Advanced Micro Devices 10-Q 2022-03-26

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 26, 2022

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-07882

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

(Address of principal executive offices)

(408) 749-4000

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $0.01 par value			AMD			The Nasdaq Global Select Market

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 (the Exchange Act) 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. Yes ☑ 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). Yes ☑ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange 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 is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of April 27, 2022: 1,620,507,904

INDEX

						Page No.
Part I Financial Information
Item 1			Condensed Consolidated Financial Statements (Unaudited)
			Condensed Consolidated Statements of Operations			3
			Condensed Consolidated Statements of Comprehensive Income			4
			Condensed Consolidated Balance Sheets			5
			Condensed Consolidated Statements of Cash Flows			6
			Condensed Consolidated Statements of Stockholders’ Equity			8
			Notes to Condensed Consolidated Financial Statements			9
Item 2			Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3			Quantitative and Qualitative Disclosures about Market Risk			35
Item 4			Controls and Procedures			35
Part II Other Information
Item 1			Legal Proceedings			36
Item 1A			Risk Factors			36
Item 2			Unregistered Sales of Equity Securities and Use of Proceeds			58
Item 5			Other Information			58
Item 6			Exhibits			59
Signature						60

PART I. FINANCIAL INFORMATION

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

									Three Months Ended
															March 26, 2022						March 27, 2021
															(In millions, except per share amounts)
Net revenue															$	5,887					$	3,445
Cost of sales															2,883						1,858
Amortization of acquisition-related intangibles															186						—
Total cost of sales															3,069						1,858
Gross profit															2,818						1,587
Research and development															1,060						610
Marketing, general and administrative															597						319
Amortization of acquisition-related intangibles															293						—
Licensing gain															(83)						(4)
Operating income															951						662
Interest expense															(13)						(9)
Other expense, net															(42)						(11)
Income before income taxes and equity income															896						642
Income tax provision															113						89
Equity income in investee															3						2
Net income															$	786					$	555
Earnings per share
Basic															$	0.56					$	0.46
Diluted															$	0.56					$	0.45
Shares used in per share calculation
Basic															1,393						1,213
Diluted															1,410						1,231

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

									Three Months Ended
															March 26, 2022						March 27, 2021
															(In millions)
Net income															$	786					$	555
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on cash flow hedges															1						(11)
Total comprehensive income															$	787					$	544

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

			March 26, 2022						December 25, 2021
			(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents			$	4,740					$	2,535
Short-term investments			1,792						1,073
Accounts receivable, net			3,677						2,706
Inventories			2,431						1,955
Receivables from related parties			4						2
Prepaid expenses and other current assets			725						312
Total current assets			13,369						8,583
Property and equipment, net			1,406						702
Operating lease right-of-use assets			416						367
Goodwill			23,083						289
Acquisition-related intangibles			26,832						—
Investment: equity method			72						69
Deferred tax assets			32						931
Other non-current assets			1,705						1,478
Total assets			$	66,915					$	12,419
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	1,476					$	1,321
Payables to related parties			205						85
Accrued liabilities			3,070						2,424
Current portion of long-term debt, net			312						312
Other current liabilities			518						98
Total current liabilities			5,581						4,240
Long-term debt, net of current portion			1,475						1
Long-term operating lease liabilities			370						348
Deferred tax liabilities			3,109						12
Other long-term liabilities			1,047						321
Commitments and Contingencies (See Note 13)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,629 and 1,232; shares outstanding: 1,620 and 1,207			16						12
Additional paid-in capital			56,925						11,069
Treasury stock, at cost (shares held: 9 and 25)			(941)						(2,130)
Accumulated deficit			(665)						(1,451)
Accumulated other comprehensive loss			(2)						(3)
Total stockholders’ equity			55,333						7,497
Total liabilities and stockholders’ equity			$	66,915					$	12,419

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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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 Agreement) made available to AMD and certain of its subsidiaries under the Credit Agreement, 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; 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 expected timing of the closing of AMD’s acquisition of Pensando 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 other Securities 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,” “we,” “us,” “management,” “our” or the “Company” mean Advanced Micro Devices, Inc. and our consolidated subsidiaries.

