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," 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 onAMD's condensed consolidated financial statements; demand forAMD's products; the growth, change and competitive landscape of the markets in whichAMD participates; international sales will continue to be a significant portion of total sales in the foreseeable future; thatAMD's cash, cash equivalents and short-term investment balances together with the availability under that certain revolving credit facility (the Revolving Credit Agreement) made available toAMD and certain of its subsidiaries under the Credit Agreement, and our cash flows from operations will be sufficient to fundAMD's operations including capital expenditures and purchase commitments over the next 12 months;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, the potential liability related toAMD's current litigation will not have a material adverse effect on its financial condition, cash flows or results of operations; anticipated ongoing and increased 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 over the next 12 months; a small number of customers will continue to account for a substantial part ofAMD's revenue in the future; and the expected timing of the closing ofAMD's acquisition ofPensando Systems Inc. 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 the "Financial Condition" section set forth in "Part I, Item 2-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 otherSecurities and Exchange Commission (SEC) reports and filings. We assume no obligation to update forward-looking statements.
References in this Quarterly Report on Form 10-Q to "
AMD , theAMD Arrow logo,AMD Instinct,AMD RDNA, EPYC, Radeon, Ryzen, Threadripper, Versal, Xilinx 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. PlayStation is a registered trademark or trademark ofSony Interactive Entertainment, Inc. 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 code name for anAMD 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 25, 2021 andDecember 26, 2020 , and for each of the three years for the period endedDecember 25, 2021 as filed in our Annual Report on Form 10-K for the fiscal year endedDecember 25, 2021 . 26
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Overview and Recent Developments
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.
From time to time, we may also sell or license portions of our intellectual property (IP) portfolio
OnFebruary 14, 2022 , we completed the acquisition of Xilinx, Inc. (Xilinx) for a total purchase consideration of$48.8 billion . Xilinx expands our product portfolio to include adaptable hardware platforms that enable hardware acceleration and rapid innovation across a variety of technologies. With the acquisition of Xilinx, we now offer Field Programmable Gate Arrays (FPGAs), adaptive SoC products, and Adaptive Compute Acceleration Platform (ACAP) products. In this section, we will describe the general financial condition and the results of operations ofAdvanced Micro Devices, Inc. and its wholly-owned subsidiaries (collectively, "us," "our" or "AMD"), including a discussion of our results of operations for the three months endedMarch 26, 2022 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 endedMarch 26, 2022 was$5.9 billion , a 71% increase compared to the prior year period. The increase was due to a 33% increase in Computing and Graphics net revenue, an 88% increase in Enterprise, Embedded and Semi-Custom net revenue and$559 million of net revenue from Xilinx for the period fromFebruary 14, 2022 , the date of acquisition, toMarch 26, 2022 . The increase in Computing and Graphics segment net revenue was primarily due to higher sales of our Ryzen™ and Radeon™ processors. The increase in Enterprise, Embedded and Semi-Custom net revenue was primarily due to higher EPYC™ processor revenue, semi-custom revenue and embedded product sales. Gross margin in the first quarter of 2022 improved compared to the first quarter of 2021. Gross margin for the three months endedMarch 26, 2022 was 48% compared to gross margin of 46% for the prior year period. The increase in gross margin was primarily driven by higher server processor revenue and the inclusion of Xilinx high margin revenue, partially offset by amortization of intangible assets and acquisition-related costs. Our operating income for the three months endedMarch 26, 2022 was$951 million compared to operating income of$662 million for the prior year period. The increase in operating income was primarily driven by strong revenue growth and higher gross margin which more than offset higher operating expenses, amortization of intangible assets and acquisition-related costs. Our net income for the three months endedMarch 26, 2022 was$786 million compared to net income of$555 million for the prior year period. The increase in net income was primarily driven by higher operating income, partially offset by a higher income tax provision. As ofMarch 26, 2022 , our cash, cash equivalents and short-term investments were$6.5 billion , compared to$3.6 billion as ofDecember 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 Xilinx onFebruary 14, 2022 . As ofMarch 26, 2022 , the principal amount of our outstanding debt obligations was$1.8 billion , which includes$1.5 billion of debt assumed from Xilinx, compared to$313 million as ofDecember 25, 2021 .
