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
condensed consolidated financial statements; demand for AMD's products; the
growth, change and competitive landscape of the markets in which AMD
participates; international sales will continue to be a significant portion of
total sales in the foreseeable future; that AMD's cash, cash equivalents and
short-term investment balances together with the availability under that certain
revolving credit facility (the Revolving Credit 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 on favorable terms, or at
all; 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; 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 of AMD's revenue in the future; and the acquisition of
Xilinx, Inc. is currently expected to close by the end of calendar year 2021.
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 below, and such other
risks and uncertainties as set forth 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.
AMD, the AMD Arrow logo, ATI, and the ATI logo, Athlon, EPYC, Radeon, Ryzen,
Threadripper and combinations thereof, are trademarks of Advanced Micro Devices,
Inc. Microsoft and Xbox One are trademarks or registered trademarks of Microsoft
Corporation in the 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 code name 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 of
December 26, 2020 and December 28, 2019, and for each of the three years for the
period ended December 26, 2020 as filed in our Annual Report on Form 10-K for
the fiscal year ended December 26, 2020.
Overview
We are a global semiconductor company. Our products include x86 microprocessors
(CPUs), accelerated processing units which integrate microprocessors and
graphics (APUs), discrete graphics processing units (GPUs), semi-custom
System-on-Chip (SOC) products and chipsets for the PC, gaming, datacenter and
embedded markets. In addition, we provide development services and sell or
license portions of our intellectual property portfolio.
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 the three and six months ended June 26, 2021 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 26, 2021 was $3.9 billion, a 99%
increase compared to the prior year period. The increase was due to a 65%
increase in Computing and Graphics net revenue and a 183% increase 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 and Radeon™ products. The increase in
                                       19
--------------------------------------------------------------------------------
  Table of Contents
Enterprise, Embedded and Semi-Custom net revenue was primarily due to higher
semi-custom revenue and EPYC™ server processor revenue.
Gross margin for the three months ended June 26, 2021 was 48% compared to gross
margin of 44% for the prior year period. The increase in gross margin was
primarily driven by a richer mix of sales, including high-end Ryzen, Radeon and
EPYC processor sales.
Our operating income for the three months ended June 26, 2021 was $831 million
compared to operating income of $173 million for the prior year period. The
increase in operating income was primarily driven by strong revenue growth which
more than offset higher operating expenses.
Our net income for the three months ended June 26, 2021 was $710 million
compared to net income of $157 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.
Cash, cash equivalents and short-term investments as of June 26, 2021 were $3.8
billion, compared to $2.3 billion as of December 26, 2020. The aggregate
principal amount of our outstanding debt obligations was $313 million and
$338 million as of June 26, 2021 and December 26, 2020, respectively.
During the second quarter of 2021, we introduced the new AMD Radeon RX 6000M
Series Mobile Graphics designed for high-performance gaming laptops and we
announced the AMD Advantage™ Design Framework to deliver best-in-class gaming
experiences. AMD Advantage systems combine AMD Radeon RX 6000M Series Mobile
Graphics, AMD Radeon Software and AMD Ryzen 5000 Series Mobile Processors with
AMD smart technologies. We also introduced our AMD FidelityFX Super Resolution
software for game developers to help deliver a high-quality, high-resolution
gaming experience. In June 2021, we announced our AMD Radeon PRO W6000 series
workstation graphics for professional users who have demanding architectural
design workloads, ultra-high resolution media projects, complex design and
engineering simulations and advanced image and video editing applications.
Amid the COVID-19 pandemic, we continue to focus on the health and safety of our
employees. We monitor and take safety measures to protect our employees who are
in the office and support those employees who work from home so that they can be
productive. Our offices remain open to enable critical on-site business
functions in accordance with local government guidelines. The majority of our
employees in China and Singapore work on site subject to local government health
measures and in July 2021, our US employees began to return to the office in
accordance with health and safety protocols. In the other geographies in which
we operate, the majority of our employees continued to work from home during the
second quarter of 2021. The current COVID-19 pandemic continues to impact our
business operations and practices, and while we expect that it may continue to
impact our business, we experienced limited financial disruption during the
second quarter of 2021.
As part of our strategy to establish AMD as the industry's high performance
computing leader, we announced in October 2020 that we entered into a definitive
agreement to acquire Xilinx, Inc. in an all-stock transaction. On April 7, 2021,
our stockholders and Xilinx's stockholders voted to approve their respective
proposals relating to the pending acquisition of Xilinx by AMD. Effective as of
June 29, 2021, the United Kingdom's Competition and Markets Authority, and
effective as of June 30, 2021, the European Commission issued approvals of the
Merger. The completion of the Merger remains subject to other closing
conditions, including the receipt of certain approvals and clearances required
under the competition laws of certain other foreign jurisdictions. The closing
of the Merger is subject to customary conditions, including regulatory approval,
and is currently expected to occur by the end of calendar year 2021.
In May 2021, we announced that our Board of Directors approved a new stock
repurchase program to purchase up to $4 billion of our outstanding common stock
in the open market. During the three and six months ended June 26, 2021, we
repurchased 3 million shares of our common stock under the Repurchase Program,
for a total cash outlay of $256 million. As of June 26, 2021, $3.7 billion
remains 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.
Also in May 2021, we entered into an amendment (the A&R Seventh Amendment) to
the Wafer Supply Agreement (WSA) with GLOBALFOUNDRIES Inc. (GF) to extend GF's
capacity commitment and pricing for wafers purchased at the 12 nm and 14 nm
technology nodes by us through December 31, 2024. Specifically, GF agreed to a
minimum annual capacity allocation to the Company for years 2022, 2023 and 2024.
The A&R Seventh Amendment also removes all prior exclusivity commitments and
provides us with full flexibility to contract with any wafer foundry with
                                       20
--------------------------------------------------------------------------------
  Table of Contents
respect to all products manufactured at any technology node. Further, the
parties agreed to pricing and annual wafer purchase targets for years 2022, 2023
and 2024, and we agreed to pre-pay GF certain amounts for those wafers in 2022
and 2023. 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.
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.
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
11-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.
The following table provides a summary of net revenue and operating income
(loss) by segment:
                                             Three Months Ended              Six Months Ended
                                           June 26,         June 27,      June 26,       June 27,
                                             2021             2020          2021           2020
                                                              (In millions)
Net revenue:
Computing and Graphics                 $    2,250          $  1,367      $   4,350      $  2,805
Enterprise, Embedded and Semi-Custom        1,600               565          2,945           913