AMD, the AMD Arrow logo, AMD Instinct, AMD RDNA, EPYC, Radeon, Ryzen, Threadripper, Versal, Xilinx 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. PlayStation is a registered trademark or trademark of Sony 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 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 25, 2021 and December 26, 2020, and for each of the three years for the period ended December 25, 2021 as filed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

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

On February 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 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 months ended March 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 ended March 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 from February 14, 2022, the date of acquisition, to March 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 ended March 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 ended March 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 ended March 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 of March 26, 2022, our cash, cash equivalents and short-term investments were $6.5 billion, compared to $3.6 billion as of December 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 on February 14, 2022. As of March 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 of December 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 AMD EPYC processors with AMD 3D V-Cache technology for leadership performance in technical computing workloads. 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 HPC and AI customers, designed to address the demand for compute-accelerated data center workloads and reduce the time to insights and discoveries.

We expanded our lineup of high-performance AMD Ryzen desktop processors with the introduction of the AMD Ryzen 7 5800X3D processor, the first AMD Ryzen processor to feature AMD 3D V-Cache technology to improve gaming performance. In addition, we announced the availability of 6 new “Zen 3” and “Zen 2” mainstream AMD

Ryzen desktop processors. For workstations, we introduced the new AMD Ryzen Threadripper PRO 5000 WX-Series workstation processors designed for professionals to run demanding workstation applications.

We launched the new AMD Radeon PRO GPUs in the first quarter of 2022 with introduction of the AMD Radeon PRO W6600X GPU for Mac Pro and the AMD Radeon PRO W6400 graphics card built on AMD RDNA™ 2 architecture.

We also introduced the 7nm Xilinx Versal™ ACAP VCK5000 development card designed to offer leadership AI inference performance. In March 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.

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”). During the three months ended March 26, 2022, we repurchased 15.8 million shares of our common stock for $1.9 billion under the stock Repurchase Program. As of March 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 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, 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 ended December 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 ended March 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 ended December 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.

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 ended March 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 ended March 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.

The following table provides a summary of net revenue and operating income (loss) by segment:

									Three Months Ended
															March 26, 2022						March 27, 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 ended March 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 ended March 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 ended March 26, 2022. Xilinx operating income was $233 million for the three months ended March 26, 2022.

All Other

All Other operating loss of $886 million for the three months ended March 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 $100 million for the three months ended March 27, 2021 consisted of $85 million of stock-based compensation expense and $15 million of acquisition-related costs.

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International Sales

International sales as a percentage of net revenue were 69% and 76% for the three months ended March 26, 2022 and March 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 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
															March 26, 2022						March 27, 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 ended March 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 ended March 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 $186 million and $293 million, respectively, of amortization expense from intangible assets acquired from Xilinx.

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Licensing Gain

During the three months ended March 26, 2022, we recognized $83 million of licensing gain from a milestone achievement and royalty income and during the three months ended March 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 March 26, 2022 was $13 million compared to $9 million for the prior year period. The increase was primarily due to interest expense from the Assumed Xilinx Notes.

Other Income (Expense), Net

Other expense, net was $42 million for the three months ended March 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 $113 million and provision of $89 million for the three months ended March 26, 2022 and March 27, 2021, representing effective tax rates of 12.6% and 13.8%, respectively.

The difference between the U.S. federal statutory tax rate of 21% and our effective tax rate for the three months ended March 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 the U.S. tax on GILTI.

The difference between the U.S. federal statutory tax rate of 21% and our effective tax rate for the three months ended March 27, 2021 was primarily due to the excess tax benefits with respect to stock-based compensation and the beneficial rate impact from the FDII tax benefit.

As of March 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 March 26, 2022, the liability for uncertain tax positions increased by $212 million primarily due to the utilization of certain tax attributes that may be subject to additional limitation.

As a result of the acquisition of Xilinx, we recorded $4.3 billion of net deferred tax liabilities primarily on the excess of book basis over the tax basis of the acquired intangible assets. We also recorded $147 million of current tax payable as of the Acquisition Date. Additionally, we assumed $204 million of liability for uncertain tax positions and $321 million of long-term liability for transition tax, which is payable over the next three years.

FINANCIAL CONDITION

Liquidity and Capital Resources

As of March 26, 2022, our cash, cash equivalents and short-term investments were $6.5 billion, compared to $3.6 billion as of December 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 on February 14, 2022. The percentage of cash, cash equivalents and short-term investments held domestically were 79% and 91% as of March 26, 2022 and December 25, 2021, respectively.

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Our operating, investing and financing activities for the three months ended March 26, 2022 compared to the prior year period are as described below:

			Three Months Ended
			March 26, 2022						March 27, 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 of March 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 of December 25, 2021.

On April 29, 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. Also, on April 29, 2022, we terminated our $500 million revolving credit agreement dated as of June 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 ended March 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 ended March 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.

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Investing Activities

Net cash provided by investing activities was $3.2 billion for the three months ended March 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 ended March 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 ended March 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 ended March 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.

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Reference is made to “Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

There have not been any material changes in interest rate risk, default risk or foreign exchange risk since December 25, 2021.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports made under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of March 26, 2022, the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Other than the acquisition of Xilinx, there was no change in our internal controls over financial reporting for the three months ended March 26, 2022 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We are currently in the process of integrating the Xilinx operations, control processes and information systems into our systems and control environment. We believe that we have taken the necessary steps to monitor and maintain appropriate internal controls over financial reporting during this integration.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, refer to Note 13—Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q).

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 on a level playing field.

• Global economic and market uncertainty may adversely impact our business and operating results.

• 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.

• 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 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.

• 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.

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• Our ability to design and introduce new products in a timely manner is dependent upon 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.

• 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 administration 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, such as Xilinx, 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 goodwill and 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.

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For a more complete discussion of the material risks facing our business,

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The U.S. government has designated the Russian Federal Security Service (the FSB) as a blocked party under Executive Order 13382. In addition, the U.S. Department of the Treasury’s Office of Foreign Assets Control has issued General License No. 1B (the OFAC General License), which generally authorizes certain licensing, permitting, certification, notification, and related transactions with the FSB as may be required for the importation, distribution, or use of information technology products in the Russian Federation.

As permitted under the OFAC General License, Xilinx, which we acquired on February 14, 2022, previously authorized certain third-party resellers in Russia to periodically file notifications with, or apply for import licenses and permits from, the FSB on its behalf in connection with the importation of its products into the Russian Federation. Subsequent to February 14, 2022, third-party resellers filed additional notifications with and/or applied for import licenses and permits from the FSB on behalf of Xilinx. During the fiscal quarter ended March 26, 2022, we and our subsidiaries, including Xilinx, suspended shipments to the Russian Federation.

There was no gross revenue or net profits of the Company or any subsidiary directly associated with these filing activities. We and our subsidiaries do not sell products or provide services to the FSB.

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4.1						Fourth Supplemental Indenture governing the Xilinx 2.950% Senior Notes due 2024, dated as of February 14, 2022 by and among Xilinx, Inc., Advanced Micro Devices, Inc., and U.S. Bank Trust Company, National Association, as successor in interest to U.S. Bank National Association.
4.2						Second Supplemental Indenture governing the Xilinx 2.375% Senior Notes due 2030. dated as of February 14, 2022, by and among Xilinx, Inc., Advanced Micro Devices, Inc., and U.S. Bank Trust Company, National Association, as successor to interest to U.S. Bank National Association,
*10.1						Xilinx, Inc. 2007 Equity Incentive Plan.
*10.2						2004 Equity Incentive Plan, as amended and restated, dated February 23, 2022.
*10.3						Offer Letter between Advanced Micro Devices, Inc. and Victor Peng dated March 8, 2022.
18.1						Preferability Letter from Ernst & Young, LLP dated May 4, 2022.
31.1						Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document.
101.SCH						XBRL Taxonomy Extension Schema Document.
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document
_____________________
* Management contracts and compensatory plans or arrangements.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

						ADVANCED MICRO DEVICES, INC.
May 4, 2022						By:			/s/ Devinder Kumar
						Name:			Devinder Kumar
						Title:			Executive Vice President, Chief Financial Officer and Treasurer Signing on behalf of the Registrant as the Principal Financial Officer