UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | ||||
| For the fiscal year ended December 31, 2022 | |||||
| ☐ | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |||||
For the transition period from to | |||||
Commission File Number001-07882
ADVANCED MICRO DEVICES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 94-1692300 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
2485 Augustine Drive
Santa Clara, California 95054
(408) Address of principal executive offices)
(408) 749-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| (Title of each class) | (Trading symbol) | (Name of each exchange on which registered) | ||||||
| Common Stock, $0.01 par value per share | AMD | The NASDAQ Global Select Market | ||||||
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesý ☑ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨☐ Noý ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý ☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yesý ☑ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
Act.
| Large accelerated filer | Accelerated filer | |||||||||||||||||||||||||||
| Non-accelerated filer | Smaller reporting company | ☐ | ||||||||||||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ý☑
As of June 29, 2019,24, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $32.8$139.8 billion based on the reported closing sale price of $30.37$87.08 per share as reported on The NASDAQ Global Select Market (NASDAQ) on June 28, 2019,24, 2022, which was the last business day of the registrant’s most recently completed second fiscal quarter.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 1,169,661,5361,611,388,217 shares of common stock, $0.01 par value per share, as of January 31, 2020.February 22, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 20202023 Annual Meeting of Stockholders (2020(2023 Proxy Statement) are incorporated into Part III hereof. The 20202023 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the registrant’s fiscal year ended December 28, 2019.31, 2022.
INDEX
| ITEM 6. | ||||||||
PART I
ITEM 1. BUSINESS
Cautionary Statement Regarding Forward-Looking Statements
The statements in this report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements and should not be relied upon as predictions of future events, as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” “anticipates,” or the negative of these words and phrases, other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things: possible impact of future accounting rules on AMD’s consolidated financial statements; demand for AMD’s products; the growth, change and competitive landscape of the markets in which AMD participates; the expected amounts to be received by AMD under the IP licensing agreement and AMD’s expected royalty payments from future product sales of China JVs’ products to be developed on the basis of such licensed IP; sales patterns of AMD’s PC products and semi-custom System-on-Chip (SoC) products for game consoles; international sales will continue to be a significant portion of total sales in the foreseeable future; the balance of the uncertain tax benefits in the next 12 months; that AMD’s cash, cash equivalents and marketable securitiesshort-term investment balances together with the availability under that certain revolving credit facility (Secured(the Revolving Facility)Credit Agreement) made available to AMD and certain of its subsidiaries, under the Credit Agreement,our commercial paper program, and our cash flows from operations will be sufficient to fund AMD’s operations including capital expenditures and purchase commitments over the next 12 months;months and beyond; AMD’s ability to obtain sufficient external financing on favorable terms, or at all; AMD’s expectation that based on the information presently known to management,management’s current knowledge, the potential liability related to AMD’s current litigation will not have a material adverse effect on its financial condition, cash flows orposition, results of operations; any amounts in addition to what has been already accrued by AMD for future remediation costs under clean-up orders will not be material; we expect to file future patent applications in both the United States and abroad on significant inventions as we deem appropriate;operation or cash flows; anticipated ongoing and increased in costs related to enhancing and implementing information security controls; all unbilled accounts receivables are expected to be billed and collected within 12 months; revenue allocated to remaining performance obligations that are unsatisfied which will be recognized overin the next 12 months; all unbilled accounts receivables are expected to be billed and collected within 12 months; and a small number of customers will continue to account for a substantial part of AMD’s revenue in the future. For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see “Part I, Item 1A-Risk Factors” and the “Financial Condition” section set forth in “Part II, Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or MD&A, and such other risks and uncertainties as set forth below in this report or detailed in our other Securities and Exchange Commission (SEC) reports and filings. We assume no obligation to update forward-looking statements.
Overview
We are a global semiconductor company primarily offering:
•x86server microprocessors as standalone devices or as incorporated into an accelerated processing unit (APU), chipsets, discrete(CPUs) and integrated graphics processing units (GPUs), data centerprocessing units (DPUs), Field Programmable Gate Arrays (FPGAs), and professionalAdaptive System-on-Chip (SoC) products for data centers;
•CPUs, accelerated processing units (APUs) that integrate CPUs and GPUs, and chipsets for desktop and notebook personal computers;
•discrete GPUs, and semi-custom SoC products and development services; and
•serverembedded CPUs, GPUs, APUs, FPGAs, and embedded processors, semi-custom System-on-Chip (SoC) products, development services and technology for game consoles.Adaptive SoC products.
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Additional Information
last Saturday in December. References in this Annual Report on Form 10-Kreport to “AMD,” “we,” “us,” “management,” “our” or2022, 2021 and 2020 refer to the “Company” mean Advanced Micro Devices, Inc. and our consolidated subsidiaries.fiscal year unless explicitly stated otherwise.
AMD, the AMD Arrow logo, AMD CDNA, AMD Instinct, AMD RDNA, Alveo, Artix, Athlon, CoolRunner, EPYC, FidelityFX, FirePro, FreeSync, Geode, Opteron,Infinity Fabric, Kinex, Pensando, Radeon, Radeon Instinct, ROCm, Ryzen, Spartan, Threadripper, Infinity Fabric,UltraScale, UltraScale+, V-Cache, Versal, Virtex, Vitis, Vivado, Xilinx, Zynq and combinations thereof are trademarks of Advanced Micro Devices, Inc.
Microsoft, Windows, DirectX Xbox 360 and Xbox One are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. PCIe is a registered trademark of PCI-SIG Corporation. Chromebook and Stadia are trademarks of Google Inc. Cray is a trademark of Cray Inc. and is registered in the United States and other countries. Linux is the registered trademark of Linus Torvalds in the United States and other countries. PlayStation is a registered trademark or trademark of Sony Interactive Entertainment, Inc..Inc. Arm is a registered trademark of ARM Limited (or its subsidiaries) in the USUnited States and/or elsewhere. Vulkan and the Vulkan logo are registered trademarks of Khronos Group Inc. Steam and the Steam logo are trademarks and/or registered trademarks of Valve Corporation in the United States and/or other countries.
Other names are for informational purposes only and are used to identify companies and products and may be trademarks of their respective owners.
Website Access to Our SEC Filings and Corporate Governance Documents
On the Investor Relations pages of our Website, website, http://ir.amd.com,, we post links to our filings with the SEC, our Principles of Corporate Governance, our Code of Ethics for our executive officers, all other senior finance executives and certain representatives from legal and internal audit, our Worldwide Standards of Business Conduct, which applies to our Board of Directors and all of our employees, and the charters of the Audit and Finance, Compensation and Leadership Resources, Nominating and Corporate Governance and Innovation and Technology committees of our Board of Directors. Our filings with the SEC are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The SEC website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You can also obtain copies of these documents by writing to us at: Corporate Secretary, AMD, 7171 Southwest Parkway, M/S B100.T, Austin, Texas 78735, or emailing us at: Corporate.Secretary@amd.com.Corporate.Secretary@amd.com. All of these documents and filings are available free of charge.
If we make substantive amendments to our Code of Ethics or grant any waiver, including any implicit waiver, to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions, we intend to disclose the nature of such amendment or waiver on our Website.website.
The information contained on our Websitewebsite is not incorporated by reference in, or considered to be a part of, this report.
Our Industry
We are a global semiconductor company. Semiconductors are components used in a variety of electronic products and systems. An integrated circuit (IC) is a semiconductor device that consists of many interconnected transistors on a single chip. Since the invention of the transistor in 1948, improvements in IC process and design technologies have led to the development of smaller, more complex and more reliable ICs at a lower cost-per-function.
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Our Strategy
AMD is focused on high-performance and Graphicsadaptive computing technology, software and product leadership. Our strategy is to create and deliver the world’s leading high-performance and adaptive computing products across a diverse set of markets including the data center, embedded, client and gaming. Our strategy is focused on five strategic pillars: compute technology leadership, expanding data center leadership, enabling pervasive artificial intelligence (AI), providing software platforms and developer enablement, and designing custom silicon and solutions.
We leverage our high-performance CPU, GPU, FPGA and DPU product portfolios to deliver solutions that are differentiated at the chip level, such as our semi-custom SoCs, Adaptive SoCs, and APUs, and at the systems level, such as PCs, embedded platforms and servers. To expand our data center presence, we now offer the industry’s strongest portfolio of data center computing solutions based on our CPUs, high-performance GPUs, DPUs, FPGAs, and Adaptive SoCs. We have a broad technology roadmap and products targeting AI training and inference spanning cloud, edge and intelligent endpoints. We achieve this through our family of CPUs, GPUs, FPGAs, and Adaptive SoCs.
We develop world-class software platforms that are used to enable our high-performance products. Our software platforms include development tools, compilers, and drivers for our CPUs, GPUs and FPGAs. We work closely with our customers to define and develop customized solutions to precisely match their requirements. We enable this by combining our broad portfolio of high-performance IP with our leadership design and packaging to deliver world-class customized solutions to our customers. We invest in innovative technology and solutions such as our custom-ready chiplet platform and AMD Infinity Architecture to maintain our leadership position as a custom-design silicon provider of choice.
Our four reportable segments are:
•the Data Center segment, which primarily includes server CPUs and GPUs, DPUs, FPGAs, and Adaptive SoC products for data centers;
•the Client segment, which primarily includes CPUs, APUs, and chipsets for desktop and notebook personal computers;
•the Gaming segment, which primarily includes discrete GPUs, semi-custom SoC products and development services; and
•the Embedded segment, which primarily includes embedded CPUs, GPUs, APUs, FPGAs and Adaptive SoC products.
From time to time, we may also sell or license portions of our IP portfolio.
In addition to graphicsthese reportable segments, we have an All Other category, which is not a reportable segment.
Data Center Segment
Data Center Market
The Data Center segment primarily includes server CPUs, GPUs, DPUs, FPGAs, and Adaptive SoC products. We leverage our technology to address the computational and visual data processing GPUs are usedneeds in the data center market. Modern data centers require high performance, energy efficient, scalable and adaptable compute engines to perform parallel operations on multiple setsmeet the demand driven by the growing amount of data that needs to be stored, accessed, analyzed and managed. Different combinations of CPUs, GPUs, DPUs, FPGAs, and Adaptive SoCs enable the optimization of performance and power for a diverse set of workloads.
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Data Center Products
Server CPUs.Our CPUs for server platforms currently include the AMD EPYC™ Series processors – AMD EPYC 9004 Series, AMD EPYC 7003 Series and AMD EPYC 7002 Series. Our 4th Gen AMD EPYC 9004 Series processors are built on the “Zen 4” core and are increasingly useddesigned to perform vector processing for non-graphics applications that require repetitive computations such as supercomputing, deep learning, artificial and machine intelligence, blockchain and various other applications (e.g., cryptocurrency mining and autonomous driving).
workloads. Our Computing and Graphics Products
Client Segment
Client Market
Our CPUs are incorporated into computing platforms, which are a collection of technologies that are designed to work together to provide a more complete computing solution. We believe that integrated, balanced computing platforms consisting of CPUs, chipsets and GPUs (either as discrete GPUs or integrated into an APU or SoC) that work together at the system level bring end users improved system stability, increased performance and enhanced power efficiency. In addition, we believe customers also benefit from an all-AMD platform (consisting of an APU or CPU, a discrete GPU, and a chipset when needed), as we are able to optimize interoperability, provide our customers a single point of contact for the key platform components and enable them to bring the platforms to market quickly in a variety of PC and server system form factors. We currently base our CPUs and chipsets on the x86 instruction set architecture and the AMD Infinity Fabric™, which connects an on-chip memory controller and input/output (I/O) channels directly to one or more CPU cores.
Client Products
Desktop CPUs. Our CPUs for desktop platforms currently include the AMD Ryzen™ and AMD Athlon™ series processors. Our Ryzen 7000 Series desktop processors are based on “Zen 4” architecture and deliver leadership performance for gamers and content creators. Our AMD Ryzen 5000 Series desktop processor family powered by our “Zen 3” core architecture has up to 16 cores and is the first AMD Ryzen processor to feature AMD 3D V-Cache technology to improve gaming performance.
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Notebook CPUs.Our mobile APUs, including AMD Ryzen and AMD Athlon mobile processors for the commercial and consumer markets, combine both high levels of performance and efficiency for notebook PCs. Our AMD Ryzen 7000 Series processors for mobile applications have up to 16 “Zen 4” architecture cores. We also offer AMD Ryzen 6000 Series mobile processors, built on “Zen 3+” architecture and AMD Ryzen 5000 Series mobile processors, which are powered with our “Zen 3” core architecture.
Commercial CPUs.We offer enterprise-class desktop and mobile PC solutions sold as AMD PRO Mobile and AMD PRO desktop processors with Radeon™ graphics for the commercial market. AMD Ryzen PRO, AMD Threadripper™ PRO and AMD Athlon PRO processors solutions are designed to provide enterprise customers with the performance, security capabilities and business features such as enhanced security and manageability, platform longevity and extended image stability. Our AMD Ryzen Threadripper PRO 5000 WX-Series processors provide full-spectrum performance across multiple workstation workloads due to the performance and efficiency of the “Zen 3” core architecture and increased processor frequencies. We also offer the AMD Ryzen PRO 7030 Series Mobile processors built on “Zen 3” core architecture.
Chipsets.We offer a full suite of chipset products to support our AMD Ryzen and Threadripper platforms, including chipsets for the AM5 socket like the X670 chipsets which support PCIe® 5.0 (fifth generation Peripheral Component Interconnect Express motherboard interface) designed for enthusiast desktop platforms. In the AM5 platform we also offer B650 chipsets to enable a broader range of solutions in the market. In the AM4 ecosystem for 5000-series processors and prior, we offer the X570, B550 and A520 chipsets for socket AM4 for 3rd Gen AMD Ryzen desktop processors and 5000 processors. In addition, we continue to offer the B450 and A320 chipsets that are combined with AMD Ryzen processors for the AM4 desktop platform for the performance and affordable mainstream platforms segments. In the High-End Desktop (HEDT) and Workstation segments, we offer the WRX80 chipsets to support the 3rd Gen Ryzen Threadripper PRO platforms offering high speed I/O and platform bandwidth.
Gaming Segment
Gaming Market
Graphics processing is a fundamental component across many of our products and can be found in an APU, GPU, SoC or a combination of a discrete GPU with one of the other foregoing products working in tandem. Our customers generally use our graphics solutions to enable or increase the speed of rendering images, to help improve image resolution and color definition. We develop our graphics products for use in various computing devices and entertainment platforms, including desktop PCs, notebook PCs, All-in-Ones (AIOs), professional workstations, and the data center. With each of our graphics products, we have available drivers and supporting software packages that enable the effective use of these products under a variety of operating systems and applications. We have developed AMD RDNA™ 3, a high performing and power efficient graphics architecture, which is the foundation for next-generation PC gaming graphics. Additionally, our RDNA 2 architecture supports advanced graphics features such as ray tracing, AMD Infinity Cache™ and variable rate shading. The Sony PlayStation® 5 and Microsoft® Xbox Series S™ and X™ game consoles also feature our RDNA graphics architecture. Our APUs deliver visual processing functionality for value and mainstream PCs by integrating a CPU and a GPU on a single chip, while discrete GPUs (which are also known as dGPUs) offer high-performance graphics processing across all platforms. We leverage our core IP, including our graphics and processing technologies to develop semi-custom solutions. Here, semiconductor suppliers work alongside system designers and manufacturers to enhance the performance and overall user experience for semi-custom customers. We have used this collaborative co-development approach with many of today’s leading game console and handheld PC gaming manufacturers and can also address customer needs in many other markets. We leverage our existing IP to create a variety of products tailored to a specific customer’s needs, including complex fully-customized SoCs to more modest adaptations and integrations of existing CPU, APU or GPU products.
Gaming Products
Semi-Custom Products.Our semi-custom products are tailored, co-developed, high-performance, customer-specific solutions based on our CPU, GPU and multi-media technologies. We work closely with our customers to define solutions to precisely match the requirements of the device or application. We developed the semi-custom SoC products that power both the Sony PlayStation5 as well as the MicrosoftXbox Series S and X game consoles. We partnered with Valve to create a semi-custom APU optimized for handheld gaming to power the Steam Deck™.
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Discrete Desktop and Notebook GraphicsGPUs. Our AMD Radeon series discrete GPUsGPU processors for desktop and notebook PCs support current generation application program interfaceinterfaces (APIs) like DirectX® 12 Ultimate and Vulkan®Vulkan®, support newhigh-refresh rate displays using Radeon™AMD FreeSync™, AMD FreeSync Premium, and Radeon™AMD FreeSync 2 HDR™Premium Pro technologies, and are designed to support VR in PC platforms. Our AMD Radeon Software expands remote gaming functionality and enables new features and customization capabilities. In January 2019,addition, we introduced thealso offer tools for game developers such as our AMD Radeon™ VII, a premium graphics card for gamers, creatorsFidelityFX™ open-source image quality software toolkit that helps deliver improved visual quality with minimal performance overhead. FidelityFX Super Resolution (FSR) uses upscaling technologies to help boost frame rates in games. Our FSR 2.0 technology uses temporal data and enthusiasts built on 7nm process technology and with 16GB of HBM2 memory (High Bandwidth Memory) and 1 TB/s memory bandwidth. In May 2019, we announced the RDNA gaming architecture which is designedoptimized anti-aliasing to deliverboost frame rates in supported games while delivering similar or better performance, power and memory efficiency. In July 2019, we announced the availability of the 7nm AMD Radeon™ RX 5700-series gaming graphics card family (AMD Radeon™ RX 5700 XT and RX 5700) featuring AMD RDNA architecture, high-speed GDDR6 (Graphics Double Data Rate type 6) memory and support for the PCIe 4.0 interface. In October 2019, we announced the AMD Radeon™ RX 5500 series that includes the Radeon RX 5500 graphics card that will be available in desktop PCs from manufacturers and graphics cards from board partners as well as the Radeon™ 5500M GPU for notebook PCs. In December 2019, we announced AMDimage quality than native resolution without requirement dedicated machine learning hardware.
Professional Graphics.GPUs. Our AMD Radeon™ ProRadeon PRO family of professional graphics products includes multi-view graphics cards and GPUs designed for integration in mobile and desktop workstations. AMD Radeon ProPRO graphics cards are designed for demanding use cases such as design and manufacturing for CAD, and media and entertainment for broadcast and animation pipelines. AMD Radeon ProPRO supports end users utilizing GPU accelerated visualization for construction, architecture and mechanical design through gaming and visualization engines on high resolution displays; Radeon VR™ Creator cards are also capable of supporting this functionality with VR and AR. Software drivers fordisplays. Our AMD Radeon Pro cardsPRO W6000 series workstation graphics include AMD RDNA 2 architecture and AMD Infinity Cache and are designed to deliver high stabilityreduce latency and performance across a wide variety of software packagespower consumption and to optimize design workloads, including those requiring professional software vendor certifications. In June 2019, we announced the AMD Radeon™ Pro Vega II GPUs which utilizes 7nm AMD Radeon™ Vega family GPUs, HBM23D rendering, 8K video composition and AMD Infinity Fabric Link GPU interconnect technology designed to power demanding professionalcolor correction, complex design and engineering simulations along with image and video editing applications. In November 2019, we announced the AMD Radeon™ Pro W5700, a 7nm professional PC workstation graphics card that enables 3D designers, architects and engineers to visualize, review and interact with their designs in real time to accelerate decision-making processes and product development cycles.
The Enterprise, Embedded and Semi-Custom MarketsMarket
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FPGAs and Adaptive SoCs. Our FPGA products are hardware-customizable devices that can be tailored to meet the AMD EPYC™ Embedded 3000specific needs of each customer, enabling them to differentiate their products and accelerate time-to-market. Our FPGA families include UltraScale+™ (based on 16 nm technology), UltraScale™ (20 nm), 7 Series of processors. The AMD Ryzen™ Embedded R1000 Series provides customers(28 nm) and older series. Adaptive SoC products include the Zynq SoC and UltraScale+ Multi-Processing System on a Chip (MPSoCs) which combine FPGA technology with dual core, quad-threaded performancea heterogeneous processing system, as well as the abilityindustry’s first RFSoC architecture with integrated radio frequency (RF) data converters. The Versal portfolio is composed of software-programmable Adaptive SoCs, with a heterogeneous compute platform that combines Scalar Engines, Adaptable Engines, and Intelligent Engines to run fanless, low power solutions for 4K displays forachieve dramatic performance improvements over today's fastest FPGA and accelerate applications in digital displays, high-performance edge computing, networking, thin clients and more. The AMD EPYC Embedded 3000 Seriesa wide variety of processors addresses new markets, including networking, storagedata center, wired network, 5G wireless, automotive, industrial, scientific, medical, aerospace and edge computing devices.defense.
Legacy Product Families. Our semi-custom productsPrior generation high-end Virtex FPGA families include Virtex-6, Virtex-5, Virtex-4, Virtex-II Pro, Virtex-II and the original Virtex family. Prior generation low end Spartan™ FPGA families include Spartan-6, Spartan-3, the Spartan-3E and Spartan-3A, Spartan-IIE, Spartan-II, Spartan XL and the original Spartan family. Complex Programmable Logic Devices (CPLDs) operate on the lowest end of the programmable logic density spectrum. CPLDs are tailored, co-developed, high-performance, customer-specificsingle-chip, nonvolatile solutions based on AMD CPU, GPUcharacterized by instant-on and multi-media technologies. universal interconnect. Prior generations of CPLDs include the CoolRunner™ and XC9500 product families.
