information Form, we, us, our and ATI
refer to ATI Technologies Inc. and its subsidiaries.

ATI and the ATI
logo are our properties and registered trademarks. Our product names are also our
trademarks and/or registered trademarks and they are italicized in this document. This
Annual Information Form also includes references to the trademarks, products and company
names of other corporations, which are the properties of their respective owners.

# FORWARD-LOOKING
STATEMENTS

Publicly held companies
are encouraged by securities regulations to provide forward-looking information
to assist investors in assessing the companys prospects.

Forward-looking statements look
into the future and provide an opinion as to the effect of certain events and trends on
the business. Forward-looking statements may include words such as plans,
intends, anticipates, should, estimates,
expects, believes, indicates, targeting
and suggests and words and expressions of similar import.

This Annual Information Form
contains forward-looking statements about our objectives, plans, strategies, financial
condition and results, as well as statements with respect to our beliefs, expectations,
anticipations, estimates and intentions. These statements are forward-looking
because they are based on current expectations and include various risks and
uncertainties.

It must be noted that:

| |  | Forward-looking statements describe our
expectations on the day they are made. For this Annual Information Form, it is December 31, 2004.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | We caution readers not to place undue reliance on
these statements as our actual results may materially differ from our expectations if known and
unknown risks or uncertainties affect our business, or if our estimates or assumptions prove inaccurate.
Therefore we cannot provide any assurance that forward-looking statements will materialize.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | For a description of risks that could cause our
actual results to materially differ from our current expectations, including those contained in or
implied by forward-looking statements, please see Item 3.12 Narrative Description of the Business 
Risks and Uncertainties at page 22.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We assume no obligation to update or revise any
forward-looking statement, whether as a result of new information, future events or any other reason.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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# ITEM 1. CORPORATE
STRUCTURE

# Name, Address and Incorporation

ATI Technologies Inc. was
incorporated on August 20, 1985, as Array Technology Inc. pursuant to the Business
Corporations Act (Ontario). The name was subsequently changed to Array Technologies
Inc. pursuant to articles of amendment dated September 13, 1985, and then to ATI
Technologies Inc. pursuant to articles of amendment dated December 18, 1985.

On December 31, 1987, our articles
were amended to divide the 1,000 common shares then outstanding into 1,000,000 common
shares. In conjunction with our initial public offering in November 1993, articles of
amendment were filed on October 14, 1993, to create an unlimited number of non-voting
preference shares and subdivide the 1,100,000 common shares then outstanding into
40,000,000 common shares.

On April 8, 1998, our board of
directors approved a stock dividend on a four-for-one basis effective for registered
common shareholders at the close of business on April 23, 1998. The stock dividend
increased the number of common shares then outstanding from approximately 48.9 million to
approximately 195.9 million common shares.

Our principal and head office is
located at 1 Commerce Valley Drive East, Markham, Ontario, L3T 7X6.

# Intercorporate
Relationships

Below is a summary of our principal
operating subsidiaries as at December 31, 2004, all of which are directly or indirectly
wholly owned:

|Subsidiary                                    |  | Incorporation   |  | Activity                                                      | 
|--------------------------------------------- |  | --------------- |  | ------------------------------------------------------------- | 
|ATI Technologies (Europe) GmbH                |  | Germany         |  | Sales and marketing support in Europe                         | 
|ATI Research, Inc.                            |  | California      |  | Research and development                                      | 
|ATI Technologies Systems Corp.                |  | California      |  | U.S. sales and distribution                                   | 
|ATI Technologies (Japan) Inc.                 |  | Japan           |  | Sales and marketing support in Japan                          | 
|ATI International SRL                         |  | Barbados        |  | Research and development and sales                            | 
|ATI Technologies (L) Inc.                     |  | Malaysia        |  | Asia-Pacific sales and distribution                           | 
|ATI Technologies Ltd.                         |  | Malaysia        |  | International purchasing                                      | 
|ATI Research Silicon Valley Inc.              |  | California      |  | Research and development                                      | 
|ATI Technologies (Hungary) KFT                |  | Hungary         |  | Research and development, licensing and
inter-company lending | 
|ATI Research GmbH                             |  | Germany         |  | Research and development                                      | 
|ATI Technologies (Korea) Co., Ltd.            |  | Korea           |  | R&D and marketing and sales support                           | 
|ATI Visual Technologies (Shanghai) 
Co., Ltd. |  | Shanghai, China |  | Research and development                                      | 
|ATI Technologies Distribution Inc.            |  | Ontario, Canada |  | North American sales and distribution                         | 
|ATI Technologies (HK) Ltd.                    |  | Hong Kong       |  | Sales administration                                          | 

We operate technology centres and
sales support offices in Canada, the United States, Europe and the Asia-Pacific region.

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# ITEM 2. GENERAL DEVELOPMENT OF THE BUSINESS

ATI is a world leader in the supply
of graphics processing products and technology for desktop and notebook personal computers
(PCs), and consumer electronic devices such as mobile phones and personal
digital assistants (PDAs), digital televisions (including set-top boxes)
(DTVs) and video game consoles. ATIs main product lines, visual and
graphics processors, increase the speed and complexity of the images that can be displayed
on PC monitors and improve image resolution and colour definition.

Rich and intuitive visual experiences
make digital electronic products such as PCs and consumer electronic devices more
accessible and more compelling to the mass market. Increasingly, computing, entertainment
and communications product platforms rely on graphics or visual processors to deliver an
engaging experience and enrich the utility of their products for the user.

We believe that the visual experience
is a key element of differentiation among various digital product platforms. PC users
clearly prefer a rich visual experience, particularly in the high-end enthusiast market
where consumers seek out the fastest and highest performing visual processing product to
deliver the most compelling and immersive gaming experiences. Even in commercial settings,
however, users clearly prefer an intuitive and graphical visual experience which results
in enhanced productivity.

The mobile phone market has also
begun to rapidly transition from monochrome to colour visual displays with multimedia
features to provide users with a richer visual experience. The demand for digital graphics
solutions is also expanding as a result of growth in digital television, driven in part by
the mandate of the U.S. Federal Communications Commission that requires electronics
manufacturers to include digital tuners in all new television sets by 2007. These
developments are providing ATI with increased opportunities to leverage its expertise in
graphics and to develop products for these fast-growing markets. We have also successfully
leveraged our core visual processing technology into the game console market. Nintendo
Co., Ltd.s (Nintendo) current game console, GAMECUBE, is powered by our
Flipper graphics processor, and we have also entered into technology
development agreements with Nintendo and Microsoft Corporation (Microsoft) for
future products and services.

# 2.1  Three Year History

The following outlines a number of
the important events in our business over the course of the last three fiscal years:

# 2004

| |  | We further demonstrated our technology leadership position in fiscal 2004 by introducing
the industrys first top-to-bottom family of PCI Express graphics cards for consumer
and commercial desktop systems. We also introduced a range of PCI Express products for the
professional workstation market, as well as the industrys first mobile PCI Express
graphics processor. We shipped more than one million native PCI Express visual processing
units (VPUs) in fiscal 2004.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We continued to introduce innovative and high-performance products to the markets we
serve. These included the RADEON X800, HDTV WONDER, IMAGEON 2300, XILLEON 210VC and
THEATER 550 PRO, among others.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We introduced the RADEON XPRESS 200 family of chipsets for the AMD desktop platform
incorporating industry-leading features and performance, which addressed the value segment
of the market.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | We continued to build momentum in fast-growing digital consumer markets such as handheld
devices, mobile phones and DTVs.
|- |  | -------------------------------------------------------------------------------------------------------------------------

| |  | We solidified our position as a global leader in mobile phone graphics, announcing a
strategic collaboration with QUALCOMM Incorporated and continued to broaden our
relationships with tier one mobile phone manufacturers. We also introduced the IMAGEON
2300 family of co-processors, the first of their kind to enable 3D gaming performance
on mobile phones.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We significantly enhanced our position in the DTV market, shipping more than 5 million
chips for high-definition TVs and cable and terrestrial set-top boxes in calendar 2004. We
secured design wins with most major DTV manufacturers, including Funai (Sylvania),
Hitachi, JVC, Mitsubishi, Matsushita (Panasonic), Philips, Scientific-Atlanta, Samsung,
Sanyo, Sony, TiVo, Toshiba, Thomson / TTE (RCA) and others.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We acquired certain assets of AMI Technologies Corp. (AMI), our exclusive
sales organization for Taiwan and China since 1992. This strategic acquisition
strengthened our direct presence in these critical and rapidly growing markets.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | David E. Orton, previously President and Chief Operating Officer of ATI, became
President and Chief Executive Officer.
|- |  | ----------------------------------------------------------------------------------------------------------------------

| |  | We were added to the NASDAQ-100 Index and our common shares are now included in the
NASDAQ-100 Index Tracking Stock.
|- |  | --------------------------------------------------------------------------------------------------------------------

| |  | We posted record financial performance with revenues up 44% from fiscal 2003 to
approximately $2.0 billion and diluted earnings per share of $0.80, up from $0.14 in
fiscal 2003.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 2003

| |  | We delivered new product line-ups for both the spring and fall original equipment
manufacturer (OEM) design cycles.
|- |  | ---------------------------------------------------------------------------------------------------------------------

| |  | We introduced the FireGL
X2-256 and FireGL T2-128 graphics boards into the workstation segment.
|- |  | -----------------------------------------------------------------------------------------------

| |  | We launched the ALL-IN-WONDER
9800 graphics board to lead our home media PC product offerings.
|- |  | ----------------------------------------------------------------------------------------------

| |  | We introduced the IMAGEON 3200, an advanced multimedia co-processor for handheld
devices, including colour mobile phones.
|- |  | -------------------------------------------------------------------------------------------------------------------------

| |  | We were the first company to introduce a broad range of visual processors compatible with
Microsofts DirectX 9.0 multimedia application programming interface.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We captured new OEM design wins and established new channel partnerships with original
design manufacturers (ODMs) such as Asustek and Micro-Star International.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We introduced a new generation of integrated graphics processors (IGPs) with
the launch in June 2003 of the MOBILITY RADEON 9100 IGP and the RADEON 9100
IGP for the notebook and desktop markets, respectively.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We commenced volume shipments of our IMAGEON multimedia co-processor products to
Motorola for their V300, V500 and V600 colour and feature mobile phones.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | We secured design wins for our DTV products from television, projector and set-top box
manufacturers including Sony, Samsung, Epson, Scientific Atlanta, Funai Electric (Sylvania
brand) and Changhong Electric (Apex brand).
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We signed agreements with Nintendo and Microsoft with respect to the development of new
technology to be used in their future products.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------

# 2002

| |  | We introduced the RADEON 9700, RADEON 9000, FireGL X1 and the MOBILITY RADEON
9000, all of which were industry-leading products that garnered a significant number
of design wins from OEMs.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We launched a full line of IGP products. The RADEON family of IGP products
addresses the desktop and mobile PC markets and supports Intel Pentium 4, AMD Athlon and
AMD Duron platforms.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We introduced IMAGEON 100, a multimedia co-processor for handheld devices,
including colour mobile phones. IMAGEON includes capabilities such as enhanced 2D
graphics and hardware and MPEG-4 decoding and offers high performance, crisp images and
low power consumption.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We introduced the XILLEON 220, a highly integrated system-on-chip for DTV products.
The XILLEON 220 integrates into a single chip all processor, graphics, video,
audio and input/output (I/O) processing capabilities required for DTV
applications.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We acquired NxtWave Communications Inc. (NxtWave) and broadened our DTV
product capabilities by adding NxtWaves leading demodulation technology to our
XILLEON products, which positioned ATI as a provider of complete solutions for DTV.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We started to receive royalty revenues from our licensing arrangement with Nintendo for
ATIs Flipper chip that is used in Nintendos GAMECUBE game console.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

# 2.2  Acquisitions

We continually seek to expand our
technology base and further our strategic goals. Acquisitions, including those described
below, are one of the ways we do this.

We acquired ArtX, Inc.
(ArtX) in April 2000 in pursuit of our strategy to expand into the high-volume
IGP market. ArtX, a privately held company, was highly regarded for graphics technology.
With this acquisition we gained integrated visual processing technology, associated
research and development (R&D) and expertise in the form of 70 engineers.
This acquisition facilitated our entry into the consumer electronics and video game
console markets and provided additional technology for the launch of our IGP products in
fiscal 2002.

To achieve our goal of top-to-bottom
market leadership, it was essential for us to address the high-end workstation segment of
the PC market. In 2001, we accelerated our entry into this market with the acquisition of
FGL Graphics, the professional graphics division of SONICblue Inc. FGL Graphics developed
and marketed the technology-leading FireGL brand of OpenGL-based graphics
accelerators. This acquisition contributed to our growth in the workstation market as well
as our overall product and technology development in our other product categories.

In 2001, we identified multi-monitor
display capability as a means to broaden our product offerings and target new customers.
In July 2001, we acquired HYDRAVISION desktop management software and related
technologies from Appian Graphics Corporation as well as several related patents and the
HYDRAVISION trademark. HYDRAVISIONsoftware features include window and
dialog box control, hot-key shortcuts, independent resolutions and refresh rates,
independent application control and up to nine virtual desktops. A number of our products
now include HYDRAVISIONs multi-monitor capability.

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In 2002, our strategy to leverage our
core technology into markets for consumer electronic devices began to gain momentum,
particularly in the DTV market, as the U.S. Federal Communications Commission announced
the mandated conversion from analog to digital television by 2007. Prior to June 2002, our
XILLEON visual processor products, although highly regarded, required an
interconnect with a signal processing and communications chip demodulator in order to
operate in DTV products. In June 2002, we acquired NxtWave in order to combine
NxtWaves leading demodulation technology with our XILLEONproducts,
positioning ATI as a provider of complete DTV solutions.

In September 2003, we acquired
certain assets of AMI, our exclusive sales organization for Taiwan and China since 1992.
This acquisition strengthened our presence in these important markets. The majority of
AMIs sales, marketing and field application engineering staff were transferred to
ATI as part of the acquisition. After the acquisition, AMI continued to act as our sales
agent in the region for smaller add-in board (AIB) customers that we did not
service directly. In September 2004, we acquired additional employees and assets from AMI
and we now service all these customers directly.

In September 2004, we acquired
certain assets of RT&C International, our sales organization for South Korea, for a
cash consideration of $2.6 million, plus acquisition-related costs. This acquisition
provided us with valuable direct access to our important customers in Korea and provides a
base from which to grow our presence in this important market.

As a result of these acquisitions we
believe that we have gained technology and R&D, engineering and sales expertise,
expanded the markets for our products and created new market opportunities for our
business.

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# ITEM 3.
NARRATIVE DESCRIPTION OF THE BUSINESS

# 3.1  Overview

Founded in 1985, ATI is a world
leader in the supply of graphics processing products and technology for desktop and
notebook PCs, consumer electronic devices, DTVs and video game consoles. We apply our
proprietary technologies, design capabilities and software to provide graphics solutions
for customers in all our target markets.

Our business is organized around two
main markets for semiconductor graphics products: PC products and consumer electronic
devices. Our RADEON product line is a recognized leader in the PC graphics market.
We believe that the markets for consumer electronic devices represent a key area for the
future growth of our business. Sales in this area increased from less than 5% of our
revenues in fiscal 2003 to nearly 10% of our revenues in fiscal 2004. Our IMAGEON
products for mobile phones and handheld devices, and our XILLEON and NXTWAVE
products for DTV markets have achieved significant design wins with customers in
their respective segments. In the video game console market, our Flipper chip
technology has been the sole graphics engine used by Nintendo in their GAMECUBE console.
We have also signed multi-year technology development agreements with Nintendo and
Microsoft for future products and services.