During the first quarter of 2022, we furthered our product roadmap by
introducing a number of new products. We introduced our 3rd Gen
We expanded our lineup of high-performanceAMD Ryzen desktop processors with the introduction of theAMD Ryzen 7 5800X3D processor, the firstAMD Ryzen processor to featureAMD 3D V-Cache technology to improve gaming performance. In addition, we announced the availability of 6 new "Zen 3" and "Zen 2" mainstreamAMD 27
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Ryzen desktop processors. For workstations, we introduced the new
We launched the new
We also introduced the 7nm Xilinx Versal™ ACAP VCK5000 development card designed to offer leadership AI inference performance. InMarch 2022 , we began to ship the Versal HBM series to customers, the industry's first adaptable platform with integrated HBM2e. The Versal HBM series combines fast memory, modern security features and adaptable compute in a single platform. During the first quarter of 2022, we experienced limited disruptions due to the COVID-19 pandemic. We continue to monitor our operations and public health measures implemented by governmental authorities in response to the pandemic. We are focused on the health and safety of our employees and are taking safety measures to protect our employees who are in the office and support those employees who work from home. InMay 2021 , our Board of Directors approved a stock repurchase program of up to$4 billion of our common stock (Existing Repurchase Program). InFebruary 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"). During the three months endedMarch 26, 2022 , we repurchased 15.8 million shares of our common stock for$1.9 billion under the stock Repurchase Program. As ofMarch 26, 2022 ,$8.3 billion remains available for future stock repurchases under the Repurchase Program. The stock 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 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 Policies and 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 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 consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenue, inventories, goodwill, intangibles 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. As a result of our acquisition of Xilinx, we believe the following critical accounting estimates, in addition to those 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 25, 2021 , are the most significant to the presentation of our financial statements and require the most difficult, subjective and complex judgments. Except as noted below, management believes there have been no significant changes for the three months endedMarch 26, 2022 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 25, 2021 . Business Combination. 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 certain intangible assets include, but are not limited to, future expected cash flows from acquired technology and trade names, based on expected future revenue growth rates and margins, future changes in technology, useful lives, and discount rates. 28
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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.
Impairment of 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. 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 assets 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 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 amongst the factors affecting impairment of assets held for sale. Changes in any of these factors could necessitate impairment recognition in future periods for assets held for use or assets held for sale.
Long-lived assets such as property and equipment and intangible assets are considered non-financial assets and are measured at fair value when indicators of impairment exist.
Global Intangible Low-Taxed Income (GILTI). In 2022, we elected to change our method of accounting for the United States GILTI tax from recording the tax impact in the period it is incurred to recognizing deferred taxes for temporary tax basis differences expected to reverse as GILTI tax in future years. The change is considered preferable based on our facts and circumstances as it provides better and more timely information of expected future income tax liabilities arising from temporary tax differences primarily associated with the Xilinx acquisition. As a result of the acquisition, we recorded$27.3 billion of identified intangible assets (refer to Note 4 - Business Combination), of which$16.9 billion are related to foreign operations which will be amortized to income from operations over the assets' estimated useful lives, but for which we will not receive a tax deduction under GILTI. Recognition of deferred taxes for the future GILTI impact of this amount is considered preferable as it provides better information about our potential future tax liabilities based on current transactions. This accounting policy change resulted in the recording of$863 million of deferred tax liabilities in connection with the Xilinx acquisition as disclosed in Note 11 - Income Taxes. In addition, for the three months endedMarch 26, 2022 , it resulted in a decrease in income tax provision with a corresponding increase to net income of$71 million , and an increase in basic and diluted earnings per share of$0.05 , as compared to the computation under the previous accounting policy. This accounting policy change had no material impact on our historical consolidated financial statements.
Results of Operations
We report our financial performance based on the following three reportable segments: Computing and Graphics, Enterprise, Embedded and Semi-Custom, and Xilinx. During the three months endedMarch 26, 2022 , we added Xilinx as a separate operating segment, consistent with the revised manner in which our CODM assesses our financial performance and allocates resources. Additional information on our reportable segments is contained in Note 12-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 this trend. 29
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The following table provides a summary of net revenue and operating income
(loss) by segment:
Three Months Ended
March 26, March 27,
2022 2021
(In millions)
Net revenue:
Computing and Graphics $ 2,802 $ 2,100
Enterprise, Embedded and Semi-Custom 2,526 1,345
Xilinx 559 -
Total net revenue $ 5,887 $ 3,445
Operating income (loss):
Computing and Graphics $ 723 $ 485
Enterprise, Embedded and Semi-Custom 881 277
Xilinx 233 -
All Other (886) (100)
Total operating income $ 951 $ 662
Computing and Graphics
Computing and Graphics net revenue of $2.8 billion for the three months ended
March 26, 2022 increased by 33%, compared to net revenue of $2.1 billion for the
prior year period, primarily as a result of a 42% increase in average selling
price, partially offset by a 7% decrease in unit shipments. The increase in
average selling price was primarily driven by a richer mix of Ryzen and Radeon
products. The lower unit shipments were primarily driven by a strategic focus on
premium and higher end products in a tight supply environment.