Design Platforms and Services
Adaptable Platforms. We work closely together withoffer two types of platforms that support our customers' designs and reduce their development efforts: FPGAs and Adaptive SoCs. All devices feature adaptable hardware that enables our customers to define solutionsimplement customized, domain-specific architectures. With both hardware-accelerated performance and flexibility beyond what CPUs, GPUs, application-specific standard parts (ASSPs), and application-specific integrated circuits (ASICs) can offer, customers can introduce new innovations to precisely match the requirementsmarket quickly. FPGAs feature reconfigurable hardware as well as integrated memory, digital signal processing, analog mixed signal, high-speed serial transceivers, and networking cores coupled with advanced software for a broad range of applications in all of our end markets. Our Adaptive SoCs feature a heterogeneous processing subsystem with integrated programmable hardware fabric targeting embedded systems needing real-time control, analytics, sensor fusion, and adaptable hardware for differentiation and acceleration. Our Zynq UltraScale+ RFSoCs feature integrated high-performance RF data converters targeting wireless, radar, and cable access applications. Enabled by both hardware and software design tools and an extensive operating system, middleware, software stack, and IP ecosystem, SoC platforms target software developers as well as traditional hardware designers. Versal is the device ormost recent addition to the silicon portfolio. Versal combines Scalar Processing Engines, Adaptable Hardware Engines, and Intelligent Engines with leading-edge memory and interfacing technologies to deliver powerful heterogeneous acceleration for any application. Historically we have leveraged our core graphics processing technology intoThis product family is ideally suited to accelerate a broad set of applications in the game console marketemerging era of big data and AI. Versal hardware and software can be programmed and optimized by licensing our graphic technology in game consoles. We developed the semi-custom SoC products that power the current generation Sony PlayStation®4software developers, data scientists, and PlayStation®4 Pro and Microsoft®Xbox One™ and Xbox One S™ and Xbox One X™ game consoles. In April 2019, Sony Interactive Entertainment, Inc. released details about its next-generation game console, which will be poweredhardware developers alike, enabled by a custom AMD chip basedhost of tools, software, libraries, IP, middleware, and frameworks that enable industry-standard design flows.
Software Development Platform. To accommodate hardware and software designers, as well as software developers and AI scientists, we provide design tools and software stacks tailored to each user profile. Our Vivado™ ML Edition provides hardware design teams with the tools and methodology needed to program FPGAs and Adaptive SoCs. Our Vitis™ unified software platform enables the development and deployment of embedded software and accelerated applications, on our FPGAs and Adaptive SoCs. Out Vitis AI unified software platform enables the “Zen 2” CPUdevelopment and next generation GPU architectures. Microsoft announced in June 2019, that AMD will power its next generation game console, codenamed Project Scarlett, with a custom, high performance SoC combining the AMD Ryzen “Zen 2” CPU core 4deployment of AI software on our FPGAs and a next generation GPU based on the Radeon RDNA gaming architecture.Adaptive SoCs.
We sell our products through our direct sales force and through independent distributors and sales representatives in both domestic and international markets. Our sales arrangements generally operate on the basis of product forecasts provided by the particular customer, but do not typically include any commitment or requirement for minimum product purchases. We primarily use product quotes, purchase orders, sales order acknowledgments and contractual agreements as evidence of our sales arrangements. Our agreements typically contain standard terms and conditions covering matters such as payment terms, warranties and indemnities for issues specific to our products.
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We generally warrant that our products sold to our customers will conform to our approved specifications and be free from defects in material and workmanship under normal use and conditions for one year. We offer up to three-year limited warranties for certain product types, and sometimes provide other warranty periods based on negotiated terms with certain customers.
We market and sell our latest products under the AMD trademark. Our client processors include: AMD Ryzen, AMD Ryzen PRO, Ryzen Threadripper, Ryzen Threadripper PRO, AMD Athlon, AMD Athlon PRO, and AMD PRO A-Series. These products service desktop PCand notebook personal computers.
Our product brand for the consumer graphics market is AMD Radeon graphics, and AMD Embedded Radeon graphics is our product brand for the embedded graphics market.
Our product brand for professional graphics products are AMD Radeon PRO graphics.
Our product brands for microprocessorsdata center graphics are AMD Ryzen™, AMD Ryzen™Radeon Instinct, Radeon PRO Ryzen™ Threadripper™, AMD A-Series, AMD FX™, AMD Athlon™, AMD Athlon™ PRO,V-series, and AMD Pro A-SeriesInstinct accelerators for servers. We also market and sell our chipsets under AMD trademarks.
Our product brand for server microprocessors is AMD EPYC processors. Our notebook and 2-in-1s for microprocessors are AMD Ryzen™ processors with Radeon™ Vega Graphics, AMD A-Series, AMD Athlon, AMD Ryzen PRO with Radeon Vega Graphics, AMD Athlon™ PRO with Radeon Vega Graphics and AMD Pro A-Series processors. Our server brands for microprocessors are AMD EPYC™ and AMD Opteron™ processors.
We also sell low-power versions of our AMD Opteron, AMD Athlon, as well as AMD Geode™, AMD Ryzen, AMD EPYC, AMD R-Series and G-Series processors as embedded processor solutions.
Our FPGA product brands are Virtex-6, Virtex-7, Virtex UltraScale+, Kintex-7, Kintex UltraScale, Kintex UltraScale+, Artix-7, Artix UltraScale+, Spartan-6 and Spartan-7.
Our product brandbrands for the consumer graphics market is AMD Radeon graphics,Adaptive SoCs are Zynq-7000, Zynq UltraScale+ MPSoC, Zynq UltraScale+ RFSoCs, Versal HBM, Versal Premium, Versal Prime, Versal AI Core, Versal AI Edge, Vitis and AMD Embedded RadeonVivado.
We market our products through direct marketing and co-marketing programs. In addition, we have cooperative advertising and marketing programs with customers and third parties, including market development programs, pursuant to which we may provide product information, training, marketing materials and funds. Under our co-marketing development programs, eligible customers can use market development funds as reimbursement for advertisements and marketing programs related to our products and third-party systems integrating our products, subject to meeting defined criteria.
Customers
Our microprocessor customers consist primarily of original equipment manufacturers (OEMs), large direct data centers,public cloud service providers, original design manufacturers (ODMs), system integrators and independent distributors in both domestic and international markets. ODMs provide design and/or manufacturing services to branded and unbranded private label resellers, OEMs and system builders. Customers of our microprocessor products also include online and brick and mortar retailers. Our graphics product customers include the foregoing as well as add-in-board manufacturers (AIBs). Large direct data centers consist of cloud service providers.
Customers of our chipset products consist primarily of PC OEMs, often through ODMs or other contract manufacturers, who build the OEM motherboards, as well as desktop and server motherboard manufacturers who incorporate chipsets into their channel motherboards. Our FPGA and Adaptive SOC products are sold to customers in a very wide range of markets such as Aerospace and Defense, Test and Measurement, Industrial, Automotive, Consumers, Broadcast, Communication Infrastructure and Data Center. For these products we either sell directly to our customers or through a network of distributors and OEM partners. We are also developing a network of Value Added Resellers (VARs) and Integrated Solution Vendors (ISVs) for our Alveo products.
We work closely with our customers to define product features, performance and timing of new products so that the products we are developing meet our customers’ needs. We also employ application engineers to assist our customers in designing, testing and qualifying system designs that incorporate our products. We believe that our commitment to customer service and design support improves our customers’ time-to-market and fosters relationships that encourage customers to use the next generation of our products.
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We also work with our customers to create differentiated products that leverage our CPU, GPU and APU technology. Certain customers pay us non-recurring engineering fees for design and development services and a purchase price for the resulting products.
Original Equipment Manufacturers
We focus on three types of OEM partners: multi-nationals, selected regional accounts and someselected global and local system integrators, who target commercial and consumer end customers of all sizes. Large multi-nationals and regional accounts are the core of our OEM partners.partners’ business; however, we are increasingly focused on the VAR channel which resells OEM systems to the mid-market and the small and medium business (SMB) segments. Additionally, we have increased our focus on global system integrators, which resell OEM systems, coupled with their software and services solutions into Enterprise, high performance computing (HPC) and Cloud Service Provider Customers. Our OEM customers include numerous foreign and domestic manufacturers of servers and workstations, desktops, notebooks, PC motherboards and game consoles.
Third-Party Distributors
Our authorized channel distributors resell to sub-distributors and mid-sizedOEMs, ODMs, and smaller OEMs and ODMs.other customers. Typically, distributors handle a wide variety of products, and may include thoseproducts from other manufacturers that compete with our products. Distributors typically maintain an inventory of our products. In most instances, our agreements with distributors protect their inventory of our products against price reductions and provide certain return rights with respect to any product that we have removed from our price book that is not more than 12 months older than the manufacturing code date.or otherwise subject to discontinuation. In addition, some agreements with our distributors may contain standard stock rotation provisions permitting limited levels of product returns.
Add-in-Board (AIB) Manufacturers and System Integrators
We offer component-level graphics and chipset products to AIB manufacturers who in turn build and sell board-level products using our technology to system integrators (SIs), retail buyers and sub distributors. Our agreements with AIBs protect their inventory of our products against price reductions. We also sell directly to our SI customers. 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. SIs often use discrete graphics solutions as a means to differentiate their products and add value to their customers.
Competition in Data Center Segment
Competition in the Microprocessor and Chipset MarketClient Segment
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Competition in the Graphics MarketsGaming Segment
In the graphics market, our competitors include suppliersprincipal competitor in the supply of discrete graphics is NVIDIA who is the market share leader. Intel also manufactures and sells embedded graphics processors and integrated graphics processor (IGP) chipsets. Also, Intel manufactureshas developed their own gaming-focused discrete GPUs and sells embeddedhas entered the market. Other competitors include suppliers of discrete graphics and integrated graphics processor (IGP) chipsets. Some of our competitors are smaller companies, which may have greater flexibility to address specific market needs, but less financial resources to address the growing complexity of graphics processors and IGP chipsets,the associated research and is a dominant competitor withdevelopment costs. With respect to this portion of our business. Higherintegrated graphics, higher unit shipments of our APUs and Intel’s integrated graphics may drive computer manufacturers to reduce the number of systems they build paired with discrete graphics components, particularly for notebooks, because they may offer satisfactory graphics performance for most mainstream PC users at a lower cost. Intel could take actions that place our discrete GPUs and IGP chipsets at a competitive disadvantage such as giving one or more of our competitors in the graphics market, such as Nvidia Corporation, preferential access to its proprietary graphics interface or other useful information. Also, Intel is developing its own high-end discrete GPUs for both consumer and commercial applications.
We are the market share leader in semi-custom game console products, where graphics performance is critical, and where we compete primarily against Nvidia.critical.
Competition in Embedded Segment
We expect continued competition from our primary FPGA competitors such as Intel, Lattice Semiconductor Corporation and Microsemi Corporation (Microsemi, acquired by Microchip), from ASSP vendors such as Broadcom Corporation, Marvell Technology Group, Ltd., Analog Devices, Texas Instruments Incorporated and NXP Semiconductors N.V., and from NVIDIA. In addition, we expect continued competition from the Server MarketsASIC market, which has been ongoing since the inception of FPGAs. Other competitors include manufacturers of:
•high-density programmable logic products characterized by FPGA-type architectures;
•high-volume and low-cost FPGAs as programmable replacements for ASICs and ASSPs;
•ASICs and ASSPs with our CPU server incremental amounts of embedded programmable logic;
•high-speed, low-density complex programmable logic devices (CPLDs);
•high-performance digital signal processing (DSP) devices;
•products with embedded processors;
•products with embedded multi-gigabit transceivers;
•discrete general-purpose GPUs targeting data center and Nvidia with our GPU server products.automotive applications; and
•other new or emerging programmable logic products.
Research and Development
We focus our research and development (R&D) activities on improving product performancedesigning and enhancing product design.developing products. Our main area of focus is on delivering the next generation of CPUprocessors (CPU and GPU IP,GPU), FPGAs and Adaptive SoCs, accelerators (adaptive, graphics and DPU), System on Modules (SOMs) and SmartNICs and associated software. We focus on designing that IP into our SoCs for our next generation of products,new ICs with in each case, improved system performance and performance-per-watt characteristics. For example, we are focusingin advanced semiconductor manufacturing processes, the design of logic and interface IP, advanced packaging technologies, and heterogeneous integration technologies. We also focus on improvingsoftware as part of the battery lifedevelopment of our APU products, including design automation tools for notebookshardware, embedded software, optimized software tools and libraries that extend the performance and power efficiencyreach of our discrete GPUs and our microprocessors for servers. We are also focusing on delivering a range of low-power integrated platforms to serve key markets, including commercial clients, mobile computingsoftware and gaming. We believe that these platforms will bring customers increased performanceAI developers. Through our R&D efforts, we were able to introduce a number of new products and energy efficiency. enhance our IP core offerings and software.
We also work with industry leaders on process technology, design tools, intellectual property, software and other functional intellectual property and with others in the industry and industry consortia to conduct early stageearly-stage research and development. We are also actively contributing to numerous industry open-source software initiatives across a broad range of technologies. We conduct product and system research and development activities for our products in the United States with additional design and development engineering teams located in Canada, China, India, Taiwan and Singaporevarious countries who undertake specific activities at the direction of our U.S. headquarters.
Manufacturing Arrangements and Assembly and Test Facilities
Third-Party Wafer Foundry Facilities
We are also a party to a Wafer Supply Agreement (WSA) with GLOBALFOUNDRIES Inc. (GF), which governswith respect to wafer purchases for our HPC products at the terms by which12 nm and 14 nm technology nodes.
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Additionally, we purchase products manufactured by GF. Pursuant to the WSA, we are required to purchase all of our microprocessorwafers from United Microelectronics Corporation (UMC) and APU product requirements, and a certain portion of our GPU products, from GF manufactured at process nodes larger than 7 nm, with limited exceptions. GF was a related party to us until May 15, 2019.
Other Third-Party Manufacturers.
We outsource board-level graphics product manufacturing to third-party manufacturers.
Assembly, Test, Mark and Packaging Facilities
Wafers for our products are either sorted by the foundry or delivered from third-party foundriesby the foundry to our assembly, test, mark and packaging (ATMP) partners or subcontractors located in the Asia-Pacific region who package and test our final semiconductor products. We are party to two assembly, test, mark and pack (ATMP)ATMP joint ventures (collectively, the ATMP JVs) with Tongfu Microelectronics Co., Ltd. The majority of ourATMP JVs, Siliconware Precision Industries Ltd. (SPIL) and King Yuan Electronics Company (KYEC) provide ATMP services are provided by the ATMP JVs.for our products.
Intellectual Property and Licensing
We rely on contracts and intellectual property rights to protect our products and technologies from unauthorized third-party copying and use. Intellectual property rights include copyrights, patents, patent applications, trademarks, trade secrets and mask work rights. As of December 28, 2019,31, 2022, we had approximately 4,0008,200 patents in the United States and approximately 9002,200 patent applications pending in the United States. In certain cases, we have filed corresponding applications in foreign jurisdictions. Including United States and foreign matters, we have approximately 9,90019,800 patent matters worldwide consisting of approximately 7,20013,200 issued patents and 2,8006,600 patent applications pending. We expect to file future patent applications in both the United States and abroad on significant inventions, as we deem appropriate. We do not believe that any individual patent, or the expiration of any patent, is or would be material to our business.
As is typical in the semiconductor industry, we have numerous cross-licensing and technology exchange agreements with other companies under which we both transfer and receive technology and intellectual property rights. One such agreement is the cross-license agreementWe have acquired various licenses from external parties to certain technologies that we entered into with Intel on November 11, 2009. Under the cross-license
Backlog
Sales are made primarily pursuant to purchase orders for current delivery or agreements covering purchases over a period of time. SomeAlthough such orders or agreements may provide visibility into future quarters, they may not necessarily be indicative of actual sales for any succeeding period as some of these orders or agreements may be revised or canceled without penalty. Generally, in light of current industry practice, we do not believe that such orders or agreements provide meaningful backlog figures or are necessarily indicative of actual sales for any succeeding period. With respect to our semi-custom SoC products our orders and agreements are more stringent resulting in meaningful backlog for the coming quarter.
Seasonality
Our operating results tend to vary seasonally. Historically, our net revenue has been generally higher in the second half of the year than in the first half of the year, although market conditions and product transitions could impact these trends.
As of December 28, 2019,31, 2022, we had approximately 11,40025,000 employees in our global workforce. We believe we are at our best when our culture of innovation, creative minds and people from all kinds of backgrounds work together in an engaging and open environment. Areas of focus for us include the following:
Mission, Culture, and Engagement
Our History - Founded in 1969 as a Silicon Valley start-up, the AMD journey began with dozens of employees focused on leading-edge semiconductor products. From those modest beginnings, we have grown into a global company achieving many important industry firsts along the way. Today, we develop high-performance and adaptive computing to solve some of the world’s toughest and most interesting challenges.
Our Vision - High performance and adaptive computing is transforming our lives.
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Our Mission - Build great products that accelerate next-generation computing experiences. Our employees are driven by this vision and mission. Innovation occurs when creative minds and diverse perspectives from all over the world work together. This is the foundation of our unique culture and the reason why our employees are among the most engaged in our industry.
We conduct a confidential annual survey of our global workforce to measure our culture, engagement, and manager quality. The results are reviewed by our Board of Directors and acted upon by our senior leadership team and individual managers at every level. Results from our 2022 survey reported scores that continued to be among the very best for global companies in the technology industry. Our employees described our culture as inclusive, innovative, open, and respectful, and rated the quality of our managers among the top 10% of our technology industry peers.
Diversity, Belonging and Inclusion
Our diverse and inclusive workforce encourages employees to share their opinions and different perspectives. We believe that building a diverse talent pipeline, encouraging a culture of respect and belonging, and increasing inclusion of unique and underrepresented voices makes our Company stronger. Our Employee Resource Groups encourage employee engagement and play an important role in our culture. In 2022, we were recognized for the sixth consecutive year by the Human Rights Campaign Foundation as a Best Place to Work for LGBTQ+ equality and were included in Bloomberg’s Gender Equality Index for the fourth consecutive year.
We are focused on hiring and developing underrepresented groups and women leaders. We are proud to be led by a highly regarded CEO who has won many esteemed awards for her business and leadership prowess. In 2022, Dr. Lisa Su was listed among “Fortune’s Most Powerful Women”. In the last two years, she also received the “Woman Innovation Award” from the Global Semiconductor Alliance and was listed among Barron’s World’s Best CEOs and Forbes’ World’s Most Powerful Women. In addition, Dr. Su continues to support President Biden’s Council of Advisors on Science and Technology.
Total Rewards
We invest in our workforce by offering competitive salaries, incentives, and benefits to ensure that we continue to attract and retain the industry’s best and brightest. Our rewards are guided by employees’ preferences and the market for talent. We have a strong pay for performance culture that we believe drives superior results. Our employees have benefited from our robust financial results with very strong short-term and long-term incentives. Our rewards programs enabled us to attract, retain and motivate our workforce, including approximately 10,000 new AMDers who were added to the company through acquisitions and direct hiring during fiscal year 2022.
Development
We offer our employees opportunities to advance their careers at the Company and the majority of our new leaders are promoted from within. We are focused on leadership progression and encourage our employees to take advantage of new opportunities. Our manager and leadership development programs are highly rated, and we provide specialized development programs for our employees.
Environmental Regulations
Our operations and properties have in the past been and continue to be subject to various United States and foreign laws and regulations, including those relating to materials used in our products and manufacturing processes, discharge of pollutants into the environment, the treatment, transport, storage and disposal of solid and hazardous wastes and remediation of contamination. These laws and regulations require our suppliers to obtain permits for operations making our products, including the discharge of air pollutants and wastewater. Although our management systems are designed to oversee our suppliers’ compliance, we cannot assure you that our suppliers have been or will be at all times in complete compliance with such laws, regulations and permits. If our suppliers violate or fail to comply with any of them, a range of consequences could result, including fines, suspension of production, alteration of manufacturing processes, import/export restrictions, sales limitations, criminal and civil liabilities or other sanctions. We could also be held liable for any and all consequences arising out of exposure to hazardous materials used, stored, released, disposed of by us or located at, under or emanating from our facilities or other environmental or natural resource damage. While we have budgeted for foreseeable associated expenditures, we cannot assure you that future environmental legal requirements will not become more stringent or costly in the future. Therefore, we cannot assure you that our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past and future releases of, or exposure to, hazardous substances will not have a material adverse effect on us.
Environmental laws are complex, change frequently and have tended to become more stringent over time. For example, the European Union (EU) and China are two among a growing number of jurisdictions that have enacted restrictions on the use of lead and other materials in electronic products. These regulations affect semiconductor devices and packaging. As regulations restricting materials in electronic products continue to increase around the world, there is a risk that the cost, quality and manufacturing yields of products that are subject to these restrictions, may be less favorable compared to products that are not subject to such restrictions, or that the transition to compliant products may not meet customer roadmaps, or produce sudden changes in demand, which may result in excess inventory. A number of jurisdictions including the EU, Australia, California and China are developing or have finalized market entry or public procurement regulations for computers and servers based on ENERGY STAR specifications as well as additional energy consumption limits. There is the potential for certain
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Certain environmental laws, including the U.S.United States Comprehensive, Environmental Response, Compensation and Liability Act of 1980, or the Superfund Act, impose strict or, under certain circumstances, joint and several liability on current and previous owners or operators of real property for the cost of removal or remediation of hazardous substances and impose liability for damages to natural resources. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances. These environmental laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated. Such persons can be responsible for cleanup costs even if they never owned or operated the contaminated facility.
We arehave been named as a responsible party on Superfund clean-up orders for three sites in Sunnyvale, California that are on the National Priorities List. Since 1981, we have discovered hazardous material releases to the groundwater from former underground tanks and proceeded to investigate and conduct remediation at these three sites. The chemicals released into the groundwater were commonly used in the semiconductor industry in the United States in the wafer fabrication process prior to 1979.
In 1991, we received Final Site Clean-up Requirements Orders from the California Regional Water Quality Control Board relating to the three sites. We have entered into settlement agreements with other responsible parties on two of the orders. During the term of such agreements, other parties have agreed to assume most of the foreseeable costs as well as the primary role in conducting remediation activities under the orders. We remain responsible for additional costs beyond the scope of the agreements as well as all remaining costs in the event that the other parties do not fulfill their obligations under the settlement agreements.
To address anticipated future remediation costs under the orders, we have computed and recorded an estimated environmental liability of approximately $3$3.9 million and have not recorded any potential insurance recoveries in determining the estimated costs of the cleanup. Costs could also increase as a result of additional test and remediation obligations imposed by the Environmental Protection Agency or California Regional Water Quality Control Board. The progress of future remediation efforts cannot be predicted with certainty and these costs may change. We believe that the potential liability, if any amount in excess of amountsaddition to what has already been accrued willwould not have a material adverse effect on our financial condition, cash flows or results of operations.
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ITEM 1A. RISK FACTORS | |
The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations and financial results.
Economic and Strategic Risks
•Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively.effectively on a level playing field.
•Global economic and market uncertainty may adversely impact our business and operating results.
•The semiconductor industry is highly cyclical and has experienced severe downturns that have materially adversely affected, and may continue to materially adversely affect, our business in the future.