During the fiscal year ended August
31, 2004, our business generated revenues of nearly $2.0 billion. We have more than 2,700
employees worldwide. Our ten largest customers accounted for approximately 62% of our
revenues in fiscal 2004. Since a significant portion of PCs and consumer electronic
devices are currently built in the Asia-Pacific region regardless of where the products
are sold, the majority (81%) of our sales during fiscal 2004 were in the Asia-Pacific
region.

We believe that our continued
commitment to innovation and technology leadership will position ATI to capitalize upon
growth opportunities in the markets for our products in the future.

# 3.2  Our Markets

The semiconductor graphics market
addresses the need for image processing for various computing and entertainment platforms
such as desktop and notebook PCs, workstations, DTVs, handheld devices and video game
consoles. The primary product of a semiconductor graphics supplier is the VPU, a
semiconductor chip that increases the speed and complexity of images that can be displayed
on a graphical interface as well as improving image resolution and colour definition. The
VPU off-loads the burden of graphics processing from the PC or electronic devices
microprocessor or central processing unit (CPU). In this way the dedicated
graphics or visual processor and CPU work in tandem to increase overall speed and
performance.

During the past few years, the PC
industry has been marked by consolidation among the large PC OEMs and the emergence of PC
system integrators (SIs) or white box, clone or non-branded PC
manufacturers. Today, we estimate that SIs are responsible for approximately forty to
fifty percent of worldwide PC shipments. Therefore, it is important for PC graphics
suppliers to have their technology incorporated into board-level products which are
available to and accepted by the SI channel.

In fiscal 2001, we undertook a
transition of our business which has resulted in us becoming a component-level supplier
to the PC graphics industry. This strategy included refocusing our distribution channels
and supplying AIB manufacturers with our component products who, in turn, supply SI
manufacturers with their board-level products. We now also supply our OEM customers with
component-level products as well as, to a lesser extent, graphics boards. As a result,
more than 95% of our unit sales were shipped as components in fiscal 2004.

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# PC Market

The strength of the semiconductor
graphics market is heavily dependent upon the PC market. Customers in the PC segment
include: OEMs and SIs, who build VPUs into their PC products; ODMs, who build VPUs into
their PC motherboard and graphics board products; and AIB manufacturers who incorporate
VPUs into their graphics board products.

Desktop and notebook products
represent the two major segments of the PC market. According to International Data
Corporation (IDC), a market research firm, the worldwide desktop PC and
notebook market segments were estimated to be 122.3 million units and 48.5 million units,
respectively, in 2004 and are forecast to be 130.4 million and 58.3 million units,
respectively, in 2005. While the desktop segment has traditionally been the largest sector
within the PC market by volume, the notebook market continues to expand at a more rapid
pace driven by the availability of lower power and high performance notebook PCs at
affordable prices. According to the most recent IDC data, the desktop and notebook PC
markets are estimated to grow to 148.8 million units and 90.8 million units, respectively,
by 2008.

The graphics solution for both the
desktop and notebook segments is addressed by integrating the graphics hardware into the
motherboard chipset or by adding a discrete graphics processor, which is a stand-alone
graphics chip. Discrete graphics chips tend to provide higher levels of performance and
speed while integrating graphics into the chipset caters towards the value segment of the
market. The demand for integrated graphics solutions has grown in recent years as the PC
market has developed and the performance of IGP products has advanced. OEMs and SIs, who have been
continually pressured to meet lower price and power consumption targets while still maintaining reasonable
profit margins, are increasingly using integrated chipsets over discrete chipsets in their
products given the value or low-cost characteristics of integrated graphics
solutions. Based on industry data, it is estimated that integrated graphics chipsets
currently account for more than 55% of the desktop 3D chips and approximately one-half of the
notebook 3D chips sold worldwide. Despite this increase, it is expected that the discrete
market will continue to grow, albeit at a slower rate than in the past, due to the
superior performance discrete chipsets provide over integrated graphics chipsets. This
extra performance is especially important to users who engage in graphically intensive
applications such as gaming, multimedia, video editing and high definition content
creation.

# Consumer
Electronics Market

The market for graphics has grown
beyond its PC roots as technology in other electronic devices has developed. Newer avenues
of growth for the graphics market include DTVs, handheld devices, such as colour mobile
phones and PDAs, and video game consoles. Similar to the development of the PC graphics
market, users are demanding enhanced imagery for improved utility and a richer visual
experience for their digital electronic devices.

The growth in the DTV market is being
driven by the conversion of analog television signals to digital transmissions by
television broadcasters. This conversion is supported by a U.S. Federal Communications
Commission mandate that requires the integration of digital tuners into TV sets and
receiver devices by 2007. As this transition takes place, semiconductor graphics suppliers
will have the opportunity to leverage their multimedia technology developed for the PC
graphics market into new products for DTVs. According to IDC, worldwide DTV shipments are
predicted to be 36.1 million units in 2005, climbing to an estimated 118.0 million units
by 2008.

The market for colour, feature rich
(including camera) and smart phones will increasingly require that mobile phones provide
rich colourful visual displays as well as 2D and 3D graphics technology. The transition to
next generation 2.5G and 3G mobile phone technologies will drive this trend as users
demand an enhanced experience with their mobile phones, including advanced audio and video
features, as well as power management (battery life). As this market develops,
semiconductor graphics suppliers will have opportunities to work with mobile phone
manufacturers and supply advanced graphics processors for their mobile phone products.
According to IDC, the size of the mobile phone market was estimated to be 648.5 million
units in 2004, is forecasted to be 632.5 million units in 2005, and is currently estimated to grow
to 793.4 million
units by 2008.

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Video game consoles are also an
important segment of the consumer electronics market. In this market, semiconductor
graphics suppliers work alongside game console manufacturers to enhance the visual
experience for the users of sophisticated video games. Semiconductor graphics suppliers
have the opportunity to leverage their core visual and graphics processing technologies by
providing solutions to this market. According to Strategy Analytics, a market research
firm, the game console market was estimated to be 29.3 million units in 2004, is forecast
to be 25.9 million units in 2005 and is currently estimated to grow to 33.5 million units
by 2008.

# 3.3  Business
Strategy

We anticipate that future PC systems
and certain consumer electronic devices will continue to require advanced visual
processing technology to support 3D gaming and digital video technologies such as digital
video decoding.

We intend to expand our presence in
the PC market and expand into new digital consumer markets by closely following and
capitalizing on market trends and inflection points in the industry, such as the
transition currently underway to the PCI Express interface standard.

Another key element of our business
strategy has been to expand beyond the traditional PC market into emerging market segments
such as DTV and handheld devices, including colour mobile phones. We experienced
considerable success in each of these markets in 2004 and are poised to grow further in
2005 by virtue of our strong momentum, customer relationships and technology leadership.

We intend to execute our business
plan through the following strategies:

# Sustained product and
technology leadership

Enabling the most compelling visual
experience irrespective of platform is central to our business strategies. Our goal is to
consistently raise the technology and performance standard in all segments of the PC
market and the digital consumer markets in which we operate. In the PC market, we are
focused on capturing performance and technology leadership at the high-end enthusiast
level and then propagating this technology throughout the performance, mainstream and
value markets. In digital consumer markets, we are focused on the innovation and delivery
of advanced features and graphics performance that our customers desire and market to
their end-users.

With the introduction of the
RADEON X800 in fiscal 2004, we have demonstrated our continued commitment to
introduce industry-leading technology at the high-end of the desktop PC market. We
leveraged high-end performance VPUs into the important mainstream and value market
segments by introducing the RADEON X600 and RADEON X300.

We expect to continue to focus our
research efforts to allow us to bring new and innovative products and technologies to the
market. We continue to focus on key graphics technologies relating to 2D, 3D and video
acceleration for desktop, mobile and workstation PCs. Due to the rapidly changing and
expanding technologies in the PC market and the convergence of this market with other
media, we continue to internally develop and pursue opportunities to acquire or license
complementary leading-edge technologies when appropriate.

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# Build a strong and
sustainable franchise in the integrated graphics processor market

The market for IGPs has grown rapidly
and based on industry data, integrated chipsets are today estimated to represent more than 55%
of desktop 3D chips and approximately one-half of notebook 3D chips sold worldwide. Bringing
our core visual processing technology and integration expertise to the IGP market segment
is a natural extension of our PC market strategy. We have invested in R&D, cultivated
distribution channels and anticipated certain inflection points to stage our entry in this
market to maximize our opportunities.

The combination of performance,
features and low cost of our IGP products represent a competitive value proposition in the
IGP market. We have partnered with key motherboard manufacturers including Asus, Gigabyte,
Micro-Star International, TUL Corporation, Sapphire and PC Partner,
which we expect will help us penetrate the desktop IGP market in fiscal 2005. Strong
customer acceptance of our products has contributed to our penetration of the notebook IGP
market.

# Expand in select consumer
electronics market segments

We endeavour to leverage our core
graphics technologies from our PC products into related markets that reach beyond the PC
and address the markets for consumer electronic devices that include handheld devices such
as colour mobile phones and PDAs, as well as DTVs and video game consoles. We continue to
refine our approach to these markets and are currently focusing on colour mobile phones in
the handheld segment and North American digital television in our DTV business. We are
also beginning to explore DTV growth opportunities in the European and Asian markets.

In the colour mobile phone market, we
grew volume shipments of our IMAGEON products in fiscal 2004 and secured additional
design wins with Motorola, a leading mobile phone manufacturer. By December 2004, our
IMAGEONprocessors were present in a variety of models of mobile phones. We also
announced a strategic technology collaboration with QUALCOMM Incorporated, a pioneer and
world leader in Code Division Multiple Access (CDMA) digital wireless technology. As part
of the collaboration, some of QUALCOMMs Mobile Station Modem (MSM) baseband solutions will
include ATIs highly optimized IMAGEON architecture to provide a fully
featured, high-performance 3D gaming solution for handheld devices.

In fiscal 2004, we achieved continued
broad-based acceptance of our solutions in the DTV market and in calendar 2004 shipped
more than 5 million chips for high-definition (HD) TVs and cable and terrestrial set-top
boxes. Our products are used by leading manufacturers of HD TVs and HD set-top boxes,
including Funai (Sylvania), Hitachi, JVC, Mitsubishi, Matsushita (Panasonic), Philips,
Scientific-Atlanta, Samsung, Sanyo, Sony, TiVo, Toshiba, Thomson / TTE (RCA) and others.

In the video game console market, our
Flipper chip technology has been the sole graphics engine used by Nintendo in
their GAMECUBE console. We have also signed multi-year technology development agreements
with Nintendo and Microsoft for future products and services.

# Innovate cost-effectively
and improve operating and financial performance

We seek to innovate efficiently. This
means targeting new channels and new customers by leveraging our core technologies. It
also means introducing our products into new markets at key inflection points and
capitalizing on the momentum of changes in the market. We strive to make continuous
improvements in development processes and technologies, manufacturing efficiencies and
inventory management.

We continually review our business to
ensure that expenses correspond with their opportunity and return profile. During fiscal
2004, we made steady improvements in financial and operating performance. As a result of
our technology leadership in the high-end desktop market, continued growth of the notebook market and
continued penetration of the consumer electronics market, we increased revenue by 44% on a
year-over-year basis.

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# 3.4  Products and Technology

# 3.4.1  PC Products

# Desktop Products

Our discrete desktop VPUs address
desktop PC markets where customers expect high levels of performance, speed and a
compelling visual experience. We offer a complete line of discrete VPU products for
mainstream, performance and enthusiast PC markets. Our most recent generation of desktop
VPUs includes the performance-leading and award-winning RADEON X850XT Platinum
Edition.

While the percentage of PCs that are
targeted towards the value and commercial markets continues to grow, we still believe that
a separate graphics subsystem will continue to offer higher performance and will be the
preferred solution for workstation, multimedia and gaming platforms.

In order for OEMs to meet continually
lower pricing targets while still maintaining reasonable profit margins, there is a
growing trend for OEMs to use integrated chipsets rather than discrete graphics solutions
in their value or low-cost PCs as well as in commercial platforms. The value
and commercial markets represent a significant portion of PCs that are sold today.
Currently, based on industry data, we estimate that integrated graphics chipsets are used in more than 55% of the
desktop 3D chips sold worldwide.

Our desktop IGP products address the
value and commercial segments of the PC market. We bring advanced features, low cost and
an excellent visual experience to these segments. We offer a full line of IGPs for Intel
and AMD-based computer platforms. In fiscal 2003, we launched our first desktop IGP
product, RADEON 9100 IGP and commenced volume shipments in fiscal 2004.

In order to sell IGPs, we must secure
license agreements with manufacturers of CPUs on which the motherboard is based. We have
entered into licensing arrangements with Intel Corporation (Intel) which
permit ATI, subject to certain requirements, restrictions and limitations, to develop and
sell integrated chipsets that are compatible with Intels current Pentium 4 desktop
and notebook microprocessor platforms. We have also entered into the
necessary licensing arrangements that are required for our IGP products to be compatible
with the Athlon64 and Sempron CPUs manufactured by Advanced Micro Devices, Inc. (AMD).

We offer a complete line of products
for the desktop market, including products for the accelerated graphics processor
(AGP) and PCI Express interface standards and the Intel and AMD platforms,
targeting the enthusiast, performance, mainstream and value segments. The transition by
the industry to the PCI Express standard, which began in 2004, is expected to continue
through 2005.

# Notebook Products

The notebook or mobile PC market
continues to be a growing segment in the PC industry, as notebook computers now
incorporate richer features such as improved 3D performance, DVD support, and power
management technology to reduce battery drain from the graphics subsystem. We developed
the MOBILITY RADEON family of mobile graphics accelerators to target this growing
market and to provide the performance, features and flexibility to work in a variety of
notebook classes. In this category, speed, low power consumption and visual performance
are the uppermost considerations of our customers. We focus on designing notebook VPUs
that meet and exceed these expectations in the thin and light, performance desktop
replacement and value categories.

As in the desktop PC market, the
integration of discrete notebook PC semiconductor components may allow for reduced costs,
faster design times and more available space for other features within the mobile PC.
Our mobile graphics products with integrated memory, including our
MOBILITY RADEON 9700, MOBILITY RADEON 9600and MOBILITY RADEON 9200 have
gained widespread acceptance in the mobile PC market over the past year.

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As the trend towards lower
cost notebook PCs continues, we believe the market will also require graphics chip suppliers to
provide cost effective ways of delivering high performance graphics, including the use of
integrated chipsets. Based on industry data, we estimate that integrated graphics chipsets currently
account for approximately one-half of the notebook 3D chips sold worldwide.
Our notebook IGP products target the value and mainstream segments of
the notebook PC market. Our products for this category combine excellent visual
performance, powerful features and low power consumption. The most recent generation of
our IGP notebook products is the MOBILITY RADEON 9100 IGP.

# Home Media PCs

The market for digital home media PCs
with multimedia capability continues to expand. PC manufacturers are offering consumers
even more choices for home theater and entertainment applications. With these powerful PC
systems, consumers can easily access digital photos, TV broadcasts, computer games, DVD
movies and more all through one platform.

ATI continues to offer products for
the digital home PC market which provide PC/TV convergence, combining PC technology with
TV, audio and high quality digital video technology. In calendar 2004, we unveiled innovative
multimedia products such as the ALL-IN-WONDER 9600 XTand THEATRE 550 PRO. ATI
offers both notebook and desktop home media PC products. We also offer MPEG encoding
software solutions.

# Workstation Products

Our FireGL family of
workstation graphics boards brings high performance to the digital content creation and
computer-aided design workstation PC markets. We offer both desktop and notebook
workstation solutions. Our most recent product introductions in this segment include our
FireGL X3-256 for AGP and the FireGL V7100, V5100, V3200and V3100
for PCI Express and the MOBILITY FireGL T2-128 for mobile workstations. All of
these products offer a competitive price/performance combination in their respective
segments.

# 3.4.2
 Consumer Electronics Products

Many consumer electronic devices
today rely on some form of digital processor to increase functionality, improve
reliability, decrease size and lower costs. An easy-to-use display is typically the next
consumer priority.

We continue to leverage our core
technology, visual processing expertise and power management know-how to create growth
opportunities in certain consumer electronics markets. We have initially targeted three
markets: (i) DTVs, including set-top boxes; (ii) handheld devices, including colour mobile
phones and PDAs; and (iii) video game consoles.

# Digital television
including set-top boxes

As television broadcasters in North
America and the rest of the world convert their analog television signals to DTV
transmissions over the next decade, increased consumer interest in DTV will spur demand
for more advanced DTVs, projectors and set-top boxes. The U.S. Federal Communications
Commission issued a mandate in 2002 requiring the integration of digital tuners into TV
sets and receiver devices by 2007. Digital transmission standards provide significant
advantages compared to analog standards, including greater picture clarity and resolution
as well as opportunities for more channels, e-commerce and enhanced TV viewing.

We are leveraging our core technology
in visual processors by offering visual and signal processing technologies to DTV and
set-top box manufacturers. Our XILLEON 225, XILLEON 210VC, THEATER 310 and
THEATER 313 product lines are cost-effective and highly-integrated solutions for
this market. We also provide software and support infrastructure to our customers in this
segment.

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Many of the commercially available
integrated Digital Cable Ready high definition TVs use ATIs chips.

# Colour mobile phones and
handheld devices

The latest generation of colour
mobile phones, PDAs and other handheld devices are driving demand for more advanced visual
processors. Higher resolution panels, higher performing embedded processors and increased
internal and removable storage are all contributing to rapid changes in handheld and
mobile communication devices.

Our IMAGEON product line
contributes market leading visual processing and power saving technology as well as a high
level of integration. Our IMAGEON 3200 is an advanced multimedia co-processor for
handheld electronic devices. It integrates an advanced 2D graphics engine and an MPEG/JPEG
decoder alongside a versatile set of peripheral I/O functions. These features make the
IMAGEON 3200 suitable for the new generation of colour and feature phones.

# Video game consoles

We also leverage our core visual
processing technology in the video game console market. We provide visual processing
technology to Nintendo for its GAMECUBE game console. We believe enthusiasm for computer
gaming continues to grow with increasing consumer demand for more realistic, immersive and
cinematic experiences.

We have licensed our proprietary
Flipper chip to Nintendo as the central graphics core of Nintendos
GAMECUBE video game console. The Flipper chips highly integrated
processor includes both a 2D and 3D graphics engine, a digital signal processor for audio
processing, all system I/O functions, including CPU system memory, controllers, optical
disk, flash card, modem and video interfaces and an on-chip high bandwidth frame buffer.

We have also signed multi-year
technology development agreements with Nintendo and Microsoft for future products and
services.

# 3.5
 Research and Development

A strong commitment to R&D is
fundamental to our success. Due to the rapid pace of technological change in the graphics
industry, it is critical that we meet each market window with the newest generation of
products that meet market and customer requirements. Ongoing R&D efforts enable us to
participate in establishing industry standards as well as design and create new products
based on these standards. We continue to strengthen our R&D base through internal
R&D efforts, licensing arrangements with third parties and acquisitions of technology
companies, when appropriate.

Our primary R&D objective is to
develop products and technologies that meet the ever-changing demands of the PC graphics
and multimedia industry. Our dedication to R&D has also allowed us to expand our
addressable market beyond the PC discrete graphics market to the IGP market and to
consumer electronics markets including DTVs, colour mobile phones and video game consoles.

Our net investment in R&D
increased from $213.0 million in fiscal 2003 to $269.9 million in fiscal 2004. Our
engineering resources increased from approximately 1,500 to more than 1,700 employees
during that time.

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The following table summarizes our
net investment in R&D over the past three years. R&D expenditures include current
expenses, such as salaries and certain materials, as well as depreciation of capital
assets that were acquired for R&D purposes and prototype and design tools. For R&D
activities carried out in Canada, we qualify for Canadian federal investment tax credits
(ITCs) at the rate of 20% of all eligible current and capital R&D
expenditures. We also qualify for tax credits based on R&D activities carried on in
the United States. These ITCs are used to reduce current expenses, capital expenditures
and federal tax otherwise payable.

|Net Investment in Research and Development           |  |                       |  
|---------------------------------------------------- |  | --------------------- | -
|(Thousands of U.S. dollars)                          |  | Years ended August 31 |  
|                                                     |  | 2004                  |  
|Gross current R&D expenses                           |  | $298,934              |  
|Less related ITCs                                    |  | 29,025                |  
|                                                    
|Net current R&D expenses                             |  | $269,909              |  
|                                                    
|Net current R&D expenses as a percentage of revenues |  | 13.5                  | %
|Capital R&D expenditures, net of ITCs                |  | $  15,479             |  

# 3.6  Sales

We sell our products through five
major sales channels: PC OEMs, SIs, AIB manufacturers, retail stores and consumer
electronics manufacturers.

Our PC OEM customers include Acer,
Apple, Dell, Founder, Fujitsu, Fujitsu-Siemens, Gateway, Hewlett-Packard, Hitachi, IBM,
Lenovo, NEC, Packard Bell, Panasonic, Sony, Toshiba and Trigem.

In the PC OEM market, it is critical
to time the introduction of our graphics products to reflect industry transitions or
inflection points and meet the schedules associated with qualifying and shipping products
for seasonal buy cycles, typically in the spring and fall. Sales to PC OEM customers often
involve a direct relationship between the customer and our R&D personnel to ensure
that the products we are developing meet the needs and specifications of the PC OEM. We
offer a full range of products to PC OEMs, including products for PCs as well as digital
consumer products. This results in sales channel efficiency, an ability to grow with our
customers, and enables our PC OEM customers to enter new market segments. A significant
portion of product manufacturing for PC OEMs is handled by ODMs, particularly in the
notebook market. Our current notebook ODM customers include Arima, Asustek, Compal, First
International Computer, Inventec, Quanta, Uniwill and Wistron.

Over the past several years we have
worked to establish and broaden our relationships with major AIB manufacturers. We deliver
component-level products to these manufacturers who in turn build and sell board-level
products using our technology to SIs. Our AIB customers include Asustek, Connect 3D, TUL
Corporation, First International Computer, Gigabyte, Hightech Information Systems,
Micro-Star International,Sapphire, Tyan, Wistron and Yuan.

We also work directly with our SI
customers including Actebis, Alienware, Evesham Technology, Falcon Northwest, Kraftway,
MaxData Systeme, Medion, Mesh, Unika and Voodoo. SIs typically sell from positions of
regional or product-based strength in the market. They usually operate on short design
cycles and can respond quickly with new technologies. The SI channel often uses discrete
graphics solutions as a means to differentiate their products and add value to their
customers.

ODMs also build motherboard products
which include IGPs. We currently have strategic alliances with the worlds leading
motherboard, notebook and PC design manufacturers to develop products that feature our
products.

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We also sell our PC products directly
to consumers through major retailers including Best Buy, CompUSA, Circuit City, Dixons,
Future Shop, MediaMarkt and Frys. Our major e-commerce retailers include Newegg.com,
CDW.com and Buy.com. The retail market is characterized by significant price sensitivity
requiring clear feature and performance differentiation at multiple price points.

In our consumer electronics business,
we are focused on selling to the top-tier consumer electronics manufacturers. We have
strengthened our sales organization in this segment in the Americas, Japan and the
Asia-Pacific region.

In our handheld business, our major
customers include Motorola, Sharp and Toshiba. In our DTV business our customers include
Hitachi, Panasonic, Samsung, Sharp, Sony, Thomson and Toshiba, among others.

In our view, ATI brand awareness
increases the efficiency of our reach into each of our sales channels. We have increased
our brand awareness programs over the last few years through high profile product
launches, targeted event sponsorship and point-of-sale promotion kits. We have also
initiated a broad-based sticker program that has resulted in more than 10 million
computers bearing the ATI brand.

Our ten largest customers accounted
for approximately 62% of our revenues in fiscal 2004, with one customer representing
10.6%. In fiscal 2003, three customers accounted for 16.2%, 13% and 10.6% of our revenues
and our top ten customers accounted for approximately 70% of our revenues.

The following table summarizes the
breakdown of our revenues by territory as a percentage of total revenues. Our geographical
segmentation reflects the locations where we delivered products to our customers, not
where the end customer purchased the PC or consumer electronic device. A significant
portion of PCs and consumer electronics devices are currently built in Asia-Pacific,
regardless of where the products are sold. Accordingly, the majority of our sales in
fiscal 2004 were in the Asia-Pacific region.

|             |  | Years ended August 31 |     
|------------ |  | --------------------- | ----
|             |  | 2004                  | 2003
|Canada       |  | 1                     | %   
|USA          |  | 13                    | %   
|Europe       |  | 5                     | %   
|Asia-Pacific |  | 81                    | %   
|            
|             |  | 100                   | %   
|            

We maintain a regional sales presence
in each of the key industrialized areas of the world. As noted above, however, OEMs, AIB
manufacturers and consumer electronics companies are locating their manufacturing
operations in the Asia-Pacific region. Our sales organization reflects this geographic
weighting.

Our sales arrangements with OEMs,
AIBs, distributors and key retail customers generally operate on the basis of product
forecasts provided by the particular customer, but do not include any commitment or
requirement for minimum product purchases. Purchase orders are also typically cancellable
by the customer without consequence on 60 days notice to us.

We recognize revenue when evidence of
an arrangement exists, risks and rewards of ownership have been transferred to the
customer, the selling price is fixed and determinable and collectibility is reasonably
assured. Estimated returns and allowances, price protection and sales rebates are recorded
as a reduction of revenue at the time revenue is recognized. In addition, we provide for
the estimated cost of product warranties at the time of revenue recognition.

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We offer a limited hardware warranty
to the end-user consumer on all of our branded hardware products. This warranty is
supported directly by our customer service department and serves as a selling feature for
distributors and retailers.

In addition, for our game console
business, where we have signed multi-year technology development agreements, we follow
the percentage-of-completion method of accounting for contracts requiring ATI to develop
customized technology to meet a customers specifications. Under such contracts,
revenue is recognized based on the ratio of total costs incurred to date to overall
estimated costs.

# 3.7  Competition

Our markets are highly competitive
and characterized by rapid changes in technology. We provide graphics and multimedia
products in all market segments of the PC desktop, mobile, workstation and server markets
through OEMs, SIs, AIB manufacturers, distributors and retailers. As a result, we compete
with every PC graphics and multimedia company that serves one or all of these distinct
market segments. In addition, by integrating new functionality into the VPU and expanding
our product line, we continually face new competitors in converging markets, some of whom
may be substantial and well-established in those markets. Key competitive factors in the
PC, mobile phone and DTV markets are outlined below.

Key Competitive Factors
by Market

|PC | Mobile Phones | DTV                         
|-- | ------------- | ----------------------------
|  |               | Visual performance, features
|   |               | and speed                   
|  |               | Cost                        
|  |               | Brand awareness             
|  |               | Comprehensive product line  
|  |               | Timely product introductions
|  |               | Product quality, including  
|   |               | image quality and software  
|   |               | stability                   

In the PC market our competitors
include: (i) discrete component suppliers; (ii) AIB manufacturers; (iii) fully-integrated
graphics suppliers; and (iv) suppliers of IGPs. These include Intel, Matrox Electronic
Systems, Nvidia, SiS, Via Technologies and XGI Technology. Other competitors also include
a number of smaller companies which may have greater flexibility to address specific
market needs. The growing complexity of visual processors and the associated R&D
costs, however, represent an increasingly higher barrier to entry in this market.

In the consumer electronics markets
we have different competitors in each of our market segments.

In handheld markets, we have three
categories of competitors. Baseband processor vendors have traditionally provided the
voice processing functionality in mobile phones. Many of these vendors are expanding their
product offerings to encompass the graphics processing required by colour and feature
mobile phones. These include Motorola, Philips, QUALCOMM and Texas Instruments. Another
category of competitor, application processor vendors, has emerged to serve the high-end
feature and smart phones that require large amounts of general purpose processing
capability. These include Intel, Nvidia, QUALCOMM, Samsung, STMicroelectronics and Texas
Instruments. The third category of competitor, media co-processor vendors, is most closely
aligned with our strategy in the colour and mobile phone market. Media co-processor
competitors include Core Logic, Epson, MTEK Vision, Nvidia and Renesas.

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In the DTV business our competitors
include Broadcom, Conexant Systems, LSI Logic, Philips, STMicroelectronics and Zoran, as
well as in-house semiconductor development divisions at companies such as LG, Matsushita
Electric (Panasonic brand) and Toshiba.

In the video game console market, we
compete primarily against Nvidia and Sony.

# 3.8  Manufacturing

# Semiconductor
Manufacturing

We have strategic relationships with
the two leading semiconductor foundries, Taiwan Semiconductor Manufacturing Company and
United Microelectronics Corp., to manufacture our visual processor components. From the
foundry, we deliver wafers to our test, assembly and packaging partners including Advanced
Semiconductor Engineering Group, King Yuan Electronics, Siliconware Precision Industries
and STATS-Chippac, who package and test the final application-specific integrated circuit
(ASIC). It is a flexible production line that enables us to balance capacity
based upon technology and expertise. In this way we maintain control over the
manufacturing process, reduce delivery times and component costs and increase product
quality.

# Board Manufacturing

Board-level product manufacturing is
outsourced to third party manufacturers. They include Celestica, Fairway and PC Partner
with locations in China. Our manufacturing facility in Markham, Ontario, Canada is
primarily devoted to prototyping and trial runs for new product introductions.

# 3.9  Customer
Service and Support

As service and support is critical to
the success of our customers, it is critical to our success. We work closely with our
customers by committing R&D resources to achieving optimal compatibility and
integration with their products.

We also work closely with our
customers on demand generation programs aimed at their key markets. We deliver fast and
accurate responses to hardware and software developers to ensure that their products,
games and applications maximize the potential of our visual processor technology.

With each of our graphics and video
accelerator products, we provide drivers and supporting software packages that enable the
effective use of our products under a variety of operating systems and applications. In
addition to the Microsoft Windows family of operating systems, we support Apple OS9 and
OSX, as well as Linux-based applications. Our software provides optimized performance for
a variety of CPU platforms (including Intel and AMD based systems), motherboards and
chipsets.

We develop our software drivers in
many different languages and formats to conform to international user requirements. Our
software engineers, scientists and test professionals engage in large scale development of
drivers and related software applications in support of OEM, retail and AIB customers.
On-time delivery of optimized, unified and reliable software that supports the latest
technology enables our customers to market leading-edge and cost-effective ATI-based
products.