Total net revenue                      $    3,850          $  1,932      $   7,295      $  3,718
Operating income (loss):
Computing and Graphics                 $      526          $    200      $   1,011      $    462
Enterprise, Embedded and Semi-Custom          398                33            675             7
All Other                                     (93)              (60)          (193)         (119)
Total operating income                 $      831          $    173      $   1,493      $    350


Computing and Graphics

Computing and Graphics net revenue of $2.3 billion for the three months ended
June 26, 2021 increased by 65%, compared to net revenue of $1.4 billion for the
prior year period, primarily as a result of a 5% increase in unit shipments and
a 58% increase in average selling price. Computing and Graphics net revenue of
$4.4 billion for the six months ended June 26, 2021 increased by 55%, compared
to net revenue of $2.8 billion for the prior year period, primarily as a result
of a 9% increase in unit shipments and a 44% increase in average selling price.
The increase in unit shipments for both periods was primarily due to higher
demand for our Ryzen processors. The increase in average selling price for both
periods was primarily driven by a richer mix of client and graphics processors.
Computing and Graphics operating income was $526 million for the three months
ended June 26, 2021, compared to operating income of $200 million for the prior
year period. Computing and Graphics operating income was $1.0 billion for the
six months ended June 26, 2021, compared to operating income of $462 million for
the prior year period. The increase in operating income for both periods was
primarily due to higher revenue which more than offset higher operating
expenses. Operating expenses increased for the reasons outlined under "Expenses"
below.
                                       21
--------------------------------------------------------------------------------
  Table of Contents
Enterprise, Embedded and Semi-Custom
Enterprise, Embedded and Semi-Custom net revenue of $1.6 billion for the three
months ended June 26, 2021 increased by 183%, compared to net revenue of
$565 million for the prior year period. Enterprise, Embedded and Semi-Custom net
revenue of $2.9 billion for the six months ended June 26, 2021 increased by
223%, compared to net revenue of $913 million for the prior year period. The
increase for both periods was primarily driven by higher semi-custom revenue and
higher sales of our EPYC server processors.
Enterprise, Embedded and Semi-Custom operating income was $398 million for the
three months ended June 26, 2021 compared to operating income of $33 million for
the prior year period. Enterprise, Embedded and Semi-Custom operating income was
$675 million for the six months ended June 26, 2021 compared to operating income
of $7 million for the prior year period. The increase in operating income for
both periods was due to higher revenue which more than offset higher operating
expenses. Operating expenses increased for the reasons outlined under "Expenses"
below.
All Other
All Other operating loss of $93 million for the three months ended June 26, 2021
consisted of $83 million of stock-based compensation expense and $10 million of
acquisition-related costs. All Other operating loss of $60 million for the prior
year period consisted of stock-based compensation expense.
All Other operating loss of $193 million for the six months ended June 26, 2021
consisted of $168 million of stock-based compensation expense and $25 million of
acquisition-related costs. All Other operating loss of $119 million for the
prior year period consisted of stock-based compensation expense.
International Sales
International sales as a percentage of net revenue were 74% and 79% for the
three months ended June 26, 2021 and June 27, 2020, respectively. International
sales as a percentage of net revenue were 75% and 81% for the six months ended
June 26, 2021 and June 27, 2020, 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
in U.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             Six Months Ended
                                           June 26,        June 27,      June 26,      June 27,
                                             2021            2020          2021          2020
                                                  (In millions except for percentages)
Net revenue                             $     3,850       $ 1,932       $ 7,295       $ 3,718
Cost of sales                                 2,020         1,084         3,878         2,052
Gross profit                                  1,830           848         3,417         1,666
Gross margin                                     48  %         44  %         47  %         45  %
Research and development                        659           460         1,269           902
Marketing, general and administrative           341           215           660           414