•The demand for our products depends in part on the market conditions in the industries into which they are sold. Fluctuations in demand for our products or a market decline in any of these industries could have a material adverse effect on our results of operations.
•The loss of a significant customer may have a material adverse effect on us.
•The ongoing novel coronavirus (COVID-19) pandemic could materially adversely affect our business, financial condition and results of operations.
•The markets in which our products are sold are highly competitive.
•Our operating results are subject to quarterly and seasonal sales patterns.
•If we cannot adequately protect our technology or other intellectual property in the United States and abroad, through patents, copyrights, trade secrets, trademarks and other measures, we may lose a competitive advantage and incur significant expenses.
•Unfavorable currency exchange rate fluctuations could adversely affect us.
Operational and Technology Risks
•We rely on third parties to manufacture our products, and if they are unable to do so on a timely basis in sufficient quantities and using competitive technologies, our business could be materially adversely affected.
•If essential equipment, materials, substrates or manufacturing processes are not available to manufacture our products, we could be materially adversely affected.
•Failure to achieve expected manufacturing yields for our products could negatively impact our financial results.
•The success of our business is dependent upon our ability to introduce products on a timely basis with features and performance levels that provide value to our customers while supporting and coinciding with significant industry transitions.
•Our revenue from our semi-custom System-on-Chip (SoC) products is dependent upon our semi-custom SoC products being incorporated into customers’ products and the success of those products.
•Our products may be subject to security vulnerabilities that could have a material adverse effect on us.
•IT outages, data loss, data breaches and cyber-attacks could compromise our intellectual property or other sensitive information, be costly to remediate or cause significant damage to our business, reputation and operations.
•We may encounter difficulties in upgrading and operating our new enterprise resource planning (ERP) system, which could materially adversely affect us.
•Uncertainties involving the ordering and shipment of our products could materially adversely affect us.
•Our ability to design and introduce new products in a timely manner includes the use of third-party intellectual property.
•We depend on third-party companies for the design, manufacture and supply of motherboards, software, memory and other computer platform components to support our business and products.
•If we lose Microsoft Corporation’s support for our products or other software vendors do not design and develop software to run on our products, our ability to sell our products could be materially adversely affected.
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•Our reliance on third-party distributors and add-in-board (AIB) partners subjects us to certain risks.
•Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.
•If our products are not compatible with some or all industry-standard software and hardware, we could be materially adversely affected.
•Costs related to defective products could have a material adverse effect on us.
•If we fail to maintain the efficiency of our supply chain as we respond to changes in customer demand for our products, our business could be materially adversely affected.
•We outsource to third parties certain supply-chain logistics functions, including portions of our product distribution, transportation management and information technology support services.
•Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.
Legal and Regulatory Risks
•Government actions and regulations such as export regulations, tariffs, and trade protection measures may limit our ability to export our products to certain customers.
•If we cannot realize our deferred tax assets, our results of operations could be adversely affected.
•Our business is subject to potential tax liabilities, including as a result of tax regulation changes.
•We are party to litigation and may become a party to other claims or litigation that could cause us to incur substantial costs or pay substantial damages or prohibit us from selling our products.
•We are subject to environmental laws, conflict minerals-related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as a variety of other laws or regulations that could result in additional costs and liabilities.
Merger, Acquisition and Integration Risks
•Acquisitions, joint ventures and/or investments and the failure to integrate acquired businesses could disrupt our business and/or dilute or adversely affect the price of our common stock.
•Any impairment of the combined company’s tangible, definite-lived intangible or indefinite-lived intangible assets, including goodwill, may adversely impact the combined company’s financial position and results of operations.
Liquidity and Capital Resources Risks
•The agreements governing our notes, our guarantees of Xilinx’s 2.95% and 2.375% Notes (Assumed Xilinx Notes), and our Revolving Credit Agreement impose restrictions on us that may adversely affect our ability to operate our business.
•Our indebtedness could adversely affect our financial position and prevent us from implementing our strategy or fulfilling our contractual obligations.
•We may not be able to generate sufficient cash to meet our working capital requirements. Also, if we cannot generate sufficient revenue and operating cash flow, we may face a cash shortfall and be unable to make all of our planned investments in research and development or other strategic investments.
General Risks
•Our worldwide operations are subject to political, legal and economic risks and natural disasters, which could have a material adverse effect on us.
•We may incur future impairments of technology license purchases.
•Our inability to continue to attract and retain qualified personnel may hinder our business.
•Our stock price is subject to volatility.
•Worldwide political conditions may adversely affect demand for our products.
For a more complete discussion of the material risks facing our business, see below.
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Economic and Strategic Risks
Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively on a level playing field.
Intel Corporation (Intel) has been the market share leader for microprocessors for many years. Intel’s market share, margins and significant financial resources enable it to market its products aggressively, to target our customers and our channel partners with special incentives and to influence customers who do business with us. These aggressive activities have in the past resulted in lower unit sales and a lower average selling price for many of our products and adversely affectaffected our margins and profitability.
Intel exerts substantial influence over computer manufacturers and their channels of distribution through various brand and other marketing programs. As a result of Intel’s position in the microprocessor market, Intel has been able to control x86 microprocessor and computer system standards and benchmarks and to dictate the type of products the microprocessor market requires of us. Intel also dominates the computer system platform, which includes core logic chipsets, graphics chips, networking devices (wired and wireless), non-volatile storage and other components necessary to assemble a computer system. Additionally, Intel is able to drive de facto standards and specifications for x86 microprocessors that could cause us and other companies to have delayed access to such standards.
As long as Intel remains in this dominant position, we may be materially adversely affected by Intel’s business practices, including rebating and allocation strategies and pricing actions, designed to limit our market share and margins; product mix and introduction schedules; product bundling, marketing and merchandising strategies; exclusivity payments to its current and potential customers, retailers and channel partners; de facto control over industry standards, and heavy influence on PC manufacturers and other PC industry participants, including motherboard, memory, chipset and basic input/output system (BIOS) suppliers and software companies as well as the graphics interface for Intel platforms; and marketing and advertising expenditures in support of positioning the Intel brand over the brand of its original equipment manufacturer OEM(OEM) customers and retailers.
Intel has substantially greater financial resources than we do and accordingly spends substantially greater amounts on marketing and research and development than we do. We expect Intel to continue to invest heavily in marketing, research and development, new manufacturing facilities and other technology companies. To the extent Intel manufactures a significantly larger portion of its microprocessor products using more advanced process technologies, or introduces competitive new products into the market before we do, we may be more vulnerable to Intel’s aggressive marketing and pricing strategies for microprocessor products.
Intel could also take actions that place our discrete graphics processing units (GPUs) at a competitive disadvantage, including giving one or more of our competitors in the graphics market, such as NvidiaNVIDIA Corporation, preferential access to its proprietary graphics interface or other useful information.information or restricting access to external companies. Also, Intel has announced that it is developingdeveloped and released their own high-end discrete GPUs, including gaming focused discrete GPUs. We also compete with Intel in field programmable gate arrays (FPGAs) and Adaptive SoC products. Intel’s position in the microprocessor, market and integrated graphics chipset market,markets, its introduction of competitive new products, its existing relationships with top-tier OEMs, and its aggressive marketing and pricing strategies could result in lower unit sales and lower average selling prices for our products, which could have a material adverse effect on us.
Global economic and market uncertainty may adversely impact our business and operating results.
We experienced a decline in our Client segment revenue as a result of weak PC market macroeconomic conditions and inventory correction actions across the PC supply chain in the second half of 2022. Uncertain global economic conditions have and may in the future adversely impact our business. Uncertainty in the worldwide economic environment or other unfavorable changes in economic conditions, such as inflation, interest rates or recession, may negatively impact consumer confidence and spending causing our customers to postpone purchases. In addition, during challenging economic times, our current or potential future customers may experience cash flow problems and as a result may modify, delay or cancel plans to purchase our products. Additionally, if our customers are not successful in generating sufficient revenue or are unable to secure financing, they may not be able to pay, or may delay payment of, accounts receivable that they owe us. The risk related to our customers potentially defaulting on or delaying payments to us is increased because we expect that a small number of customers will continue to account for a substantial part of our revenue. Any inability of our current or potential future customers to pay us for
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our products may adversely affect our earnings and cash flow. Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impacting our ability to manufacture our products. In addition, uncertain economic conditions may make it more difficult for us to raise funds through borrowings or private or public sales of debt or equity securities.
The semiconductor industry is highly cyclical and has experienced severe downturns that have materially adversely affected, and may continue to materially adversely affect, our business in the future.
The semiconductor industry is highly cyclical and has experienced significant downturns, often in conjunction with constant and rapid technological change, wide fluctuations in supply and demand, continuous new product introductions, price erosion and declines in general economic conditions. We have incurred substantial losses in previous downturns, due to substantial declines in average selling prices; the cyclical nature of supply and demand imbalances in the semiconductor industry; a decline in demand for end-user products (such as PCs) that incorporate our products; and excess inventory levels.
Industry-wide fluctuations in the computer marketplace have materially adversely affected us in the past and may materially adversely affect us in the future. Global economic uncertainty and weakness have in the past impacted the semiconductor market as consumers and businesses have deferred purchases, which negatively impacted demand for our products. Our financial performance has been, and may in the future be, negatively affected by these downturns. In the second half of 2022, we experienced a decline in our Client segment revenue as a result of weak PC market macroeconomic conditions and inventory correction actions across the PC supply chain.
The growth of our business is also dependent on continued demand for our products from high-growth adjacent emerging global markets. Our ability to be successful in such markets depends in part on our ability to establish adequate local infrastructure, as well as our ability to cultivate and maintain local relationships in these markets. If demand from these markets is below our expectations, sales of our products may decrease, which would have a material adverse effect on us.
The demand for our products depends in part on the market conditions in the industries into which they are sold. Fluctuations in demand for our products or a market decline in any of these industries could have a material adverse effect on our results of operations.
Industry-wide fluctuations in the computer marketplace have materially adversely affected us in the past and may materially adversely affect us in the future. Our Client segment revenue is focused on the consumer desktop and notebook PC segments, which in the second half of 2022 experienced a decline as a result of weak PC market macroeconomic conditions and inventory correction actions across the PC supply chain. In the past, revenues from the Client and Gaming segments have experienced a decline driven by, among other factors, the adoption of smaller and other form factors, increased competition and changes in replacement cycles. The success of our semi-custom SoC products is dependent on securing customers for our semi-custom design pipeline and consumer market conditions, including the success of the Sony PlayStation® 5, Microsoft® XboxTM Series S and Microsoft® XboxTM Series X game console systems and next generation consoles for Sony and Microsoft, worldwide. In addition, the GPU market has at times seen elevated demand due to the application of GPU products to cryptocurrency mining. For example, our GPU revenue has been affected in part by the volatility of the cryptocurrency mining market. Demand for cryptocurrency has changed and is likely to continue to change quickly. For example, China has banned such activities, and corresponding interest in mining of such currencies are subject to significant fluctuations. Alternatively, countries have created and may continue to create their own cryptocurrencies or equivalents that could also impact interest in mining. If we are unable to manage the risks related to the volatility of the cryptocurrency mining market, our GPU business could be materially adversely affected.
The loss of a significant customer may have a material adverse effect on us.
We depend on a small number of customers for a substantial portion of our business and we expect that a small number of customers will continue to account for a significant part of our revenue in the future. If one of our key customers decides to stop buying our products, or if one of these customers materially reduces its operations or its demand for our products, our business would be materially adversely affected.
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The ongoing novel coronavirus (COVID-19) pandemic could materially adversely affect our business, financial condition and results of operations.
The COVID-19 pandemic has caused government authorities to implement numerous public health measures, including at various times vaccination and testing requirements and recordkeeping, quarantines, business closures, travel bans, and restrictions related to social gathering and mobility, to contain the virus. Various state and federal rules are issued and updated on an ongoing basis, at times in conflict and/or with minimal notice. We have experienced and expect to continue to experience disruptions to our business as these changing measures have, and will continue to have, an effect on our business operations and practices.
While our employees gradually return to office, we continue to monitor our operations and public health measures implemented by governmental authorities in response to COVID-19. Although some public health measures have eased, our efforts to reopen our offices safely may not be successful and could expose our employees to health risks. It is uncertain as to when all health measures put in place to attempt to contain the spread of COVID-19 will be lifted. If there are further waves of the virus, health measures may be reimplemented and we may need to further limit operations or modify our business practices in a manner that may impact our business. If our employees are not able to perform their job duties due to self-isolation, quarantine, lockdown measures, unavailability of COVID 19 tests, travel restrictions or illness, a reluctance or refusal to vaccinate, or are unable to perform them as efficiently at home for an extended period of time, we may not be able to meet our product schedules, roadmaps and customer commitments and we may experience an overall lower productivity of our workforce. Even when COVID-19 health measures are lifted or modified, our employees’ ability or willingness to return to work may delay the return of our full workforce and the resumption of normal business operations.
COVID-19 continues to impact the global supply chain causing disruptions to service providers, logistics and the flow and availability of supplies and products. We have experienced some disruptions to parts of our supply chain as a result of COVID-19 and we adjust our supply chain requirements based on changing customer needs and demands. We have taken efforts to maintain a stable supply of materials to meet our production requirements through long-term purchase commitments and prepayment arrangements with some of our suppliers. If we are unable to procure a stable supply of equipment, materials or substrates at a reasonable cost, it could have a material adverse effect on our business. We may also assess our product schedules and roadmaps to make any adjustments that may be necessary to support remote working requirements and address the geographic and market demand shifts caused by COVID-19. If the supply of our products to customers is delayed, reduced or canceled due to disruptions encountered by our third-party manufacturers, back-end manufacturers, warehouses, partners, suppliers or vendors as a result of facility closures, border and port restrictions or closures, transportation delays, lockdown measures, labor shortages or workforce mobility limitations, it could have a material adverse effect on our business.
COVID-19 has in the short-term and may in the long-term adversely impact the global economy, creating uncertainty and potentially leading to an economic downturn. This could negatively impact consumer confidence and spending causing our customers to postpone or cancel purchases, or delay paying or default on payment of outstanding amounts due to us, which may have a material adverse effect on our business. Even in times of strong demand for our products, the worldwide economic environment remains uncertain due to COVID-19 and such demand may not be sustainable over the longer term.
COVID-19 has also led to a disruption and volatility in the global capital and financial markets. While we believe our cash, cash equivalents and short-term investments along with our Revolving Credit Agreement and cash flows from operations will be sufficient to fund operations, including capital expenditures, and purchase commitments, over the next 12 months and beyond, to the extent we may require additional funding to finance our operations and capital expenditures and such funding may not be available to us as a result of contracting capital and financial markets resulting from COVID-19, it may have an adverse effect on our business.
The extent to which COVID-19 impacts our business and financial results will depend on future developments, which are unpredictable and highly uncertain, including the continued spread, duration and severity of the outbreak, the appearances of new variants of COVID-19, the breadth and duration of business disruptions related to COVID-19, the availability and distribution of effective treatments and vaccines, and public health measures and actions taken throughout the world to contain COVID-19. The prolonged effect of COVID-19 could materially adversely impact our business, financial condition and results of operations.
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The markets in which our products are sold are highly competitive.
The markets in which our products are sold are very competitive and delivering the latest and best products to market on a timely basis is critical to achieving revenue growth. We believe that the main factors that determine our product competitiveness are timely product introductions, product quality, product features and capabilities (including enabling state-of-the-art visual and virtual reality (VR) experiences), energy efficiency (including power consumption and battery life), reliability, processor clock speed, performance, size (or form factor), selling price, cost, adherence to industry standards (and the creation of open industry standards), level of integration, software and hardware compatibility, ease of use and functionality of software design tools, completeness of applicable software solutions, security and stability, brand recognition and availability.
We expect that competition will continue to be intense due to rapid technological changes, frequent product introductions by our competitors or new competitors of products that may provide better performance/experience or that may include additional features that render our products comparatively less competitive. We may also face aggressive pricing by competitors, especially during challenging economic times. In addition, our competitors have significant marketing and sales resources which could increase the competitive environment in a declining market, leading to lower prices and margins. Some competitors may have greater access or rights to complementary technologies, including interface, processor and memory technical information. For instance, with our APU products and other competing solutions with integrated graphics, we believe that demand for additional discrete graphics chips and cards may decrease in the future due to improvements in the quality and performance of integrated graphics. If competitors introduce competitive new products into the market before us, demand for our products could be adversely impacted and our business could be adversely affected. In addition, Intel is expanding its position in integrated graphics for the PC market with high-end discrete graphics solutions for a broad range of computing segments, which may negatively impact our ability to compete in these computing segments. We also face competition from companies that use competing computing architectures and platforms like the ARM architecture. Increased adoption of ARM-based semiconductor designs could lead to further growth and development of the ARM ecosystem.
In addition, we are entering markets with current and new competitors who may be able to adapt more quickly to customer requirements and emerging technologies. We cannot guarantee that we will be able to compete successfully against current or new competitors who may have stronger positions in these new markets or superior ability to anticipate customer requirements and emerging industry trends. Furthermore, we may face competition from some of our customers who internally develop the same products as us.We may face delays or disruptions in research and development efforts, or we may be required to invest significantly greater resources in research and development than anticipated. Also, the semiconductor industry has seen several mergers and acquisitions over the last number of years. Further consolidation could adversely impact our business due to there being fewer suppliers, customers and partners in the industry.
Our operating results are subject to quarterly and seasonal sales patterns.
The profile of our sales may be weighted differently during the year. A large portion of our quarterly sales have historically been made in the last month of the quarter. This uneven sales pattern makes prediction of revenue for each financial period difficult and increases the risk of unanticipated variations in quarterly results and financial condition. In addition, our operating results tend to vary seasonally with the markets in which our products are sold. For example, historically, our net revenue has been generally higher in the second half of the year than in the first half of the year, although market conditions and product transitions could impact these trends. Many of the factors that create and affect quarterly and seasonal trends are beyond our control.
If we cannot adequately protect our technology or other intellectual property in the United States and abroad, through patents, copyrights, trade secrets, trademarks and other measures, we may lose a competitive advantage and incur significant expenses.
We rely on a combination of protections provided by contracts, including confidentiality and nondisclosure agreements, copyrights, patents, trademarks and common law rights, such as trade secrets, to protect our intellectual property. However, we cannot assure you that we will be able to adequately protect our technology or other intellectual property from third-party infringement or from misappropriation in the United States and abroad. Any patent licensed by us or issued to us could be challenged, invalidated, expire, or circumvented or rights granted thereunder may not provide a competitive advantage to us.
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Furthermore, patent applications that we file may not result in issuance of a patent or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property on a worldwide basis in a cost-effective manner. In jurisdictions where foreign laws provide less intellectual property protection than afforded in the United States and abroad, our technology or other intellectual property may be compromised, and our business would be materially adversely affected.
Unfavorable currency exchange rate fluctuations could adversely affect us.
We have costs, assets and liabilities that are denominated in foreign currencies. As a consequence, movements in exchange rates could cause our foreign currency denominated expenses to increase as a percentage of revenue, affecting our profitability and cash flows. Whenever we believe appropriate, we hedge a portion of our foreign currency exposure to protect against fluctuations in currency exchange rates. We determine our total foreign currency exposure using projections of long-term expenditures for items such as payroll. We cannot assure you that these activities will be effective in reducing foreign exchange rate exposure. Failure to do so could have an adverse effect on our business, financial condition, results of operations and cash flow. In addition, 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.
Operational and Technology Risks
We rely on third parties to manufacture our products, and if they are unable to do so on a timely basis in sufficient quantities and using competitive technologies, our business could be materially adversely affected.
We rely onutilize third-party wafer foundries to fabricate the silicon wafers for all of our products. We rely on Taiwan Semiconductor Manufacturing Company Limited (TSMC) for the production of all wafers for microprocessor and GPU products at 7 nanometer (nm) or smaller nodes, and we rely primarily on GLOBALFOUNDRIES Inc. (GF) for wafers for microprocessor and GPU products manufactured at process nodes larger than 7 nm. We also utilize TSMC, United Microelectronics Corporation (UMC) and Samsung Electronics Co., Ltd. for our integrated circuits (IC) in the form of programmable logic devices. We also rely on third-party manufacturers to assemble, test, mark and pack (ATMP) our products. Our third-party package assembly partners are responsible for packaging technology used to fabricate our products. It is important to have reliable relationships with all of these third-party manufacturing suppliers to ensure adequate product supply to respond to customer demand.
We cannot guarantee that these manufacturers or our other third-party manufacturing suppliers will be able to meet our near-term or long-term manufacturing requirements. If we experience supply constraints from our third-party manufacturing suppliers, we may be required to allocate the reduced quantities of affected products amongst our customers, which could have a material adverse effect on our relationships with these customers and on our financial condition. In addition, if we are unable to meet customer demand due to fluctuating or late supply from our manufacturing suppliers, it could result in lost sales and have a material adverse effect on our business. For example, if TSMC is not able to manufacture wafers for our microprocessor and GPU products at 7 nm or smaller nodes and our newest IC products in sufficient quantities to meet customer demand, it could have a material adverse effect on our business.
We do not have long-term commitment contracts with some of our third-party manufacturing suppliers. We obtain some of these manufacturing services on a purchase order basis and these manufacturers are not required to provide us with any specified minimum quantity of product beyond the quantities in an existing purchase order. Accordingly, 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 and at acceptable prices. The manufacturers we use also fabricate wafers and ATMP products for other companies, including certain of our competitors. They could choose to prioritize capacity for other customers, increase the prices that they charge us on short notice, require onerous prepayments, or reduce or eliminate deliveries to us, which could have a material adverse effect on our business.
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Other risks associated with our dependence on third-party manufacturers include limited control over delivery schedules, andyield, cycle times, quality assurance, price increases, lack of capacity in periods of excess demand, misappropriation of our intellectual property, dependence on several small undercapitalized subcontractors, and limited ability to manage inventory and parts. Moreover, if any of our third-party manufacturers (or their subcontractors) suffer any damage to facilities, lose benefits under material agreements, experience power outages, lack sufficient capacity to manufacture our products, encounter financial difficulties, are unable to secure necessary raw materials from their suppliers, or suffer any other disruption or reduction in efficiency, or experience uncertain social, economic or political circumstances or conditions, we may encounter supply delays or disruptions. If we are unable to secure sufficient or reliable supplies of products, our ability to meet customer demand may be adversely affected and this could materially affect our business.