We enable all our PC-based products
(discrete and integrated, desktop and mobile, graphics and multimedia) with a unified
driver  a single driver product currently supporting all of our RADEONproducts and executing under all of Microsofts supported PC operating systems.
The unified driver concept is useful for customers who do not wish to manage separate
software builds for separate ATI parts, and who seek a stable, efficient and
backwards-compatible software environment for their PCs. In addition to unified driver
support for Microsoft Windows variants, we also provide drivers for the MacOS and Linux
environments.

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# 3.10  Human
Resources

We employed the following number of
individuals, including non-permanent and short-term employees, at August 31 in each of the
years noted below:

|                              |  | 2004  |  | 2003  |  | 2002  | 
|----------------------------- |  | ----- |  | ----- |  | ----- | 
|Research and development      |  | 1,704 |  | 1,422 |  | 1,249 | 
|Operations and administration |  | 490   |  | 461   |  | 473   | 
|Sales and marketing           |  | 593   |  | 410   |  | 370   | 
|                             
|Total number of ATI personnel |  | 2,787 |  | 2,293 |  | 2,092 | 
|                             

We believe that our ability to
attract and retain highly skilled engineering, marketing and management personnel is one
of the key factors in our success. None of our employees are governed by collective
bargaining agreements. We have never experienced a material work stoppage or strike.

# 3.11  Facilities

Our head office facilities are
located in Markham, Ontario, Canada at 1 Commerce Valley Drive East. This facility
comprises approximately 240,000 square feet of office/R&D space. We have a 50%
interest in the joint venture company that owns this facility. We have four other
locations in Markham, Ontario. At 33 Commerce Valley Drive East, we own 100% of a facility
that comprises approximately 123,000 square feet, including approximately 65,000
square-feet of manufacturing and warehouse space. We also lease three other facilities in
Markham with combined square footage of approximately 165,000 square feet of office and
R&D space.

We lease engineering facilities in
the United States including approximately 60,000 square feet in Marlborough, Massachusetts
and approximately 104,000 square feet in Santa Clara, California. We also lease a number
of smaller regional offices in the United States, Europe and the Asia-Pacific region. As a
result of the change in our business model over the past three years where we have
transitioned to primarily supplying component-level products rather than board products to
our customers, we closed our European board manufacturing facility located in Dublin,
Ireland in fiscal 2003.

Our operations are subject to a
variety of federal, provincial and local environmental laws and regulations. These laws
and regulations relate to, among other things, the discharge of contaminants into water
and air and onto land, the disposal of waste, and the handling, storage and transportation
of hazardous materials. We believe that we are currently in compliance with all applicable
environmental laws in all material respects.

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# 3.12
 Risks and Uncertainties

Our operations and financial results
are subject to various risks and uncertainties which are outlined below. These risks are
in addition to those outlined elsewhere in this Annual Information Form and in our filings
with Canadian and United States securities regulatory authorities, including
Managements Discussion and Analysis contained in the 2004 Annual Report.

As a result of any or any combination
of these risks and uncertainties, our operating results and common share price may be
subject to a significant level of volatility, particularly on a quarterly basis.

# Our operating results can
fluctuate and are unpredictable

Our operating results have been and
will continue to be subject to quarterly and other fluctuations due to changing market and
economic conditions and various other factors set out below. As a result, our revenues can
fluctuate from quarter to quarter, and within a quarter, revenues may vary from month to
month. In addition, because our operating expenses are largely independent of revenues in
any particular period, we may be unable to rapidly adjust our spending to compensate for
an unexpected revenue shortfall, which could harm quarterly operating results. As a
result, it is difficult to accurately predict revenues and profits or losses.

Our reported operating results may
vary from prior periods or may be adversely impacted in periods when we are undergoing a
product line transition during which sales of new products may be ramped up to replace
sales of our older products. These older products often come under significant pricing and
margin pressure as a result of our competitors actions in the marketplace. In
addition, newer products may be more costly to produce in the early stages of their
introduction, which may adversely affect margins and our results of operations.

As a result of any combination of
these or other issues referred to below, our operating results and common share price may
be subject to a significant level of volatility, particularly on a quarterly basis.
Factors that have affected our operating results in the past and could affect them in the
future include, among other things:

| |  | levels of growth
or decline in the PC industry;
|- |  | -----------------------------------------------

| |  | rapid and frequent technological change in the PC
graphics industry;
|- |  | --------------------------------------------------------------------

| |  | demand  and  acceptance  of our  products  and  those
of our  customers, including  integrated  graphics components and consumer electronic devices;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | successful and timely development and production of
next-generation  products, including products for the consumer electronics market;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------

| |  | changes in the rate of exchange of Canadian currency
to U.S. dollars;
|- |  | ---------------------------------------------------------------------

| |  | introduction of new products by our competitors;
|- |  | ------------------------------------------------

| |  | availability of licenses for industry  technology or other
intellectual  property rights necessary for the continued sale or development of our products;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes to our overall average selling price ("ASP") resulting
from competitive pressures;
|- |  | ------------------------------------------------------------------------------------------

| |  | delays or early introduction of new microprocessors or
their related chipsets;
|- |  | ------------------------------------------------------------------------------

| |  | changes to our overall product mix or the geographic regions
where our products are sold;
|- |  | -----------------------------------------------------------------------------------------

| |  | R&D costs associated with the development of
new products;
|- |  | ----------------------------------------------------------

| |  | increasing product line complexity and the related
management of inventory;
|- |  | ---------------------------------------------------------------------------

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| |  | unexpected variances in the cost or availability
of materials,  especially silicon wafer, memory,  printed circuit boards ("PCBs") and packaging costs;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes to the expected yield of our component
products;
|- |  | --------------------------------------------------------

| |  | excess or shortage of manufacturing capacity;
|- |  | ---------------------------------------------

| |  | volume of orders received that can be filled in
the quarter;
|- |  | ------------------------------------------------------------

| |  | seasonal and variable demand associated with the
PC industry;
|- |  | -------------------------------------------------------------

| |  | addition or loss of significant customers;
|- |  | ------------------------------------------

| |  | supply  constraints and disruptions for other components
incorporated  into our products and those of our customers; and
|- |  | ------------------------------------------------------------------------------------------------------------------------

| |  | new laws that require us to undertake an evaluation of
our internal controls through which we may identify internal control weaknesses which may require correction.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the factors listed
above, period-to-period comparisons of our operating results should not be relied upon as
an indication of future performance. The results of any quarterly period are not
indicative of results to be expected for a full fiscal year. Accordingly, our operating
results may be below the expectations of securities analysts and investors. Our failure to
meet these expectations could adversely affect the market price of our common shares.

# Design wins are critical
to our future success

Our future success and ultimate sales
achievements will depend in large part on our retaining and/or winning design contracts
(design wins), which occurs when PC OEMs, ODMs AIB manufacturers or
manufacturers of consumer electronics devices choose to use our existing and future
products in their various product offerings. Our major customers typically introduce new
product offerings as often as twice a year. Accordingly, our products must have
competitive performance ratings, adequate feature-sets, consistent quality levels and
appropriate prices within the limited time frames of our customers to be included in new
system configurations. The failure to win new or retain existing design wins of sufficient
volume, sales and profitability could have an adverse effect on our business and operating
results.

# Our gross margins
fluctuate and are difficult to predict

Our overall gross margin is dependent
on a number of factors, the principal items being the cost of input materials (mainly
silicon, memory, device packaging and PCBs), the manufacturing yield of wafers received
from foundries, the ASP of our products and the actual product mix of our revenues. The
continuous change in these factors, most of which are beyond our control, cause our
overall gross margins to fluctuate from quarter to quarter and make it difficult for us to
predict our overall gross margins. In terms of product mix, our business model involves
the development and marketing of component and board-level graphics products and
technology for desktop and mobile PC, DTV, mobile phone, video game console and multimedia
applications. Each of these products or product categories has dissimilar gross margins at
any particular time. Consequently, many of our gross margin components fluctuate and the
overall corporate gross margin is difficult to predict. Should any of the factors
influencing gross margins change substantially, our gross margins could be adversely
affected.

# We do not have minimum
purchase requirements under our sales arrangements with customers

Our sales arrangements with our
customers do not include any requirement or commitment for minimum purchases of our
products. As a result, we often commit resources to develop products without having
received advance purchase commitments from customers. In particular, sales of our
component products to customers other than OEMs are subject to volatility on a regular
basis as demand is often unpredictable and is susceptible to price competition on a
short-term basis. Any inability to sell products to which we have devoted significant
resources or the cancellation or deferral of product orders could result in excess
inventory. This could result in future inventory write-downs, which could have an adverse
effect on our profit margins and financial results and restrict our ability to fund our
operations. We may build memory and component inventories during periods of anticipated
growth and in connection with selling workstation boards directly to major OEMs. We could
be subject to excess or obsolete inventories and be required to take corresponding
write-downs if growth slows or if we incorrectly forecast product demand. A reduction in
demand could negatively impact our gross margins and financial results.

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# The success of our
business is dependent on the timely introduction of new products that do not contain
errors or defects

The graphics industry is
characterized by frequent product introductions and short product life cycles based on
constantly improving technologies and new industry standards. In the PC market, it is
increasingly important to be among the first to market with new or enhanced products to
replace existing products in order to coincide with the introduction of new products by PC
OEMs, particularly during the late summer and fall that are the traditional periods in
which PC OEMs introduce new products. The consumer electronics markets also have similar
design cycles in which new product offerings are traditionally introduced in the fall.
This means that we must commit resources to the development and manufacturing of our
products without having commitments to purchase from customers. We must also take
advantage of new technologies to maintain our competitive edge. If we fail to identify new
product opportunities or develop or bring to market these new products or enhancements
within the time frame required by customers, if our new products or enhancements are not
selected by our customers to be included in their products, or if the products or
technologies developed by competitors render our products or technologies non-competitive
or obsolete, we may experience reduced demand for our products and loss of market share
and our operating results could be adversely affected.

Our business depends to a significant
extent on our ability to continually introduce new and enhanced generations of graphics
products in order to retain or win customer contracts and maintain ASPs. The life cycles
of our products typically range from six to eighteen months. Market demand requires
graphics products to incorporate new features and performance standards on an
industry-wide basis. Over the life of a specific graphics component, the ASP undergoes
regular price reductions. The introduction of new products and enhancements to existing
products is necessary to maintain overall corporate ASPs. If we are unable to introduce
new products or launch new products without sufficient increases in ASP or increased unit
sales volumes capable of offsetting these reductions in ASPs, our revenues, inventories,
gross margins and operating results could be adversely affected.

Our business and operating results
could be adversely affected if we incur delays in developing new products or enhancements,
or if such products or technologies developed by others render our products or
technologies non-competitive or obsolete. Products as complex as those offered by ATI may
contain defects or failures when introduced or when new versions or enhancements to
existing products are released. There can be no assurance that, despite our testing
procedures, errors will not be found in new products or releases after commencement of
commercial shipments in the future, which could result in loss of or delay in market
acceptance of our products, material recall and replacement costs, delay in recognition or
loss of revenues, the diversion of the attention of our engineering personnel from product
development efforts and damage to our reputation in the industry and could adversely
affect our relationships with our customers. Correcting such errors and failures in our
products could require significant expenditures. Any such circumstances could have an
adverse effect on our business, financial condition or operating results.

# The success of
our business is dependent upon our ability to introduce products with required
features and performance levels that support and coincide with significant industry transitions

The PC industry is characterized by
frequent new product introductions typically centred around hardware and software changes
made by Intel and Microsoft. For instance, new PCs are commonly introduced to coincide
with new processor, chipset or memory products launched by Intel or new operating systems
launched by Microsoft. It is therefore increasingly important that we maintain our ability
to introduce new products that take advantage of these industry transitions. In the past,
these industry transitions have included the shift to the AGP standard, which underwent a
further transition in 2003 with the adoption of the new AGP 8X standard. A new bus
standard, PCI Express, is currently affecting the PC industry and the transition to this
new standard is expected to continue through 2005. Our products must be able to support
the new features and performance levels being required by PC manufacturers at the
beginning of these transitions and be priced competitively, otherwise, we may lose
business as well as the opportunity to retain and obtain design wins until the next
product transition. Failing to develop products with required features and performance
levels or a delay as short as a few months in bringing a new product to market could
adversely affect our revenues. As well, there can be no assurance that the industry will
continue to innovate or improve standards or that the industry will introduce these
changes when expected or that we will be able to take advantage of these changes. In the
event that such occurrences fail to materialize, our business and operating results could
be adversely affected.

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# A
substantial portion of our revenues and our financial performance are dependent
upon the PC industry which is cyclical in nature

We currently derive a substantial
portion of our revenue from the sale of graphics and multimedia products for use in PCs.
Although the PC industry grew significantly during the late 1990s, since 2001 PC sales
have not experienced similar levels of growth. Historically, the PC and semiconductor
industries have been characterized by rapid technological change, cyclical market
patterns, significant ASP erosion, fluctuating inventory levels, periods of overcapacity
and capacity constraints, variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development. Growth in PC sales at levels
experienced in the past may not occur in the future. Reductions in the sales of PCs reduce
the overall demand for our products. Moreover, such changes in demand could be large and
sudden, as experienced in fiscal 2001 and in previous years when PC manufacturers built-up
inventories in anticipation of a period of significant growth that did not materialize. In
such cases, PC manufacturers may abruptly suspend all purchases of additional inventory
from their suppliers. In addition, declines in spending by corporations and/or consumers,
for example, due to an economic downturn, may negatively affect the PC industry. Any
sustained reduction in the demand for PCs could adversely affect our operating results.

# The success of our
business will be dependent upon the success of our integrated graphics component products

Low-cost desktop PCs account for a
significant percentage of PCs sold in the market and are driving the demand for integrated
graphics and core logic functions in one chipset. In order for PC OEMs to offer these
computers at low prices, overall system costs must be reduced. The costs of integrated
graphics components are significantly less than the costs of traditional discrete graphics
components, in part due to their reduced functionality and because they do not require
separate graphics memory devices. Integrated chipsets are estimated to account for more
than 55% of the desktop 3D graphics chips sold worldwide.

In the notebook market, integrated
chipsets offer a similar ability to reduce costs as in the desktop market, as well as
provide additional benefits such as lower power consumption and reduced space for
ultraportable designs. Integrated graphics are estimated to account for approximately half
of the notebook 3D graphics chips sold worldwide.

We currently have a full product line
of IGPs to address the desktop and mobile integrated market for Intel and AMD-based
platforms. If our products do not successfully address this market segment or we cannot
produce products on a cost-effective basis, or if we are unable to obtain required
licences for future Intel-based products, our business, financial condition and operating
results could be adversely affected.

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# Our sales and earnings
are subject to foreign currency risks

A substantial amount of our operating
expenses are denominated in Canadian dollars. However, our results are reported in U.S.
dollars. As a result, an appreciation in the value of the Canadian dollar relative to the
U.S. dollar will have a negative impact on our earnings. The rise of the Canadian dollar
relative to the U.S. dollar from an average rate of 67 cents in fiscal 2003 to an average
rate of 75 cents in fiscal 2004 had an approximate $18.0 million negative impact on our
operating earnings. Although it is possible to enter into forward foreign exchange
contracts to hedge our currency exposure on expenses incurred in Canadian dollars, and
although we have in the past entered into forward foreign exchange contracts, we do not
currently have any long term hedging arrangements or policies in place. Accordingly,
continued strength in the Canadian dollar relative to the U.S. dollar will result in
upward pressure on our operating expenses in fiscal 2005 and will negatively affect our
net income and operating results.