Computing and Graphics operating income was $723 million for the three months
ended March 26, 2022 , compared to operating income of $485 million for the prior
year period. 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.
Enterprise, Embedded and Semi-Custom
Enterprise, Embedded and Semi-Custom net revenue of$2.5 billion for the three months endedMarch 26, 2022 increased by 88%, compared to net revenue of$1.3 billion for the prior year period. The increase was driven by higher EPYC processor revenue, semi-custom revenue and embedded product sales. Enterprise, Embedded and Semi-Custom operating income was$881 million for the three months endedMarch 26, 2022 compared to operating income of$277 million for the prior year period. The increase in operating income was primarily due to the higher revenue and higher licensing gain in the segment which more than offset higher operating expenses. Operating expenses increased for the reasons outlined under "Expenses" below.
Xilinx
Xilinx net revenue was$559 million for the three months endedMarch 26, 2022 . Xilinx operating income was$233 million for the three months endedMarch 26, 2022 . All Other All Other operating loss of$886 million for the three months endedMarch 26, 2022 consisted of$479 million of amortization of acquisition-related intangibles,$199 million of stock-based compensation expense, and$208 million of acquisition-related costs, which primarily include transaction costs, amortization of Xilinx inventory fair value step-up adjustment, depreciation related to the Xilinx fixed assets fair value step-up adjustment, and certain compensation charges related to the acquisition of Xilinx.
All Other operating loss of
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International Sales
International sales as a percentage of net revenue were 69% and 76% for the three months endedMarch 26, 2022 andMarch 27, 2021 , respectively. 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 inU.S. dollars.
Comparison of Gross Margin, Expenses, Licensing Gain, Interest Expense, Other Expense and Income Taxes
The following is a summary of certain condensed consolidated statement of operations data for the periods indicated:
Three Months Ended
March 26, March 27,
2022 2021
(In millions except for percentages)
Net revenue $ 5,887 $ 3,445
Cost of sales 2,883 1,858
Amortization of acquisition-related intangibles 186 -
Gross profit 2,818 1,587
Gross margin 48 % 46 %
Research and development 1,060 610
Marketing, general and administrative 597 319
Amortization of acquisition-related intangibles 293 -
Licensing gain (83) (4)
Interest expense (13) (9)
Other expense, net (42) (11)
Income tax provision 113 89
Equity income in investee 3 2
Gross Margin
Gross margin was 48% and 46% for the three months ended March 26, 2022 and March
27, 2021 , respectively. The increase was primarily driven by higher server
processor revenue and the inclusion of Xilinx high margin revenue, partially
offset by amortization of intangible assets and acquisition-related costs.
Expenses
Research and Development Expenses
Research and development expenses of$1.1 billion for the three months endedMarch 26, 2022 increased by$450 million , or 74%, compared to$610 million for the prior year period. The increase was primarily driven by an increase in headcount, the addition of Xilinx and an increase in product development costs.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses of$597 million for the three months endedMarch 26, 2022 increased by$278 million , or 87%, compared to$319 million for the prior year period. The increase was due to the addition of Xilinx, an increase in go-to-market activities, an increase in headcount, and higher acquisition-related costs.
Amortization of Acquisition-Related Intangibles
Cost of sales and operating expense includes
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Licensing Gain
During the three months endedMarch 26, 2022 , we recognized$83 million of licensing gain from a milestone achievement and royalty income and during the three months endedMarch 27, 2021 , we recognized$4 million of licensing gain from royalty income, both associated with licensed IP.
Interest Expense
Interest expense for the three months ended
Other Income (Expense), Net
Other expense, net was$42 million for the three months endedMarch 26, 2022 , compared to$11 million of Other expense, net for the prior year period. The change was primarily due to a decrease of$44 million in the fair value of equity investments in the first quarter of 2022, partially offset by lower impairment on investment of$8 million and losses from the conversion of our convertible debt of$6 million in the first quarter of 2021.