If we transition the production of some of our products to new manufacturers, we may experience delayed product introductions, lower yields or poorer performance of our products. If we experience problems with product quality or are unable to secure sufficient capacity from a particular third-party manufacturer, or if we for other reasons cease utilizing one of those suppliers,manufacturers, we may be unable to timely secure an alternative supply for any specific product in a short time frame.product. We could experience significant delays in the shipment of our products if we are required to find alternative third-party manufacturers, which could have a material adverse effect on our business.
We are a party to a wafer supply agreement (WSA) with GF that governs the terms by which we purchase products manufactured by GF and this agreement is in place through 2025. In May 2021, we entered into an amendment to the WSA, and in December 2021, we further amended these terms (the Amendment). Under the Amendment, GF will provide a minimum annual capacity allocation to us for years 2022 through 2025 and AMD has corresponding annual wafer purchase targets. If we do not meet the annual wafer purchase target for any of these years, we will be required to pay to GF a portion of the difference between the actual wafer purchases and the wafer purchase target for that year. AMD and GF also have agreed to wafer pricing through 2025, and AMD was obligated in 2022 and is obligated in 2023 to pre-pay GF certain amounts for those wafers. The Amendment no longer includes any exclusivity commitments and provides us with full flexibility to contract with any wafer foundry with respect to all products manufactured at any technology node. If our actual wafer requirements are less than the number of wafers required to meet the applicable annual wafer purchase target, we could have excess inventory or higher inventory unit costs, both of which may adversely impact our gross margin and our results of operations. If GF fails to meet its minimum annual capacity allocation obligations, we could experience significant delays in the shipment of our products, which could have a material adverse effect on our business.
We are party to two ATMP joint ventures (collectively, the ATMP JVs) with affiliates of Tongfu Microelectronics Co., Ltd. The majority of our ATMP services are provided by the ATMP JVs and there is no guarantee that the ATMP JVs will be able to fulfill our long-term ATMP requirements. If we are unable to meet customer demand due to fluctuating or late supply from the ATMP JVs, it could result in lost sales and have a material adverse effect on our business.
If essential equipment, materials, substrates or manufacturing processes are not available to manufacture our products, we could be materially adversely affected.
We may purchase equipment, materials and substrates for use by our back-end manufacturing service providers from a number of suppliers and our operations depend upon obtaining deliveries of adequate supplies of equipment and materials on a timely basis. Our third-party suppliers also depend on the same timely delivery of adequate quantities of equipment and materials in the manufacture of our products. In addition, as many of our products increase in technical complexity, we rely on our third-party suppliers to update their processes in order to continue meeting our back-end manufacturing needs. Certain equipment and materials that are used in the manufacture of our products are available only from a limited number of suppliers, or in some cases, a sole supplier. We also depend on a limited number of suppliers to provide the majority of certain types of integrated circuit packages for our microprocessors, including our APU products. Similarly, certain non-proprietary materials or components such as memory, printed circuit boards (PCBs), interposers, substrates and capacitors used in the manufacture of our products are currently available from only a limited number of suppliers. If we are unable to procure a stable supply of equipment, materials or substrates on an ongoing basis and at reasonable costs to meet our production requirements, we could experience a shortage in equipment, materials or substrate supply or an increase in production costs, which could have a material adverse effect on our business. We have long-term purchase commitments and prepayment arrangements with some of our suppliers. If the delivery of such supply is delayed or does not occur for any reason, it could materially impact our ability to procure and process the required volume of supply to meet customer demand. Conversely, a decrease in customer demand could result in excess inventory and an increase in our production costs, particularly since we have prepayment arrangements with certain suppliers.
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Because some of the equipment and materials that we and our third-party manufacturers purchase are complex, it is sometimes difficult to substitute one equipment or materials supplier for another. From time to time, suppliers may extend lead times, limit supply or increase prices due to capacity constraints or other factors. Also, some of these materials and components may be subject to rapid changes in price and availability. Interruption of supply or increased demand in the industry could cause shortages and price increases in various essential materials. Dependence on a sole supplier or a limited number of suppliers exacerbates these risks. If we are unable to procure certain of these materials for our back-end manufacturing operations, or our third-party manufacturers are unable to procure materials for manufacturing our products, our business would be materially adversely affected.
Failure to achieve expected manufacturing yields for our products could negatively impact our financial results.
Semiconductor manufacturing yields are a result of both product design, process technology and processpackaging technology, which is typically proprietary to the manufacturer, and low yields can result from design failures, packaging technology failures, process technology failures or a combination of both.some or all of these. Our third-party foundriesmanufacturers are responsible for the process technologies used to fabricate silicon wafers. If our third-party foundriesmanufacturers experience manufacturing inefficiencies or encounter disruptions, errors or difficulties during production, we may fail to achieve acceptable yields or we may experience product delivery delays. We cannot be certain that our third-party foundriesmanufacturers will be able to develop, obtain or successfully implement leading-edge process or packaging technologies needed to manufacture future generations of our products profitably or on a timely basis or that our competitors will not develop new technologies, products or processes earlier. Moreover, during periods when foundriesour third-party manufacturers are implementing new process or packaging technologies, their manufacturing facilities may not be fully productive. A substantial delay in the technology transitions to smaller process technologies could have a material adverse effect on us, particularly if our competitors transition to more cost effective technologies before us. For example, we are presently focusing our 7 nanometer (nm)nm and lower product microprocessor and GPU portfolio on Taiwan Semiconductor Co., Ltd.’s (TSMC) 7nm process.TSMC’s processes. If TSMC is not able to manufacture wafers for our 7nm products at 7 nm or smaller nodes in sufficient quantities to meet customer demand, it could have a material adverse effect on our business. Moreover, we rely on TSMC, UMC and our other foundries to produce wafers with competitive performance attributes for our IC products. Therefore, the foundries, particularly TSMC which manufactures our newest IC products, must be able to transition to advanced manufacturing process technologies and increased wafer sizes, produce wafers at acceptable yields and deliver them in a timely manner.
Any decrease in manufacturing yields could result in an increase in per unit costs, which would adversely impact our gross margin and/or force us to allocate our reduced product supply amongst our customers, which could harm our relationships and reputation with our customers and materially adversely affect our business.
The success of our business is dependent upon our ability to introduce products on a timely basis with features and performance levels that provide value to our customers while supporting and coinciding with significant industry transitions.
Our success depends to a significant extent on the development, qualification, implementation and acceptance of new product designs and improvements that provide value to our customers. Our ability to develop, qualify and distribute, and have manufactured, new products and related technologies to meet evolving industry requirements, at prices acceptable to our customers and on a timely basis, are significant factors in determining our competitiveness in our target markets. As consumers have new product feature preferences or have different requirements than those consumers in the PC market, PC sales could be negatively impacted, which could adversely impact our business. Our product roadmap includes our next generation AMD Ryzen™, AMD Radeon™ and AMD EPYC™ processors using 7nm+ process technology. We cannot assure you that our efforts to execute our product roadmap will result in innovative products and technologies that provide value to our customers. If we fail to or are delayed in developing, qualifying or shipping new products or technologies that provide value to our customers and address these new trends or if we fail to predict which new form factors consumers will adopt and adjust our business accordingly, we may lose competitive positioning, which could cause us to lose market share and require us to discount the selling prices of our
products. Although we make substantial investments in research and development, we cannot be certain that we will be able to develop, obtain or successfully implement new products and technologies on a timely basis or that they will be well-received by our customers. Moreover, our investments in new products and technologies involve certain risks and uncertainties and could disrupt our ongoing business. New investments may not generate sufficient revenue, may incur unanticipated liabilities and may divert our limited resources and distract management from our current operations. We cannot be certain that our ongoing investments in new products and
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technologies will be successful, will meet our expectations and will not adversely affect our reputation, financial condition and operating results.
Delays in developing, qualifying or shipping new products can also cause us to miss our customers’ product design windows or, in some cases, breach contractual obligations or cause us to pay penalties. If our customers do not include our products in the initial design of their computer systems or products, they will typically not use our products in their systems or products until at least the next design configuration. The process of being qualified for inclusion in a customer’s system or product can be lengthy and could cause us to further miss a cycle in the demand of end-users, which also could result in a loss of market share and harm our business. We also depend on the success and timing of our customers’ platform launches. If our customers delay their product launches or if our customers do not effectively market their platforms with our products, it could result in a delay in bringing our products to market and cause us to miss a cycle in the demand of end-users, which could materially adversely affect our business. In addition, market demand requires that products incorporate new features and performance standards on an industry-wide basis. Over the life of a specific product, the sale price is typically reduced over time. The introduction of new products and enhancements to existing products is necessary to maintain the overall corporate average selling price. If we are unable to introduce new products with sufficiently high sale prices or to increase unit sales volumes capable of offsetting the reductions in the sale prices of existing products over time, our business could be materially adversely affected.
Our ability to fund research and development expenditures depends on generating sufficient revenue and cash flow from operations and the availability of external financing, if necessary. Our research and development expenditures, together with ongoing operating expenses, will be a substantial drain on our cash flow and may decrease our cash balances. If new competitors, technological advances by existing competitors, or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses would increase. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, our operating results could decline.
The revenue that we receive from our semi-custom SoC products is in the form of non-recurring engineering fees charged to third parties for design and development services and revenue received in connection with sales of our semi-custom SoC products to these third parties. As a result, our ability to generate revenue from our semi-custom products depends on our ability to secure customers for our semi-custom design pipeline, our customers’ desire to pursue the project and our semi-custom SoC products being incorporated into those customer’scustomers’ products. Any revenue from sales of our semi-custom SoC products is directly related to sales of the third-party’s products and reflective of their success in the market. Moreover, we have no control over the marketing efforts of these third parties, and we cannot make any assurances that sales of their products will be successful in current or future years. Consequently, the semi-custom SoC product revenue expected by us may not be fully realized and our
operating results may be adversely affected.
Our products may be subject to security vulnerabilities that could have a material adverse effect on us.
The products that we sell are complex and have been and may in the future be subject to security vulnerabilities that could result in, among other things, the loss, corruption, theft or misuse of confidential data or system performance issues. Our efforts to prevent and address security vulnerabilities may decrease performance, be only partially effective or not successful at all. We may depend on vendors to create mitigations to their technology that we incorporate into our products and they may delay or decline to make such mitigations. We may also depend on third parties, such as customers vendors and end users, to deploy our mitigations alone or createas part of their own mitigations, and they may delay, decline or modify the implementation of such mitigations. Our relationships with our customers could be adversely affected as some of our customers may stop purchasing our products, reduce or delay future purchases of our products, or use competing products. Any of these actions by our customers could adversely affect our revenue. We also arehave and may in the future be subject to claims and litigation related to Spectre side-channel exploits and may face additional claims or litigation for futuresecurity vulnerabilities. Actual or perceived security vulnerabilities of our products may subject us to adverse publicity, damage to our brand and reputation, and could materially harm our business or financial results.
IT outages, data loss, data breaches and cyber-attacks could compromise our intellectual property or other sensitive information, be costly to remediate or cause significant damage to our business, reputation and operations.
In the ordinary course of our business, we maintain sensitive data on our information technology (IT) assets, and also may maintain sensitive information on our business partners’ and third-party providers’ IT assets, including our intellectual property and proprietary or confidential business information relating to our business and that of our customers and business partners. The White House, SEC and other regulators have also increased their focus on companies’ cybersecurity vulnerabilities and risks. Maintaining the security of this information is important to our business and reputation. We believe thatAMD and companies like AMD and our vendors and customers have been increasingly subject to a wide varietycybersecurity attempts and threats. The increased prevalence of security incidents, cyber-attacks, hacking work-from-home arrangements at AMD
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and phishing attacks, businessour providers has presented additional operational risks and system disruption attacks, and other attemptscybersecurity attack vectors to gain unauthorized access.our IT systems. These threats can come from a variety of sources, all ranging in sophistication from an individual hacker or insider threat to a state-sponsored attack. Cyber threats may be generic, or they may be custom-crafted against our information systems. Cyber threats have and may come into our network through malicious code that is added to widely available open-source software, compromised commercial software or security vulnerabilities in our products or those of a third party that are being used by attackers prior to mitigations being put in place, such as zero-day attacks. Cyber-attacks have and may come into our IT system through the compromise of our users’ access credentials. Users’ access credentials can be compromised by phishing, vishing, smishing, multi-factor authentication (MFA) prompt bombing, hacking, or other social engineering, cybersecurity, or theft activities. Cyber-attacks have become increasingly more prevalent and much harder to detect, defend against or prevent.prevent and have and may cause a disruption to our business. Our network and storage applications, as well as those of our customers, business partners, and third-party providers, may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system disruptions.
It is often difficult to anticipate or immediately detect such incidents and the damage caused by such incidents. It also may not be possible to determine the root cause of such incidents or mitigate quickly enough to stop an attack. These data breaches and any unauthorized access, misuse or disclosure of our information or intellectual property could compromise our intellectual property and expose sensitive business information or personally identifiable information. Cyber-attacks on us or our customers, business partners or third partythird-party providers could also cause us to incur significant remediation costs, result in product development delays, disrupt key business operations and divert attention of management and key information technology resources. These incidents could also subject us to liability, expose us to significant expense and cause significant harm to our reputation and business.
We also maintain confidential and personally identifiable information about our workers.workers and consumers. The confidentiality and integrity of our worker and consumer data is important to our business and our workers and consumers have a high expectation that we adequately protect their personal information. In addition, many governments have enacted laws around personally identifiable information, such as the European Union’s General Data Protection Regulation and the California Consumer Privacy Act, and failure to comply or a breach of personally identifiable information could result in sanctions or other actions by the governments or litigation by other entities.
We anticipate ongoing and increasing costs related to:to enhancing and implementing information security controls, including costs related to upgrading application, computer, and network security components; training workers to maintain and monitor our security controls; investigating, responding to and remediating any data security breach, and addressing theany related litigation; mitigating reputational harm; and compliancecomplying with external regulations, such as the European Union’s General Data Protection Regulation and the California Consumer Privacy Act.regulations.
We often partner with third-party providers for certain worker services and we may provide certain limited worker information to such third parties based on the scope of the services provided to us. However, ifWe also provide sensitive information to vendors, customers and contractors. If these third parties fail to adopt or adhere to adequate data security practices, or in the event of a breach of their networks, our workers’ data and sensitive information may be improperly accessed, used or disclosed.
A breach of data privacy may cause significant disruption of our business operations. Failure to adequately maintain and update our security systems could materially adversely affect our operations and our ability to maintain worker confidence. Failure to prevent unauthorized access to electronic and other confidential information, IT outages, data loss and data breaches could materially adversely affect our financial condition, our competitive position and operating results.
We havemay encounter difficulties in upgrading and operating our new enterprise resource planning system, which could materially adversely affect us.
We are currently upgrading our enterprise resource planning (ERP) system to help us manage our operations and financial reporting. The adoption of a wafer supply agreement with GLOBALFOUNDRIES Inc. (GF) with obligationsnew ERP system is a major undertaking and poses several challenges, both financially and from a management and personnel perspective. Costs and risks inherent in the conversion to purchase all of our microprocessorupgraded and accelerated processing unit (APU) product requirementsnew system may include disruptions to business continuity, difficulty in maintaining effective internal controls, administrative and a certain portion of our graphics processing unit (GPU) product requirements manufactured at process nodes larger than 7 nanometer from GF, with limited exceptions.technical problems, interruptions or delays in sales processes, expenditure overruns, and data migration issues. If GF iswe do not able to satisfy our manufacturing requirements, our businessproperly address or mitigate these issues it could be adversely impacted.
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and cause disruption to minimum annual wafer purchase targets through 2021. If we fail to meet the agreed wafer purchase target during a calendar year, weour operations. There are no assurances that our new ERP system will be required to pay to GF a portion of the difference between our actual wafer purchasessuccessfully implemented and the applicable annual purchase target. If our actual wafer requirements are less than the number of wafers requiredfailure to meet the applicable annual wafer purchase target, wedo so could have excess inventory or higher inventory unit costs, both of which may adversely impacta material adverse effect on our gross margin and our results of operations.business.
Uncertainties involving the ordering and shipment of our products could materially adversely affect us.
We typically sell our products pursuant to individual purchase orders. We generally do not have long-term supply arrangements with our customers or minimum purchase requirements except that orders generally must be for standard pack quantities. Generally, our customers may cancel orders for standard products more than 30 days prior to shipment without incurring significant fees. We base our inventory levels in part on customers’ estimates of demand for their products, which may not accurately predict the quantity or type of our products that our customers will want in the future or ultimately end up purchasing. Our ability to forecast demand is even further complicated when our products are sold indirectly through downstream channel distributors and customers, as our forecasts for demand are then based on estimates provided by multiple parties throughout the downstream channel.
Excess or obsolete inventory have and may in the future result in write-downs of the value of our inventory. For example, in the third quarter of 2022, we recorded certain charges primarily for inventory, pricing and related reserves in the Gaming and Client segments. Other factors that may result in excess or obsolete inventory which could result in write-downs of the value of our inventory,include, a reduction in the average selling price, or a reduction in our gross margin include: a sudden or significant decrease in demand for our products; a production or design defect in our products; a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements; a failure to accurately estimate customer demand for our products, including for our older products as our new products are introduced; or our competitors introducing new products or taking aggressive pricing actions.
Our ability to design and introduce new products in a timely manner is dependent uponincludes use of third-party intellectual property.
In the design and development of new and enhanced products, we rely on third-party intellectual property such as development and testing tools for software and hardware. Furthermore, certain product features may rely on intellectual property acquired from third parties. The design requirements necessary to meet customer demand for more features and greater functionality from semiconductor products may exceed the capabilities of the third-party intellectual property or development or testing tools available to us. If the third-party intellectual property that we use becomes unavailable, is not available with required functionality or performance in the time frame, manufacturing technology, or price point needed for our new products or fails to produce designs that meet customer demands, or laws are adopted that affect our use of third party intellectual property in certain regions or products, our business could be materially adversely affected.
We depend on third-party companies for the design, manufacture and supply of motherboards, software, memory and other computer platform components to support our business.business and products.
We depend on third-party companies for the design, manufacture and supply of motherboards, graphics cards, software (e.g., BIOS, operating systems, drivers), memory and other components that we use to design, support and sell, and our customers utilize to support and/or use our microprocessor, GPU and APUproduct offerings. We also rely on our add-in-board (AIB)AIB partners to support our GPU and APU products. In addition, our microprocessors are not designed to function with motherboards and chipsets designed to work with Intel microprocessors. If the designers, manufacturers, AIBs and suppliers of motherboards, graphics cards, software, memory and other components cease or reduce their design, manufacture or production
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of current or future products that are based on, utilized in, or support our products, or laws are adopted that result in the same, our business could be materially adversely affected.
If we lose Microsoft Corporation’s support for our products or other software vendors do not design and develop software to run on our products, our ability to sell our products could be materially adversely affected.
Our ability to innovate beyond the x86 instruction set controlled by Intel depends partially on Microsoft designing and developing its operating systems to run on or support our x86-based microprocessor products. With respect to our graphics products, we depend in part on Microsoft to design and develop its operating system to run on or support our graphics products. Similarly, the success of our products in the market, such as our APU products, is dependent on independent software providers designing and developing software to run on our products. If Microsoft does not continue to design and develop its operating systems so that they work with our x86 instruction sets or does not continue to develop and maintain their operating systems to support our graphics products, independent software providers may forego designing their software applications to take advantage of our innovations and customers may not purchase PCs with our products. In addition, some software drivers licensed for use
with our products are certified by Microsoft. If Microsoft did not certify a driver, or if we otherwise fail to retain the support of Microsoft or other software vendors, our ability to market our products would be materially adversely affected.
Our reliance on third-party distributors and AIB partners subjects us to certain risks.
We market and sell our products directly and through third-party distributors and AIB partners pursuant to agreements that can generally be terminated for convenience by either party upon prior notice to the other party. These agreements are non-exclusive and permit both our distributors and AIB partners to offer our competitors’ products. We are dependent on our distributors and AIB partners to supplement our direct marketing and sales efforts. If any significant distributor or AIB partner or a substantial number of our distributors or AIB partners terminated their relationship with us, decided to market our competitors’ products over our products or decided not to market our products at all, our ability to bring our products to market would be impacted and we would be materially adversely affected. In addition, if we are unable to collect accounts receivable from our significant distributors and/or AIB partners, it could have a material adverse effect on our business. If we are unable to manage the risks related to the use of our third-party distributors and AIB partners or offer appropriate incentives to focus them on the sale of our products, our business could be materially adversely affected.
Additionally, distributors and AIB partners typically maintain an inventory of our products. In most instances, our agreements with distributors protect their inventory of our products against price reductions, as well as provide return rights for any product that we have removed from our price book and that is not moreless than 12 months older than the manufacturing date. Some agreements with our distributors also contain standard stock rotation provisions permitting limited levels of product returns. Our agreements with AIB partners protect their inventory of our products against price reductions. In the event of a significant decline in the price of our products, the price protection rights we offer would materially adversely affect us because our revenue and corresponding gross margin would decline.
Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.
We rely upon a number of internal business processes and information systems to support key business functions, and the efficient operation of these processes and systems is critical to our business. Our business processes and information systems need to be sufficiently scalable to support the growth of our business and may require modifications or upgrades that expose us to a number of operational risks. As such, our information systems will continually evolve and adapt in order to meet our business needs. These changes may be costly and disruptive to our operations and could impose substantial demands on management time.
These changes may also require changes in our information systems, modification of internal control procedures and significant training of employees and third-party resources. We continuously work on simplifying our information systems and applications through consolidation and standardization efforts. There can be no assurance that our business and operations will not experience any disruption in connection with this transition. Our information technology systems, and those of third-party information technology providers or business partners, may also be vulnerable to damage or disruption caused by circumstances beyond our control including catastrophic events,
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power anomalies or outages, natural disasters, viruses or malware, cyber-attacks, insider threat attacks, unauthorized system or data modifications, data breaches and computer system or network failures, exposing us to significant cost, reputational harm and disruption or damage to our business.
In addition, as our IT environment continues to evolve, we are embracing new ways of communicating and sharing data internally and externally with customers and partners using methods such as mobility and the cloud that can promote business efficiency. However, these practices can also result in a more distributed IT environment, making it more difficult for us to maintain visibility and control over internal and external users, and meet scalability and administrative requirements. If our security controls cannot keep pace with the speed of these changes, or if we are not able to meet regulatory and compliance requirements, our business would be materially adversely affected.
If our products are not compatible with some or all industry-standard software and hardware, we could be materially adversely affected.
Our products may not be fully compatible with some or all industry-standard software and hardware. Further, we may be unsuccessful in correcting any such compatibility problems in a timely manner. If our customers are unable to achieve compatibility with software or hardware, we could be materially adversely affected. In addition, the mere announcement of an incompatibility problem relating to our products could have a material adverse effect on our business.
Costs related to defective products could have a material adverse effect on us.
Products as complex as those we offer may contain defects or failures when first introduced or when new versions or enhancements to existing products are released. We cannot assure you 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, loss of revenue, writing down the inventory of defective products, the diversion of the attention of our engineering personnel from product development efforts, defending against litigation related to defective products or related liabilities, including property damage, personal injury, damage to our reputation in the industry and loss of data or intangible property, and could adversely affect our relationships with our customers. In addition, we may have difficulty identifying the end customers of the defective products in the field. As a result, we could incur substantial costs to implement modifications to correct defects. Any of these problems could materially adversely affect our business.
We could be subject to potential product liability claims if one of our products causes, or merely appears to have caused, an injury, whether tangible or intangible. Claims may be made by consumers or others selling our products, and we may be subject to claims against us even if an alleged injury is due to the actions of others. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business.
If we fail to maintain the efficiency of our supply chain as we respond to changes in customer demand for our products, our business could be materially adversely affected.
Our ability to meet customer demand for our products depends, in part, on our ability to deliver the products our customers want on a timely basis. Accordingly, we rely on our supply chain for the manufacturing, distribution and fulfillment of our products. As we continue to grow our business, expand to high-growth adjacent markets, acquire new customers and strengthen relationships with existing customers, the efficiency of our supply chain will become increasingly important because many of our customers tend to have specific requirements for particular products, geographic requirements, and specific time-frames in which they require delivery of these products. If we are unable to consistently deliver the right products to our customers on a timely basis in the right locations, our customers may reduce the quantities they order from us, which could have a material adverse effect on our business.
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We outsource to third parties certain supply-chain logistics functions, including portions of our product distribution, transportation management and information technology support services.
We rely on third-party providers to operate our regional product distribution centers and to manage the transportation of our work-in-process and finished products among our facilities, to our manufacturing suppliersthird-party manufacturers and to our customers. In addition, we rely on third parties to provide certain information technology services to us, including help desk support, desktop application services, business and software support applications, server and storage administration, data center operations, database administration and voice, video and remote access. We cannot guarantee that these providers will fulfill their respective responsibilities in a timely manner in accordance with the contract terms, in which case our internal operations and the distribution of our products to our customers could be materially adversely affected. Also, we cannot guarantee that our contracts with these third-party providers will be renewed, in which case we would have to transition these functions in-house or secure new providers, which could have a material adverse effect on our business if the transition is not executed appropriately.
Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.
We market and sell our products directly to OEMs and through authorized third-party distributors. From time to time, our products are diverted from our authorized distribution channels and are sold on the “gray market.” Gray market products result in shadow inventory that is not visible to us, thus making it difficult to forecast demand accurately. Also, when gray market products enter the market, we and our distribution channels compete with these heavily discounted gray market products, which adversely affects demand for our products and negatively impacts our margins. In addition, our inability to control gray market activities could result in customer satisfaction issues because any time products are purchased outside our authorized distribution channels there is a risk that our customers are buying counterfeit or substandard products, including products that may have been altered, mishandled or damaged, or are used products represented as new.
Legal and Regulatory Risks
Government actions and regulations such as export regulations, tariffs, and trade protection measures may limit our technology or other intellectual propertyability to export our products to certain customers.
We have equity interests in two joint ventures (collectively, the THATIC JV) with Higon Information Technology Co., Ltd. (THATIC), a third-party Chinese entity. In June 2019, the Bureau of Industry and Security (BIS) of the United States Department of Commerce added certain Chinese entities to the Entity List, including THATIC and the THATIC JV. Since that time, the United States administration has called for changes to domestic and foreign policy, including policies with respect to China and Russia. Specifically, United States-China trade relations remain uncertain as the United States continues to add more Chinese companies to the Entity List and more regulations targeted to advanced computing, semiconductor manufacturing, and AI. Further, the United States and abroad, through patents, copyrights, trade secrets, trademarksother countries and coalitions have issued sanctions and revisions to export control and other regulations against Russia, Belarus or the DNR or LNR regions of Ukraine, due to the conflict in Ukraine. BIS has issued new requirements that prevent us from shipping MI250 and MI250X integrated circuits to China and Russia without a license. BIS may possibly issue new licensing requirements and regulatory controls in the future. A significant trade disruption or the establishment or increase of any tariffs, trade protection measures or restrictions could result in lost sales adversely impacting our reputation and business. There is also a possibility of future tariffs, trade protection measures, import or export regulations or other restrictions imposed on our products or on our customers by the United States, China or other countries that could have a material adverse effect on our business. Export control restrictions may adversely impact the ability of our research and development teams located outside of the United States from executing our product roadmaps in a timely manner or at all.
We may, from time to time, receive technical data from third parties that is subject to the International Traffic and Arms Regulations (ITAR), which are administered by the U.S. Department of State. EAR and ITAR govern the export and re-export of certain AMD products, including FPGAs, and the transfer of related technologies, whether in the U.S. or abroad, and the provision of services. We are required to maintain an internal compliance program and security infrastructure to meet EAR and ITAR requirements. An inability to obtain the required export licenses, or to predict when they will be granted, increases the difficulties of forecasting shipments. In addition, security or compliance program failures that could result in penalties or a loss of export privileges, as well as stringent licensing restrictions that may make our products less attractive to overseas customers, could have a material adverse effect on our business, financial condition and/or operating results.
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If we cannot realize our deferred tax assets, our results of operations could be adversely affected.
Our deferred tax assets include net operating losses and tax credit carryforwards that can be used to offset taxable income and reduce income taxes payable in future periods. Each quarter, we consider both positive and negative evidence to determine whether all or a portion of the deferred tax assets are more likely than not to be realized. If we determine that some or all of our deferred tax assets are not realizable, it could result in a material expense in the period in which this determination is made which may losehave a competitive advantagematerial adverse effect on our financial condition and incurresults of operations.
In addition, a significant expenses.amount of our deferred tax assets related to net operating losses or tax credits which remain under a valuation allowance could be subject to limitations under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated loss rules. The limitations could reduce our ability to utilize the net operating losses or tax credits before the expiration of the tax attributes.
Our business is subject to potential tax liabilities, and exposure to greater-than-anticipated income tax liabilities as a result of changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable assessments from tax audits, any of which could affect our effective tax rates, financial condition, and results of operations.
We relyare a U.S.-based multinational company subject to income tax, indirect tax or other tax claims in multiple U.S. and foreign tax jurisdictions in which we conduct business. Significant judgment is required in determining our worldwide provision for income taxes. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. Any changes to tax laws could have a material adverse effect on a combinationour tax obligations and effective tax rate. Our income tax obligations could be affected by many factors, including, but not limited to, changes to our corporate operating structure, intercompany arrangements, and tax planning strategies.
Our income tax expense is computed based on tax rates at the time of protections providedthe respective financial period. Our future effective tax rates, financial condition and results from operations could be unfavorably affected by contracts, including confidentialitychanges in the tax rates in jurisdictions where our income is earned, by changes in the tax rules and nondisclosure agreements, copyrights, patents, trademarksregulations or the interpretation of tax rules and common law rights, such as trade secrets,regulations in the jurisdictions in which we do business or by changes in the valuation of our deferred tax assets.
In addition, we are subject to protectexaminations of our intellectual property. However,income tax returns by domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examinations. There can be no assurance that the final determination of any of these examinations will not have an adverse effect on our effective tax rates, financial condition, and results of operations.
In the ordinary course of our business, there are many transactions and calculations where the ultimate income tax, indirect tax, or other tax determination is uncertain. Although we believe our tax estimates are reasonable, we cannot assure you that wethe final determination of any tax audits or litigation will not be able to adequately protectmaterially different from that which is reflected in historical tax provisions and accruals. Should additional taxes be assessed as a result of an audit, assessment or litigation, there could be a material adverse effect on our technology or other intellectual property from third-party infringement or from misappropriationcash, tax provisions and net income in the United States and abroad. Any patent licensed by usperiod or issued to us could be challenged, invalidated or circumvented or rights granted there under may not provide a competitive advantage to us.periods for which that determination is made.
We are party to litigation and may become a party to other claims or litigation that could cause us to incur substantial costs or pay substantial damages or prohibit us from selling our products.
From time to time, we are a defendant or plaintiff in various legal actions. For example,actions, as described in Note 1817 - Contingencies of the Notes to our consolidated financial statements,Consolidated Financial Statements. For example, we have been subject to certain claims concerning federal securities laws and corporate governance. Our products are purchased by and/or used by consumers, which could increase our exposure to consumer actions such as product liability claims and consumer class action claims, including those described in Note 18 of our consolidated financial statements.claims. On occasion, we receive claims that individuals were allegedly exposed to substances used in our former semiconductor wafer manufacturing facilities and that this alleged exposure caused harm. Litigation can involve complex factual and legal questions, and its outcome is uncertain. It is possible that if a claim is successfully asserted against us, including the claims described in Note 18 of our consolidated financial statements, it could result in the payment of damages that could be material to our business.
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With respect to intellectual property litigation, from time to time, we have been notified of, or third parties may bring or have brought, actions against us and/or against our customers based on allegations that we are infringing the intellectual property rights of others, contributing to or inducing the infringement of the intellectual property rights of others, improperly claiming ownership of intellectual property or otherwise improperly using the intellectual property of others. If any such claims are asserted, we may seek to obtain a license under the third parties’ intellectual property rights. We cannot assure you that we will be able to obtain all of the necessary licenses on satisfactory terms, if at all. These parties may file lawsuits against us or our customers seeking damages (potentially up to and including treble damages) or an injunction against the sale of products that incorporate allegedly infringed intellectual property or against the operation of our business as presently conducted, which could result in our having to stop the sale of some of our products or to increase the costs of selling some of our products or which could damage our reputation. The award of damages, including material royalty payments, or other types of damages, or the entry of an injunction against the manufacture and sale of some or all of our products could have a material adverse effect on us. We could decide, in the alternative, to redesign our products or to resort to litigation to challenge such claims. Such challenges could be extremely expensive and time-consuming regardless of their merit, could cause delays in product release or shipment and/or could have a material adverse effect on us. We cannot assure you that litigation related to our intellectual property rights or the intellectual property rights of others can always be avoided or successfully concluded.
Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations, which could have a material adverse effect on us.
We are subject to environmental laws, conflict minerals-related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as a variety of other laws or regulations that could result in additional costs and liabilities.
Our operations and properties have in the past been and continue to be subject to various United States and foreign laws and regulations, including those relating to materials used in our products and manufacturing processes, discharge of pollutants into the environment, the treatment, transport, storage and disposal of solid and hazardous wastes and remediation of contamination. TheseFor the manufacturing of our products, these laws and regulations require our suppliers to obtain permits for operations, making our products, including the discharge of air pollutants and wastewater. Although our management systems are designed to oversee our suppliers’ compliance, we cannot assure you that our suppliers have been or will be at all times in complete compliance with such laws, regulations and permits.
If our suppliers violate or fail to comply with any of them, a range of consequences could result, including fines, suspension of production, alteration of manufacturing processes, import/export restrictions, sales limitations, criminal and civil liabilities or other sanctions. Such non-compliance from our manufacturing suppliers could result in disruptions in supply, higher sourcing costs, and/or reputational damage for us. We could also be held liable for any and all consequences arising out of exposure to hazardous materials used, stored, released, disposed of by us or located at, under or emanating from our current or former facilities or other environmental or natural resource damage. While we have budgeted for foreseeable associated expenditures, we cannot assure you that future environmental legal requirements will not become more stringent or costly in the future. Therefore, we cannot assure you that our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past and future releases of, or exposure to, hazardous substances will not have a material adverse effect on us.
Environmental laws are complex, change frequently and have tended to become more stringent over time. For example, the European Union (EU) and China are two among a growing number of jurisdictions that have enacted restrictions on the use of lead and other materials in electronic products. These regulations affect semiconductor devices and packaging. As regulations restricting materials in electronic products continue to increase around the world, there is a risk that the cost, quality and manufacturing yields of products that are subject to these restrictions may be less favorable compared to products that are not subject to such restrictions, or that the transition to compliant products may not meet customer roadmaps, or produce sudden changes in demand, which may result in excess inventory. A number of jurisdictions including the EU, Australia, California and China are developing or have finalized market entry or public procurement regulations for computers and servers based on ENERGY STAR specifications as well as additional energy consumption limits. There is the potential for certain of our products being excluded from some of these markets which could materially adversely affect us.
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Certain environmental laws, including the United States Comprehensive, Environmental Response, Compensation and Liability Act of 1980, or the Superfund Act, impose strict or, under certain circumstances, joint and several liability on current and previous owners or operators of real property for the cost of removal or remediation of hazardous substances and impose liability for damages to natural resources. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances. These environmental laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated. Such persons can be responsible for cleanup costs even if they never owned or operated the contaminated facility. We have been named as a responsible party at three Superfund sites in Sunnyvale, California. Although we have not yet been, we could be named a potentially responsible party at other Superfund or contaminated sites in the future. In addition, contamination that has not yet been identified could exist at our other facilities.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted disclosure and reporting requirements for companies that use “conflict” minerals originating from the Democratic Republic of Congo or adjoining countries. We continue to incur additional costs associated with complying with these requirements, such as costs related to developing internal controls for the due diligence process, determining the source of any conflict minerals used in our products, auditing the process and reporting to our customers and the SEC. In addition to the SEC regulation, the European Union, China and other jurisdictions are developing new policies focused on conflict minerals that may impact and increase the cost of our compliance program. Also, sinceCustomers are increasingly seeking information about the source of minerals used in our supply chain is complex,beyond those addressed in laws and regulations. Given the complexity of mineral supply chains, we may face reputational challenges if we are unable to sufficiently verify the origins of the subject minerals. Moreover, we are likely to encounter challenges to satisfy those customers who require that all of the components of our products arebe certified as “conflict free.” If we cannot satisfy these customers, they may choose a competitor’s products.
In addition to our company, customers, governments and authorities continue to be focused on eradicating the practiceeliminating risks of forced labor and human trafficking.in supply chains which may increase the cost of our compliance program. For example, the United States Uyghur Forced Labor Prevent Act prohibits goods mined, produced or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or by certain entities, from entering the United States under the presumption of being made with forced labor. Germany’s federal procurement office, in collaboration with the Bitkom trade association, has issued new supply chain labor requirements. In addition, the United Kingdom, Australia and the State of California have issuedenacted laws that require us to disclose our policy and practices for identifying and eliminating forced labor and human trafficking in our supply chain. Several customers as well as the Responsible Business Alliance have also issued expectations to eliminate these practicesoccurrences, if any, that may impact us. While we have a policyHuman Rights Policy and management systems to identify and avoid these practices in our supply chain, we cannot guarantee that our suppliers will always be in conformance to these laws and expectations. We may face enforcement liability and reputational challenges if we are unable to sufficiently meet these expectations. Moreover, we are likely to encounter challenges with customers if we cannot satisfy their forced and trafficked labor polices and they may choose a competitor’s product.
Merger, Acquisition and Integration Risks
Acquisitions, joint ventures and/or investments and the failure to integrate acquired businesses, could disrupt our business and/or dilute or adversely affect the price of our common stock.
Our success will depend, in part, on our ability to expand our product offerings and grow our business in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may pursue growth through the acquisition of complementary businesses, solutions or technologies or through joint ventures or investments rather than through internal development. The identification of suitable acquisition or joint venture candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or joint ventures.
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For example, on February 14, 2022, we completed our acquisition of Xilinx and on May 26, 2022, we completed our acquisition of Pensando. While we believe these acquisitions will result in certain benefits, including certain operational synergies and cost efficiencies, and drive product innovations, achieving these anticipated benefits will depend on successfully combining our and the acquired companies’ businesses together. It is not certain that the acquired companies can be successfully integrated with our business in a timely manner or at all, or that any of the anticipated benefits will be realized for a variety of reasons, including, but not limited to: our inability to integrate or benefit from acquired technologies or services in a profitable manner; diversion of capital and other resources, including management’s attention from our existing business; unanticipated costs or liabilities associated with the integration; failure to leverage the increased scale of the combined businesses quickly and effectively; coordinating and integrating in countries in which we have not previously operated; the potential impact of the acquisitions on our relationships with employees, vendors, suppliers and customers; the impairment of relationships with, or the loss of, the acquired companies’ employees, vendors, suppliers and customers; adverse changes in general economic conditions in regions in which we and the acquired companies operate; potential litigation associated with the acquisitions; difficulties in the assimilation of employees and culture; difficulties in managing the expanded operations of a larger and more complex company; challenges in attracting and retaining key personnel; and difficulties with integrating and upgrading our and the acquired companies’ financial reporting systems. Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in expected revenues and diversion of management’s time and attention, which could materially impact the combined company. In addition, even if the operations of the businesses are integrated successfully, the full benefits of the acquisitions may not be realized within the anticipated time frame or at all. All of these factors could decrease or delay the expected accretive effect of the acquisitions and negatively impact the combined company. If we cannot successfully integrate our and the acquired companies’ businesses and operations, or if there are delays in combining the businesses, it could negatively impact our ability to develop or sell new products and impair our ability to grow our business, which in turn could adversely affect our financial condition and operating results.
Acquisitions and joint ventures may also involve the entry into geographic or business markets in which we have little or no prior experience. Consequently, we may not achieve anticipated benefits of acquisitions or joint ventures, which could harm our operating results. In addition, to complete an acquisition, we may issue equity securities, which would dilute our stockholders’ ownership and could adversely affect the price of our common stock, and/or incur debt, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our results of operations. Moreover, if such acquisitions or joint ventures require us to seek additional debt or equity financing, we may not be able to obtain such financing on terms favorable to us or at all. Even if we successfully complete an acquisition or joint venture, we may not be able to assimilate and integrate effectively or efficiently the acquired business, technologies, solutions, assets, personnel or operations, particularly if key personnel of the acquired company decide not to work for us.
Acquisitions and joint ventures may also reduce our cash available for operations and other uses, which could harm our business. Also, any failure on our part to effectively evaluate and execute new business initiatives could adversely affect our business. We may not adequately assess the risks of new business initiatives and subsequent events may arise that alter the risks that were initially considered. Furthermore, we may not achieve the objectives and expectations with respect to future operations, products and services. The majority of our ATMP services are provided by the ATMP JVs, and there is no guarantee that the JVs will be able to fulfill our long-term ATMP requirements. If we are unable to meet customer demand due to fluctuating or late supply from the ATMP JVs, it could result in lost sales and have a material adverse effect on our business.
In addition, we may not realize the anticipated benefits from our business initiatives. For example, we may not realize the expected benefits from the THATIC JV’s expected future performance, including the receipt of any future milestone payments and any royalties from certain licensed intellectual property. In June 2019, the BIS added certain Chinese entities to the Entity List, including THATIC and the THATIC JV. We are complying with U.S. law pertaining to the Entity List designation.
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Any impairment of our tangible, definite-lived intangible or indefinite-lived intangible assets, including goodwill, may adversely impact our financial position and results of operations.
We account for certain acquisitions, including the Xilinx and Pensando acquisitions, using the acquisition method of accounting under the provisions of ASC 805, Business Combinations, with AMD representing the accounting acquirer under this guidance. We record assets acquired, including identifiable intangible assets, and liabilities assumed, at their respective fair values at the acquisition date. Any excess of the purchase price over the net fair value of such assets and liabilities will be recorded as goodwill. In connection with the Xilinx and Pensando acquisitions, we recorded significant goodwill and other intangible assets on our consolidated balance sheet.
Indefinite-lived intangible assets, including goodwill, are tested for impairment at least annually, and all tangible and intangible assets including goodwill will be tested for impairment when certain indicators are present. If, in the future, we determine that tangible or intangible assets, including goodwill, are impaired, we would record an impairment charge at that time. Impairment testing of goodwill requires significant use of judgment and assumptions, particularly as it relates to the determination of fair value. Subsequent to our annual goodwill impairment analysis, we monitor for any events or changes in circumstances, such as significant adverse changes in business climate or operating results, changes in management’s business strategy, an inability to successfully introduce new products in the marketplace, an inability to successfully achieve internal forecasts or significant declines in our stock price, which may represent an indicator of impairment. A decrease in the long-term economic outlook and future cash flows of our business could significantly impact asset values and potentially result in the impairment of goodwill and may require us to record future goodwill impairment charges, which may have a material adverse impact on our financial position and results of operations.
Liquidity and Capital Resources Risks
The agreements governing our notes, our guarantees of the Assumed Xilinx Notes, and our Revolving Credit Agreement impose restrictions on us that may adversely affect our ability to operate our business.
The indenture governing our 3.924% Senior Notes due 2032 and 4.393% Senior Notes due 2052 contains various covenants that limit our ability to, among other things: create liens on certain assets to secure debt, enter into certain sale and leaseback transactions; and consolidate with, merge into or sell, convey or lease all or substantially all of our assets to any other person.
Additionally, in connection with the acquisition of Xilinx, we entered into supplemental indentures for the Assumed Xilinx Notes pursuant to which all obligations of Xilinx under the Assumed Xilinx Notes are unconditionally guaranteed on a senior unsecured basis by us. The indentures governing the Assumed Xilinx Notes also contain various covenants which limit our ability to, among other things, create certain liens on principal property or the capital stock of certain subsidiaries, enter into certain sale and leaseback transactions with respect to principal property, and consolidate or merge with, or convey, transfer or lease all or substantially all our assets, taken as a whole, to another person.