The majority of our product sales are
denominated in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and
the local currency can cause increases or decreases in the cost of our products in the
local currency of such customers. An appreciation of the U.S. dollar relative to the local
currency could reduce sales of our products.

# Our royalty revenues,
which can compromise a significant part of our earnings, are dependent upon the success of
Nintendos GAMECUBE

Our graphics technology for the video
game console market is being used by Nintendo in its GAMECUBE products. The only revenues
that we receive from this technology are in the form of royalties paid by Nintendo to us
based upon the number of GAMECUBE consoles and games sold by Nintendo. Accordingly, our
royalty revenues will be directly related to the sales by Nintendo of its GAMECUBE
products. We have no control over Nintendos marketing efforts. There can be no
assurance that sales of Nintendos GAMECUBE products will achieve expected levels in
the current or future fiscal years. Consequently, the revenues expected by us from this
technology may not be fully realized and our operating results may be adversely affected.
In past fiscal years, a significant amount of our net earnings were derived from Nintendo
royalties. Royalties are expected to become a more significant share of our net earnings
in the future, as we anticipate royalties in future years resulting from our agreements
with Nintendo, Microsoft and QUALCOMM. Anything that negatively affects the royalties paid
to us by these or other entities with whom we maintain or enter into royalty agreements,
may adversely affect our operating results.

# Our entry into new
emerging product markets is subject to a number of uncertainties

We have recently developed graphics
and integrated products for the emerging consumer electronics market including DTVs and
colour mobile phones. Although this is a relatively new market, there are already a
significant number of competitors targeting it. The delay in acceptance of DTV technology
has also provided further opportunities for competitors to enter this market. In addition,
as the telecommunications, cable and consumer electronics industries and their suppliers
undergo a period of convergence, we expect that competition will increase in these
markets. Our ability to succeed in these new consumer markets is subject to a number of
uncertainties, including acceptance of our products, the development of new technologies
sufficient to meet market demand, the need to develop customer relationships, different
sales strategies and channels, new and different industry standards from those in the PC
market and changing strategic alliances. There can be no assurance that we will be able to
successfully compete in these new emerging markets. If we are unable to successfully
introduce products in these new markets as they expand, our business, financial condition
and operating results could be adversely affected.

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# The markets in which we
carry on business are highly competitive

The markets in which our products are
sold are very competitive and are expected to remain as such due to rapid technological
changes, frequent product introductions and declining selling prices. Furthermore, the
consolidation of our competitors has increased the level of competition in the graphics
industry. We believe that the consolidation of our competitors in the PC graphics market
segment of the PC market has stabilized and that there are now three main players in the
PC market. We believe that the main factors that will determine our competitiveness in the
PC market are technical product performance, price, product features, time-to-market,
conformity to industry standard application programming interfaces, the ability to deliver
consistent volume and quality of products, quality and stability of software drivers as
well as technical support. We expect that competition will intensify in these areas and
there can be no assurances that our competitors products will not be less costly,
provide better performance or include additional features that render our products
uncompetitive. Increased competition may require us to reduce our prices and/or invest
further in R&D and sales and marketing efforts, which may negatively affect our
operating results.

Some of our competitors, in
particular Intel, have greater financial and other resources than we do and may be able to
adapt more quickly to new or emerging technologies and changes in customer requirements.
Further, some competitors have greater access or rights to companion technologies,
including interface, processor and memory technical information. They may also be able to
undertake more extensive marketing efforts and adopt more aggressive pricing policies.
Several of our smaller competitors may have greater flexibility within niche markets and
better name recognition in connection with specific market needs. As a result, there can
be no assurance that we will be able to maintain our competitive position and market share
against current or future competitors. If we do not remain competitive, our business and
operating results could be adversely affected.

# Intel has
a dominant position in the PC industry and has greater resources than we do. Our
success is dependent upon our ability to continue to develop products that are
both compatible and competitive with Intels technology

In 1999, Intel began shipping
integrated graphics component products that were targeted at the low-cost PC market. Intel
is the worlds largest manufacturer of PC processors and has significantly greater
resources than we do. Given its significant leadership position and the large cost of the
microprocessor relative to other components within the PC, it is possible that Intel could
combine graphics components or functionality with its microprocessors on a cost-effective
basis. Our integrated chipset products may not be able to successfully compete with
Intels products on the basis of price or performance. We expect Intel to invest
heavily in R&D and in marketing and selling campaigns to engender brand loyalty with
PC manufacturers and users. We also expect Intel to maintain its dominance of the PC
platform. These and other selling advantages could render our integrated chipset products
uncompetitive on a cost basis.

Due to the widespread adoption of
Intels microprocessor architecture and interface architecture, including the current
AGP and PCI Express interfaces, Intel has the ability to create and influence key industry
standards in the PC industry. We rely on our ability to obtain and maintain licenses from
Intel in order to use certain proprietary Intel technology in our products. Any
significant modifications by Intel to the AGP or PCI Express standards, the
microprocessor, core logic components or other aspects of the PC microprocessor
architecture or any delay in the public release of such modifications could result in
incompatibility with our technology. Any such incompatibility or the inability to obtain
or the termination of any required license to use such technology could have an adverse
effect on our business, financial condition and operating results.

We currently have a full line of IGP
products for the Intel-based platform intended to compete with and complement Intels
family of integrated products. Currently, integrated graphics components interface with
Intel microprocessors through an Intel bus. There can be no assurance that our products
will compete effectively against Intels current or future integrated products, that
Intel will not aggressively use its industry position to undercut prices or otherwise
prejudice ATI, or that Intel will not introduce additional products that are directly
competitive with our products.

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Intel spokespeople have previously
stated that Intel has exited the discrete graphics business. There can be no assurance,
however, that Intel will not re-enter the discrete graphics market, that Intel will not
license a graphics core from competitors or that Intel will not acquire a graphics
accelerator company and again compete with us in the discrete graphics component market.

# Our revenues are
dependent upon a small number of customers

A significant portion of our revenues
are derived from sales made to a small number of customers. In 2004, our top ten customers
accounted for approximately 62% of our revenues, with one customer representing 10.6% of
our revenues. We expect that a small number of customers will continue to account for a
substantial part of our revenues in the future. Continued sales to these customers,
however, are dependent on us continuing to achieve design wins with these customers. The
loss of business or failure to achieve design wins from one or more of such customers
without adding new sources of revenues would have an adverse effect on our financial
results.

Other risks associated with our
dependence on a small number of customers include: unexpected delays in the introduction
of our customers products, resulting in a change in the timing of their orders,
extended accounts receivable, cancellation of customer orders resulting in excess
inventory and unexpected inventory write-downs and the inability to secure alternative
purchasers for our products. Furthermore, if any one of our customers experiences
financial difficulty, the risk exists that we may be required to write-off the bad debts
of such customer. Any of these events could have an adverse effect on our financial
results.

# We rely on third party
foundries and other contractors to manufacture our products

We are a fabless
semiconductor company and therefore rely on independent foundries or fabs
(currently Taiwan Semiconductor Manufacturing Company and United Microelectronics Corp.)
to manufacture our component products. We also use independent contractors to perform the
assembly, testing and packaging of our products. As is typical in the graphics industry,
we obtain manufacturing services on a purchase order basis and our fabs are under no
obligation to provide us with any specified minimum quantity of product. We depend on
these suppliers to allocate to us a portion of their manufacturing capacity sufficient to
meet our needs, to produce products of acceptable quality and at acceptable manufacturing
yields and to deliver those products to us on a timely basis. There can be no assurance
that these manufacturers will be able to meet our near-term or long-term manufacturing
requirements. Indeed, continued market acceptance of our products will depend on reliable
relationships with our wafer manufacturers and subcontractors to ensure adequate product
supply to respond to customer demand. Because it could take several quarters to establish
a strategic relationship with a new manufacturing partner, we may be unable to secure an
alternative supply for any specific product in a short time frame. Other risks associated
with our dependence on third-party manufacturers include: reduced control over delivery
schedules, quality assurance, manufacturing yields and cost, lack of capacity in periods
of excess demand, misappropriation of our intellectual property, dependence on several
small undercapitalized subcontractors, reduced ability to manage inventory and parts, and
exposure to foreign countries and operations, including exposure to political instability
and natural disasters.

Currently, the third party wafer
plants used to manufacture our products are located in Hsin Chiu and Tainan, Taiwan. Many
of our assembly, testing and packaging suppliers are also located in southern Taiwan. On
September 22, 1999, Taiwan suffered a major earthquake that measured 7.6 on the Richter
scale and disrupted the operations of our manufacturing suppliers and contributed to a
temporary shortage of graphics processors. Additional earthquakes or other occurrences
that disrupt our manufacturing suppliers may occur in this region in the future. To the
extent that the supply from our fabs or other suppliers is interrupted for a prolonged
period of time or terminated for any reason, we may not have sufficient time to replace
our supply of products manufactured by those fabs.

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As well, each wafer manufacturer has
unique design rules and proprietary process technology to which we must adapt our
products. If we move production of our products to new manufacturers or if current
manufacturers implement new process technology or design rules, any transition
difficulties may result in lower yields or poorer performance of our products. Any
inability of ATI to secure sufficient or reliable supplies of wafers may adversely affect
our ability to meet customer demand for our component and board products and, as a result,
could have an adverse effect on revenues and operating results.

# Our business is dependent
upon an adequate supply of component parts from a limited number of suppliers

Certain non-proprietary components
(such as memory, PCBs and capacitors) used in the manufacture of our products and by OEMs
in the manufacture of desktop and notebook PCs and by AIBs and SIs in the manufacture of
their products are currently available from only a limited number of sources and are often
subject to rapid changes in price and availability. If these suppliers fail to deliver
these components or increase prices, alternative sources of supply may not be available.
This would result in increased costs, delays or reductions in product shipments, and
adversely impact upon orders for our component products and our operating results. Any
inability to manage fluctuations in component prices may adversely affect our gross
margins and operating results.

# Our business and
operating results are dependent upon achieving planned semiconductor manufacturing yields

The fabrication of semiconductors is
a complex process. Contaminants, defects in masks used to print circuits on wafers,
difficulties in the fabrication process and other factors can cause a substantial
percentage of wafers to be rejected or a significant number of die on each wafer to be
non-functional. These problems are difficult to diagnose and time-consuming and expensive
to remedy. As a result, semiconductor companies frequently encounter difficulties in
achieving acceptable production yields from processing wafer. In addition, more complex
manufacturing processes, such as the 90 nanometer process technology that is expected to
be widely adopted by the industry in 2005, often initially result in lower and unstable
yields. As a consequence of our move to a customer-owned tooling manufacturing process
where we have the responsibility for the design and performance of the tooling required
for manufacturing, we bear the financial risks and benefits associated with product
yields. As such, our profitability is significantly affected by the manufacturing yield
that we achieve in the production of our component products. Our inability, in cooperation
with our wafer manufacturers, to achieve or maintain planned production yields could have
an adverse effect on our business and operating results.

Semiconductor manufacturing yields
are a function both of product design, which is developed largely by us, and process
technology, which is typically proprietary to the manufacturer. Since low yields may
result from either design or process technology failures, yield problems may not be
effectively determined or resolved until the actual product exists that can be analyzed
and tested to identify process sensitivities relating to the design rules that are used.
Furthermore, some defects cannot be identified until tested on a customers board
design. We face the risk of product recalls resulting from design or manufacturing defects
that are not discovered during the manufacturing and testing process. In the event of a
significant number of product returns due to a defect or recall, our net revenues and
profitability could be adversely affected. In addition, yield problems require cooperation
by and communication between us and the manufacturer and sometimes the customer as well.
The offshore location of our principal manufacturers compounds these risks, due to the
increased effort and time required to identify, communicate and resolve manufacturing
yield problems. There can be no assurance that we or our fabs will identify in a timely
manner, fix and/or achieve acceptable manufacturing yields in the future. Failure to reach
planned production yields over time could result in us not having sufficient product
supply to meet demand, and/or higher production costs and lower gross margins. This would
adversely affect our operating results.

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# To remain
competitive, we must transition to new manufacturing process technologies,
however, this transition may result in reduced manufacturing yields and delay the introduction
of new products

Process technology defines the
minimum transistor size used to design semiconductors. The finer the process technology,
the greater the number of transistors a chip designer is able to build into a
semiconductor. Our strategy is to use the most advanced process technology appropriate for
our products and available from our fabs. We continually assess the benefits of migrating
to smaller process technologies in order to improve performance and lower costs. However,
the use of more advanced processes may have a greater risk of initial yield problems. We
believe that the transition of our products to increasingly smaller process technologies
will be important to maintain our competitive position and we intend to migrate to smaller
process technologies with our future products as these technologies become viable. Due to
the inherent risk of transitioning to new technologies, however, there can be no assurance
that we will not experience reduced yields or delays in product delivery dates which in
turn could adversely affect relationships with our customers. Moreover, we are dependent
on our third-party fabs to successfully migrate to new manufacturing processes. Any such
failure by us or our fabs could have an adverse effect on our business, financial
condition and operating results.

# Our ability to design and
introduce new products in a timely manner is dependent upon third party development tools

In the design and development of new
products and product enhancements, we rely on third-party software development tools.
While we are not currently dependent on any one vendor for the supply of these tools, some
or all of these tools may not be readily available in the future. For example, we have
experienced delays in the introduction of products in the past as a result of the
inability of then available software development tools to fully simulate the complex
features and functionalities of our products. The design requirements necessary to meet
consumer demands for more features and greater functionality from graphics products in the
future may exceed the capabilities of the software development tools available to us. If
the software development tools that we use become unavailable or fail to produce designs
that meet consumer demands, our business could suffer.

# Our success is
dependent on proprietary technology, however, there can be no assurances that applicable laws will be adequate
to prevent misappropriation of our technology

Our success is heavily dependent upon
proprietary technology. We rely principally upon a combination of copyright, trademark,
patent and trade secret laws, restrictions on disclosures and contractual provisions to
protect our proprietary and intellectual property rights. There can be no assurance,
however, that these laws and procedures will be adequate to prevent misappropriation of
our technology or independent third party development of the same or similar technology.
Unauthorized parties may attempt to copy or otherwise obtain and use our technology, which
could weaken our competitive position. In addition, there can be no assurance that the
protection provided to our proprietary technology by the laws of foreign jurisdictions
will be substantially similar to the remedies available to us under the laws of Canada or
the United States. Any claims or litigation that we initiate to protect our proprietary
technology could be time consuming and costly and divert the attention of our technical
and management resources whether or not the claims or litigation are determined in our
favour.

# Our operating earnings
will be negatively affected by the expensing of stock options beginning in fiscal 2005

Since our inception, we have used
stock options and other long-term equity incentives as a fundamental component of our
employee compensation packages. We believe that stock options and other long-term equity
incentives directly motivate our employees to maximize long-term stockholder value and,
through the use of vesting, encourage employees to remain with us. Changes to Canadian generally accepted
accounting principles (GAAP) implemented by the Canadian Institute
of Chartered Accountants require us to record a charge against
earnings for stock options granted to our employees,
commencing September 1, 2004. As a result, we now estimate the fair value of the stock
options granted by using the Black-Scholes option pricing model and expense the fair value
over the service period of the stock options. This change has a negative impact on
our earnings determined in accordance with GAAP as compared to previous fiscal years.
The amount of the charge against earnings
is dependent upon a number of factors, including the number of stock options granted
in any fiscal year, ATIs stock price at the time of the grant and the exercise
price, the risk-free interest rate, the dividend yield, the volatility factor of the
expected price of ATIs common shares and the expected life of the stock options. To
the extent that new regulations adopted in Canada or the U.S. make it more difficult or
expensive to grant options to employees, we may incur increased cash compensation costs
and we may find it difficult to attract, retain and motivate employees; either could
materially adversely affect our business and operating results.