Licensing gain                                   (1)            -            (5)            -
Interest expense                                (10)          (14)          (19)          (27)
Other income (expense), net                       -             1           (11)            5
Income tax provision                            113             4           202            10
Equity income in investee                         2             1             4             1


                                       22

--------------------------------------------------------------------------------
  Table of Contents
Gross Margin
Gross margin was 48% and 44% for the three months ended June 26, 2021 and June
27, 2020, respectively. Gross margin was 47% and 45% for the six months ended
June 26, 2021 and June 27, 2020, respectively. The increase for both periods was
primarily driven by a richer mix of sales, including high-end Ryzen, Radeon and
EPYC processor sales.
Expenses
Research and Development Expenses
Research and development expenses of $659 million for the three months ended
June 26, 2021 increased by $199 million, or 43%, compared to $460 million for
the prior year period. Research and development expenses of $1,269 million for
the six months ended June 26, 2021 increased by $367 million, or 41%, compared
to $902 million for the prior year period. The increase for both periods was
primarily driven by an increase in product development costs in both the
Computing and Graphics and Enterprise, Embedded and Semi-Custom segments due to
an increase in headcount and higher annual employee incentives driven by our
improved financial performance.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses of $341 million for the three
months ended June 26, 2021 increased by $126 million, or 59%, compared to $215
million for the prior year period. Marketing, general and administrative
expenses of $660 million for the six months ended June 26, 2021 increased by
$246 million, or 59%, compared to $414 million for the prior year period. The
increase for both periods was primarily due to an increase in go-to-market
activities in both the Computing and Graphics and Enterprise, Embedded and
Semi-Custom segments, and an increase in headcount and higher annual employee
incentives driven by our improved financial performance. In addition, in
connection with our pending acquisition of Xilinx, Inc., we incurred $10 million
and $25 million of acquisition-related costs for the three and six months ended
June 26, 2021, respectively.
Licensing Gain
During the three and six months ended June 26, 2021, we recognized $1 million
and $5 million, respectively, of royalty income associated with the licensed IP
to the THATIC JV.
Interest Expense
Interest expense for the three months ended June 26, 2021 was $10 million
compared to $14 million for the prior year period. Interest expense for the six
months ended June 26, 2021 was $19 million compared to $27 million for the prior
year period. The decrease for both periods was due to lower debt balances as a
result of conversions by the holders of our 2.125% Convertible Senior Notes due
2026.
Other Income (Expense), Net
Other income, net for the three months ended June 26, 2021, was zero compared to
$1 million of Other income, net for the prior year period. Other expense, net
was $11 million for the six months ended June 26, 2021, compared to $5 million
of Other income, net for the prior year period. The change was primarily due to
an impairment charge of $8 million associated with an equity investment and a
loss on conversion of our convertible debt instruments of $6 million in the
current period.
Income Tax Provision
We recorded an income tax provision of $113 million and $4 million for the three
months ended June 26, 2021 and June 27, 2020, respectively, representing
effective tax rates of 13.7% and 2.5%, respectively.
The increase in income tax expense and effective tax rate in the current year
period was due to significantly higher income in the United States, partially
offset by the foreign-derived intangible income benefit, research and
development tax credits, and excess tax benefit for stock-based compensation.
The lower income tax expense and effective tax rate for the prior year period
was due to a full valuation allowance in the United States during 2020, a
significant portion of which was released by us in the fourth quarter of 2020.
As of June 26, 2021, we continue 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
                                       23
--------------------------------------------------------------------------------
  Table of Contents
382 or 383, separate return loss year rules, or dual consolidated loss rules.
The state and foreign valuation allowance maintained is due to lack of
sufficient sources of taxable income.
FINANCIAL CONDITION
Liquidity and Capital Resources
As of June 26, 2021, our cash, cash equivalents and short-term investments were
$3.8 billion, compared to $2.3 billion as of December 26, 2020. The percentage
of cash, cash equivalents and short-term investments held domestically were 93%
and 94% as of June 26, 2021 and December 26, 2020, respectively.
Our operating, investing and financing activities for the six months ended June
26, 2021 compared to the prior year period are as described below:
                                                                              Six Months Ended
                                                                       June 26,               June 27,
                                                                         2021                   2020
                                                                               (In millions)
Net cash provided by (used in):
Operating activities                                              $      1,850             $        178
Investing activities                                                      (603)                    (109)
Financing activities                                                      (219)                     240

