AMD (ADVANCED MICRO DEVICES) 
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," "designed," 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: demand for AMD's products; the growth, change and competitive landscape of the markets in which AMD participates; expected seasonality trends; that unbilled accounts receivables are expected to be billed and collected within twelve months; 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; the level of international sales as compared to total sales; that AMD's cash and cash equivalents balances together with the availability under that certain revolving credit facility (Secured Revolving Facility) made available to AMD and certain of its subsidiaries under the Credit Agreement, will be sufficient to fund AMD's operations including capital expenditures over the next 12 months; AMD's ability to obtain sufficient external financing or external financing on favorable terms; AMD's expectation that based on the information presently known to management, the potential liability related to AMD's current litigation will not have a material adverse effect on its financial condition, cash flows or results of operations; that the COVID-19 pandemic will continue to impact our business; ongoing and increase in costs related to IT network security; and a small number of customers will continue to account for a substantial part of AMD's revenue in the future. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see "Part II, Item 1A-Risk Factors and such other risks and uncertainties as set forth below in this report or detailed in our otherSecurities and Exchange Commission (SEC) reports and filings. Many of these risks and uncertainties may be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. We assume no obligation to update forward-looking statements, except as may be required by law. AMD, the AMD Arrow logo, ATI, and the ATI logo, Athlon, EPYC, Radeon, Ryzen and combinations thereof, are trademarks ofAdvanced Micro Devices, Inc. Microsoft and Xbox One are trademarks or registered trademarks of Microsoft Corporation inthe United States and other jurisdictions. Other names are for informational purposes only and are used to identify companies and products and may be trademarks of their respective owners. "Zen" is a codename for an AMD architecture, and is not a product name. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report and our audited consolidated financial statements and related notes as ofDecember 28, 2019 andDecember 30, 2018 , and for each of the three years for the period endedDecember 28, 2019 as filed in our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . Overview We are a global semiconductor company primarily offering: •x86 microprocessors, as standalone devices or as incorporated into an accelerated processing unit (APU), chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services; and
•server and embedded processors, semi-custom System-on-Chip (SoC) products, development services and technology for game consoles.
We also license portions of our intellectual property (IP) portfolio.
In this section, we will describe the general financial condition and the
results of operations of
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results of operations for the three and six months ended June 27, 2020 compared
to the prior year period, an analysis of changes in our financial condition and
a discussion of our contractual obligations.
Net revenue for the three months ended June 27, 2020 was $1.9 billion , a 26%
increase compared to the prior year period. The increase was primarily due to a
45% increase in Computing and Graphics net revenue, partially offset by a 4%
decrease in Enterprise, Embedded and Semi-Custom net revenue. The increase in
Computing and Graphics segment net revenue was primarily due to higher sales of
our Ryzen™ processors. The decrease in Enterprise, Embedded and Semi-Custom net
revenue was primarily due to lower semi-custom revenue, partially offset by
higher EPYC™ server processor revenue.
Our operating income for the three months ended June 27, 2020 was $173 million
compared to operating income of $59 million for the prior year period. Our net
income for the three months ended June 27, 2020 was $157 million compared to net
income of $35 million for the prior year period. The increase in operating
income and net income was primarily driven by revenue growth and a greater
percentage of our Ryzen and EPYC server processor sales which more than offset
higher operating expenses.
Cash, cash equivalents and marketable securities as of June 27, 2020 were $1.8
billion , compared to $1.5 billion as of December 28, 2019 .
During the second quarter of 2020, we announced a number of new additions to our
3rd Gen AMD Ryzen desktop processor family. In April 2020 , we introduced the AMD
Ryzen 3 3100 and AMD Ryzen 3 3300X for the mainstream market. In addition, we
introduced the AMD B550 Chipset for Socket AM4 design for our 3rd Gen AMD Ryzen
desktop processors. In June 2020 , our 3rd Gen AMD Ryzen desktop processor family
was further expanded with AMD Ryzen 9 3900XT, AMD Ryzen 7 3800XT and AMD Ryzen 5
3600XT processors for the enthusiast market. We also broadened our AM4 platform
offerings with AMD B550 and A520 chipsets. We expanded our professional
offerings with the AMD Radeon™ Pro VII workstation graphics card designed for
broadcast and engineering professionals.
We continue to monitor the ongoing novel coronavirus (COVID-19) situation. While
many of our offices remain open to enable critical on-site business functions in
accordance with local government guidelines, most of our employees continue to
work from home. During the second quarter of 2020, the majority of our employees
in China returned to work and we resumed normal business operations subject to
local government health measures. While COVID-19 has impacted our business
operations and practices, and we expect that it may continue to impact our
business, we experienced limited financial disruption during the second quarter
of 2020 from COVID-19.
Our focus remains on promoting employee health and safety and supporting our
employees so that they can continue to be productive as they work from home. We
continue to monitor demand signals as we adjust our supply chain requirements
based on changing customer needs and demands. We also continue to 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.
We intend the discussion of our financial condition and results of operations
that follows to provide information that will assist you in understanding our
financial statements, the changes in certain key items in those financial
statements from year to year and quarter to quarter, the primary factors that
resulted in those changes, and how certain accounting principles, policies and
estimates affect our financial statements.
Results of Operations
We report our financial performance based on the following two reportable
segments: the Computing and Graphics segment and the Enterprise, Embedded and
Semi-Custom segment.
Additional information on our reportable segments is contained in Note
10-Segment Reporting of the notes to condensed consolidated financial statements
(Part I, Financial Information of this Form 10-Q).
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.
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--------------------------------------------------------------------------------The following table provides a summary of net revenue and operating income (loss) by segment:
Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2020 2019 2020 2019
(In millions)
Net revenue:
Computing and Graphics $ 1,367 $ 940 $ 2,805 $ 1,771
Enterprise, Embedded and Semi-Custom 565 591 913 1,032
Total net revenue $ 1,932 $ 1,531 $ 3,718 $ 2,803
Operating income (loss):
Computing and Graphics $ 200 $ 22 $ 462 $ 38
Enterprise, Embedded and Semi-Custom 33 89 7 157
All Other (60) (52) (119) (98)
Total operating income $ 173 $ 59 $ 350 $ 97
Computing and Graphics
Computing and Graphics net revenue of $1.4 billion for the three months ended
June 27, 2020 increased by 45%, compared to net revenue of $940 million for the
prior year period, primarily as a result of a 33% increase in unit shipments and
a 7% increase in average selling price. The increase in unit shipments was
primarily due to higher demand for our Ryzen processors. The increase in average
selling price was primarily driven by a richer mix of client processors from
higher sales of our Ryzen processors which have a higher average selling price,
partially offset by lower average selling price for our Radeon channel products.
Computing and Graphics net revenue of $2.8 billion for the six months ended June
27, 2020 increased by 58%, compared to net revenue of $1.8 billion for the prior
year period, primarily as a result of a 35% increase in unit shipments and a 13%
increase in average selling price. The increase in unit shipments was primarily
due to higher demand for our Ryzen processors. The increase in average selling
price was primarily driven by a richer mix of client processors from higher
sales of our Ryzen processors which have a higher average selling price,
partially offset by lower average selling price for our Radeon channel products
and data center GPUs.
Computing and Graphics operating income was $200 million for the three months
ended June 27, 2020 , compared to operating income of $22 million for the prior
year period. Computing and Graphics operating income was $462 million for the
six months ended June 27, 2020 , compared to operating income of $38 million for
the prior year period. The increase in operating income for both periods was
primarily driven by higher sales which more than offset higher operating
expenses. Operating expenses increased for the reasons outlined under "Expenses"
below.
Enterprise, Embedded and Semi-Custom
Enterprise, Embedded and Semi-Custom net revenue of $565 million for the three
months ended June 27, 2020 decreased by 4%, compared to net revenue of
$591 million for the prior year period. Enterprise, Embedded and Semi-Custom net
revenue of $913 million for the six months ended June 27, 2020 decreased by 12%,
compared to net revenue of $1.0 billion for the prior year period. The decrease
in both periods was primarily driven by lower semi-custom revenue, partially
offset by higher sales of our EPYC server processors.
Enterprise, Embedded and Semi-Custom operating income was $33 million for the
three months ended June 27, 2020 compared to operating income of $89 million for
the prior year period. The decrease in operating income was primarily due to
higher operating expenses and lower net revenue in the current period. Operating
expenses increased for the reasons outlined under "Expenses" below.
Enterprise, Embedded and Semi-Custom operating income was $7 million for the six
months ended June 27, 2020 compared to operating income of $157 million for the
prior year period. The decrease in operating income was primarily due to the
recognition of a $60 million licensing gain in the prior year period and higher
operating expenses in the current period. Operating expenses increased for the
reasons outlined under "Expenses" below.
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All Other
All Other operating loss consisted of $60 million of stock-based compensation
expense for the three months ended June 27, 2020 . All Other operating loss of
$52 million for the prior year period consisted of $45 million of stock-based
compensation expense and a $7 million contingent loss in connection with a legal
matter.
All Other operating loss consisted of $119 million of stock-based compensation
expense for the six months ended June 27, 2020 . All Other operating loss of
$98 million for the prior year period consisted of $86 million of stock-based
compensation expense and a $12 million contingent loss in connection with a
legal matter.
International Sales
International sales as a percentage of net revenue were 79% for the three months
ended June 27, 2020 and 71% for the prior year period. International sales as a
percentage of net revenue were 81% for the six months ended June 27, 2020 and
74% for the prior year period.
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 were denominated in U.S. dollars.
Comparison of Gross Margin, Expenses, Licensing Gain, Interest Expense, Other
Income (Expense) and Income Taxes
The following is a summary of certain condensed consolidated statement of
operations data for the periods indicated:
Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2020 2019 2020 2019
(In millions except for percentages)
Cost of sales $ 1,084 $ 910 $ 2,052 $ 1,661
Gross profit 848 621 1,666 1,142
Gross margin percentage 44 % 41 % 45 % 41 %
Research and development 460 373 902 746
Marketing, general and administrative 215 189 414 359
Licensing gain - - - (60)
Interest expense (14) (25) (27) (52)
Other income (expense), net 1 3 5 (4)
Income tax provision (benefit) 4 2 10 (11)
Gross Margin
Gross margin as a percentage of net revenue was 44% for the three months ended
June 27, 2020 , compared to 41% for the prior year period. Gross margin as a
percentage of net revenue was 45% for the six months ended June 27, 2020 ,
compared to 41% for the prior year period. The increase in gross margin for both
periods was primarily driven by a greater percentage of sales of Ryzen and EPYC
processors, which have a higher gross margin than the corporate average.
Expenses
Research and Development Expenses
Research and development expenses of $460 million for the three months ended
June 27, 2020 increased by $87 million , or 23%, compared to $373 million for the
prior year period. Research and development expenses of $902 million for the six
months ended June 27, 2020 increased by $156 million , or 21%, compared to
$746 million for the prior year period. The increase for both periods was
primarily due to an increase in product development costs in both the Computing
and Graphics and Enterprise and Embedded and Semi-Custom segments.
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Marketing, General and Administrative Expenses
Marketing, general and administrative expenses of $215 million for the three
months ended June 27, 2020 increased by $26 million , or 14%, compared to $189
million for the prior year period, primarily due to an increase in go to market
activities in the Enterprise, Embedded and Semi-Custom segment and higher
general and administrative expenses in both the Computing and Graphics and
Enterprise and Embedded and Semi-Custom segments.
Marketing, general and administrative expenses of $414 million for the six
months ended June 27, 2020 increased by $55 million , or 15%, compared to
$359 million for the prior year period, primarily due to an increase in go to
market activities and general and administrative expenses in both the Computing
and Graphics and Enterprise, Embedded and Semi-Custom segments.
Licensing Gain
During the six months ended June 29, 2019 , we recognized $60 million as
licensing gain associated with licensed IP to the THATIC JV. See Note 3-Related
Parties-Equity Joint Ventures of the Notes to Condensed Consolidated Financial
Statements (Part 1, Financial Information of this Form 10-Q) for additional
information. We did not recognize a licensing gain in the three and six months
ended June 27, 2020 .
Interest Expense
Interest expense for the three months ended June 27, 2020 was $14 million
compared to $25 million for the prior year period. Interest expense for the six
months ended June 27, 2020 was $27 million compared to $52 million for the prior
year period. The decrease for both periods was due to lower debt balances.
Other Income (Expense), Net
Other income, net was $1 million for the three months ended June 27, 2020 ,
compared to Other income, net of $3 million for the prior year period.
Other income, net was $5 million for the six months ended June 27, 2020 ,
compared to Other expense, net of $4 million for the prior year period. The
change was primarily due to the recognition of $8 million loss on extinguishment
of debt in the prior year period.
Income Tax Provision (Benefit)
For the three months ended June 27, 2020 , we recorded an income tax provision of
$4 million associated with foreign income taxes and withholding taxes. For the
prior year period, we recorded an income tax provision of $2 million , consisting
primarily of foreign income taxes in profitable locations.
For the six months ended June 27, 2020 , we recorded an income tax provision of
$10 million associated with foreign income taxes and withholding taxes. For the
prior year period, we recorded an income tax benefit of $11 million , consisting
primarily of a $13 million credit to U.S. income taxes due to the completion of
certain internal tax structuring and $2 million of foreign income taxes in
profitable locations.
We regularly evaluate the realizability of our net deferred tax assets. As of
June 27, 2020 , substantially all our U.S. and foreign deferred tax assets, net
of deferred tax liabilities, were subject to valuation allowances. If our
financial results continue to improve, our assessment of the realization of our
net deferred tax assets could result in the release of some or all the valuation
allowances. Such a release would result in a material non-cash income tax
benefit in our condensed consolidated statement of operations in the period of
release and the recording of additional deferred tax assets on our condensed
consolidated balance sheet. There is a reasonable possibility that within the
next several quarters, sufficient positive evidence becomes available to reach a
conclusion that all or a significant portion of the valuation allowances against
our US net deferred tax assets would no longer be required.
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FINANCIAL CONDITION
Liquidity and Capital Resources
As of June 27, 2020 , our cash and cash equivalents were $1.8 billion , compared
to $1.5 billion of cash, cash equivalents and marketable securities as of
December 28, 2019 . The percentage of cash and cash equivalents held domestically
was 96% as of June 27, 2020 and 90% as of December 28, 2019 .
Our operating, investing and financing activities for the six months ended June
27, 2020 compared to the prior year period are as described below:
Six Months Ended
June 27, June 29,
2020 2019
(In millions)
Net cash provided by (used in):
Operating activities $ 178 $ (183)
Investing activities $ (109) $ (180)
Financing activities $ 240 $ 248
The aggregate principal amount of our outstanding debt obligations was
$763 million and $563 million as of June 27, 2020 and December 28, 2019 ,
respectively. On July 6, 2020 , we repaid the $200 million borrowing under the
Secured Revolving Facility (refer to Note 4-Debt and Secured Revolving Facility
of the notes to condensed consolidated financial statements).
We believe our cash and cash equivalents along with our Secured Revolving
Facility will be sufficient to fund operations, including capital expenditures,
over the next 12 months. 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
Net cash provided by operating activities was $178 million for the six months
ended June 27, 2020 compared to net cash used in operating activities of $183
million for the prior year period. The increase was primarily due to higher net
income and an increase in cash collections on accounts receivable, partially
offset by an increase in inventory purchases compared with the prior year
period.
Investing Activities
Net cash used in investing activities was $109 million for the six months ended
June 27, 2020 , which primarily consisted of $146 million for purchases of
property and equipment and $55 million for purchases of available-for-sale debt
securities, partially offset by $92 million for maturities of available-for-sale
debt securities.
Net cash used in investing activities was $180 million for the six months ended
June 29, 2019 , which primarily consisted of $231 million for purchases of
available-for-sale debt securities and $120 million for purchases of property
and equipment, partially offset by $144 million for maturities of
available-for-sale debt securities.
Financing Activities
Net cash provided by financing activities was $240 million for the six months
ended June 27, 2020 , which primarily consisted of proceeds from short-term
borrowing of $200 million and from the issuance of common stock under our
employee equity plans of $42 million .
Net cash provided by financing activities was $248 million for the six months
ended June 29, 2019 , which primarily consisted of a cash inflow of $449 million
from the warrant exercised by West Coast Hitech L.P. and $35 million from the
issuance of common stock under our employee equity plans, partially offset by
$234 million cash outflows for the redemption of our 6.75% Senior Notes due
2019, repurchase of some of our 7.50% Senior Notes due 2020 and 7.00% Senior
Notes due 2024, and repayment of our outstanding loan balance of $70 million
when we terminated our secured revolving line of credit under the Amended and
Restated Loan and Security Agreement dated as of April 14, 2015 .
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--------------------------------------------------------------------------------Contractual Obligations
Other than the$200 million borrowing under the Secured Revolving Facility, there were no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . The Company subsequently repaid the$200 million borrowing under the Secured Revolving Facility onJuly 6, 2020 . Refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 for details of our contractual obligations. Off-Balance Sheet Arrangements As ofJune 27, 2020 , we had no off-balance sheet arrangements. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance withU.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 condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our net revenue, inventories, asset impairments 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 our 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 there have been no significant changes for the three and six months endedJune 27, 2020 to the items that we disclosed as our critical accounting estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . 23
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