We also have a five-year unsecured revolving credit facility in the aggregate principal amount of $3.0 billion (Revolving Credit Agreement). Our Revolving Credit Agreement contains various covenants which limit our ability to, among other things, incur liens and consolidate or merge or sell our assets as an entirety or substantially as an entirety (in each case, except for certain customary exceptions). In addition, our Revolving Credit Agreement requires us to maintain a minimum consolidated interest coverage ratio at the end of each fiscal quarter. The agreements governing our notes and our Revolving Credit Agreement contain cross-default provisions whereby a default under certain agreements with respect to other indebtedness would result in cross defaults under the indentures or the Revolving Credit Agreement. For example, the occurrence of a default with respect to any indebtedness or any failure to repay indebtedness when due in an amount in excess of (i) $50 million would cause a cross default under the indentures (to the extent such default would result in the acceleration of such indebtedness) governing our 2.125% Convertible Senior Notes due 2026 (2.125% Notes), and (ii) $500 million would cause a cross default under the Revolving Credit Agreement (to the extent such default (other than the failure to repay indebtedness) would result in the acceleration of such indebtedness). The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under our Revolving Credit Agreement to declare all amounts outstanding under the indentures or the Revolving Credit Agreement to be immediately due and payable. If the note holders or the trustee under the indentures governing our 2.125% Notes or
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the lenders under our Revolving Credit Agreement accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay those borrowings.
Our indebtedness could adversely affect our financial position and prevent us from implementing our strategy or fulfilling our contractual obligations.
Our total debt principal amount outstanding as of December 31, 2022 was $2.5 billion. Our indebtedness may make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments; limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions and general corporate and other purposes; limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general corporate purposes; require us to use a substantial portion of our cash flow from operations to make debt service payments; place us at a competitive disadvantage compared to our competitors with relatively less debt; and increase our vulnerability to the impact of adverse economic and industry conditions.
We enter into sale and factoring arrangements from time to time with respect to certain accounts receivables, which arrangements are non-recourse to us in the event that an account debtor fails to pay for credit-related reasons, and are not included in our indebtedness. We could become obligated to repurchase such accounts receivables or otherwise incur liability to the counterparties under these arrangements under certain circumstances, such as where a commercial dispute arises between us and an account debtor.
We may not be able to generate sufficient cash to meet our working capital requirements. Also, if we cannot generate sufficient revenue and operating cash flow, we may face a cash shortfall and be unable to make all of our planned investments in research and development or other strategic investments.
Our ability to generate sufficient cash to meet our working capital requirements will depend on our financial and operating performance, which may fluctuate significantly from quarter to quarter, and is subject to prevailing economic, financial and business conditions along with other factors, many of which are beyond our control. We cannot assure you that we will be able to generate cash flow in amounts sufficient to enable us to meet our working capital requirements. If we are not able to generate sufficient cash flow from operations, we may be required to sell assets or equity, reduce expenditures, refinance all or a portion of our existing debt or obtain additional financing.
In addition, our ability to fund research and development expenditures depends on generating sufficient revenue and cash flow from operations and the availability of external financing, if necessary. Our research and development expenditures, together with ongoing operating expenses, will be a substantial drain on our cash flow and may decrease our cash balances. If new competitors, technological advances by existing competitors, or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses would increase. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, our operating results could decline.
Our inability to generate sufficient cash from operations may require us to abandon projects or curtail planned investments in research and development or other strategic initiatives. If we curtail planned investments in research and development or abandon projects, our products may fail to remain competitive and our business would be materially adversely affected.
General Risks
Our worldwide operations are subject to political, legal and economic risks and natural disasters, which could have a material adverse effect on us.
We maintain operations around the world, including in the United States, Canada, Europe, Australia, Latin America and Asia. We rely on third-party wafer foundries in the United States, Europe and Asia. Nearly all product assembly and final testing of our products is performed at manufacturing facilities, operated by third-party manufacturing facilities, in China, Malaysia and Taiwan. We also depend on third-party subcontractors to provide shipment services. We also have international sales operations. International sales, as a percent of net revenue, were 66% for the year ended December 31, 2022. We expect that international sales will continue to be a significant portion of total sales in the foreseeable future.
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The political, legal and economic risks associated with our operations in foreign countries include, without limitation: expropriation; changes in a specific country’s or region’s political or economic conditions; changes in tax laws, trade protection measures and import or export licensing requirements and restrictions; difficulties in protecting our intellectual property; difficulties in managing staffing and exposure to different employment practices and labor laws; changes in foreign currency exchange rates; restrictions on transfers of funds and other assets of our subsidiaries between jurisdictions; changes in freight rates; changes to macroeconomic conditions, including interest rates, inflation and recession; disruption in air transportation between the United States and our overseas facilities; loss or modification of exemptions for taxes and tariffs; and compliance with United States laws and regulations related to international operations, including export control and economic sanctions laws and regulations and the Foreign Corrupt Practices Act. Recently, the United States and other countries and coalitions have issued sanctions and revisions to export control and other regulations against Russia, Belarus or the DNR or LNR regions of Ukraine, due to the conflict in Ukraine. Also, geopolitical changes between China and Taiwan could disrupt the operations of our Taiwan based third-party wafer foundries, manufacturing facilities and subcontractors, and materially adversely affect our business, financial condition and/or operating results.
In addition, our worldwide operations (or those of our business partners) could be subject to natural disasters and climate change such as earthquakes, tsunamis, flooding, typhoons, droughts, fires, extreme heat and volcanic eruptions that disrupt our operations, or those of our manufacturers, vendors or customers. For example, our Santa Clara and San Jose operations are located near major earthquake fault lines in California. Also, we have operations and employees in regions that have experienced extreme weather such as prolonged heat waves, wildfires and freezing. Extreme weather events can also disrupt the ability of our suppliers to deliver expected manufacturing parts and/or services for periods of time. There may be conflict or uncertainty in the countries in which we operate, including public health issues (for example, an outbreak of a contagious disease such as COVID-19, avian influenza, measles or Ebola), safety issues, natural disasters, fire, disruptions of service from utilities, nuclear power plant accidents or general economic or political factors. For example, governments worldwide have implemented, and continue to implement, measures to slow down the outbreak of COVID-19. We have experienced, and will continue to experience, disruptions to our business as these measures have, and will continue to have, an effect on our business operations and practices.
In addition, many governments have enacted laws around personally identifiable information, such as the European Union’s general Data Protection Regulation and the California Consumer Privacy Act, and the failure to comply could result in sanctions or other actions by the governments. The European Union’s General Data Protection Regulation imposes significant requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance.
Any of the above risks, should they occur, could result in an increase in the cost of components, production and shipment delays, general business interruptions, the inability to obtain, or delays from difficulties in obtaining export licenses for certain technology, penalties or a loss of export privileges, as well as stringent licensing restrictions that may make our products less attractive to international customers, tariffs and other barriers and restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business.
We may incur future impairments of our technology license purchases.
We license certain third-party technologies and tools for the design and production of our products. We report the value of those licenses as other non-current assets on the balance sheet and we periodically evaluate the carrying value of those licenses based on their future economic benefit to us. Factors such as the life of the assets, changes in competing technologies, and changes to the business strategy may represent an indicator of impairment. The occurrence of any of these events may require us to record future technology license impairment charges.
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Our inability to continue to attract and retain qualified personnel may hinder our business.
Much of our future success depends upon the continued service of numerous qualified engineering, marketing, sales and executive employees. Competition for highly skilled executives and employees in the technology industry is intense and our competitors have targeted individuals in our organization that have desired skills and experience. If we are not able to continue to attract, train and retain our leadership team and our qualified employees necessary for our business, the progress of our product development programs could be hindered, and we could be materially adversely affected. To help attract, retain and motivate our executives and qualified employees, we use share-based incentive awards such as employee stock options and non-vested share units (restricted stock units). If the value of such stock awards does not appreciate as measured by the performance of the price of our common stock, or if our share-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate our executives and employees could be weakened, which could harm our results of operations. Also, if the value of our stock awards increases substantially, this could potentially create great personal wealth for our executives and employees and affect our ability to retain our personnel. In addition, any future restructuring plans may adversely impact our ability to attract and retain key employees.
Our stock price is subject to volatility.
Our stock price has experienced price and volume fluctuations and could be subject to wide fluctuations in the future. The trading price of our stock may fluctuate widely due to various factors including actual or anticipated fluctuations in our financial conditions and operating results, changes in financial estimates by us or financial estimates and ratings by securities analysts, changes in our capital structure, including issuance of additional debt or equity to the public, interest rate changes, inflation, news regarding our products or products of our competitors, and broad market and industry fluctuations. Stock price fluctuations could impact the value of our equity compensation, which could affect our ability to recruit and retain employees. In addition, volatility in our stock price could adversely affect our business and financing opportunities.
In May 2021, our Board of Directors approved a stock repurchase program of up to $4 billion of our common stock (Existing Repurchase Program). In February 2022, our Board of Directors approved a new stock repurchase program in addition to our Existing Repurchase Program to purchase up to $8 billion of our outstanding common stock in the open market (collectively referred to as the Repurchase Program). The Repurchase Program does not obligate us to acquire any common stock, has no termination date and may be suspended or discontinued at any time. Our stock repurchases could affect the trading price of our stock, the volatility of our stock price, reduce our cash reserves, and may be suspended or discontinued at any time, which may result in a decrease in our stock price.
Worldwide political conditions may adversely affect demand for our products.
Worldwide political conditions may create uncertainties that could adversely affect our business. The United States has been and may continue to be involved in armed conflicts that could have a further impact on our sales and our supply chain. The consequences of armed conflict, political instability or civil or military unrest are unpredictable, and we may not be able to foresee events that could have a material adverse effect on us. Terrorist attacks or other hostile acts may negatively affect our operations, or adversely affect demand for our products, and such attacks or related armed conflicts may impact our physical facilities or those of our suppliers or customers. Furthermore, these attacks or hostile acts may make travel and the transportation of our products more difficult and more expensive, which could materially adversely affect us. Any of these events could cause consumer spending to decrease or result in increased volatility in the United States economy and worldwide financial markets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
As of December 28, 2019,31, 2022, we leased approximately 2.35have 6 million square feet of space for research and development, engineering, administrative and warehouse use including ourthroughout the world. These facilities include 5 million square feet of leased space and 1 million square feet of owned space. Our headquarters are located in Santa Clara, California, our principal administrative facilitiesand we have significant operations in Austin, Texas, our design center inTexas; San Jose, California; Shanghai, China, our main facility with respect to graphics and chipset products located inChina; Markham, Ontario, CanadaCanada; Longmont, Colorado; Dublin, Ireland; Singapore; and Bangalore and Hyderabad, India. We also have a number of smaller regional sales offices located in commercial centers near customers,
principally in the United States, Europe, Asia and Latin America. These leases expire at varying dates through 2028, although some of these leases include optional renewals. We occupy 220,000 square feet of space in our headquarters in Santa Clara, California under a 10-year operating lease which commenced in August 2017 and expires in July 2027. We have the option to extend the term of the lease for two additional 5-year periods. The lease for our principal administrative facilities in Austin, Texas expires in March 2025, and provides for one 10-year optional renewal. The leases for our facilities in Markham, Ontario, Canada expire in February 2028, and provide for one 5-year optional renewals. We occupy approximately 265,000 square feet of space in our design center in Shanghai, China under a 10-year operating lease, which expires in March 2028.
We currently do not anticipate difficulty in either retaining occupancy of any of our facilities through lease renewals prior to expiration or through month-to-month occupancy or replacing them with equivalent facilities.
We believe that our existing facilities are suitable and adequate for our present purposes and that the productive capacity of such facilities is substantially being utilized or we have plans to utilize such capacity.
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on The NASDAQ Global Select Market (NASDAQ) under the symbol “AMD”. On January 31, 2020,February 22, 2023, there were 4,3645,014 registered holders of our common stock, and the closing price of our common stock was $47.00$76.61 per share as reported on NASDAQ.
Issuer Purchases of Equity Securities
In May 2021, our Board of Directors approved a stock repurchase program of up to $4 billion of our common stock (Existing Repurchase Program). In February 2022, our Board of Directors approved a new stock repurchase program in addition to the Existing Repurchase Program to purchase up to additional $8 billion of our outstanding common stock in the open market (collectively referred to as the “Repurchase Program”). We expect to fund repurchases through cash generated from operations which have been strengthened by our strong operational results. Our Repurchase Program does not obligate us to acquire any common stock, has no termination date and may be suspended or discontinued at any time.
The following table provides information relating to our repurchase of common stock for the year ended December 31, 2022:
| Total Number of Shares Repurchased | Average Price Paid per Share | Total Number of Shares Repurchased as Part of Publicly Announced Program | Maximum Dollar Value of Shares That May Yet be Purchased Under the Program | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Repurchases during each fiscal quarter of 2022: | |||||||||||||||||||||||
| December 26, 2021 - March 26, 2022 | 15,785,806 | $ | 121.03 | 15,785,806 | $ | 8,327 | |||||||||||||||||
| March 27, 2022 - June 25, 2022 | 10,159,900 | $ | 90.58 | 10,159,900 | $ | 7,407 | |||||||||||||||||
| June 26, 2022 - September 24, 2022 | 6,895,972 | $ | 89.52 | 6,895,972 | $ | 6,790 | |||||||||||||||||
| September 25, 2022 - December 31, 2022 | 3,484,459 | $ | 71.75 | 3,484,459 | $ | 6,540 | |||||||||||||||||
| 36,326,137 | 36,326,137 | ||||||||||||||||||||||
| Repurchases during last fiscal quarter of 2022: | |||||||||||||||||||||||
| September 25, 2022 - October 29, 2022 | — | $ | — | — | $ | 6,790 | |||||||||||||||||
| October 30, 2022 - November 26, 2022 | 1,455,994 | $ | 70.65 | 1,455,994 | $ | 6,687 | |||||||||||||||||
| November 27, 2022 - December 31, 2022 | 2,028,465 | $ | 72.54 | 2,028,465 | $ | 6,540 | |||||||||||||||||
| Total | 3,484,459 | 3,484,459 | |||||||||||||||||||||
Equity Award Share Withholding
Shares of common stock withheld as payment of withholding taxes in connection with the vesting or exercise of equity awards are also treated as common stock repurchases. Those withheld shares of common stock are not considered common stock repurchases under an authorized common stock repurchase plan. During fiscal year 2022, we withheld 5 million shares as payment of withholding taxes in connection with the vesting and exercise of equity awards.
For information about our equity compensation plans, see Part III, Item 11, below.
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Performance Graph
Comparison of Five-Year Cumulative Total Returns
Advanced Micro Devices, S&P 500 Index and S&P 500 Semiconductor Index
The following graph shows a five-year comparison of cumulative total return on our common stock, the S&P 500 Index and the S&P 500 Semiconductor Index from December 27, 201430, 2017 through December 28, 2019.31, 2022. The past performance of our common stock is no indication of future performance.
| Base Period | Years Ended | |||||||||||||||||||
| Company / Index | 12/30/2017 | 12/29/2018 | 12/28/2019 | 12/26/2020 | 12/25/2021 | 12/31/2022 | ||||||||||||||
| Advanced Micro Devices, Inc. | 100 | 173 | 449 | 893 | 1,422 | 630 | ||||||||||||||
| S&P 500 Index | 100 | 95 | 126 | 147 | 190 | 157 | ||||||||||||||
| S&P 500 Semiconductors Index | 100 | 93 | 138 | 193 | 296 | 185 | ||||||||||||||
| Base Period | Years Ending | ||||||||||
| Company / Index | 12/27/2014 | 12/26/2015 | 12/31/2016 | 12/30/2017 | 12/29/2018 | 12/28/2019 | |||||
| Advanced Micro Devices, Inc. | 100 | 110.19 | 427.92 | 387.92 | 672.45 | 1,742.64 | |||||
| S&P 500 Index | 100 | 100.77 | 111.92 | 136.35 | 129.26 | 171.64 | |||||
| S&P 500 Semiconductors Index | 100 | 100.47 | 126.23 | 172.07 | 160.39 | 237.49 | |||||
Unregistered Sales of Equity Securities
On February 9, 2023, we issued 27,230 shares of AMD’s common stock pursuant to an exercise in full by a commercial partner of warrants to purchase up to 42,260 shares of AMD’s common stock at an exercise price of $25.4994 per share (the Warrants). As a result, the Warrants are no longer outstanding. The commercial partner acquired the Warrants on March 30, 2020 and June 29, 2020 pursuant to a strategic arrangement with such partner. The shares of common stock were issued pursuant to Section 3(a)(9) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA[RESERVED]
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2019(1) | 2018(1) | 2017(1)(2) | 2016(1)(2) | 2015(1) | |||||||||||||||
| In millions except per share amounts | |||||||||||||||||||
| Net revenue | $ | 6,731 | $ | 6,475 | $ | 5,253 | $ | 4,319 | $ | 3,991 | |||||||||
Net income (loss) (3)(4) | $ | 341 | $ | 337 | $ | (33 | ) | $ | (498 | ) | $ | (660 | ) | ||||||
| Earnings (loss) per share | |||||||||||||||||||
| Basic | $ | 0.31 | $ | 0.34 | $ | (0.03 | ) | $ | (0.60 | ) | $ | (0.84 | ) | ||||||
| Diluted | $ | 0.30 | $ | 0.32 | $ | (0.03 | ) | $ | (0.60 | ) | $ | (0.84 | ) | ||||||
| Shares used in per share calculation | |||||||||||||||||||
| Basic | 1,091 | 982 | 952 | 835 | 783 | ||||||||||||||
| Diluted | 1,120 | 1,064 | 952 | 835 | 783 | ||||||||||||||
Long-term debt, net and other long-term liabilities (5) | $ | 643 | $ | 1,306 | $ | 1,443 | $ | 1,559 | $ | 2,093 | |||||||||
| Total assets | $ | 6,028 | $ | 4,556 | $ | 3,552 | $ | 3,328 | $ | 3,084 | |||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements as of December 28, 201931, 2022 and December 29, 201825, 2021 and for each of the three years in the period ended December 28, 201931, 2022 and related notes, which are included in this Annual Report on Form 10-K as well as with the other sections of this Annual Report on Form 10-K, including “Part I, Item 1: Business,” “Part II, Item 6: Selected Financial Data” and “Part II, Item 8: Financial Statements and Supplementary Data.”
Introduction
In this section, we will describe the general financial condition and the results of operations of Advanced Micro Devices, Inc. and its wholly-owned subsidiaries (collectively, “us,” “our” or “AMD”), including a discussion of our results of operations for 20192022 compared to 2018,2021, an analysis of changes in our financial condition and a discussion of our contractual obligations and off-balance sheet arrangements. Discussions of 20172020 items and year-to-year comparisons between 20182021 and 20172020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
Overview
Our 2022 financial results reflect the strength of our diversified business model despite the challenging PC market conditions in the second half of 2022. Net revenue for 20192022 was $6.7$23.6 billion, an increase of 4%44% compared to 20182021 net revenue of $6.5$16.4 billion. The increase in net revenue was driven by a 64% increase in Data Center segment revenue primarily due to higher sales of our EPYC™ server processors, a 21% increase in Gaming segment revenue primarily due to higher semi-custom product sales, and a significant increase in Embedded segment revenue from the prior year period driven by the inclusion of Xilinx embedded product sales. This growth was partially offset by a 10% decrease in Client segment revenue primarily due to lower processor shipments driven by a weak PC market and significant inventory correction actions across the PC supply chain. Gross margin, as a percentage of net revenue for 2019,2022, was 43%45%, compared to 38%48% in 2018. Our operating2021. The decrease in gross margin was primarily due to amortization of intangible assets associated with the Xilinx acquisition. Operating income for 2019 improved to $631 million2022 was $1.3 billion compared to operating income of $451 million$3.6 billion for 2018. Our net2021. The decrease in operating income was primarily driven by amortization of intangible assets associated with the Xilinx acquisition. Net income for 2019 improved to $341 million2022 was $1.3 billion compared to $337 million$3.2 billion in the prior year. The decrease in net income was primarily driven by lower operating income.
Cash, cash equivalents and marketable securitiesshort-term investments as of December 28, 201931, 2022 were $1.5$5.9 billion, up from $1.2compared to $3.6 billion at the end of 2018. We made significant progress towards improving our balance sheet in 2019 as we reduced our debt.Principal2021. Our aggregate principal amount of total debt as of December 28, 201931, 2022 was $563 million,$2.5 billion, compared to $1.5 billion$313 million as of December 29, 2018.25, 2021.
We took several actions in 2022 to strengthen our financial position. In June 2022, we issued $1.0 billion in aggregate principal amount of senior notes, consisting of $500 million in aggregate principal amount of 3.924% Senior Notes due 2032 (3.924% Notes) and $500 million in aggregate principal amount of 4.393% Senior Notes due 2052 (4.393% Notes). The 3.924% Notes will mature on June 1, 2032 and bear interest at a rate of 3.924% per annum, and the 4.393% Notes will mature on June 1, 2052 and bear interest at a rate of 4.393% per annum. The 3.924% Notes and the 4.393% Notes are senior unsecured obligations.
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We also entered into a revolving credit agreement in June 2022. The agreement provides for a five-year unsecured revolving credit facility in the aggregate principal amount of $3.0 billion. There were no funds drawn from this facility during the year ended December 31, 2022. In November 2022, we established a new commercial paper program, under which we may issue unsecured commercial paper notes up to a maximum principal amount outstanding at any time of $3.0 billion with a maturity of up to 397 days from the date of issue. The commercial paper will be sold at a discount from par or, alternatively, will be sold at par and bear interest at rates that will vary based on market conditions at the time of issuance. As of December 31, 2022, we had no commercial paper outstanding.
During the twelve months ended December 31, 2022, we returned a total of $3.7 billion to shareholders through the repurchase of 36.3 million shares of common stock under our stock repurchase program. As of December 31, 2022, $6.5 billion remained available for future stock repurchases under this program. The repurchase program does not obligate us to acquire any common stock, has no termination date and may be suspended or discontinued at any time.
We continued executing our product technology roadmap by delivering a number of new leadership products and technologies during 2022. For Data Center, we launched our 4th Gen AMD EPYC™ processors with next-generation architecture, technology and features, and designed to deliver optimizations across market segments and applications, while helping businesses free data center resources to create additional workload processing and accelerate output. We also unveiled our 3rd Gen AMD EPYC processors with AMD 3D V-Cache technology for leadership performance in technical computing workloads. We introduced the 7 nm Versal™ ACAP VCK5000 development card designed to offer leadership AI inference performance. We announced the availability of the AMD Instinct™ ecosystem, the new AMD Instinct MI210 accelerator and ROCm™ 5 software. Together the AMD Instinct and ROCm ecosystem offers exascale-class technology to a broad base of high performance computing (HPC) and artificial intelligence (AI) customers, designed to address the demand for compute-accelerated data center workloads and reduce the time to insights and discoveries.
In the Embedded segment, we introduced the AMD Ryzen™ Embedded R2000 Series, second-generation mid-range system-on-chip processors optimized for a wide range of industrial and robotics systems, machine vision, IoT (Internet of Things) and thin-client equipment. We also introduced the Kria™ KR260 Robotics Starter Kit, the latest addition to the Kria portfolio. The kit enables rapid development of hardware-accelerated applications for robotics, machine vision and industrial communication and control.
For the Client segment, we introduced the Ryzen 7000 Series Desktop processors powered by the new “Zen 4” architecture for gamers, enthusiasts, and content creators. Along with the introduction of the Ryzen 7000 Series Desktop processors, we also unveiled the new Socket AM5 platform featuring four new chipsets. These new desktop processors are designed for gamers, enthusiasts, and content creators. We introduced AMD Ryzen 7000 Mobile processors with up to 16 “Zen 4” architecture cores. We also introduced the AMD Ryzen 6000 Series Mobile processors, built on “Zen 3+” architecture and includes AMD RDNA™ 2 architecture based on integrated graphics. We launched the AMD Ryzen 5000 C-Series processors bringing “Zen 3” architecture to premium Chrome OS devices for work and collaboration. The processors offer up to eight high performance x86 cores. For workstations, we introduced the new AMD Ryzen Threadripper™ PRO 5000 WX-Series workstation processors designed for professionals to run demanding workstation applications. We also introduced the AMD Ryzen PRO 7030 Series Mobile processors built on “Zen 3” core architecture.
In the Gaming segment, we unveiled the AMD Radeon™ RX 7900 XTX and the Radeon RX 7900 XT gaming graphics cards that are built on next-generation high performance, energy-efficient AMD RDNA™ 3 architecture. We announced new graphics cards to the AMD Radeon RX 6000 Series product line: the AMD Radeon RX 6950 XT, the AMD Radeon RX 6750 XT and the AMD Radeon RX 6650 XT. These new graphics cards are built on AMD RDNA 2 gaming architecture and GDDR6 memory at up to 18Gbps. We launched the new AMD Radeon PRO GPUs including the introduction of the AMD Radeon PRO W6400 graphics card built on AMD RDNA 2 architecture.
Although the current COVID-19 pandemic continues to impact our business operations and practices, we experienced limited disruptions during 2022. We continue to monitor our operations and public health measures implemented by governmental authorities in response to the pandemic.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenue, inventories, business combination, goodwill, impairmentslong-lived and intangible assets, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.
Management believes the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult, subjective and complex judgments.
Revenue recognition. Allowances. Revenue contracts with our customers include variable amounts which we evaluate under ASC 606-10-32-8 through 14 in order to determine the net amount of consideration to which we are entitled and which we recognize as revenue. We recognize revenue upondetermine the shipmentnet amount of consideration to which we are entitled by estimating the productmost likely amount of consideration we expect to our distributors (sell-in), rather than uponreceive from the resale ofcustomer after adjustments to the product by our distributors to their customers (sell-through). Accordingly, we have established provisionscontract price for rights of return and rebates to our original equipment manufacturers (OEM) customers and rights of return, rebates and price protection on unsold productmerchandise to our distributor customers.
We base our determination of necessary adjustments to the contract price by reference to actual historical activity and experience, including actual historical returns, rebates and credits issued to OEM and distributor customers adjusted, as applicable, to include adjustments, if any, for known events or current economic conditions, or both.
Our estimates of necessary adjustments for distributor price incentives and price protection on unsold products held by our distributors.
Our estimates of necessary adjustments for OEM price incentives utilize, in addition to known pricing agreements, actual historical rebate attainment rates and estimates of future OEM rebate program attainment based on internal and external market data analysis.
We offer incentive programs through cooperative advertising and marketing promotions. Where funds provided for such programs can be estimated, we recognize a reduction to revenue at the time the related revenue is recognized; otherwise, we recognize such reduction to revenue at the later of when: i) the related revenue transaction occurs; or ii) the program is offered. For transactions where we reimburse a customer for a portion of the customer’s cost to perform specific product advertising or marketing and promotional activities, such amounts are recognized as a reduction to revenue unless they qualify for expense recognition.
We also provide limited product return rights to certain OEMs and to most distribution customers. These return rights are generally limited to a contractual percentage of the customer’s prior quarter shipments, although, from time to time we may approve additional product returns beyond the contractual arrangements based on the applicable facts and circumstances. In order to estimate adjustments to revenue to account for these returns, including product restocking rights provided to distributor and OEM customers, we utilize relevant, trended actual historical allowances, historicalproduct return rate information gathered, adjusted for actual known information or events, as applicable.
Overall, our estimates of adjustments to contract price reductions, market activitydue to variable consideration under our contracts with OEM and otherdistributor customers, based on our assumptions and include adjustments, if any, for known or anticipated trends and factors. Theseevents, have been materially consistent with actual results; however, these estimates are subject to management’s judgment and actual provisions could be different from our estimates and current provisions, resulting in future adjustments to our revenue and operating results.
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Inventory Valuation. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence based on projected sales outlook. This evaluation includes analysis of historical sales levels by product and projections of future demand. These projections assist us in determining the carryingWe value of our inventory. In addition, we write off inventories that we consider obsolete. We adjust the remaining specific inventory balancesat standard cost, adjusted to approximate the lower of our actual cost or estimated net realizable value. Among other factors, management considersvalue using assumptions about future demand and market conditions. Material assumptions we use to estimate necessary inventory carrying value adjustments can be unique to each product and are based on specific facts and circumstances. In determining excess or obsolescence reserves for products, we consider assumptions such as changes in business and economic conditions, other-than-temporary decreases in demand for our products, and changes in technology or customer requirements. In determining the lower of cost or net realizable value reserves, we consider assumptions such as recent historical sales activity and selling prices, as well as anticipated or forecasted demand, estimates of future selling prices, competitiveness of product offerings, market and industry conditions, customer requirements and product life cycles when determining excess, obsolescence and net realizable value in relation to the inventory on hand.prices. If in any period we anticipate a change in assumptions such as future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in cost of sales, resulting in the period the revision is made. This would have a negative impact onto our gross margin in that period. If in any period we are able to sell inventories that were not valued or that had been written down to a level below the ultimate realized selling price in a previous period, related revenuesrevenue would be recorded without anywith a lower or no offsetting charge to cost of sales resulting in a net benefit to our gross margin in that period. Overall, our estimates of inventory carrying value adjustments have been materially consistent with actual results.
Business Combinations. We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing developed technology, in-process research and development, customer relationships and other identifiable intangible assets include, but are not limited to, expected future revenue growth rates and margins, future changes in technology, time to recreate customer relationships, useful lives, and discount rates.
Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill. Goodwill is the excess of the aggregate of the consideration transferred over the identifiable assets acquired and liabilities assumed in connection with business combinations. Our reporting units are at the operating segment level. Our goodwill is contained within three reporting units: Data Center, Gaming and Embedded.
We perform our goodwill impairment analysis as of the first day of the fourth quarter of each year and, if certain events or circumstances indicate that an impairment loss may have been incurred, on a more frequent basis. The analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment.
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The most significant assumptions utilized in the determination of the estimated fair values of our reporting units are the sales and earnings growth rates (including long-term growth rates) and discount rates. Long-term growth rates are dependent on overall market growth rates, the competitive environment and inflation. As a result, long-term growth rates could be adversely impacted by a sustained deceleration in category growth or an increased competitive environment. Discount rates, which are consistent with a weighted average cost of capital that is likely to be expected by a market participant, are based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rates may be impacted by adverse changes in the macroeconomic environment, prolonged and continuing inflationary pressures, volatility in the equity and debt markets and other factors that otherwise create or exacerbate risks in our reporting units. Changes in operating marginsplans or adverse changes in the business or in the macroeconomic environment in the future could reduce the underlying cash flows used to calculate projectedestimate fair values and could result in a decline in fair value that would trigger future impairment charges of our reporting units’ goodwill. Based on our annual impairment testing, the fair values of all of our reporting units exceeded their carrying values.
Long-Lived and Intangible Assets.Long-lived and intangible assets to be held and used are reviewed for impairment if indicators of potential impairment exist and at least annually for indefinite-lived intangible assets. Impairment indicators are reviewed on a quarterly basis. Assets are grouped and evaluated for impairment at the lowest level of identifiable cash flows. When indicators of impairment exist and assets are held for use, we estimate future undiscounted cash flows attributable to the related asset groups. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows discount rates,attributable to the asset group or based on appraisals. Factors affecting impairment of assets held for use include the ability of the specific assets to generate separately identifiable positive cash flows. When assets are removed from operations and held for sale, we estimate impairment losses as the excess of the carrying value of the assets over their fair value. Market conditions are among the factors affecting impairment of assets held for sale. Changes in any of these factors could necessitate impairment recognition in future economic and market conditions.
Income Taxes. In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.
We mustregularly assess the likelihood that we will be able to recover our deferred tax assets. Unless recovery is considered more-likely-than-not (a probability level of more than 50%), we will record a charge to income tax expense in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable or maintain the valuation allowance recorded in prior periods. In determining the need to establish or maintain a valuation allowance, we consider multiple factors including past performance, the reversal of deferred tax liabilities, tax planning strategies, and future expected taxable income. When considering all available evidence, if we determine it is determinedmore-likely-than-not we can more-likely-than-notwill realize our deferred tax assets, we will reverse some or all of the existing valuation allowance, which would result in a credit to income tax expense and the establishment of an asset in the period of reversal.
In determining the need to establish or maintain a valuation allowance, we consider the four sources of jurisdictional taxable income: (i) carryback of net operating losses to prior years; (ii) future reversals of existing taxable temporary differences; (iii) viable and prudent tax planning strategies; and (iv) future taxable income exclusive of reversing temporary differences and carryforwards.
Through the end of 2022, we continue to maintain a valuation allowance of approximately $2.1 billion for certain federal, state, and foreign tax attributes. The federal valuation allowance maintained is due to limitations, under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated loss rules. Certain state and foreign valuation allowances are maintained due to a lack of sufficient sources of future taxable income.
In addition, the calculation of our tax liabilities involves dealing withaddressing uncertainties in the application of complex, multi-jurisdictional tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing authorities. If our estimates
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Results of Operations
Additional information on our reportable segments is contained in Note 15:4 – Segment Reporting of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).
Our operating results tend to vary seasonally. Historically, our net revenue has been generally higher in the second half of the year than in the first half of the year, although market conditions and product transitions could impact these trends.
The following table provides a summary of net revenue and operating income (loss) by segment for 2019, 20182022 and 2017.2021:
| Year Ended | |||||||||||
| December 31, 2022 | December 25, 2021 | ||||||||||
| (In millions) | |||||||||||
| Net revenue: | |||||||||||
| Data Center | $ | 6,043 | $ | 3,694 | |||||||
| Client | 6,201 | 6,887 | |||||||||
| Gaming | 6,805 | 5,607 | |||||||||
| Embedded | 4,552 | 246 | |||||||||
| Total net revenue | $ | 23,601 | $ | 16,434 | |||||||
| Operating income (loss): | |||||||||||
| Data Center | $ | 1,848 | $ | 991 | |||||||
| Client | 1,190 | 2,088 | |||||||||
| Gaming | 953 | 934 | |||||||||
| Embedded | 2,252 | 44 | |||||||||
| All Other | (4,979) | (409) | |||||||||
| Total operating income (loss) | $ | 1,264 | $ | 3,648 | |||||||
Data Center
| 2019 | 2018 | 2017 | |||||||||
| (In millions) | |||||||||||
| Net revenue: | |||||||||||
| Computing and Graphics | $ | 4,709 | $ | 4,125 | $ | 2,977 | |||||
| Enterprise, Embedded and Semi-Custom | 2,022 | 2,350 | 2,276 | ||||||||
| Total net revenue | $ | 6,731 | $ | 6,475 | $ | 5,253 | |||||
| Operating income (loss): | |||||||||||
| Computing and Graphics | $ | 577 | $ | 470 | $ | 92 | |||||
| Enterprise, Embedded and Semi-Custom | 263 | 163 | 132 | ||||||||
| All Other | (209 | ) | (182 | ) | (97 | ) | |||||
| Total operating income | $ | 631 | $ | 451 | $ | 127 | |||||
Data Center operating income was $1.8 billion in 2022, compared to operating income of $991 million in 2021. The increase in operating income was primarily driven by higher revenue, partially offset by higher operating expenses. Operating expenses increased for the reasons outlined under “Expenses” below.
Client
Client net revenue of $6.2 billion in 2022 decreased by 10%, compared to net revenue of $6.9 billion in 2021, primarily driven by a result of24% decrease in unit shipment, partially offset by a 22%19% increase in average selling price and a 4% increaseprice. The decrease in unit shipments.shipments was due to challenging PC market conditions and significant inventory correction across the PC supply chain experienced during the second half of 2022. The increase in average selling price was primarily driven by a richer mix of client processors due to strong demand of our Ryzen processors. The increase in unit shipments was primarily due to higher demand for our Ryzen processors, partially offset by lower demand for our Radeon graphics products.mobile processor sales.
Gaming net revenue of $2.0$6.8 billion in 2019 decreased2022 increased by 14%21%, compared to net revenue of $2.4$5.6 billion in 2018, primarily as a result of lower2021. The increase in net revenue was driven by higher semi-custom product revenue,sales due to higher demand for gaming console SoCs, partially offset by higherlower gaming graphics sales due to a decrease in unit shipments driven by soft consumer demand given weakened macroeconomic conditions experienced in the second half of our EPYC server processors.2022.
Embedded
Embedded net revenue of $4.6 billion in 2022 increased significantly, compared to net revenue of $246 million in 2021. The significant increase in net revenue was primarily driven by the inclusion of Xilinx embedded product revenue as a result of the acquisition of Xilinx in February 2022.
Embedded operating income was $2.3 billion in 2022, compared to operating income of $44 million in 2021. The significant increase in operating income was primarily driven by the inclusion of Xilinx embedded product revenue.
All Other
All Other operating loss of $209$5.0 billion in 2022 primarily consisted of $3.5 billion of amortization of acquisition-related intangibles, $1.1 billion of stock-based compensation expense, and $452 million of acquisition-related costs, which primarily include transaction costs, amortization of Xilinx inventory fair value step-up adjustment, and depreciation related to the Xilinx fixed assets fair value step-up adjustment, certain compensation charges related to the acquisitions of Xilinx and Pensando, and licensing gain. All Other operating loss of $409 million in 2019 included $1972021 primarily consisted of $379 million of stock-based compensation expense and a $12 million contingent loss accrual on a legal matter.
Comparison of Gross Margin, Expenses, Licensing Gain, Interest Expense, Other ExpenseIncome (Expense) and Income Taxes
The following is a summary of certain consolidated statement of operations data for 2019, 20182022 and 2017:2021:
| December 31, 2022 | December 25, 2021 | ||||||||||||||||
| (In millions, except for percentages) | |||||||||||||||||
| Net revenue | $ | 23,601 | $ | 16,434 | |||||||||||||
| Cost of sales | 11,550 | 8,505 | |||||||||||||||
| Amortization of acquisition-related intangibles | 1,448 | — | |||||||||||||||
| Gross profit | 10,603 | 7,929 | |||||||||||||||
| Gross margin | 45 | % | 48 | % | |||||||||||||
| Research and development | 5,005 | 2,845 | |||||||||||||||
| Marketing, general and administrative | 2,336 | 1,448 | |||||||||||||||
| Amortization of acquisition-related intangibles | 2,100 | — | |||||||||||||||
| Licensing gain | (102) | (12) | |||||||||||||||
| Interest expense | (88) | (34) | |||||||||||||||
| Other income, net | 8 | 55 | |||||||||||||||
| Income tax provision (benefit) | (122) | 513 | |||||||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (In millions, except for percentages) | |||||||||||
| Cost of sales | $ | 3,863 | $ | 4,028 | $ | 3,466 | |||||
| Gross profit | 2,868 | 2,447 | 1,787 | ||||||||
| Gross margin percentage | 43 | % | 38 | % | 34 | % | |||||
| Research and development | 1,547 | 1,434 | 1,196 | ||||||||
| Marketing, general and administrative | 750 | 562 | 516 | ||||||||
| Licensing gain | (60 | ) | — | (52 | ) | ||||||
| Interest expense | (94 | ) | (121 | ) | (126 | ) | |||||
| Other expense, net | (165 | ) | — | (9 | ) | ||||||
| Provision for (benefit from) income taxes | 31 | (9 | ) | 18 | |||||||
Gross Margin
Gross margin as a percentage of net revenue was 43%45% in 20192022 compared to 38%48% in 2018.2021. The improvementdecrease in gross margin was primarily driven by higher salesdue to amortization of Ryzen and EPYC processors, which have a higher gross margin thanintangible assets associated with the corporate average.Xilinx acquisition.
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Expenses
Research and Development Expenses
Research and development expenses of $1.5$5.0 billion in 20192022 increased by $113 million,$2.2 billion, or 8%76%, compared to $1.4$2.8 billion in 2018.2021. The increase was primarily due todriven by strategic investments across all of our segments, including an increase in product development costs in both the Computingheadcount through acquisitions and Graphics and Enterprise, Embedded and Semi-Custom segments as well as an increase in stock-based compensation expense.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses of $750 million$2.3 billion in 20192022 increased by $188$888 million, or 33%61%, compared to $562 million$1.4 billion in 2018.2021. The increase was primarily due to an increase in headcount through acquisitions and organic growth, go-to-market activities, in bothand acquisition-related costs.
Amortization of Acquisition-Related Intangibles
In 2022, cost of sales and operating expense included $1.4 billion and $2.1 billion, respectively, of amortization expense from intangible assets acquired as a result of the Computingacquisitions of Xilinx and Graphics and Enterprise, Embedded and Semi-Custom segments, as well as an increase in stock-based compensation expense.Pensando.
Licensing Gain
During 2019,2022, we recognized $60$102 million asof licensing gain from milestone achievement and royalty income associated with the licensed IP to the THATIC JV. See Note 4JV, our two joint ventures with Higon Information Technology Co., Ltd., a third-party Chinese entity. We recognized a licensing gain from royalty income of “Notes to Consolidated Financial Statements”$12 million for additional information.the year ended December 25, 2021.
Interest Expense
Interest expense of $94$88 million in 2019 decreased2022 increased by $27$54 million compared to $121$34 million in 2018,2021, primarily due to lower debt balances.interest expense from the 2.95% Senior Notes due 2024 and the 2.375% Senior Notes due 2030 (together, the Assumed Xilinx Notes) and the 3.924% Notes and 4.393% Notes issued in 2022.
Other Expense, NetIncome (Expense), net
Other expense,income (expense), net increasedis primarily comprised of interest income from short-term investments, changes in 2019 by $165valuation of equity investments and foreign currency transaction gains and losses.
Other income, net was $8 million fromin 2022 compared to $55 million of Other income, net of zero in 2018.2021. The change from 2018 to 2019 was primarily due to $176a $62 million decrease in the fair value of equity investments in 2022 compared to an increase in fair value of $56 million from equity investments in 2021, partially offset by $65 million of loss on redemption, repurchases and conversionsinterest income driven mainly by rising interest rates in 2022 compared to losses from conversion of our convertible debt of $7 million in 2019.2021.
We recorded an income tax provisionbenefit of $31$122 million in 20192022 and income tax benefit of $9 million in 2018.
Through the recordingend of additional deferredfiscal year 2022, we continued to maintain a valuation allowance of approximately $2.1 billion for certain federal, state, and foreign tax assets on ourattributes. The federal valuation allowance maintained is due to limitations under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated balance sheet.loss rules. Certain state and foreign valuation allowance maintained is due to lack of sufficient sources of future taxable income.
International Sales
International sales as a percentage of net revenue were 74%66% in 20192022 and 80%72% in 2018.2021. We expect that international sales will continue to be a significant portion of total sales in the foreseeable future. Substantially all of our sales transactions are denominated in U.S. dollars.
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FINANCIAL CONDITION
Liquidity and Capital Resources
As of December 28, 2019,31, 2022, our cash, cash equivalents and marketable securitiesshort-term investments were $1.5$5.9 billion compared to $1.2$3.6 billion as of December 29, 2018.25, 2021. The increase in cash, cash equivalents and short-term investments was primarily driven by the $2.4 billion of cash and $1.6 billion of short-term investments acquired from the Xilinx acquisition, $1.0 billion from the debt issuance of our 3.924% Notes and 4.393% Notes, and cash flows from operations, partially offset by stock repurchases and cash paid for the acquisition of Pensando. The percentage of cash and cash equivalents held domestically was 90%73% as of December 28, 2019,31, 2022, and 88%91% as of December 29, 2018. 25, 2021.
Our operating, investing and financing cash flow activities for fiscal 2019, 20182022 and 20172021 were as follows:
| 2019 | 2018 | 2017 | December 31, 2022 | December 25, 2021 | ||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||
| Net cash provided by (used in): | Net cash provided by (used in): | |||||||||||||||||||||||||||
| Operating activities | $ | 493 | $ | 34 | $ | 12 | Operating activities | $ | 3,565 | $ | 3,521 | |||||||||||||||||
| Investing activities | (149 | ) | (170 | ) | (54 | ) | Investing activities | 1,999 | (686) | |||||||||||||||||||
| Financing activities | 43 | 28 | (33 | ) | Financing activities | (3,264) | (1,895) | |||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents, and restricted cash | $ | 387 | $ | (108 | ) | $ | (75 | ) | ||||||||||||||||||||
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | $ | 2,300 | $ | 940 | |||||||||||||||||||||||
Our aggregate principal debt obligations were $0.6 billion and $1.5$2.5 billion as of December 28, 201931, 2022, which consisted primarily of $1.5 billion of the Xilinx Notes assumed as part of the Xilinx acquisition and $1.0 billion of 3.924% Notes and 4.393% Notes issued during the year, compared to $313 million as of December 25, 2021, respectively. We repaid $312 million of our 7.50% Senior Notes that matured in August 2022.
On April 29, 2018, respectively.2022, we entered into a revolving credit agreement (Revolving Credit Agreement) with Wells Fargo Bank, N.A. as administrative agent and other banks identified therein as lenders. The Revolving Credit Agreement provides for a five-year unsecured revolving credit facility in the aggregate principal amount of $3.0 billion. There were no funds drawn from this facility during the year ended December 31, 2022.
On November 3, 2022, we established a new commercial paper program where we may issue unsecured commercial paper notes up to a maximum principal amount outstanding at any time of $3.0 billion with a maturity of up to 397 days from the date of issue. The commercial paper will be sold at a discount from par or, alternatively, will be sold at par and bear interest at rates that will vary based on market conditions at the time of issuance. As of December 31, 2022, we had no commercial paper outstanding.
As of December 31, 2022, we had unconditional purchase commitments of approximately $8.6 billion, of which $6.5 billion are in fiscal year 2023. On an ongoing basis, we work with our suppliers on the timing of payments and deliveries of purchase commitments, taking into account business conditions.
We believe our cash, cash equivalents, short-term investments and marketable securities balancecash flows from operations along with our Secured Revolving Credit Facility entered into in June 2019 (refer to Note 7 of “Notes to Consolidated Financial Statements for additional information)and commercial paper program will be sufficient to fund operations, including capital expenditures and purchase commitments, over the next 12 months.months and beyond. We believe we will be able to access the capital markets should we require additional funds. However, we cannot assure that such funds will be available on favorable terms, or at all.
Operating Activities
Our working capital cash inflows and outflows from operations consist primarily of cash collections from our customers, payments for inventory purchases and payments for employee-related expenditures.
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Net cash provided by operating activities was $493 million$3.6 billion in 20192022, primarily due to our net income of $1.3 billion in 2022, adjusted for non-cash adjustments of $4.1 billion and net cash outflows of $1.8 billion from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $1.4 billion increase in inventories driven primarily by build of advanced process nodes to support the ramp of new products, a $1.1 billion increase in accounts receivable driven primarily by higher revenue in the fourth quarter of 2022 compared to net cash provided by operating activitiesthe fourth quarter of $34 million in 2018. The2021, and a $1.2 billion increase in netprepaid expenses and other assets due primarily to prepayments under long-term supply agreements in 2022, offset by an $931 million increase in accounts payable primarily due to timing of payments to our suppliers, and a $546 million increase in accrued liabilities and other driven mainly by higher customer-related accruals.
Net cash provided by operating activities was $3.5 billion in 2021, primarily due to our higher net income of $3.2 billion in 2021, adjusted for non-cash adjustments of $1.1 billion and net cash outflows of $774 million from changes in working capital, largelyour operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $640 million increase in accounts receivable driven primarily by $1.6 billion higher revenue in the fourth quarter of 2021 compared to the fourth quarter of 2020, a $556 million increase in inventories driven by our continued increase in product build in support of customer demand, and a $920 million increase in prepaid expenses and other assets due primarily to prepayments under long-term supply agreements in 2021, offset by an $801 million increase in accounts payable primarily due to timing of payments to our suppliers, and a $526 million increase in accrued liabilities and other, both of which were driven mainly by higher marketing accruals, and higher accrued annual employee incentives due to improved financial performance.
Investing Activities
Net cash provided by investing activities was $2 billion in 2022, which primarily consisted of higher cash provided by maturities of short-term investments of $4.3 billion and cash acquired as part of the acquisition of Xilinx of $2.4 billion, partially offset by higher cash collections, partially offset by timingused for purchases of accounts payable paymentsshort-term investments of $2.7 billion, cash used in the acquisition of Pensando of $1.5 billion and higher wafer$450 million for purchases of property and payroll.
Net cash used in investing activities was $149$686 million in 2019,2021, which primarily consisted of $217higher cash used for purchases of short-term investments of $2.1 billion and $301 million for purchases of property and equipment, partially offset by a nethigher cash inflow from purchases andprovided by maturities of available-for-sale debt securitiesshort-term investments of $41 million.$1.7 billion.
Financing Activities
Net cash provided byused in financing activities was $43 million$3.3 billion in 2019,2022, which primarily consisted of a cash inflowcommon stock repurchases of $449$3.7 billion under the Repurchase Program, higher repurchases to cover tax withholding on employee equity plans of $406 million and repayment of debt of $312 million, partially offset by proceeds from the warrant exercised by West Coast Hitech L.P. (WCH)issuance of debt of $991 million and $74 millionhigher proceeds from the issuance of common stock under our stock-based compensationemployee equity plans of $167 million.
Net cash used in financing activities was $1.9 billion in 2021, which primarily consisted of common stock repurchases of $1.8 billion under the Repurchase Program and higher repurchases to cover tax withholding on employee equity plans of $237 million, partially offset by $473 million of cash used for debt reduction activities during the year.
| Payment due by period | |||||||||||||||||||||||||||
| (In millions) | Total | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 and thereafter | ||||||||||||||||||||
| Term debt | $ | 563 | $ | — | $ | — | $ | 312 | $ | — | $ | — | $ | 251 | |||||||||||||
Aggregate interest obligation (1) | 102 | 30 | 30 | 21 | 6 | 6 | 9 | ||||||||||||||||||||
Other long-term liabilities (2) | 155 | 54 | 50 | 48 | 1 | — | 2 | ||||||||||||||||||||
| Operating leases | 287 | 54 | 48 | 44 | 37 | 33 | 71 | ||||||||||||||||||||
Purchase obligations (3) | 2,290 | 1,677 | 592 | 10 | 4 | 2 | 5 | ||||||||||||||||||||
Total contractual obligations (4) | $ | 3,397 | $ | 1,815 | $ | 720 | $ | 435 | $ | 48 | $ | 41 | $ | 338 | |||||||||||||
Off-Balance Sheet Arrangements
As of December 28, 2019,31, 2022, we had no off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and long-term debt. We usually invest our cash in investments with short maturities or with frequent interest reset terms. Accordingly, our interest income fluctuates with short-term market conditions. As of December 28, 2019,31, 2022, our investment portfolio consisted primarily of fixed income instruments, time deposits and commercial paper. These investments were highly liquid. Due to the relatively short, weighted-average maturity ofOur primary aim with our investment portfolio is to invest available cash while preserving principal and meeting liquidity needs. In accordance with our investment policy, we place investments with high credit quality issuers and limit the current low interest rate environment, ouramount of credit exposure to any one issuer based upon the issuer's credit rating. These securities are subject to interest rate risk is minimal.and will decrease in value if market interest rates increase. A hypothetical 50 basis-point (half percentage point) increase or decrease in interest rates compared to rates at December 31, 2022 would have affected the fair value of our cash equivalent and investment portfolio by approximately $2.9 million.
As of December 28, 2019,31, 2022, all of our outstanding long-term debt had fixed interest rates. Consequently, our exposure to market risk for changes in interest rates on reported interest expense and corresponding cash flows is minimal.
We will continue to monitor our exposure to interest rate risk.
Default Risk. We mitigate default risk in our investment portfolio by investing in only high credit quality securities and by constantly positioning our portfolio to respond to a significant reduction in a credit rating of any investment issuer or guarantor. Our portfolio includes investments in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity. We are averse to principal loss and strive to preserve our invested funds by limiting default risk and market risk.
We actively monitor market conditions and developments specific to the securities and security classes in which we invest. We believe that we take a conservative approach to investing our funds in that we invest only in highly-rated debt securities with relatively short maturities and do not invest in securities which we believe involve a higher degree of risk. As of December 28, 2019,31, 2022, substantially all of our investments in debt securities were A-rated by at least one of the rating agencies. While we believe we take prudent measures to mitigate investment-related risks, such risks cannot be fully eliminated as there are circumstances outside of our control.
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 and thereafter | Total (1) | 2019 Fair Value (2) | ||||||||||||||||||||||||
| (In millions, except for percentages) | |||||||||||||||||||||||||||||||
| Investment Portfolio | |||||||||||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||||||||||
| Variable rate amounts | $ | 1,425 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,425 | $ | 1,425 | |||||||||||||||
| Weighted-average rate | 1.83 | % | — | % | — | % | — | % | — | % | — | % | 1.83 | % | |||||||||||||||||
| Marketable securities | |||||||||||||||||||||||||||||||
| Fixed rate amounts | $ | 37 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 37 | $ | 37 | |||||||||||||||
| Weighted-average rate | 2.13 | % | — | % | — | % | — | % | — | % | — | % | 2.13 | % | |||||||||||||||||
| Total Investment Portfolio | $ | 1,462 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,462 | $ | 1,462 | |||||||||||||||
| Debt Obligations | |||||||||||||||||||||||||||||||
| Fixed rate amounts | $ | — | $ | — | $ | 312 | $ | — | $ | — | $ | 251 | $ | 563 | $ | 1,823 | |||||||||||||||
Weighted-average effective interest rate | — | % | — | % | 7.50 | % | — | % | — | % | 2.125 | % | 5.10 | % | |||||||||||||||||
| Total Debt Obligations | $ | — | $ | — | $ | 312 | $ | — | $ | — | $ | 251 | $ | 563 | $ | 1,823 | |||||||||||||||
Foreign Exchange Risk. As a result of our foreign operations, we incur costs and we carry assets and liabilities that are denominated in foreign currencies, while sales of products are primarily denominated in U.S. dollars.
We maintain a foreign currency hedging strategy which uses derivative financial instruments to mitigate the risks associated with changes in foreign currency exchange rates. This strategy takes into consideration all of our exposures. We do not use derivative financial instruments for trading or speculative purposes.
The following table provides information about our foreign currency forward contracts as of December 28, 201931, 2022 and December 29, 2018.25, 2021. All of our foreign currency forward contracts mature within 1218 months.
| December 31, 2022 | December 25, 2021 | ||||||||||||||||||||||||||||||||||
| Notional Amount | Average Contract Rate | Estimated Fair Value Gain (Loss) | Notional Amount | Average Contract Rate | Estimated Fair Value Gain (Loss) | ||||||||||||||||||||||||||||||
| (In millions except contract rates) | |||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts: | |||||||||||||||||||||||||||||||||||
| Chinese Renminbi | $ | 599 | 6.7848 | $ | (3) | $ | 360 | 6.5693 | $ | 6 | |||||||||||||||||||||||||
| Canadian Dollar | 607 | 1.3137 | (16) | 416 | 1.2646 | (6) | |||||||||||||||||||||||||||||
| Indian Rupee | 516 | 82.1493 | (9) | 162 | 77.3309 | 1 | |||||||||||||||||||||||||||||
| Taiwan Dollar | 207 | 29.1231 | (4) | 122 | 27.2725 | (1) | |||||||||||||||||||||||||||||
| Singapore Dollar | 259 | 1.3600 | 4 | 71 | 1.3489 | — | |||||||||||||||||||||||||||||
| Euro | 142 | 0.9334 | 1 | 47 | 0.8444 | (2) | |||||||||||||||||||||||||||||
| Pound Sterling | 88 | 0.8204 | (1) | 6 | 0.7317 | — | |||||||||||||||||||||||||||||
| Japanese Yen | 2 | 133.7593 | — | 1 | 114.3214 | — | |||||||||||||||||||||||||||||
| Australian Dollar | 1 | 1.4689 | — | — | 1.3809 | — | |||||||||||||||||||||||||||||
| Total | $ | 2,421 | $ | (28) | $ | 1,185 | $ | (2) | |||||||||||||||||||||||||||
50
| December 28, 2019 | December 29, 2018 | ||||||||||||||||||||
Notional Amount | Average Contract Rate | Estimated Fair Value Gain (Loss) | Notional Amount | Average Contract Rate | Estimated Fair Value Gain (Loss) | ||||||||||||||||
| (In millions except contract rates) | |||||||||||||||||||||
| Foreign currency forward contracts: | |||||||||||||||||||||
| Chinese Renminbi | $ | 277 | 6.9890 | $ | (1 | ) | $ | 182 | 6.5733 | $ | (3 | ) | |||||||||
| Canadian Dollar | 249 | 1.3183 | 2 | 110 | 1.3007 | (5 | ) | ||||||||||||||
| Indian Rupee | 76 | 72.9476 | — | 45 | 72.2338 | — | |||||||||||||||
| Singapore Dollar | 50 | 1.3597 | — | 26 | 1.3478 | — | |||||||||||||||
| Euro | 48 | 0.8927 | 1 | — | — | — | |||||||||||||||
| Taiwan Dollar | 38 | 30.1873 | — | 21 | 29.6490 | — | |||||||||||||||
| Pound Sterling | 1 | 0.7614 | — | — | — | — | |||||||||||||||
| Malaysian Ringgit | — | 4.0889 | — | 12 | 4.1775 | — | |||||||||||||||
| Total | $ | 739 | $ | 2 | $ | 396 | $ | (8 | ) | ||||||||||||
Advanced Micro Devices, Inc.
Consolidated Statements of Operations
| Year Ended | |||||||||||
| December 28, 2019 | December 29, 2018 | December 30, 2017 | |||||||||
| (In millions, except per share amounts) | |||||||||||
| Net revenue | $ | 6,731 | $ | 6,475 | $ | 5,253 | |||||
| Cost of sales | 3,863 | 4,028 | 3,466 | ||||||||
| Gross profit | 2,868 | 2,447 | 1,787 | ||||||||
| Research and development | 1,547 | 1,434 | 1,196 | ||||||||
| Marketing, general and administrative | 750 | 562 | 516 | ||||||||
| Licensing gain | (60 | ) | — | (52 | ) | ||||||
| Operating income | 631 | 451 | 127 | ||||||||
| Interest expense | (94 | ) | (121 | ) | (126 | ) | |||||
| Other expense, net | (165 | ) | — | (9 | ) | ||||||
| Income (loss) before income taxes and equity loss | 372 | 330 | (8 | ) | |||||||
| Provision for (benefit from) income taxes | 31 | (9 | ) | 18 | |||||||
| Equity loss in investee | — | (2 | ) | (7 | ) | ||||||
| Net income (loss) | $ | 341 | $ | 337 | $ | (33 | ) | ||||
| Earnings (loss) per share | |||||||||||
| Basic | $ | 0.31 | $ | 0.34 | $ | (0.03 | ) | ||||
| Diluted | $ | 0.30 | $ | 0.32 | $ | (0.03 | ) | ||||
| Shares used in per share calculation | |||||||||||
| Basic | 1,091 | 982 | 952 | ||||||||
| Diluted | 1,120 | 1,064 | 952 | ||||||||
| Year Ended | |||||||||||||||||
| December 31, 2022 | December 25, 2021 | December 26, 2020 | |||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||
| Net revenue | $ | 23,601 | $ | 16,434 | $ | 9,763 | |||||||||||
| Cost of sales | 11,550 | 8,505 | 5,416 | ||||||||||||||
| Amortization of acquisition-related intangibles | 1,448 | — | — | ||||||||||||||
| Total cost of sales | 12,998 | 8,505 | 5,416 | ||||||||||||||
| Gross profit | 10,603 | 7,929 | 4,347 | ||||||||||||||
| Research and development | 5,005 | 2,845 | 1,983 | ||||||||||||||
| Marketing, general and administrative | 2,336 | 1,448 | 995 | ||||||||||||||
| Amortization of acquisition-related intangibles | 2,100 | — | — | ||||||||||||||
| Licensing gain | (102) | (12) | — | ||||||||||||||
| Operating income | 1,264 | 3,648 | 1,369 | ||||||||||||||
| Interest expense | (88) | (34) | (47) | ||||||||||||||
| Other income (expense), net | 8 | 55 | (47) | ||||||||||||||
| Income before income taxes and equity income | 1,184 | 3,669 | 1,275 | ||||||||||||||
| Income tax provision (benefit) | (122) | 513 | (1,210) | ||||||||||||||
| Equity income in investee | 14 | 6 | 5 | ||||||||||||||
| Net income | $ | 1,320 | $ | 3,162 | $ | 2,490 | |||||||||||
| Earnings per share | |||||||||||||||||
| Basic | $ | 0.85 | $ | 2.61 | $ | 2.10 | |||||||||||
| Diluted | $ | 0.84 | $ | 2.57 | $ | 2.06 | |||||||||||
| Shares used in per share calculation | |||||||||||||||||
| Basic | 1,561 | 1,213 | 1,184 | ||||||||||||||
| Diluted | 1,571 | 1,229 | 1,207 | ||||||||||||||
See accompanying notes to consolidated financial statements.
Advanced Micro Devices, Inc.
Consolidated Statements of Comprehensive Income (Loss)
| Year Ended | |||||||||||
| December 28, 2019 | December 29, 2018 | December 30, 2017 | |||||||||
| (In millions) | |||||||||||
| Net income (loss) | $ | 341 | $ | 337 | $ | (33 | ) | ||||
| Other comprehensive income (loss), net of tax of zero: | |||||||||||
| Unrealized gains (losses) on available-for-sale securities: | |||||||||||
| Unrealized gains arising during period | — | — | 1 | ||||||||
| Unrealized gains (losses) on cash flow hedges: | |||||||||||
| Unrealized gains (losses) arising during period | 2 | (19 | ) | 17 | |||||||
| Reclassification adjustment for (gains) losses realized and included in net income (loss) | 6 | 5 | (7 | ) | |||||||
| Total change in unrealized gains (losses) on cash flow hedges | 8 | (14 | ) | 10 | |||||||
| Cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2016-01, Financial Instruments | — | 2 | — | ||||||||
| Total comprehensive income (loss) | $ | 349 | $ | 325 | $ | (22 | ) | ||||
| Year Ended | |||||||||||||||||
| December 31, 2022 | December 25, 2021 | December 26, 2020 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Net income | $ | 1,320 | $ | 3,162 | $ | 2,490 | |||||||||||
| Other comprehensive income (loss) | |||||||||||||||||
| Net change in unrealized gains (losses) on cash flow hedges | (38) | (20) | 17 | ||||||||||||||
| Total comprehensive income | $ | 1,282 | $ | 3,142 | $ | 2,507 | |||||||||||
See accompanying notes to consolidated financial statements.
Advanced Micro Devices, Inc.
Consolidated Balance Sheets
| December 28, 2019 | December 29, 2018 | ||||||
| (In millions, except par value amounts) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 1,466 | $ | 1,078 | |||
| Marketable securities | 37 | 78 | |||||
| Accounts receivable, net | 1,859 | 1,235 | |||||
| Inventories, net | 982 | 845 | |||||
| Prepayment and receivables—related parties | 20 | 34 | |||||
| Prepaid expenses and other current assets | 233 | 270 | |||||
| Total current assets | 4,597 | 3,540 | |||||
| Property and equipment, net | 500 | 348 | |||||
| Operating lease right-of-use assets | 205 | — | |||||
| Goodwill | 289 | 289 | |||||
| Investment: equity method | 58 | 58 | |||||
| Other assets | 379 | 321 | |||||
| Total assets | $ | 6,028 | $ | 4,556 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Short-term debt, net | $ | — | $ | 136 | |||
| Accounts payable | 988 | 834 | |||||
| Payables to related parties | 213 | 207 | |||||
| Accrued liabilities | 1,084 | 783 | |||||
| Other current liabilities | 74 | 24 | |||||
| Total current liabilities | 2,359 | 1,984 | |||||
| Long-term debt, net | 486 | 1,114 | |||||
| Long-term operating lease liabilities | 199 | — | |||||
| Other long-term liabilities | 157 | 192 | |||||
| Commitments and contingencies (see Notes 17 and 18) | |||||||
| Stockholders’ equity: | |||||||
| Capital stock: | |||||||
| Common stock, par value $0.01; 2,250 shares authorized, 1,175 shares issued and 1,170 shares outstanding as of December 28, 2019; 2,250 shares authorized, 1,010 shares issued and 1,005 shares outstanding as of December 29, 2018 | 12 | 10 | |||||
| Additional paid-in capital | 9,963 | 8,750 | |||||
| Treasury stock, at cost (5 shares as of December 28, 2019 and December 29, 2018) | (53 | ) | (50 | ) | |||
| Accumulated deficit | (7,095 | ) | (7,436 | ) | |||
| Accumulated other comprehensive income (loss) | — | (8 | ) | ||||
| Total stockholders’ equity | 2,827 | 1,266 | |||||
| Total liabilities and stockholders’ equity | $ | 6,028 | $ | 4,556 | |||
| December 31, 2022 | December 25, 2021 | ||||||||||
| (In millions, except par value amounts) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 4,835 | $ | 2,535 | |||||||
| Short-term investments | 1,020 | 1,073 | |||||||||
| Accounts receivable, net | 4,126 | 2,706 | |||||||||
| Inventories | 3,771 | 1,955 | |||||||||
| Receivables from related parties | 2 | 2 | |||||||||
| Prepaid expenses and other current assets | 1,265 | 312 | |||||||||
| Total current assets | 15,019 | 8,583 | |||||||||
| Property and equipment, net | 1,513 | 702 | |||||||||
| Operating lease right-of-use assets | 460 | 367 | |||||||||
| Goodwill | 24,177 | 289 | |||||||||
| Acquisition-related intangibles | 24,118 | — | |||||||||
| Investment: equity method | 83 | 69 | |||||||||
| Deferred tax assets | 58 | 931 | |||||||||
| Other non-current assets | 2,152 | 1,478 | |||||||||
| Total assets | $ | 67,580 | $ | 12,419 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 2,493 | $ | 1,321 | |||||||
| Payables to related parties | 463 | 85 | |||||||||
| Accrued liabilities | 3,077 | 2,424 | |||||||||
| Current portion of long-term debt, net | — | 312 | |||||||||
| Other current liabilities | 336 | 98 | |||||||||
| Total current liabilities | 6,369 | 4,240 | |||||||||
| Long-term debt, net of current portion | 2,467 | 1 | |||||||||
| Long-term operating lease liabilities | 396 | 348 | |||||||||
| Deferred tax liabilities | 1,934 | 12 | |||||||||
| Other long-term liabilities | 1,664 | 321 | |||||||||
| Commitments and Contingencies (see Notes 16 and 17) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Capital stock: | |||||||||||
| Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,645 and 1,232; shares outstanding: 1,612 and 1,207 | 16 | 12 | |||||||||
| Additional paid-in capital | 58,005 | 11,069 | |||||||||
| Treasury stock, at cost (shares held: 33 and 25) | (3,099) | (2,130) | |||||||||
| Accumulated deficit | (131) | (1,451) | |||||||||
| Accumulated other comprehensive loss | (41) | (3) | |||||||||
| Total stockholders’ equity | 54,750 | 7,497 | |||||||||
| Total liabilities and stockholders’ equity | $ | 67,580 | $ | 12,419 | |||||||
See accompanying notes to consolidated financial statements.