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# Our business is subject
to operational and financial risks associated with our international operations

We maintain operations in a number of
other countries including the United States, Germany, Japan, Taiwan, Hong Kong, Malaysia,
China and Barbados. In addition, a substantial portion of our products are manufactured,
assembled and tested by independent third parties in the Asia-Pacific region. We sell the
majority of our products in the United States, Europe and the Asia-Pacific region.
Accordingly, we are subject to various geopolitical risks in connection with our
international sales and operations. These risks include political and economic
instability, changes in diplomatic and trade relationships, natural disasters and
unexpected changes in legislative or regulatory requirements. These risks could result in
an increase in the cost of components, delays from difficulties in obtaining export
licenses for certain technology, tariffs and other barriers and restrictions, potentially
longer payment cycles, potentially adverse taxes, restrictions on the repatriation of
funds and the burdens of complying with a variety of foreign laws, any of which could
ultimately have an adverse effect on our revenues and operating results.

# Any legal or
regulatory proceedings brought against us may be time-consuming and costly to
defend and, if we are unsuccessful in defending against them, may be detrimental to our business
and financial condition

We are subject to legal proceedings
and claims that arise in the ordinary course of business. On January 16, 2003, the Ontario
Securities Commission (the OSC) filed a notice of hearing and statement of
allegations against us and certain of our present and former directors and officers,
including our former Chief Executive Officer and current Chairman of the Board. We have
incurred substantial costs associated with the regulatory proceedings and cannot predict
the level of additional costs that will be incurred in the future. If, as has been
requested by OSC staff, our Chairman is prohibited from being an officer or director of
ATI, it could have a material adverse effect on our business and results of operations and
could have an adverse impact on the market price of our common shares.

Please see Narrative
Description of the Business  Legal Proceedings and Regulatory Matters for a
description of former class action proceedings in the United States and the regulatory
proceedings in Ontario.

In addition, the industries in which
we compete are characterized by frequent claims and related litigation regarding patent
and other intellectual property rights. There is a risk that our current or future
products may infringe third-party intellectual property rights. Any claim, whether or not
with merit, could be time-consuming to evaluate, result in costly litigation, cause
product shipment delays or stoppages or require us to enter into licensing agreements that
may require the payment of a license fee and/or royalties to the owner of the intellectual
property. In the event that a third party were to sustain a valid claim against us or our
customers and we are not able to procure a license to permit the continued use of the
third partys intellectual property, our operating results could be adversely
affected. We may also be required to pay damages or lost profits, modify our products,
discontinue products and/or indemnify our customers. Should any such claims or proceedings
against us be successful, our business, financial condition and operating results may be
adversely affected.

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# Our inability to maintain
adequate levels of insurance, particularly in Taiwan, could adversely affect our operating
results in the event of a significant loss

To the extent available on
commercially reasonable terms and subject to underwriting conditions, exclusions and
deductibles, we maintain insurance coverage with recognized, licensed insurers against
loss or damage to our assets, including losses as a result of unforeseen business
interruptions. Property and business interruption insurance coverage is only available on
a limited basis with respect to assets and property located in certain geographical areas,
particularly Taiwan. A significant amount of our inventories are produced and stored in
Taiwan, prior to delivery to customers. Damage to the inventories held in Taiwan, as a
result of a natural disaster or other cause, could result in a significant loss for which
no insurance coverage would be available. In the event insurance coverage is not available
or is subject to limits or significant deductibles or is denied in respect of any losses
or claims, our business, financial condition and operating results could be adversely
affected.

# Our business is dependant
on our head office remaining free from a major shut down

Our international operations depend
on the availability of administrative support in areas such as finance, human resources
and sales in order to operate efficiently in their local markets and complete transactions
with our customers. Our international offices, particularly those in the Asia-Pacific
region, where a majority of our sales take place, do not have local administrative support
in a number of these areas. In August 2003, our head office in Markham, Ontario
experienced a temporary shut down due to a widespread power blackout in Ontario and the
northeastern United States. In the spring of 2003, the outbreak of the SARS virus in the
Toronto area also impacted employees at our head office. Any unexpected and prolonged shut
down of our head office in the future for any reason whatsoever could hinder our ability
to effectively and efficiently manage our international business operations and could
adversely affect our revenues and operating results.

# Future
acquisitions may have a significant impact on our business and financial
condition and could result in dilution of the current common shareholders

We may pursue product or business
acquisitions in order to complement or expand our business. However, we may not be able to
identify appropriate acquisition candidates in the future. If an acquisition candidate is
identified, we may not be able to successfully negotiate the terms of any such
acquisition, finance such acquisition or integrate such acquired product or business into
our existing products and business. The negotiation of potential acquisitions could divert
managements time and resources and require significant funds to consummate. The
process of combining with another company or integrating an acquired product may be
disruptive to our business and may result in unforeseen operating difficulties requiring
significant financial resources that would otherwise be available for the ongoing
development or expansion of our existing operations. Possible future acquisitions could
result in us incurring contingent liabilities and amortization expenses related to
intangible assets, all of which could have an adverse effect on our financial condition
and operating results.

Further, we may finance future
acquisitions through borrowings or otherwise incur indebtedness in connection with
acquisitions. We may be required to generate cash flow from operations to service that
indebtedness and may not be able to do so. We may also be required to refinance this
indebtedness upon its maturity and we may not be able to do so on acceptable terms. In
addition, if we consummate one or more significant acquisitions through the issuance of
common shares, holders of common shares could suffer significant dilution of their
ownership interests.

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# The success of our
business is dependent upon our ability to recruit and retain key employees

Our success is dependent on the
performance and continued service of our executive officers and certain key employees.
None of our officers or employees are bound by an employment contract nor do we have
key person life insurance policies on any of our employees. Competition for
high-level engineering, marketing, sales and executive personnel is intense. Key employees
may pursue equity opportunities elsewhere. Start-up companies generally offer greater
equity opportunities to attract individuals from more established companies. There can be
no assurance that we will be able to retain existing personnel or attract, hire and retain
additional qualified personnel. The loss of service of certain key managers and executives
or the failure to attract, hire and retain additional key employees could restrict our
ability to develop new products or enhance existing products in a timely manner, sell
products to our customers and potential customers, or manage our business effectively.

# Our business and products
are subject to government regulation

Canadian federal, provincial and
local authorities as well as foreign authorities in applicable jurisdictions regulate our
business. Our board-level graphics accelerator products are required to meet the standards
set by Industry Canada, the U.S. Federal Communications Commission and the European
Economic Community in order to ensure that they do not interfere with the operation of
other consumer electronics products. Any significant delays in meeting the standards
applicable to our products in the future could adversely affect our competitive and
financial position.

We are subject to new
corporate governance requirements in the United States and Canada. Our efforts to comply
with such requirements have resulted in, and are likely to continue resulting in,
increased general and administrative expenses and diversion of management time and
attention from revenue-generating activities to compliance activities. In particular,
securities regulatory authorities in the United States have introduced, and in Canada are
in the process of introducing, new laws that require us to undertake an evaluation of our
internal controls over financial reporting. Internal controls over financial reporting are
procedures designed to provide reasonable assurance that transactions are properly
authorized, assets are safeguarded against unauthorized or improper use, and transactions
are properly recorded and reported. However, a control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance with respect to the
reliability of financial reporting and financial statement preparation. We have invested
and will continue to invest financial and human resources to document and analyze our
system of internal controls over financial reporting and we are continuing our evaluation
of such internal controls. In the course of our ongoing evaluation, we may identify areas
of our internal controls over financial reporting requiring improvement. To the extent
that we identify internal control weaknesses which require correction, we may be required
to incur expenditures or costs which, if significant, could adversely affect our operating
results. In the event that, due to the complexity of certain internal control systems,
the procedures, certification and attestation required by section 404 of the
United States Sarbanes-Oxley Act of 2002are not completed by the required
deadline in respect of our 2005 fiscal year, our reputation, financial condition and the
value of our securities could be adversely affected.

# Our business is subject
to potential tax liabilities

We are subject to income taxes in
both Canada and numerous foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes. In the ordinary course of our
business, there are many transactions and calculations where the ultimate tax
determination is uncertain. Although we believe our tax estimates are reasonable, there is
no assurance that the final determination of any tax audits and litigation will not be
materially different from that which is reflected in historical income tax provisions and
accruals. Should additional taxes be assessed as a result of an audit or litigation, there
could be a material effect on our income tax provision and net income in the period or
periods for which that determination is made.

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# 3.13  Legal
Proceedings and Regulatory Matters

From time to time, we are involved in
legal proceedings and claims that arise in the ordinary course of business. In particular,
the industries in which we compete are characterized by frequent claims and related
litigation regarding patent and other intellectual property rights. Certain of these
claims and proceedings have not progressed sufficiently to determine whether they may
become significant in the future. Significant claims and proceedings currently affecting
ATI, or which have affected ATI in the past two fiscal years, are set out below. See also
Narrative Description of the Business  Risks and Uncertainties.

On December 16, 2002, we disclosed
that staff of the OSC had raised concerns regarding the timeliness of our announcement on
May 24, 2000 of a shortfall in our revenues and earnings for the third quarter of our 2000
fiscal year. We also reported that we were aware that OSC staff had raised concerns about
trading that took place prior to the announcement by certain of our insiders and others,
including certain directors and officers. On January 16, 2003, OSC staff filed a notice of
hearing and statement of allegations in relation to us and others. The notice alleged that
we failed to disclose information concerning the shortfall in revenues and earnings that
occurred in the third quarter of fiscal 2000, as required by the listing rules of the
Toronto Stock Exchange. The notice also alleged that we made a misleading statement to OSC
staff in August 2000 regarding the events leading up to the disclosure on May 24, 2000 of
the shortfall. Seven individuals were named in the notice. The notice alleged that six of
these individuals, including K.Y. Ho, then Chairman and Chief Executive Officer of ATI,
engaged in insider trading contrary to the Securities Act (Ontario). We cannot
measure the extent to which the negative publicity and uncertainty relating to these
proceedings are impacting our business and/or financial condition. We cannot currently
predict with any certainty the extent of the impact that these proceedings will continue
to have on our business due to the uncertainty of the timing and nature of their
resolution or whether any fines or penalties will be imposed on us by the OSC that might
have a material adverse effect on its business or financial condition. One of the remedies
sought by OSC staff against the named individuals, including Mr. Ho, is a prohibition on
acting as a director or officer of a public company. If Mr. Ho is prohibited from being an
officer or director of ATI, it could have an adverse effect on our business and results of
operations and could have an adverse impact on the market price of our common shares. We
have incurred substantial costs to date in connection with the OSC notice of hearing and
expect to incur additional costs in the future which could materially and adversely affect
our operating results and financial condition. These proceedings and any resulting
penalties or fines may have a material adverse impact on the market price of our common
shares and our ability to raise equity financing in the future or complete acquisitions
involving the issuance of our common shares as all or a portion of the purchase price. The
hearing is now scheduled to begin in March 2005.

In May and June 2001, certain holders
of our securities commenced four class action lawsuits in the United States District Court
for the Eastern District of Pennsylvania (the Court) alleging that we and
certain of our directors and officers violated the Securities Exchange Act of 1934
and common law by making material misstatements of, or omitting to state, material facts
related to our business operations, prospects and financial conditions. These lawsuits
were filed on behalf of shareholders who acquired our common shares between January 13,
2000 and May 24, 2000. The plaintiffs were seeking compensatory and punitive damages in
each of the class actions. The Court consolidated all four actions and permitted the
plaintiffs to file a consolidated amended complaint. On July 23, 2002, the Court granted
in part and denied in part the defendants motion to dismiss the consolidated amended
complaint, and the parties thereafter engaged in fact discovery concerning the claims
remaining in the lawsuit. On November 1, 2002, the Court granted the plaintiffs
motion for class certification and certified a class of all persons or entities who
purchased our common shares on the NASDAQ National Market during the period of January 13,
2000 through May 24, 2000. Following a Court ordered mediation, the parties reached an
agreement providing for the full and complete settlement of all claims asserted in the
consolidated lawsuits for a cash payment by ATI of $8.0 million. The terms of the
Stipulation and Agreement of Settlement, which received court approval on April 28, 2003,
included no admission of liability or wrongdoing by ATI or other defendants. During the
fourth quarter of fiscal 2003, we received $3.3 million from our insurers as its
contribution toward the settlement payment.

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In May 2003, Cirrus Logic
(Cirrus) brought suit against us in the United States District Court for the
Western District of Texas, Austin Division, for infringement of a Cirrus patent relating
to graphics processor technology. In addition, a separate patent infringement suit
relating to a different Cirrus patent had been pending in the United States District Court
for the Northern District of California, San Francisco Division, since July 1998. In
September 2003, ATI and Cirrus announced that we had entered into a cross-license
agreement and had settled all outstanding litigation. Under the settlement agreement, all
outstanding claims and counterclaims in both lawsuits between Cirrus and ATI were
dismissed. In connection with the settlement, Cirrus transferred to us a portion of its
patent portfolio relating to the former graphics products group of its PC products
division, a business that Cirrus exited several years ago, and we paid Cirrus $9.0
million.

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# ITEM 4. DIVIDEND POLICY

We have neither declared nor paid any
cash dividends to date on our outstanding shares. We intend to retain our future earnings
to finance the development of our business for general corporate purposes and currently do
not anticipate paying any cash dividends on our common shares.

# ITEM 5. DESCRIPTION OF
CAPITAL STRUCTURE

# 5.1  General
Description of Share Capital

Our authorized capital consists of an
unlimited number of common shares and an unlimited number of preferred shares, issuable in
series. As of December 31, 2004, there were 251,817,089 common shares and no preferred
shares issued and outstanding. The material provisions of the common shares and the
preferred shares are summarized below.

# 5.1.1  Common Shares

The common shares entitle holders to
one vote per share at all shareholder meetings except meetings at which only the holders
of another class or series of shares are entitled to vote. Subject to the prior rights of
the holders of the preferred shares, the common shares also entitle holders to receive any
dividends declared by the board of directors and our remaining property after ATI is
dissolved.

# 5.1.2  Preferred
Shares

The preferred shares are issuable in
one or more series. Subject to our articles, the board of directors is authorized to fix,
before issuance, the designation, rights, privileges, restrictions and conditions
attaching to the preferred shares of each series. The preferred shares rank prior to the
common shares with respect to the payment of dividends and the return of capital on
dissolution. Except with respect to matters as to which the holders of preferred shares
are entitled by law to vote as a class, the holders of preferred shares will not be
entitled to vote at meetings of shareholders unless, with respect to any series of
preferred shares, the payment of dividends is in arrears. The holders of the preferred
shares are not entitled to vote separately as a class or series or to dissent with respect
to any proposal to amend the articles to create a new class of shares ranking in priority
to or on a parity with the preferred shares, to effect an exchange or a reclassification
or cancellation of the preferred shares or to increase the maximum number of authorized
shares of a class ranking in priority to or on a parity with the preferred shares.

# 5.2  Equity Plans

We have established a share Option
Plan (the Option Plan), three restricted share unit plans (the RSU
Plans) and a share purchase plan (the Share Purchase Plan) which are
designed to encourage all eligible employees, officers and directors of ATI to align their
interests directly to those of shareholders and allow ATI to maintain competitive
compensation programs that enable it to attract and retain employees in the high-tech
sector where such compensation programs are standard. The material terms of each of the
Option Plan, RSU Plans and Share Purchase Plan are described below.

# 5.2.1  Share Option
Plan

Pursuant to the Option Plan,
employees and officers of ATI are eligible to receive stock options. Approximately 2,500
employees of ATI have been awarded stock options pursuant to the Option Plan (representing
approximately 83% of ATIs employees). Non-executive directors are no longer
permitted to receive options and no options have been granted to non-executive directors
in the past two years. Four directors currently hold an aggregate of 295,000 previously
granted options.

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Subject to the requirements of the
Option Plan, the Board of Directors has the authority to select those employees and
officers to whom options are granted, the number of options granted to each individual and
the price at which the common shares may be purchased. The exercise price for purchasing
common shares under the Option Plan is not less than the weighted average of the trading
prices of the common shares on the Toronto Stock Exchange or the NASDAQ National Market
for the five trading days preceding the date on which the Board of Directors determines
that the grant of the option is to be effective. Options vest in accordance with terms
determined by the Board. The options granted pursuant to the Option Plan are not
transferable and have a maximum term of seven years. Options may not be repriced without
shareholder approval.

The Option Plan also provides that
the number of common shares reserved for issuance and which may be issued within a
one-year period, pursuant to options granted to insiders (as defined in the Securities
Act (Ontario)) pursuant to the Option Plan and all other share compensation
arrangements established by ATI is limited to 10% of the number of common shares issued
and outstanding, excluding any common shares issued pursuant to share compensation
arrangements during the immediately preceding one-year period. Furthermore, the number of
common shares which may be issued within a one-year period to any one insider and such
insiders associates (as defined in the Securities Act (Ontario)) pursuant to
the Option Plan and all other share compensation arrangements is limited to 5% of the
number of common shares issued and outstanding, excluding any common shares issued
pursuant to share compensation arrangements during the immediately preceding one-year
period.

On termination of employment, for any
reason except involuntary termination without cause all unvested options are forfeited and
vested options may be exercised for a period of 60 days following termination. Upon
involuntary termination without cause, ATI may, at its discretion, permit a
participants options to continue to vest during any statutory or common law
severance period or any period of reasonable notice required by law. Vested options may be
exercised up to 60 days following such severance or notice period. Upon the death of a
participant, all options immediately vest and may be exercised by the deceased
participants estate for a period of six months following death.

A total of 8,639,607 options were
granted in fiscal 2004, of which 7,421,607 options were granted to employees and 1,218,000
options were granted to officers. Overall, as at December 1, 2004, 25,482,958 options were
outstanding, of which 21,390,939 are held by employees who are not officers or directors.

The aggregate number of common shares
that are available for issuance under the Option Plan or ATIs RSU Plans is limited
to a maximum of 47,000,000 common shares. As at December 1, 2004, 25,482,958 common shares
were reserved to be issued pursuant to options that have already been granted and
9,544,171 common shares were available to be issued pursuant to the exercise of options
that may be granted under the Option Plan in the future or, in certain circumstances,
pursuant to the vesting of restricted share units as described below.

The Option Plan is the only share
compensation arrangement under which we may grant options. In connection with our
acquisition of ArtX, Inc. in April of 2000, as part of the acquisition terms, we assumed
all options outstanding under ArtX, Inc.s 1997 Equity Incentive Plan (the ArtX
Plan). As at December 1, 2004, under the ArtX Plan, options to purchase 1,041,879
common shares of ATI were outstanding. No further options may be granted under the ArtX
Plan.

# 5.2.2  Restricted
Share Unit Plans

In October 2003, we announced the
adoption of plans to grant RSUs as part of ATIs overall stock-based compensation
plan. The RSU Plans allow participants to earn actual shares (or, for non-North American
participants, the cash equivalent) of ATI over time, rather than options that give
employees the right to purchase stock at a set price.

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The RSU Plans include: a plan for
Canadian employees and directors (the Canadian Plan), a plan for U.S.
employees and directors (the U.S. Plan), and a plan for all other employees
and directors (the Global Plan). In accordance with the terms of the RSU
Plans, the Board of Directors approves which employees and directors are entitled to
participate in the respective plan (the participants) and the number of RSUs
to be awarded to each participant. RSUs awarded to participants are credited to an account
that is established on their behalf and maintained in accordance with the respective RSU
Plan. Each RSU awarded conditionally entitles the participant to the delivery of one
common share (or cash in lieu of such share under the Global Plan) upon attainment of the
RSU vesting period. RSUs awarded to participants vest in accordance with terms determined
by the Board. RSUs are non-transferable and have a maximum term of the end of the third
calendar year after the date of grant.

At last years annual meeting,
shareholders provided ATI with the discretion to satisfy RSUs through the issuance of
treasury shares and confirmed that the common shares reserved for issuance under the
Option Plan may, alternatively, be issued under the RSU Plans. At the time that any RSUs
are granted under the Canadian Plan and the U.S. Plan, the Board must determine whether
the common shares to be delivered to participants upon the vesting of such RSUs will be
purchased in the open market, issued from treasury or obtained from a combination of
market purchases and treasury issuances. Under the Global Plan, the Board must determine
whether participants will receive cash or treasury shares (or a combination of both) upon
the vesting of RSUs. Shares from treasury are issued from the pool of common shares that
are available to be issued under both the Option Plan and the RSU Plans, however, of these
common shares, only a maximum of 3,000,000 common shares may be issued from treasury under
the RSU Plans. As at December 1, 2004, none of the common shares to be delivered upon the
vesting of previously granted RSUs will be issued from treasury.

The RSU Plans also provide that the
number of common shares reserved for issuance and which may be issued within a one-year
period, pursuant to RSUs granted to insiders (as defined in the Securities Act
(Ontario)) pursuant to the RSU Plans and all other share compensation arrangements
established by ATI is limited to 10% of the number of common shares issued and
outstanding, excluding any common shares issued pursuant to share compensation
arrangements during the immediately preceding one-year period. Furthermore, the number of
common shares which may be issued within a one-year period to any one insider and such
insiders associates (as defined in the Securities Act (Ontario)) pursuant to
the RSU Plans and all other share compensation arrangements is limited to 5% of the number
of common shares issued and outstanding, excluding any common shares issued pursuant to
share compensation arrangements during the immediately preceding one-year period.

On termination of employment for any
reason, all unvested RSUs are forfeited. At ATIs discretion, upon involuntary
termination without cause, a participants RSUs may be permitted to continue to vest,
in accordance with their terms, during any statutory or common law severance period or any
period of reasonable notice required by law. Upon the death of a participant, all unvested
RSUs are immediately vested and distributed to the participants estate.

If the common shares to be delivered
upon the vesting of RSUs are purchased in the market instead of issued from treasury,
under the Canadian Plan, after RSUs are awarded to participants and prior to vesting, ATI
will provide funds to a trust established for the purpose of purchasing on the market, and
holding in trust, common shares to be delivered to Canadian participants in exchange for
RSUs once the applicable vesting period has been met. Similarly, under the U.S. Plan, ATI
will provide funds to a U.S. broker, who will purchase common shares for delivery to a
custodian to be held on behalf of U.S. participants pending satisfaction of the applicable
RSU vesting period. Under the Global Plan, once an RSU vests, if common shares are not to
be issued from treasury, the participant under the Global Plan is only entitled to receive
a cash payment from ATI equal to the number of RSUs awarded to such participant multiplied
by the weighted average trading price of the common shares on the NASDAQ National Market
over the five trading days immediately preceding the relevant vesting date.

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In October 2003, we awarded a total
of 1,556,239 RSUs to approximately 1,500 employees (representing less than 6/10 of 1% of
the current issued capital of ATI) in lieu of certain option grants for fiscal 2003. Of
these RSUs, 953,931 RSUs have been awarded under the Canadian Plan, 513,962 RSUs have been
awarded under the U.S. Plan and 88,346 RSUs have been awarded under the Global Plan. An
aggregate of 1,304,239 RSUs have been awarded to employees (excluding officers) and
252,000 RSUs have been awarded to officers. No RSUs have been awarded to members of the
Board of Directors. All RSUs awarded to employees and officers vest over a period of three
years, with one-third of the RSUs awarded to each employee or officer vesting on each of
the first three anniversaries of the grant, such that one-third of the RSUs awarded have
vested as of the date hereof.

RSUs are accounted for as a
compensation expense under the fair value method of accounting.

# 5.2.3  Share
Purchase Plan

We have established the Share
Purchase Plan to provide employees with an opportunity to purchase common shares of ATI,
furthering participants alignment with the interests of shareholders and allowing
them to share in the financial success to which they contribute. Under this plan, ATI
contributes $l.50 for every $9.00 contributed by an employee to acquire common shares of
ATI. The Share Purchase Plan is currently available to employees in Canada and the United
States.

# ITEM 6. MARKET FOR
SECURITIES

Our common shares are listed and
posted for trading on the Toronto Stock Exchange under the symbol ATY and are
quoted for trading on the NASDAQ National Market under the symbol ATYT.

Information concerning the trading
prices and volumes during fiscal 2004 is set out below:

|               |  | The Toronto Stock Exchange   |            | NASDAQ National Market    |           
|-------------- |  | ---------------------------- | ---------- | ------------------------- | ----------
|               |  | Share Price Trading Range    |            | Share Price Trading Range |           
|Month          |  | High                         |            | Low                       |           
|               |  | (Canadian dollars per share) | (millions) | (U.S. dollars per share)  | (millions)
|September 2003 |  | 21                           | .55        | 19                        | .46       
|October 2003   |  | 21                           | .99        | 17                        | .52       
|November 2003  |  | 20                           | .59        | 17                        | .62       
|December 2003  |  | 21                           | .45        | 18                        | .45       
|January 2004   |  | 24                           | .00        | 19                        | .50       
|February 2004  |  | 22                           | .82        | 20                        | .16       
|March 2004     |  | 22                           | .32        | 18                        | .31       
|April 2004     |  | 23                           | .33        | 19                        | .45       
|May 2004       |  | 22                           | .50        | 19                        | .30       
|June 2004      |  | 25                           | .38        | 20                        | .81       
|July 2004      |  | 24                           | .80        | 20                        | .15       
|August 2004    |  | 21                           | .39        | 17                        | .75       

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# ITEM 7. DIRECTORS AND OFFICERS

The following table sets forth the name
and municipality of residence, position held with ATI and principal occupation of each of
the directors and corporate officers of ATI as of December 31, 2004. Directors of ATI hold
office until the next annual meeting of shareholders or until their successors are duly
elected or appointed.

# 7.1  Directors

|Name andMunicipality of Residence |  | Position Held         |  | DirectorSince |  | Principal Occupation               | 
|--------------------------------- |  | --------------------- |  | ------------- |  | ---------------------------------- | 
|                                  |  |                       |  |               |  |                                    | 
|                                  | 
|K.Y. HO                           |  | Chairman and Director |  | 1986          |  | Director and officer of ATI        | 
|Toronto, Ontario                  | 
|                                  | 
|ALAN D. HORN(1)(4)                |  | Director              |  | 1993          |  | Vice President, Finance and        | 
|Toronto, Ontario                  |  |                       |  |               |  | Chief Financial Officer, Rogers    | 
|                                  |  |                       |  |               |  | Communications Inc., a cable,      | 
|                                  |  |                       |  |               |  | internet access, wireless data,    | 
|                                  |  |                       |  |               |  | broadcasting and publishing        | 
|                                  |  |                       |  |               |  | company.                           | 
|                                  | 
|JAMES D. FLECK(1)(2)(3)(5)        |  | Director              |  | 1995          |  | Chairman, Fleck Management         | 
|Toronto, Ontario                  |  |                       |  |               |  | Services Ltd., a management        | 
|                                  |  |                       |  |               |  | services company.                  | 
|                                  | 
|PAUL RUSSO(2)                     |  | Director              |  | 2002          |  | Chairman, President and            | 
|Los Altos Hills, California       |  |                       |  |               |  | Chief Executive Officer,           | 
|                                  |  |                       |  |               |  | Silicon Optix Inc., a fabless      | 
|                                  |  |                       |  |               |  | semiconductor company.             | 
|                                  | 
|RONALD CHWANG(3)                  |  | Director              |  | 2003          |  | Chairman and President, Acer       | 
|Los Altos Hills, California       |  |                       |  |               |  | Technology Ventures (ATV)          | 
|                                  |  |                       |  |               |  | America, a high-tech venture       | 
|                                  |  |                       |  |               |  | capital company.                   | 
|                                  | 
|JOHN E. CALDWELL(1)(2)(3)(4)      |  | Director              |  | 2003          |  | President and Chief Executive      | 
|Toronto, Ontario                  |  |                       |  |               |  | Officer of SMTC Corporation, an    | 
|                                  |  |                       |  |               |  | electronics manufacturing services | 
|                                  |  |                       |  |               |  | provider.                          | 
|                                  | 
|ROBERT A. YOUNG(1)                |  | Director              |  | 2003          |  | Managing Director, Mirador         | 
|New Canaan, Connecticut           |  |                       |  |               |  | Capital, L.L.C., a venture         | 
|                                  |  |                       |  |               |  | capital firm.                      | 

|(1) |  | Member of the Audit Committee.
|--- |  | ------------------------------

|(2) |  | Member of the Human Resources and Compensation
Committee.
|--- |  | ---------------------------------------------------------

|(3) |  | Member of the Governance and Nominations
Committee.
|--- |  | ---------------------------------------------------

|(4) |  | Mr. Horn and Mr. Caldwell would each be
considered a financial expert as defined under the United States Sarbanes-Oxley Act of 2002 and the
rules of the United States Securities and Exchange Commission.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Lead director of the Board.
|--- |  | ---------------------------

We do not have an executive
committee. During the past five years, all of our directors have held their principal
business affiliations as noted opposite their respective names except that:

| | (a) |  | prior to April 2000, Dr. Russo was the Chief Executive
Officer of Genesis Microchip Inc.;
| | --- |  | -----------------------------------------------------------------------------------------

| | (b) |  | prior to October 2002, Mr. Caldwell was a consultant
to GEAC Computer Corporation Limited (GEAC) and prior to December
2001, Mr. Caldwell was the President and CEO of GEAC; prior to October 1999, Mr.
Caldwell was the President and CEO of CAE Inc.; and
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | prior to February 2002, Dr. Young was the Chairman
and CEO of Curl Corporation; prior to December 1997, Dr. Young was Managing
Director with Dillon, Read & Co. and prior to December 1986, Dr. Young was the President of
IBM Instruments.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Mr. Caldwell was also a
director of Mosaic Group Inc. in December 2002 when it obtained a court order
under the Companies Creditors Arrangement Act (Canada) (CCAA)
to initiate the restructuring of its debt obligations and capital structure. Mr.
Caldwell is also a director of Stelco Inc. In January 2004, Stelco Inc. obtained
a court order under the CCAA to initiate a restructuring of its debt obligations
and capital structure. Concurrently, Stelco Inc. made a petition for recognition
of the CCAA order and ancillary relief under section 304 of the United States
Bankruptcy Act.

Mr. Horn was a director of AT&T Canada Inc. (AT&T Canada),
as a representative of Rogers Communications Inc. until October 8, 2002 when he resigned
following a change in the ownership structure of AT&T Canada. Subsequently on October 15, 2002,
AT&T Canada filed for protection under the CCAA.

# 7.2  Corporate
Officers

|Name andMunicipality of
Residence |  | Position Held                              |  | Principal Occupation | 
|--------------------------------- |  | ------------------------------------------ |  | -------------------- | 
|                                  | 
|K.Y. HO                           |  | Chairman of the Board                      |  | Officer of ATI       | 
|Toronto,
      Ontario            | 
|                                  | 
|DAVID ORTON                       |  | President and Chief Executive Officer      |  | Officer of ATI       | 
|Los Altos,
      California       | 
|                                  | 
|TERRY NICKERSON                   |  | Senior Vice President, Finance and Chief   |  | Officer of ATI       | 
|Mississauga,
      Ontario        |  | Financial Officer                          | 
|                                  | 
|RICK BERGMAN                      |  | Senior Vice President and General Manager, |  | Officer of ATI       | 
|San Jose,
      California        |  | PC Group                                   | 
|                                  | 
|MICHEL CADIEUX                    |  | Senior Vice President, Corporate Services  |  | Officer of ATI       | 
|Aurora,
      Ontario             | 
|                                  | 
|PHIL EISLER                       |  | Senior Vice President and General Manager, |  | Officer of ATI      
|Toronto,
      Ontario            |  | Integrated and Mobile Business Unit        | 
|                                  | 
|ADRIAN HARTOG                     |  | Senior Vice President and General Manager, |  | Officer of ATI      
|Toronto,
     Ontario             |  | Consumer Group                             |  |                     
|                                  |  |                                            |  |                     
|RICK HEGBERG                      |  | Senior Vice President, Worldwide Sales     |  | Officer of ATI      
|Mendham,
        New Jersey       | 
|                                  | 
|BENJAMIN BAR-HAIM                 |  | Vice President, Software Engineering       |  | Officer of ATI      
|Richmond Hill,
      Ontario      | 
|                                  | 
|GIL CHRISTIE                      |  | Vice President, Board Operations           |  | Officer of ATI      
|Thornhill,
      Ontario          | 
|                                  | 
|PAUL DAL SANTO                    |  | Vice President and General Manager,        |  | Officer of ATI      
|Aurora,
      Ontario             |  | Handheld Business Unit                    
|                                 
|RICH HEYE                         |  | Vice President and General Manager,        |  | Officer of ATI      
|Sunnyvale,
      California       |  | Desktop Business Unit                      | 
|                                  | 

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|Name andMunicipality of
Residence |  | Position Held                          |  | Principal Occupation | 
|--------------------------------- |  | -------------------------------------- |  | -------------------- | 
|                                  | 
|RAYMOND LI                        |  | Vice President, Hardware Engineering   |  | Officer of ATI      
|Markham,
      Ontario            | 
|                                  | 
|PAUL LYPACZEWSKI                  |  | Vice President and General Manager,    |  | Officer of ATI      
|Aurora,
      Ontario             |  | Multimedia Business Unit               | 
|                                  | 
|BOB MANSBRIDGE                    |  | Vice President, Information Technology |  | Officer of ATI      
|Nobleton,
      Ontario           | 
|                                  | 
|JASON PETERSON                    |  | Vice President, Finance                |  | Officer of ATI      
|Toronto,
      Ontario            | 
|                                  | 
|GEOFF PHILLIPS                    |  | Vice President and General Manager,    |  | Officer of ATI      
|Merritt Island,
      Florida     |  | DTV Business Unit                      | 
|                                  | 
|HENRY QUAN                        |  | Vice President, Corporate Development  |  | Officer of ATI      
|Woodbridge,
      Ontario         | 
|                                  | 
|DAVE ROLSTON                      |  | Vice President and General Manager,    |  | Officer of ATI      
|Winter Park,
     Florida         |  | Workstation and Embedded Business Unit | 
|                                  | 
|JIM SETO                          |  | Vice President, ASIC Operations        |  | Officer of ATI      
|Richmond Hill,
      Ontario      | 
|                                  | 
|STEVEN TURNER                     |  | Vice President, Engineering,           |  | Officer of ATI      
|Richmond Hill,
     Ontario       |  | Handheld Products                      | 
|                                  | 
|RICHARD BRAIT                     |  | General Counsel                        |  | Officer of ATI      
|Oakville,
     Ontario            |  |                                        | 
|                                  | 
|DEAN BLAIN                        |  | Corporate Secretary                    |  | Solicitor           
|Toronto,
      Ontario            | 

During the past five years, all of
the corporate officers of ATI have held the positions noted opposite their respective
names or other senior positions with ATI, except:

| |  |  | David Orton who, prior to April 2000, was President and Chief Executive Officer, ArtX,
Inc. and, prior to May 1999, was Senior Vice President and General Manager, Visual
Computing and Scalable Systems, Silicon Graphics Inc.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Terry Nickerson who, prior to November 2000, was Vice President, AGD Division, Stackpole
Limited.
| | - |  | -------------------------------------------------------------------------------------------------

| |  |  | Rick Bergman who, prior to January 2001, was Chief Operating Officer of S3 Graphics, a
division of SONICblue Inc.
| | - |  | -----------------------------------------------------------------------------------------------------------------

| |  |  | Michel Cadieux who, prior to September 2000, was Vice President, Human Resources, at
Telemedia Communications Inc.
| | - |  | ------------------------------------------------------------------------------------------------------------------

| |  |  | Rick Hegberg who, prior to January 2003, was the Chief Executive Officer of Net Octave;
prior to January 2001, was the Vice President, North American Sales of Agere Systems Inc.
(formerly Lucent Microelectronics).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Benjamin Bar-Haim who, prior to January 2001, was President of Array Systems Computing.
| | - |  | ---------------------------------------------------------------------------------------

| |  |  | Paul Dal Santo who, prior to November 2004, was Vice-President and Director of Engineering
for Motorola Inc.
| | - |  | ------------------------------------------------------------------------------------------------------------

| |  |  | Rich Heye who, prior to December 2003, was Vice-President and General Manager,
Microprocessor Business Unit, of Advanced Micro Devices, Inc.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Paul Lypaczewski who, prior to June 2004, was Executive Vice-President of Autodesk
Incorporated and General Manager of Discreet, a division of Autodesk Incorporated; and
prior to August 2000, was Chief Operating Officer of CyberWorld, Inc.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Bob Mansbridge who, prior to April 2004, was Senior Vice-President and Chief Information
Officer of Celestica Inc.
| | - |  | ------------------------------------------------------------------------------------------------------------------

| |  |  | Jason Peterson who, prior to October 2003, was Director of Strategic Planning at ATI;
prior to January 2001, was the Controller for ATI Research Silicon Valley Inc.; prior to
April 2000, was the Corporate Controller for ArtX; and prior to October 1999, was a
Controller for various business units at Phillips Semiconductor.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Geoff Phillips who, prior to June 2002, was Senior Vice-President, NxtWave Communications.
| | - |  | ------------------------------------------------------------------------------------------

| |  |  | Dave Rolston who, prior to June 2001, was Chief Executive Officer of Webtelecom, Inc.; and
prior to December 2000, was Chief Executive Officer of MultiGen-Paradigm Incorporated.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Richard Brait who, prior to April 2004, was Senior Partner and Chair of the Technology
Group at Stikeman Elliott LLP (a leading global law firm); prior to December 2001, was
General Counsel for Nortel Networks Optical Components Group; and prior to September
2000 was General Counsel for Nortel Networks Service Provider and Carrier Group.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As at December 15, 2004, the
directors and senior officers of ATI as a group beneficially owned, directly or
indirectly, or exercised control or direction over 4,386,785 common shares, representing
approximately 1.7% of the outstanding common shares of ATI. The information as to
shares owned indirectly or over which control or direction are exercised by the directors
and officers, but which are not registered in their names and not being within the
knowledge of ATI, has been furnished by such directors and officers.

The success of ATI is dependent on
the services of a number of members of senior management. The experience of these
individuals will be a factor contributing to ATIs continued success and growth. The
loss of one or more of these individuals could have a material adverse effect on
ATIs operations and business prospects.

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# ITEM 8. AUDIT COMMITTEE
INFORMATION

Currently, the members of the audit
committee of ATI (the Audit Committee) are Messrs. Horn (Chair), Fleck,
Caldwell and Young. The Audit Committee has direct communication channels with ATIs
internal finance department to review issues as appropriate and meets directly with the
external auditors of ATI on a regular basis. The Audit Committee Charter, as set out in
Schedule E to our Management Information Circular dated December 17, 2004 is incorporated
herein by reference. The Audit Committee Charter outlines, among other things, the mandate
of the Audit Committee to:

| |  |  | oversee the integrity of ATIs
financial statements and financial reporting process;
| | - |  | ------------------------------------------------------------------------------------

| |  |  | oversee the qualifications and
independence of ATIs external auditors;
| | - |  | -----------------------------------------------------------------------

| |  |  | oversee the scope of the annual audit
plan;
| | - |  | -------------------------------------------

| |  |  | oversee the work of ATIs financial officers and executives, internal
auditors and external auditors; and
| | - |  | ---------------------------------------------------------------------------------------------------------

| |  |  | provide an open avenue of communication between the
external auditors, the Board and management.
| | - |  | ------------------------------------------------------------------------------------------------

Each of the members of the Audit
Committee are independent and financially literate. Mr. Horn and Caldwell, both of whom
are Chartered Accountants, are each considered to be a financial expert. Each
member of the Audit Committee has the ability to perform his responsibilities as an Audit
Committee member based on their education and/or experience as summarized below:

| |  | Mr. Horn (Chairman) |  | - |  | Chartered Accountant;Chief Financial
Officer of Rogers Communications Inc.
| | - | ------------------- |  | - |  | --------------------------------------------------------------------------

| |  | Mr. Caldwell |  | - |  | Chartered Accountant;                                                                                                      
| | - | ------------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------
| |   |              |  | - |  | Former Chief Financial Officer of CAE Inc.;                                                                                
| |   |              |  | - |  | Director and chair of the audit committee of
Cognos Inc., Faro Technologies Inc., Sleeman Breweries Limited and Stelco Inc.

| |  | Mr. Fleck |  | - |  | Director of several public companies including Financial
Models Co. Inc. and Certicom Corp.;
| | - | --------- |  | - |  | --------------------------------------------------------------------------------------------
| |   |           |  | - |  | Doctorate in Finance, Harvard Business School.                                              

| |  | Mr. Young |  | - |  | Director and chair of the audit committee of
Tessera Technologies Inc.;
| | - | --------- |  | - |  | -----------------------------------------------------------------------
| |   |           |  | - |  | Former Managing Director in Corporate Finance,
Dillon, Read & Co.      

The Board, upon the recommendation of
the Audit Committee, has adopted a written policy on auditor independence (the
Policy). Under the Policy, except in very limited circumstances, all audit and
permitted non-audit services are required to be pre-approved by the Audit Committee. The
Policy prohibits the auditors from providing the following types of non-audit services:

| |  |  | bookkeeping or other services
related to the accounting records or financial statements of ATI;
| | - |  | -----------------------------------------------------------------------------------------------

| |  |  | financial information
systems design and implementation;
| | - |  | --------------------------------------------------------

| |  |  | appraisal or valuation services, fairness opinion, or
contribution-in-kind reports;
| | - |  | -----------------------------------------------------------------------------------

| |  |  | actuarial services;
| | - |  | -------------------

| |  |  | internal audit outsourcing services;
| | - |  | ------------------------------------

| |  |  | management functions or human resources services;
| | - |  | -------------------------------------------------

| |  |  | broker or dealer, investment advisor
or investment banking services on behalf of ATI; and
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | legal services and expert services
unrelated to the audit.
| | - |  | ----------------------------------------------------------

The Policy also permits the auditors
to provide other types of non-audit services, including tax services, but only if approved
in advance by the Audit Committee, subject to limited exceptions.

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External auditor service fees for the
last two fiscal years are as follows:

# Audit
Fees

Audit fees paid to KPMG LLP totaled
U.S.$465,000 (which include audit fees incurred in connection with the preparation of
ATIs base shelf prospectus) in 2004 and U.S.$284,000 in 2003. Audit fees include
fees associated with the annual audit of ATIs consolidated financial statements and
annual audits of certain statutory financial statements.

# Audit-Related
Fees

Audit-related fees paid to KPMG LLP
totaled U.S.$205,000 in 2004 and U.S.$107,000 in 2003. These audit-related fees include
fees associated with interim review procedures performed in connection with ATIs
quarterly reports and other accounting advisory and assistance services.

# Tax
Fees

Fees paid to KPMG LLP for tax
services, including tax compliance, tax advice and tax planning, totaled approximately
U.S.$190,000 in 2004 and U.S.$195,000 in 2003.

# All
Other Fees

Fees paid to KPMG LLP for other
services not described above totaled U.S.$420,000 in 2004 and U.S.$845,000 in 2003. These
fees related to services provided to the legal counsel retained by the Board of Directors
in connection with the notice of hearing filed by staff of the Ontario Securities
Commission in January 2003.

# ITEM 9. AUDITORS,
TRANSFER AGENT AND REGISTRAR

Our auditors are KPMG LLP, Chartered
Accountants, Yonge Corporate Centre, 4100 Yonge Street, Suite 200, Toronto, Ontario, M2P
2H3. The transfer agent and registrar for ATIs common shares is CIBC Mellon Trust
Company, 320 Bay Street, P.O. Box 1, Toronto, Ontario M5H 4A6.

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# ITEM 10. ADDITIONAL INFORMATION

# 10.1  Annual Report
and Management Information Circular

Additional information with respect
to ATI, including directors and officers remuneration and indebtedness,
principal holders of our securities and options to purchase securities and interests of
insiders in material transactions is contained, where applicable, in our Management
Information Circular dated December 17, 2004 (2004 Circular). Additional
financial information is provided in the Consolidated Financial Statements and Notes to
the Consolidated Financial Statements included in the 2004 Annual Report.

Copies of our 2004 Annual Report,
2004 Circular and of this Annual Information Form may be obtained upon request from the
Corporate Secretary or our Investor Relations Department. These documents are also
available on the SEDAR website at www.sedar.com.

# 10.2  Base Shelf
Prospectus

In February of 2004, ATI filed with
securities regulatory authorities in each of the provinces of Canada, other than the
Province of Quebec, a short form base shelf prospectus in connection with the new issue
and/or secondary offering of common shares, preferred shares, secured or unsecured
obligations in the form of senior or subordinated debt securities, stock purchase
contracts or units or warrants to purchase common shares, preferred shares, debt
securities or other securities (collectively, the Securities), pursuant to one
or more offerings up to an aggregate offering price of $500,000,000 during the 25 month
period that the short form base shelf prospectus remains effective. ATI also filed a
registration statement on Form F-10 with the United States Securities and Exchange
Commission with respect to the Securities.

At any time while our securities are
in the course of a distribution, the Corporate Secretary will provide any person, upon
request, with a copy of: (i) this Annual Information Form; (ii) our most recent annual
report containing the audited consolidated financial statements of ATI for the most
recently completed fiscal year together with the accompanying report of the auditor; (iii)
any interim financial statements of ATI subsequent to the financial statements for the
most recently completed fiscal year; (iv) the management information circular for the most
recent annual meeting of shareholders involving the election of directors; and (v) any
other document incorporated by reference into the preliminary short form prospectus or the
final short form prospectus filed in connection with such distribution of securities.

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