Income Tax Provision
We recorded an income tax provision of
The difference between theU.S. federal statutory tax rate of 21% and our effective tax rate for the three months endedMarch 26, 2022 was primarily due to the geographic mix of income taxed in lower tax rate jurisdictions, research credits and the beneficial rate impact from the foreign-derived intangible income tax benefit (FDII), which was partially offset by theU.S. tax on GILTI.
The difference between the
As ofMarch 26, 2022 , we continued to maintain a valuation allowance 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 allowance maintained is due to lack of sufficient sources of taxable income.
During the quarter ended
As a result of the acquisition of Xilinx, we recorded
FINANCIAL CONDITION
Liquidity and Capital Resources
As ofMarch 26, 2022 , our cash, cash equivalents and short-term investments were$6.5 billion , compared to$3.6 billion as ofDecember 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 Xilinx onFebruary 14, 2022 . The percentage of cash, cash equivalents and short-term investments held domestically were 79% and 91% as ofMarch 26, 2022 andDecember 25, 2021 , respectively. 32
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Our operating, investing and financing activities for the three months ended
Three Months Ended
March 26 , March 27,
2022 2021
(In millions)Net cash provided by (used in):
Operating activities $ 995 $ 898
Investing activities 3,158 (722)
Financing activities (1,948) (8)
Net increase in cash and cash equivalents $ 2,205 $ 168
As ofMarch 26, 2022 , our principal debt obligations were$1.8 billion , which includes$1.5 billion of debt assumed from Xilinx, compared to$313 million as ofDecember 25, 2021 . OnApril 29, 2022 , we entered into a revolving credit agreement (Revolving Credit Agreement) withWells 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 . Also, onApril 29, 2022 , we terminated our$500 million revolving credit agreement dated as ofJune 7, 2019 . We believe our cash, cash equivalents, short-term investments and cash flows from operations along with our Revolving Credit Agreement will be sufficient to fund operations, including capital expenditures and purchase commitments, over the next 12 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 are primarily cash collections from our customers, payments for inventory purchases and payments for employee-related expenditures. Net cash provided by operating activities was$1.0 billion in the three months endedMarch 26, 2022 , primarily due to our net income of$786 million , adjusted for non-cash and non-operating charges of$631 million and net cash outflows of$422 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a$672 million increase in accounts receivable driven primarily by higher revenue in the first fiscal quarter of 2022 and a$260 million increase in prepaid expenses and other assets driven primarily by prepayments under long-term supply agreements, partially offset by a$412 million increase in accrued liabilities and other driven primarily by higher customer-related accruals. Net cash provided by operating activities was$898 million in the three months endedMarch 27, 2021 , primarily due to our net income of$555 million , adjusted for non-cash and non-operating charges of$286 million and net cash inflows of$57 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a$466 million increase in accounts payable due to timing of payments to our suppliers, partially offset by a$112 million increase in accounts receivable driven primarily by higher revenue in the first quarter of 2021 compared to the fourth quarter of 2021, and a$254 million increase in inventories driven by an increase in product build in support of customer demand. 33
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Investing Activities
Net cash provided by investing activities was$3.2 billion for the three months endedMarch 26, 2022 which primarily consisted of$2.4 billion of cash received from Xilinx in the acquisition and$964 million of proceeds from the maturity of short-term investments, partially offset by purchases of short-term investments of$100 million and purchases of property and equipment of$71 million . Net cash used in investing activities was$722 million for the three months endedMarch 27, 2021 which primarily consisted of$858 million for purchases of short-term investments and$66 million for purchases of property and equipment, partially offset by$200 million for maturities of short-term investments.
Financing Activities
Net cash used in financing activities was$1.9 billion for the three months endedMarch 26, 2022 , which primarily consisted of common stock repurchases of$1.9 billion and repurchases for tax withholding on employee equity plans of$35 million , partially offset by a cash inflow of$2 million from issuance of common stock under our employee equity plans. Net cash used in financing activities was$8 million for the three months endedMarch 27, 2021 , which primarily consisted of common stock repurchases for tax withholding on employee equity plans of$10 million , partially offset by a cash inflow of$2 million from exercises of stock options under our employee equity plans. 34
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