Net increase (decrease) in cash, cash equivalents, and restricted $ 1,028

$        309

cash




Our aggregate principal debt obligations were $313 million and $338 million as
of June 26, 2021 and December 26, 2020, respectively.
We believe our cash, cash equivalents and short-term investments along with our
Revolving Credit Facility will be sufficient to fund current and long-term
operations, including capital expenditures, 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 $1.9 billion in the six months
ended June 26, 2021, primarily due to our net income of $1.3 billion, adjusted
for non-cash and non-operating charges of $562 million and net cash inflows of
$23 million from changes in our operating assets and liabilities. The primary
drivers of the changes in operating assets and liabilities included a $346
million increase in accounts payable due to an increase in inventory purchases,
a $90 million increase in accrued liabilities and other driven primarily by
higher customer-related accruals, partially offset by a $366 million increase in
inventories driven by an increase in product build in support of customer
demand.
Net cash used in operating activities was $178 million for the six months ended
June 27, 2020, primarily due to our net income of $319 million, adjusted for
non-cash and non-operating charges of $321 million and net cash outflows of $462
million from changes in our operating assets and liabilities. The primary
drivers of the changes in operating assets and liabilities included a $342
million increase in inventories driven by an increase in product build in
support of customer demand, and a $201 million decrease in accounts payable due
to timing of payments to our suppliers.
Investing Activities
Net cash used in investing activities was $603 million for the six months ended
June 26, 2021 which primarily consisted of $1.1 billion for purchases of
short-term investments and $130 million for purchases of property and equipment,
partially offset by $655 million for maturities of short-term investments.
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 short-term investments,
partially offset by $92 million for maturities of short-term investments.
                                       24
--------------------------------------------------------------------------------
  Table of Contents
Financing Activities
Net cash used in financing activities was $219 million for the six months ended
June 26, 2021, which primarily consisted of common stock repurchases of $256
million and repurchases for tax withholding on employee equity plans of $14
million, partially offset by a cash inflow of $51 million from issuance of
common stock under our employee equity plans.
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.
Contractual Obligations
The following table summarizes our consolidated principal contractual cash
obligations, as of June 26, 2021, and is supplemented by the discussion
following the table:
                                                                               Payment due by period
                                                 Remainder of                                                                            2026 and
(In millions)                    Total               2021               2022            2023            2024            2025            thereafter
Term debt (1)                  $   313          $         -          $   312          $    -          $    -          $    -          $          1
Aggregate interest obligation
(2)                                 38                   12               24               1               1               -                     -
Other long-term liabilities
(3)                                127                   19               66              20              10               9                     3
Operating leases                   344                   34               69              62              53              44                    82
Purchase obligations (4)         5,889                3,185            1,088             662             586              94                   274
Total contractual obligations
(5)                            $ 6,711          $     3,250          $ 1,559          $  745          $  650          $  147          $        360


(1)         See Note 5 - Debt and Revolving Credit Facility of the Notes to Condensed
            Consolidated Financial Statements for additional information.

(2) Represents interest obligations, payable in cash, for our outstanding debt.

(3) Amounts primarily represent future fixed and non-cancellable cash payments


            associated with software technology and licenses and IP

licenses, including the


            payments due within the next 12 months.

(4) Represents purchase obligations for goods and services where payments are based, in


            part, on the volume or type of services we acquire. In those

cases, we only included


            the minimum volume of purchase obligations in the table above.

Purchase orders for


            goods and services that are cancellable upon notice and without

significant


            penalties are not included in the amounts above.

(5) Total amount excludes contractual obligations already recorded on our consolidated


            balance sheets, except for debt obligations, operating leases,

and other liabilities


            related to software and technology licenses and IP licenses.


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 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 condensed consolidated
financial statements. We evaluate our estimates on an on-going basis, including
those related to our revenue, inventories, goodwill 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 there have been no significant changes for the three and six
months ended June 26, 2021 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 ended December 26, 2020.
                                       25

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses