Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions, except per share amounts)
Net revenue			$	6,550					$	3,850					$	12,437					$	7,295
Cost of sales			3,115						2,020						5,998						3,878
Amortization of acquisition-related intangibles			407						—						593						—
Total cost of sales			3,522						2,020						6,591						3,878
Gross profit			3,028						1,830						5,846						3,417
Research and development			1,300						659						2,360						1,269
Marketing, general and administrative			592						341						1,189						660
Amortization of acquisition-related intangibles			616						—						909						—
Licensing gain			(6)						(1)						(89)						(5)
Operating income			526						831						1,477						1,493
Interest expense			(25)						(10)						(38)						(19)
Other expense, net			(4)						—						(46)						(11)
Income before income taxes and equity income			497						821						1,393						1,463
Income tax provision			54						113						167						202
Equity income in investee			4						2						7						4
Net income			$	447					$	710					$	1,233					$	1,265
Earnings per share
Basic			$	0.28					$	0.58					$	0.82					$	1.04
Diluted			$	0.27					$	0.58					$	0.81					$	1.03
Shares used in per share calculation
Basic			1,618						1,216						1,506						1,214
Diluted			1,632						1,232						1,521						1,231

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions)
Net income			$	447					$	710					$	1,233					$	1,265
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on cash flow hedges			(31)						1						(30)						(10)
Total comprehensive income			$	416					$	711					$	1,203					$	1,255

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

			June 25, 2022						December 25, 2021
			(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents			$	4,964					$	2,535
Short-term investments			1,028						1,073
Accounts receivable, net			4,050						2,706
Inventories			2,648						1,955
Receivables from related parties			3						2
Prepaid expenses and other current assets			769						312
Total current assets			13,462						8,583
Property and equipment, net			1,441						702
Operating lease right-of-use assets			482						367
Goodwill			24,193						289
Acquisition-related intangibles			26,159						—
Investment: equity method			76						69
Deferred tax assets			32						931
Other non-current assets			1,657						1,478
Total assets			$	67,502					$	12,419
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	1,518					$	1,321
Payables to related parties			361						85
Accrued liabilities			3,074						2,424
Current portion of long-term debt, net			312						312
Other current liabilities			258						98
Total current liabilities			5,523						4,240
Long-term debt, net of current portion			2,465						1
Long-term operating lease liabilities			422						348
Deferred tax liabilities			2,805						12
Other long-term liabilities			1,118						321
Commitments and Contingencies (See Note 13)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,631 and 1,232; shares outstanding: 1,612 and 1,207			16						12
Additional paid-in capital			57,297						11,069
Treasury stock, at cost (shares held: 19 and 25)			(1,893)						(2,130)
Accumulated deficit			(218)						(1,451)
Accumulated other comprehensive loss			(33)						(3)
Total stockholders’ equity			55,169						7,497
Total liabilities and stockholders’ equity			$	67,502					$	12,419

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

			Six Months Ended
			June 25, 2022						June 26, 2021
			(In millions)
Cash flows from operating activities:
Net income			$	1,233					$	1,265
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,789						192
Stock-based compensation			491						168
Amortization of operating lease right-of-use assets			40						25
Amortization of inventory fair value adjustment			185						—
Loss on debt redemption, repurchase and conversion			—						6
Loss on sale or disposal of property and equipment			15						19
Deferred income taxes			(618)						145
Losses on equity investments, net			54						8
Other			(4)						(1)
Changes in operating assets and liabilities
Accounts receivable, net			(1,016)						46
Inventories			(274)						(366)
Receivables from related parties			(1)						4
Prepaid expenses and other assets			(237)						(55)
Payables to related parties			277						(42)
Accounts payable			28						346
Accrued liabilities and other			71						90
Net cash provided by operating activities			2,033						1,850
Cash flows from investing activities:
Purchases of property and equipment			(203)						(130)
Purchases of short-term investments			(620)						(1,130)
Proceeds from maturity of short-term investments			2,249						655
Cash received from acquisition of Xilinx			2,366						—
Acquisition of Pensando, net of cash acquired			(1,558)						—
Other			(4)						2
Net cash provided by (used in) investing activities			2,230						(603)
Cash flows from financing activities:
Proceeds from debt, net of issuance costs			991						—
Proceeds from sales of common stock through employee equity plans			78						51
Repurchases of common stock			(2,835)						(256)
Common stock repurchases for tax withholding on employee equity plans			(66)						(14)
Other			(2)						—
Net cash used in financing activities			(1,834)						(219)
Net increase in cash and cash equivalents			2,429						1,028
Cash and cash equivalents at beginning of period			2,535						1,595
Cash and cash equivalents at end of period			$	4,964					$	2,623

Advanced Micro Devices, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
			Six Months Ended
			June 25, 2022						June 26, 2021
			(In millions)
Supplemental cash flow information:
Cash paid for taxes, net of refunds			$	544					$	10
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid			$	149					$	41
Issuance of common stock to settle convertible debt			$	—					$	25
Issuance of common stock and treasury stock for the acquisition of Xilinx			$	48,514					$	—
Fair value of replacement share-based awards related to acquisition of Xilinx			$	275					$	—
Transfer of assets for acquisition of property and equipment			$	13					$	37
Non-cash activities for leases:
Operating lease right-of-use assets acquired by assuming related liabilities			$	87					$	77

See accompanying notes.

Advanced Micro Devices

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions)
Capital stock:
Common stock, par value
Balance, beginning of period			$	16					$	12					$	12					$	12
Issuance of common stock as consideration for acquisition			—						—						4						—
Balance, end of period			$	16					$	12					$	16					$	12
Additional paid-in capital
Balance, beginning of period			$	56,925					$	10,658					$	11,069					$	10,544
Common stock issued under employee equity plans			76						49						78						51
Stock-based compensation			292						83						491						168
Issuance of common stock to settle convertible debt			—						1						—						25
Issuance of common stock as consideration for acquisition			—						—						45,372						—
Fair value of replacement share-based awards related to acquisition			—						—						275						—
Issuance of common stock warrants			4						4						12						7
Balance, end of period			$	57,297					$	10,795					$	57,297					$	10,795
Treasury stock
Balance, beginning of period			$	(941)					$	(141)					$	(2,130)					$	(131)
Repurchases of common stock			(921)						(256)						(2,835)						(256)
Common stock repurchases for tax withholding on employee equity plans			(31)						(4)						(66)						(14)
Reissuance of treasury stock as consideration for acquisition			—						—						3,138						—
Balance, end of period			$	(1,893)					$	(401)					$	(1,893)					$	(401)
Accumulated deficit:
Balance, beginning of period			$	(665)					$	(4,058)					$	(1,451)					$	(4,605)
Cumulative effect of adoption of accounting standard			—						—						—						(8)
Net income			447						710						1,233						1,265
Balance, end of period			$	(218)					$	(3,348)					$	(218)					$	(3,348)
Accumulated other comprehensive income (loss):
Balance, beginning of period			$	(2)					$	6					$	(3)					$	17
Other comprehensive income (loss)			(31)						1						(30)						(10)
Balance, end of period			$	(33)					$	7					$	(33)					$	7
Total stockholders' equity			$	55,169					$	7,065					$	55,169					$	7,065

See accompanying notes.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – The Company

Advanced Micro Devices, Inc. is a global semiconductor company. References herein to AMD or the Company mean Advanced Micro Devices, Inc. and its consolidated subsidiaries. AMD’s products include x86 microprocessors (CPUs), as standalone devices or as incorporated into accelerated processing units (APUs), chipsets, discrete graphics processing units (GPUs), data center and professional GPUs, embedded processors, semi-custom System-on-Chip (SoC) products, microprocessor and SoC development services and technology, data center processing units (DPUs), Field Programmable Gate Arrays (FPGAs), adaptive SoC products, and Adaptive Compute Acceleration Platform (ACAP) products. From time to time, the Company may also sell or license portions of its intellectual property (IP) portfolio.

On February 14, 2022 (the Xilinx Acquisition Date), the Company completed the acquisition of Xilinx, Inc. (Xilinx). On May 26, 2022 (the Pensando Acquisition Date), the Company completed the acquisition of Pensando Systems, Inc. (Pensando). See Note 5 - Business Combinations for additional information on these acquisitions.

NOTE 2 – Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of AMD have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the three and six months ended June 25, 2022 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2022 or any other future period. In the opinion of the Company’s management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity. All such adjustments are of a normal, recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021. Certain prior period amounts have been reclassified to conform to the current period presentation.

The Company uses a 52- or 53-week fiscal year ending on the last Saturday in December. The three and six months ended June 25, 2022 and June 26, 2021 each consisted of 13 and 26 weeks, respectively.

Use of Estimates. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results are likely to differ from those estimates, and such differences may be material to the financial statements. Areas where management uses judgment include, but are not limited to, revenue allowances, inventory valuation and related carrying value adjustments, valuation and assessing potential impairment, if any, of goodwill and intangible assets, business combination accounting and deferred income tax assets.

Significant Accounting Policies. Except for the addition of business combination, impairment of long-lived and intangible assets, and Global Intangible Low-Taxed Income (GILTI) accounting policies to the Company’s significant accounting policies, there have been no material changes to the Company’s significant accounting policies in Note 2 - Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

Business Combinations. The Company is required to use the acquisition method of accounting for business combinations. The acquisition method of accounting requires the Company to allocate the purchase consideration to the assets acquired and liabilities assumed from the acquiree based on their respective fair values as of the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future revenue growth and margins, future changes in technology, expected cost and time to develop in-process research and development and discount rates. Fair value estimates are based on the assumptions that management believes a market participant would use in pricing the asset or liability. These

estimates are inherently uncertain and, therefore, actual results may differ from the estimates made. As a result, during the measurement period of up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of the purchase price of an acquisition, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations.

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, the Company estimates 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, the Company estimates impairment losses as the excess of the carrying value of the assets over their fair value. Market conditions are among the factors affecting impairment of assets held for sale. Changes in any of these factors could necessitate impairment recognition in future 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, the Company elected to change its 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 the Company’s 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, the Company recorded $27.3 billion of identified intangible assets (refer to Note 5 - 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 the Company 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 potential future tax liabilities of the Company 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 12 - Income Taxes. In addition, for the three and six months ended June 25, 2022, it resulted in a decrease in the income tax provision with a corresponding increase to net income of $65 million and $136 million and an increase in basic and diluted earnings per share of $0.04 and $0.09 respectively, as compared to the computation under the previous accounting policy. This accounting policy change had no material impact on the Company’s historical consolidated financial statements.

NOTE 3 – Supplemental Financial Statement Information

Accounts Receivable, net

As of June 25, 2022 and December 25, 2021, Accounts receivable, net included unbilled accounts receivable of $868 million and $329 million, respectively. Unbilled accounts receivable primarily represents work completed on development services and on custom products for which revenue has been recognized but not yet invoiced. All unbilled accounts receivable are expected to be billed and collected within 12 months.

Inventories			June 25, 2022						December 25, 2021
			(In millions)
Raw materials			$	160					$	82
Work in process			2,171						1,676
Finished goods			317						197
Total inventories			$	2,648					$	1,955

Prepaid Expenses and Other Current Assets			June 25, 2022						December 25, 2021
			(In millions)
Prepaid supply agreements			$	400					$	74
Other			369						238
Total prepaid expenses and other current assets			$	769					$	312

Prepaid supply agreements relate to the short-term portion of payments made to vendors to secure long-term supply capacity.

Property and Equipment, net			June 25, 2022						December 25, 2021
			(In millions)
Land			$	120					$	—
Building and leasehold improvements			581						206
Equipment			1,892						1,534
Construction in progress			159						96
Property and equipment, gross			2,752						1,836
Accumulated depreciation			(1,311)						(1,134)
Total property and equipment, net			$	1,441					$	702

Other Non-Current Assets			June 25, 2022						December 25, 2021
			(In millions)
Long-term prepaid supply agreements			$	769					$	916
Software and technology licenses, net			505						328
Other			383						234
Total other non-current assets			$	1,657					$	1,478

Accrued Liabilities			June 25, 2022						December 25, 2021
			(In millions)
Accrued marketing programs			$	1,021					$	933
Accrued compensation and benefits			741						705
Other accrued and current liabilities			1,312						786
Total accrued liabilities			$	3,074					$	2,424

Revenue

Revenue allocated to remaining performance obligations that are unsatisfied (or partially unsatisfied) include amounts received from customers and amounts that will be invoiced and recognized as revenue in future periods for development services, IP licensing and product revenue. As of June 25, 2022, the aggregate transaction price allocated to remaining performance obligations under contracts with an original expected duration of more than one year was $171 million, of which $125 million is expected to be recognized in the next 12 months. The revenue allocated to remaining performance obligations does not include amounts which have an original expected duration of one year or less.

Revenue recognized over time associated with custom products and development services accounted for approximately 20% and 21% of the Company’s revenue for the three and six months ended June 25, 2022, respectively, and 22% for both the three and six months ended June 26, 2021.

NOTE 4 – Segment Reporting

Management, including the Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, reviews and assesses operating performance using segment net revenue and operating income (loss). These performance measures include the allocation of expenses to the reportable segments based on management’s judgment. In the second quarter of fiscal year 2022, the Company updated its segment reporting structure to align financial reporting with the manner in which the Company manages its business in strategic end markets. The Company’s disclosed measure of segment operating results has been updated consistent with the revised manner in which the Company’s CODM assesses the company’s financial performance and allocates resources. All prior-period segment data have been retrospectively adjusted.

The Company’s four reportable segments are:

• the Data Center segment, which primarily includes server microprocessors, GPUs, data processing units (DPUs), FPGAs and adaptive SoC products for data centers;

• the Client segment, which primarily includes microprocessors, accelerated processing units that integrate microprocessors and graphics, and chipsets for desktop and notebook personal computers;

• the Gaming segment, which primarily includes discrete GPUs, semi-custom SoC products and development services; and

• the Embedded segment, which primarily includes embedded microprocessors, GPUs, FPGAs, adaptive SoC products, and ACAP products.

From time to time, the Company may also sell or license portions of its IP portfolio.

In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment. This category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because the CODM does not consider these expenses and credits in evaluating the performance of the reportable segments. This category primarily includes amortization of acquisition-related intangibles, employee stock-based compensation expense, acquisition-related costs and licensing gain.

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

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions)
Net revenue:
Data Center			$	1,486					$	813					$	2,779					$	1,423
Client			2,152						1,728						4,276						3,366
Gaming			1,655						1,255						3,530						2,410
Embedded			1,257						54						1,852						96
Total net revenue			$	6,550					$	3,850					$	12,437					$	7,295
Operating income (loss):
Data Center			$	472					$	204					$	899					$	314
Client			676						538						1,368						1,068
Gaming			187						175						545						296
Embedded			641						6						918						3
All Other (1)			(1,450)						(92)						(2,253)						(188)
Total operating income			$	526					$	831					$	1,477					$	1,493

(1)			For the three and six months ended June 25, 2022, all other operating losses primarily included $1.0 billion and $1.5 billion of amortization of acquisition-related intangibles, $292 million and $491 million of stock-based compensation expense and $141 million and $349 million of acquisition-related costs, respectively. For the three and six months ended June 26, 2021, all other operating losses primarily included $83 million and $168 million of stock-based compensation expense $10 million and $25 million of acquisition-related costs, respectively.

NOTE 5 – Business Combinations

Pensando Acquisition

On May 26, 2022, the Company completed the acquisition of all issued and outstanding shares of Pensando, a leader in next-generation distributed computing, for a transaction valued at approximately $1.9 billion. The recorded purchase consideration of $1.7 billion is net of deferred cash compensation requiring future services and other customary closing adjustments. The acquisition of Pensando and its leading distributed services platform expands the Company’s ability to offer leadership solutions for cloud, enterprise, and edge customers.

The purchase consideration was preliminarily allocated as follows:

			(In millions)
Cash and cash equivalents			$	111
Accounts receivable			31
Inventory			66
Prepaid expenses and other current assets			43
Property and equipment			11
Deferred tax assets			22
Acquisition-related intangibles			349
Total Assets			633
Accounts payable			15
Accrued and other liabilities			59
Total Liabilities			74
Fair value of net assets acquired			559
Goodwill			1,110
Total preliminary purchase consideration			$	1,669

The Company allocated the preliminary purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management. The fair values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained. Any adjustments to the preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined.

Goodwill arising from the Pensando acquisition was assigned to the Company’s Data Center segment. Goodwill was primarily attributed to expanded market opportunities expected to be achieved from the integration of Pensando. Goodwill is not expected to be deductible for income tax purposes.

Following are details of the purchase consideration allocated to acquired intangible assets:

			Fair Value						Weighted-average estimated useful life
			(In millions)						(In years)
Developed technology (1)			$	60					4 years
Customer relationships (2)			34						3 years
Customer backlog (3)			16						1 year
Product trademarks (4)			19						5 years
Identified intangible assets subject to amortization			129
In-process research and development (IPR&D) not subject to amortization (5)			220						N/A
Total identified intangible assets acquired			$	349

1)The fair value of developed technology was determined using the income approach, specifically the multi-period excess earnings method.

2)Customer relationships represent the fair value of existing contractual relationships and customer loyalty determined based on existing relationships using the income approach, specifically the with and without method.

3)Customer backlog represents the fair value of non-cancellable customer contract orders using the income approach, specifically the multi-period excess earnings method.

4)Product trademarks primarily relate to the Pensando product-related trademarks, and the fair value was determined by applying the income approach, specifically the relief from royalty method.

5)The fair value of IPR&D was determined using the income approach, specifically the multi-period excess earnings method.

The fair value of the identified intangible assets subject to amortization will be amortized over the assets’ estimated useful lives based on the pattern in which the economic benefits are expected to be received to cost of sales and operating expenses.

IPR&D consists of projects that have not yet reached technological feasibility as of the acquisition date. Accordingly, the Company recorded an indefinite-lived intangible asset of $220 million for the fair value of these projects, which will initially not be amortized. Instead, these projects will be tested for impairment annually and whenever events or changes in circumstances indicate that these projects may be impaired. Once the project reaches technological feasibility, the Company will begin to amortize the intangible assets over their estimated useful lives.

From the Pensando Acquisition Date to June 25, 2022, the Consolidated Statement of Operations include immaterial revenue and operating results attributable to Pensando, which are reported under the Data Center segment.

During the three months ended June 25, 2022, Pensando acquisition-related costs of $24 million were recorded under Cost of sales, Research and development, and Marketing, general and administrative expenses on the Company’s Condensed Consolidated Statement of Operations. Acquisition-related costs are primarily comprised of direct transaction costs, fair value adjustments for acquired inventory and certain compensation charges. The Company may incur additional acquisition-related costs in the future related to the acquisition.

Xilinx Acquisition

On February 14, 2022, the Company completed the acquisition of all issued and outstanding shares of Xilinx, a leading provider of adaptive computing solutions, for a total purchase consideration of $48.8 billion ($46.4 billion, net of cash acquired of $2.4 billion). The acquisition of Xilinx expands the Company’s product portfolio to include adaptable hardware platforms that enable hardware acceleration and rapid innovation across a variety of technologies. With the acquisition of Xilinx, the Company now offers FPGAs, adaptive SoC products, and ACAP products. The purchase consideration consisted of $48.5 billion of fair value of 429 million shares of the Company’s common stock issued to Xilinx stockholders and $275 million of fair value of replacement equity awards attributable to services rendered pre-combination. As the transaction closed prior to the opening of markets on the Xilinx Acquisition Date, the fair value of the common stock issued to Xilinx stockholders was based on the closing price of the Company’s common stock on February 11, 2022 of $113.18 per share.

The financial results of Xilinx are included in the Company’s consolidated financial statements since the Xilinx Acquisition Date to June 25, 2022 and are reported under the Embedded and Data Center segments.

The purchase consideration was preliminarily allocated as follows:

			(In millions)
Cash and cash equivalents			$	2,366
Short-term investments			1,582
Accounts receivable			299
Inventories			539
Prepaid expenses and other current assets			61
Property and equipment			692
Operating lease right-of-use assets			61
Acquisition-related intangibles			27,308
Deferred tax assets			11
Other non-current assets			418
Total Assets			33,337
Accounts payable			116
Accrued liabilities			633
Other current liabilities			191
Long-term debt			1,474
Long-term operating lease liabilities			45
Deferred tax liabilities			4,346
Other long-term liabilities			533
Total Liabilities			7,338
Fair value of net assets acquired			25,999
Goodwill			22,794
Total purchase consideration			$	48,793

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management. The fair values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained. The primary items pending are related to income tax matters. Any adjustments to the preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined.

Goodwill arising from the acquisition of Xilinx was assigned to the Embedded and Data Center segments. Goodwill was primarily attributed to increased synergies expected to be achieved from the integration of Xilinx. Goodwill is not expected to be deductible for income tax purposes.

Following are details of the purchase consideration allocated to acquired intangible assets:

			Fair Value						Weighted-average estimated useful life
			(In millions)						(In years)
Developed technology (1)			$	12,295					16 years
Customer relationships (2)			12,290						14 years
Customer backlog (3)			793						1 year
Corporate trade name (4)			65						1 year
Product trademarks (4)			895						12 years
Identified intangible assets subject to amortization			26,338
In-process research and development (IPR&D) not subject to amortization (5)			970						N/A
Total identified intangible assets acquired			$	27,308

(1)The fair value of developed technology was determined using the income approach, specifically, the multi-period excess earnings method.

(2)Customer relationships represent the fair value of existing contractual relationships and customer loyalty determined based on existing relationships using the income approach, specifically the with and without method.

(3)Customer backlog represents the fair value of non-cancellable customer contract orders using the income approach, specifically the multi-period excess earnings method.

(4)Corporate trade name and product trademarks primarily relate to the Xilinx brand and product-related trademarks, respectively, and the fair values were determined by applying the income approach, specifically the relief from royalty method.

(5)The fair value of IPR&D was determined using the income approach, specifically the multi-period excess earnings method.

The fair value of the identified intangible assets subject to amortization will be amortized over the assets’ estimated useful lives based on the pattern in which the economic benefits are expected to be received to cost of sales and operating expenses.

IPR&D consists of projects that have not yet reached technological feasibility as of the acquisition date. Accordingly, the Company recorded an indefinite-lived intangible asset of $970 million for the fair value of these projects, which will initially not be amortized. Instead, these projects will be tested for impairment annually and whenever events or changes in circumstances indicate that these projects may be impaired. Once the project reaches technological feasibility, the Company will begin to amortize the intangible assets over their estimated useful life.

The Company also assumed unvested restricted stock units with estimated fair value of $1.2 billion, of which $275 million was included as a component of the purchase consideration and $951 million will be recognized as expense subsequent to the acquisition.

The Consolidated Statement of Operations include the following revenue and operating income attributable to Xilinx for the three and six months ended June 25, 2022:

			Three Months Ended June 25, 2022						Six Months Ended June 25, 2022
			(In millions)
Net revenue			$	1,251					$	1,810
Operating income			$	600					$	826

Operating income attributable to Xilinx recorded under the Embedded and Data Center segments does not include amortization of acquisition-related intangibles, employee stock-based compensation expense and acquisition-related costs, which are recorded under the “All Other” segment.

During the three and six months ended June 25, 2022, Xilinx acquisition-related costs of $117 million and $325 million, respectively, were recorded under Cost of sales, Research and development, and Marketing, general and administrative expenses on the Company’s Condensed Consolidated Statement of Operations. Acquisition-related costs are primarily comprised of direct transaction costs, fair value adjustments for acquired inventory and certain compensation charges. The Company may incur additional acquisition-related costs in the future related to the Xilinx acquisition.

Supplemental Unaudited Pro Forma Information

Following are the supplemental consolidated financial results of the Company, Xilinx and Pensando on an unaudited pro forma basis, as if the acquisitions had been consummated as of the beginning of the fiscal year 2021 (i.e., December 27, 2020).

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions)
Net revenue			$	6,567					$	4,734					$	12,953					$	9,032
Net income (loss)			$	808					$	(80)					$	1,527					$	(605)

The Company’s fiscal year ends on the last Saturday in December of each year, Xilinx’s fiscal year ends on the Saturday nearest March 31 of each year and Pensando’s fiscal year ends on January 31 of each year. The unaudited pro forma information above is presented on the basis of the Company’s fiscal year and combines the historical results of the fiscal periods of the Company with the following historical results of Xilinx and Pensando: the three months ended June 25, 2022 includes Xilinx results for the same period and Pensando results for the three-month period beginning April 1, 2022 through June 25, 2022; the three months ended June 26, 2021 includes Xilinx results for the three months ended July 3, 2021 and Pensando results for the three months ended June 30, 2021; the six months ended June 25, 2022 includes Xilinx results for the six-month period beginning January 2, 2022 through June 25, 2022 and Pensando results for the six-month period beginning January 1, 2022 through June 25, 2022; and the six months ended June 26, 2021 includes Xilinx results for the six months ended July 3, 2021 and Pensando results for the six months ended June 30, 2021.

The unaudited pro forma financial information presented is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Xilinx and Pensando acquisitions were completed at the beginning of fiscal year 2021 and are not indicative of the future operating results of the combined company. The pro forma results include adjustments related to purchase accounting, primarily amortization of acquisition-related intangible assets, fixed asset depreciation expense and expense from assumed stock-based compensation awards. The pro forma results also include amortization expense of acquired Xilinx inventory fair value step-up of $184 million in the first quarter of fiscal year 2021 and no Xilinx inventory fair value step-up expense in the first two quarters of fiscal year 2022.

NOTE 6 – Acquisition-related Intangible Assets and Goodwill

Acquisition-related Intangible Assets

Acquisition-related intangibles as of June 25, 2022 were as follows:

			Weighted-average Remaining Useful Life (In years)			June 25, 2022
			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
						(In millions)
Developed technology			15 years			$	12,355					$	(302)					$	12,053
Customer relationships			14 years			12,324						(857)						11,467
Customer backlog			1 year			809						(291)						518
Corporate trade name			1 year			65						(24)						41
Product trademarks			11 years			914						(28)						886
Identified intangible assets subject to amortization						26,467						(1,502)						24,965
IPR&D not subject to amortization			N/A			1,194						—						1,194
Total acquisition-related intangible assets						$	27,661					$	(1,502)					$	26,159

Acquisition-related intangible asset balance as of June 26, 2021 was not material.

Acquisition-related intangible amortization expense was $1.0 billion and $1.5 billion for the three and six months ended June 25, 2022, respectively.

Based on the carrying value of acquisition-related intangibles recorded as of June 25, 2022, and assuming no subsequent impairment of the underlying assets, the estimated annual amortization expense for acquisition-related intangibles is expected to be as follows:

Fiscal Year			(In millions)
Remainder of 2022			$	2,011
2023			2,819
2024			2,285
2025			2,060
2026			1,951
2027 and thereafter			13,839
Total			$	24,965

Goodwill

In the second quarter of fiscal year 2022, the Company reassigned goodwill balances among the updated reportable segments to reflect changes in its segment reporting structure. The Company performed a goodwill impairment test immediately prior to and after the segment change and determined that no indicators of impairment to goodwill existed.

The carrying amount of goodwill as of June 25, 2022 and December 25, 2021 was $24.2 billion and $289 million, respectively, and was assigned to reporting units within the following reportable segments:

			December 26, 2021						Acquisitions						Reassignment due to segment change						June 25, 2022
			(In millions)
Reportable segments before segment change:
Enterprise, Embedded and Semi-Custom			$	289					$	—					$	(289)					$	—
Xilinx			—						22,794						(22,794)						—
Reportable segments after segment change:
Data Center			—						1,110						1,782						2,892
Gaming			—						—						238						238
Embedded			—						—						21,063						21,063
Total			$	289					$	23,904					$	—					$	24,193

NOTE 7 – Related Parties — Equity Joint Ventures

ATMP Joint Ventures

The Company holds a 15% equity interest in two joint ventures (collectively, the ATMP JV) with affiliates of Tongfu Microelectronics Co., Ltd, a Chinese joint stock company. The Company has no obligation to fund the ATMP JV. The Company accounts for its equity interests in the ATMP JV under the equity method of accounting due to its significant influence over the ATMP JV.

The ATMP JV provides assembly, testing, marking and packaging (ATMP) services to the Company. The Company assists the ATMP JV in its management of certain raw material inventory. The purchases from and resales to the ATMP JV of inventory under the Company’s inventory management program are reported within purchases and resales with the ATMP JV and do not impact the Company’s condensed consolidated statements of operations.

The Company’s purchases from the ATMP JV during the three and six months ended June 25, 2022 amounted to $407 million and $755 million, respectively. The Company’s purchases from the ATMP JV during the three and six months ended June 26, 2021 amounted to $270 million and $516 million, respectively. As of June 25, 2022 and December 25, 2021, the amounts payable to the ATMP JV were $361 million and $85 million, respectively, and are included in Payables to related parties on the Company’s condensed consolidated balance sheets. The Company’s resales to the ATMP JV during the three and six months ended June 25, 2022 amounted to $4 million and $8 million, respectively. The Company’s resales to the ATMP JV during the three and six months ended June 26, 2021 amounted to $9 million and $19 million, respectively. As of June 25, 2022 and December 25, 2021, the Company had receivables from the ATMP JV of $3 million and $2 million, respectively, included in Receivables from related parties on the Company’s condensed consolidated balance sheets.

During the three and six months ended June 25, 2022, the Company recorded a gain of $4 million and $7 million, respectively, in Equity income in investee on its condensed consolidated statements of operations. As of June 25, 2022 and December 25, 2021, the carrying value of the Company’s investment in the ATMP JV was $76 million and $69 million, respectively.

THATIC Joint Ventures

The Company holds equity interests in two joint ventures (collectively, the THATIC JV) with Higon Information Technology Co., Ltd. (THATIC), a third-party Chinese entity. As of both June 25, 2022 and December 25, 2021, the carrying value of the investment was zero.

In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV, payable over several years upon achievement of certain milestones. The Company also receives a royalty based on the sales of the THATIC JV’s products developed on the basis of such Licensed IP. The Company classifies Licensed IP and royalty income associated with the February 2016 agreement as Licensing gain within operating income. During the three and six months ended June 25, 2022, the Company recognized $6 million of licensing gain from royalty income and $89 million of licensing gain from a milestone achievement and royalty income, respectively. During the three and six months ended June 26, 2021, the Company recognized $1 million and $5 million, respectively, of licensing gain from royalty income, both associated with Licensed IP. As of both June 25, 2022 and December 25, 2021, the Company had no receivables from the THATIC JV.

In June 2019, the Bureau of Industry and Security of the United States Department of Commerce added certain Chinese entities to the Entity List, including THATIC and the THATIC JV. The Company is complying with U.S. law pertaining to the Entity List designation.

NOTE 8 – Debt and Revolving Credit Facility

Debt

The Company’s total debt as of June 25, 2022 and December 25, 2021 consisted of the following:

			June 25, 2022						December 25, 2021
			(In millions)
7.50% Senior Notes Due August 2022 (7.50% Notes)			$	312					$	312
2.95% Senior Notes Due 2024 (Xilinx 2024 Notes)			750						—
2.125% Convertible Senior Notes Due 2026 (2.125% Notes)			1						1
2.375% Senior Notes Due 2030 (Xilinx 2030 Notes)			750						—
3.924% Senior Notes Due 2032 (3.924% Notes)			500						—
4.393% Senior Notes Due 2052 (4.393% Notes)			500						—
Total debt (principal amount)			2,813						313
Unamortized debt discount and issuance costs			(36)						—
Total debt (net)			2,777						313
Less: current portion of long-term debt			(312)						(312)
Total long-term debt			$	2,465					$	1

Assumed Xilinx Notes

In connection with the acquisition of Xilinx, the Company assumed $1.5 billion in aggregate principal of Xilinx’s 2.95% Notes and 2.375% Notes (together, the Assumed Xilinx Notes) which were recorded at fair value as of the Xilinx Acquisition Date. The difference between the fair value at the Xilinx Acquisition Date and the principal outstanding of the Assumed Xilinx Notes will be amortized through interest expense over the remaining term of the debt. The Assumed Xilinx Notes are general unsecured senior obligations of the Company with semi-annual fixed interest payments due on June 1 and December 1. The indentures governing the Assumed Xilinx Notes contain various covenants which limit the Company’s ability to, among other things, create certain liens on principal property or the capital stock of certain subsidiaries, enter into certain sale and leaseback transactions with respect to principal property, and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company’s assets to another person.

3.924% Senior Notes Due 2032 and 4.393% Senior Notes Due 2052

On June 9, 2022, the Company issued $1.0 billion in aggregate principal amount of 3.924% Notes and 4.393% Notes. The 3.924% Notes and 4.393% Notes are general unsecured senior obligations of the Company. The interest is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2022. The 3.924% and 4.393% Notes are governed by the terms of an indenture dated June 9, 2022 between the Company and US Bank Trust Company, National Association as trustee. As of June 25, 2022, the outstanding aggregate principal amount of the 3.924% Notes and 4.393% Notes was $1.0 billion.

The Company may redeem some or all of the 3.924% Notes and 4.393% Notes prior to March 1, 2032 and December 1, 2051, respectively, at a price equal to the greater of the present value of the principal amount and future interest through the maturity of the 3.924% Notes or 4.393% Notes or 100% of the principal amount plus accrued and unpaid interest. Holders have the right to require the Company to repurchase all or a portion of the 3.924% Notes or 4.393% Notes in the event that the Company undergoes a change of control as defined in the indenture, at a repurchase price of 101% of the principal amount plus accrued and unpaid interest. Additionally, an event of default may result in the acceleration of the maturity of the 3.924% Notes and 4.393% Notes.

2.125% Notes

During the six months ended June 25, 2022, the activity on the 2.125% Notes was immaterial.

During the six months ended June 26, 2021, holders of the 2.125% Notes converted $25 million principal amount of notes in exchange for approximately 3 million shares of the Company’s common stock at the conversion price of $8.00 per share. The Company recorded a loss of $6 million from these conversions in Other expense, net on its condensed consolidated statements of operations.

Future Debt Payment Obligations

As of June 25, 2022, the Company’s future debt payment obligations were as follows:

			Principal
Fiscal Year			(In millions)
2022			$	312
2023			—
2024			750
2025			—
2026			1
2027 and thereafter			1,750
Total			$	2,813

Revolving Credit Facility

On April 29, 2022, the Company entered into a Credit Agreement (Revolving Credit Agreement) with Wells Fargo Bank, N.A. as administrative agent and the other banks identified therein as lenders. The Revolving Credit Agreement provides for a five-year revolving credit facility in an aggregate principal amount not to exceed $3.0 billion (subject to certain terms and conditions). As of June 25, 2022, the Company had no outstanding

borrowings under this revolving credit facility but may borrow in the future and use the proceeds for payment of expenses in connection with working capital and general corporate expenses.

Revolving loans under the Revolving Credit Agreement can be Secure Overnight Financing Rate (SOFR) Loans or Base Rate Loans (each as defined in the Revolving Credit Agreement) at the Company's option. Each SOFR Loan will bear interest at a rate per annum equal to the applicable SOFR Rate plus a margin based on the Company's Debt Ratings (as defined in the Revolving Credit Agreement) from time to time of between 0.625% and 1.250%. Each Base Rate Loan will bear interest at a rate per annum equal to the Base Rate (as defined in the Revolving Credit Agreement) plus a margin based on the Company's Debt Ratings from time to time of between 0.000% and 0.250%. In addition, the Company has agreed to pay a commitment fee based on the Company's Debt Ratings from time to time of between 0.050% and 0.125% (as defined in the Revolving Credit Agreement) in effect. The Revolving Credit Agreement also contains a sustainability-linked pricing component which provides for interest rate and facility fee reductions or increases based on the Company meeting or missing targets related to environmental sustainability, specifically greenhouse gas emissions.

The Revolving Credit Agreement contains customary representations and warranties, and affirmative and negative covenants and events of default applicable to the Company and its subsidiaries. As of June 25, 2022, the Company was in compliance with these covenants.

NOTE 9 – Financial Instruments

Fair Value Measurements

The Company’s financial instruments are measured and recorded at fair value on a recurring basis, except for non-marketable equity investments in privately-held companies. These equity investments are generally accounted for under the measurement alternative, defined as cost, less impairments, adjusted for subsequent observable price changes and are periodically assessed for impairment when events or circumstances indicate that a decline in value may have occurred.

Fair Value Hierarchy

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

Financial Instruments Recorded at Fair Value on a Recurring Basis

			June 25, 2022																		December 25, 2021
(In millions)			Level 1						Level 2						Total						Level 1						Level 2						Total
Cash equivalents
Money market funds			$	2,321					$	—					$	2,321					$	4					$	—					$	4
Commercial paper			—						298						298						—						45						45
Short-term investments
Commercial paper			—						447						447						—						880						880
Time deposits and certificates of deposits			—						150						150						—						193						193
Asset-backed and mortgage-backed securities			—						44						44						—						—						—
U.S. Treasury and agency securities			387						—						387						—						—						—
Other non-current assets
Time deposits and certificates of deposits			—						4						4						—						—						—
Equity investments			12						—						12						66						—						66
Deferred compensation plan investments			82						—						82						72						—						72
Total assets measured at fair value			$	2,802					$	943					$	3,745					$	142					$	1,118					$	1,260

During the three and six months ended June 25, 2022, the Company recognized a $10 million and $54 million loss, respectively, in Other income (expense) due to a decrease in the fair value of an equity investment.

Deferred compensation plan investments are primarily mutual fund investments held in a Rabbi trust established to maintain the Company’s executive deferred compensation plan.

The following is a summary of cash equivalents and short-term investments:

			June 25, 2022
			Cost/ Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
			(in millions)
Asset-backed and mortgage-backed securities			$	46					$	—					$	(2)					$	44
Commercial paper			746						—						(1)						745
Money market funds			2,321						—						—						2,321
Time deposits and certificates of deposits			150						—						—						150
U.S. Treasury and agency securities			388						—						(1)						387
			$	3,651					$	—					$	(4)					$	3,647

As of June 25, 2022, the Company did not have any available-for-sale debt securities which had been in a continuous unrealized loss position of more than twelve months.

The contractual maturities of investments classified as available-for-sale are as follows:

			June 25, 2022												December 25, 2021
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
			(In millions)												(In millions)
Due within 1 year			$	1,259					$	1,258					$	1,118					$	1,118
Due in 1 year through 5 years			29						29						—						—
Due in 5 years and later			46						43						—						—
			$	1,334					$	1,330					$	1,118					$	1,118

Financial Instruments Not Recorded at Fair Value

The Company carries its financial instruments at fair value except for its debt. The carrying amounts and estimated fair values of the Company’s debt are as follows:

			June 25, 2022												December 25, 2021
			Carrying Amount						Estimated Fair Value						Carrying Amount						Estimated Fair Value
			(In millions)
Current portion of long-term debt, net			$	312					$	315					$	312					$	326
Long-term debt, net of current portion			$	2,465					$	2,388					$	1					$	15

The estimated fair value of the Company’s long-term debt is based on Level 2 inputs of quoted prices for the Company’s debt and comparable instruments in inactive markets.

The fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing terms.

Financial Instruments Measured at Fair Value on a Non-Recurring Basis

As of June 25, 2022, the Company had non-marketable securities in private companies of $140 million, which were classified as Level 3 assets. The Company’s investments in non-marketable securities of private companies are recorded using a measurement alternative that adjusts the securities to fair value when the Company recognizes an observable price adjustment or an impairment. Such impairment losses or observable price adjustments were not material during the three months ended June 25, 2022. The balance of non-marketable securities in private companies as of December 25, 2021 was not material.

Hedging Transactions and Derivative Financial Instruments

Foreign Currency Forward Contracts Designated as Accounting Hedges

The Company enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate risk related to future forecasted transactions denominated in currencies other than the U.S. Dollar. These contracts generally mature within 18 months and are designated as accounting hedges. As of June 25, 2022 and December 25, 2021, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $1.5 billion and $894 million, respectively. The fair value of these contracts was not material as of June 25, 2022 and December 25, 2021.

Foreign Currency Forward Contracts Not Designated as Accounting Hedges

The Company also enters into foreign currency forward contracts to reduce the short-term effects of foreign currency fluctuations on certain receivables or payables denominated in currencies other than the U.S. Dollar. These forward contracts generally mature within 3 months and are not designated as accounting hedges. As of June 25, 2022 and December 25, 2021, the notional value of these outstanding contracts was $263 million and $291 million, respectively. The fair value of these contracts was not material as of June 25, 2022 and December 25, 2021.

NOTE 10 – Earnings Per Share

The following table sets forth the components of basic and diluted earnings per share:

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions, except per share amounts)
Numerator
Net income for basic earnings per share			$	447					$	710					$	1,233					$	1,265
Denominator
Basic weighted average shares			1,618						1,216						1,506						1,214
Potentially dilutive shares from employee equity plans and warrants			14						16						15						17
Diluted weighted average shares			1,632						1,232						1,521						1,231
Earnings per share:
Basic			$	0.28					$	0.58					$	0.82					$	1.04
Diluted			$	0.27					$	0.58					$	0.81					$	1.03

NOTE 11 – Common Stock and Employee Equity Plans

Common Stock

Shares of common stock outstanding were as follows:

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions)
Balance, beginning of period			1,620						1,215						1,207						1,211
Common stock issued for the acquisition of Xilinx			—						—						429						—
Common stock issued under employee equity plans			3						1						3						2
Common stock repurchases for tax withholding on equity awards			(1)						—						(1)						—
Issuance of common stock to settle convertible debt			—						—						—						3
Repurchases of common stock			(10)						(3)						(26)						(3)
Balance, end of period			1,612						1,213						1,612						1,213

Stock Repurchase Program

In May 2021, the Company’s Board of Directors approved a stock repurchase program of up to $4 billion of the Company’s common stock (Existing Repurchase Program). In February 2022, the Company’s Board of Directors approved a new stock repurchase program in addition to the Existing Repurchase Program to purchase up to $8 billion of outstanding common stock in the open market (collectively referred to as the “Repurchase Program”).

During the three and six months ended June 25, 2022, the Company repurchased 10.2 million and 25.9 million shares of its common stock under the Repurchase Program for $920 million and $2.8 billion, respectively. As of June 25, 2022, $7.4 billion remains available for future stock repurchases under the Repurchase Program. The Repurchase Program does not obligate the Company to acquire any common stock, has no termination date and may be suspended or discontinued at any time.

Stock-based Compensation

Stock-based compensation expense was recorded in the Condensed Consolidated Statements of Operations as follows:

			Three Months Ended												Six Months Ended
			June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
			(In millions)
Cost of sales			$	8					$	1					$	12					$	2
Research and development			180						53						293						108
Marketing, general and administrative			104						29						186						58
Total stock-based compensation expense before income taxes			292						83						491						168
Income tax benefit			(32)						(14)						(75)						(27)
Total stock-based compensation expense after income taxes			$	260					$	69					$	416					$	141

During the three and six months ended June 25, 2022, the Company recorded $33 million and $57 million, respectively, of acquisition-related stock-based compensation expense under post-acquisition service conditions.

Xilinx Replacement Awards

In connection with the acquisition of Xilinx, the Company issued equity awards as replacement for assumed equity awards to Xilinx employees. The replacement awards include restricted stock units of approximately 12 million shares with a weighted average fair value of $103.35 per share and have terms that are substantially the same as the assumed Xilinx awards. The fair value of replacement awards related to services rendered up to the Xilinx Acquisition Date was recognized as a component of the total purchase consideration while the remaining fair value of replacement awards attributable to post-combination services will be recognized as stock-based compensation expense over the remaining post-acquisition vesting period.

NOTE 12 – Income Taxes

The Company recorded an income tax provision of $54 million and $167 million for the three and six months ended June 25, 2022, representing effective tax rates of 10.8% and 11.9%, respectively. The Company recorded an income tax provision of $113 million and $202 million for the three and six months ended June 26, 2021, respectively, representing effective tax rates of 13.7% and 13.8%, respectively.

The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate for the three and six months ended June 25, 2022 was primarily due to U.S. reduced tax on foreign-derived intangible income benefit (FDII) and research credits.

The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate for the three and six months ended June 26, 2021 was primarily due to U.S. reduced tax on FDII and research credits.

As of June 25, 2022, the Company continues to maintain valuation allowances for certain federal, state, and foreign tax attributes. The federal valuation allowance maintained is due to limitations under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated loss rules. Certain state and foreign valuation allowances maintained are due to a lack of sufficient sources of taxable income.

As of the six months ended June 25, 2022, the liability for uncertain tax positions increased by $361 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, the Company 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, including $863 million of GILTI net deferred tax liability. The Company also recorded $147 million of current tax payable as of the Xilinx Acquisition Date. Additionally, the Company 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.

NOTE 13 – Commitments and Contingencies

Commitments

The Company’s purchase commitments primarily include the Company’s obligations to purchase wafers and substrates from third parties and future payments related to certain software, technology and IP licenses. Purchase commitments include obligations made under noncancellable purchase orders and contractual obligations requiring minimum purchases or for which cancellation would lead to significant penalties.

Total future unconditional purchase commitments as of June 25, 2022 were as follows:

Fiscal Year			(In millions)
Remainder of 2022			$	6,599
2023			2,184
2024			998
2025			333
2026			179
2027 and thereafter			392
Total unconditional purchase commitments			$	10,685

Contingencies

Quarterhill Inc. Litigation

On July 2, 2018, three entities named Aquila Innovations, Inc. (Aquila), Collabo Innovations, Inc. (Collabo), and Polaris Innovations, Ltd. (Polaris), filed separate patent infringement complaints against the Company in the United States District Court for the Western District of Texas. Aquila alleges that the Company infringes two patents (6,239,614 and 6,895,519) relating to power management; Collabo alleges that the Company infringes one patent (7,930,575) related to power management; and Polaris alleges that the Company infringes two patents (6,728,144 and 8,117,526) relating to control or use of dynamic random-access memory, or DRAM. Each of the three complaints seeks unspecified monetary damages, interest, fees, expenses, and costs against the Company; Aquila and Collabo also seek enhanced damages. Aquila, Collabo, and Polaris each appear to be related to a patent assertion entity named Quarterhill Inc. (formerly WiLAN Inc.). On May 14, 2020, at the request of Polaris, the Court dismissed all claims related to one of the two patents in suite in the Polaris case. On June 10, 2020, the Court granted AMD’s motions to stay the Polaris and Aquila cases pending the completion of inter partes review (IPR) of each of the patents-in-suit in those cases by the Patent Trial and Appeal Board.

On February 22, 2021, February 26, 2021, and March 10, 2021, the Patent Trial and Appeal Board (PTAB) issued final written decisions in IPR invalidating all asserted claims of the remaining Polaris and Aquila patents. On May 10, 2021, Aquila filed a notice of appeal to the Court of Appeals for the Federal Circuit for the IPR decision regarding U.S. Patent No. 6,895,519. On April 12, 2022, the Federal Circuit affirmed the PTAB’s decision. On April 30, 2021, Polaris filed a notice of appeal to the Court of Appeals for the Federal Circuit for the IPR decision regarding U.S. Patent No. 8,117,526. On May 14, 2021, AMD filed a notice of cross-appeal to the Court of Appeals for the Federal Circuit for the IPR decision regarding U.S. Patent No. 8,117,526. On July 18, 2022, the Court of Appeals for the Federal Circuit affirmed the USPTO’s decision.

On February 8, 2022, Polaris filed a lawsuit against Xilinx, Inc. alleging infringement of four patents related to memory chips and memory interfaces. On February 22, 2022, the Company was served with the complaint. On April 14, 2022, the Company filed a motion to dismiss the complaint. On April 28, 2022, Polaris filed an amended complaint. On May 12, 2022, the Company filed an answer to the amended complaint.

On June 1, 2022, Polaris filed two lawsuits against the Company and Hewlett-Packard GmbH, HP Deutschland GmbH in the Hamburg and Munich Courts in Germany, alleging infringement of two patents related to memory chips and memory interfaces. On July 15, 2022, Polaris filed a lawsuit against the Company, ASUSTeK Computer Inc., and ASUS Computer GmbH, alleging infringement of a patent related to memory chips and memory interfaces.

Analog Devices Litigation

On December 5, 2019, Analog Devices, Inc. (ADI) filed a lawsuit against Xilinx alleging infringement of eight patents related to switching circuits, comparators, analog to digital convertors, signal conditioners, and switched capacitors. On January 21, 2020, Xilinx filed its answer and counterclaims alleging infringement by ADI of eight patents related to digital to analog converters, serializing data paths, transceivers, networks on chip, termination circuits, and data transmitters. On April 3, 2020, Xilinx filed amended counterclaims.

Between July 17 and December 4, 2020, Xilinx filed nine IPR petitions challenging the patentability of seven ADI asserted patents. Between August 31 and September 15, 2020, ADI filed eight IPR petitions challenging eight Xilinx asserted patents. Between January 5 and March 15, 2021, the USPTO entered decisions granting institution of IPR on six ADI asserted patents. On June 10, 2021, the USPTO entered a decision denying institution of IPR on one ADI asserted patent. Between April 8 and May 7, 2021, the USPTO entered decisions granting institution of IPR on all eight Xilinx asserted patents. On May 8, 2020, Xilinx filed a motion to strike ADI’s affirmative defense of inequitable conduct, which the Court granted on February 9, 2021. On February 22, 2021, the Court issued an order staying the case until the issuance of the USPTO’s Final Written Decision on the last-instituted of the parties’ pending IPRs.

Between January 10 and March 11, 2022, the USPTO issued Final Written Decisions (FWDs) finding all challenged claims unpatentable in two ADI patents; finding some challenged claims unpatentable in three ADI patents and finding no challenged claims unpatentable in one ADI patent. Between April 1 and April 5, 2022, the USPTO issued three FWDs finding some challenged claims unpatentable in three Xilinx patents and finding no challenged claims unpatentable in one Xilinx patent. Between March 15, 2022 and April 11, 2022, ADI and the Company filed notices of appeal to the Court of Appeals for the Federal Circuit regarding adverse IPR decisions. On May 11, 2022, the Court continued the stay until July 14, 2022. Subsequently, the Court stayed the case until August 3, 2022.

Other Legal Matters

The Company is a defendant or plaintiff in various actions that arose in the normal course of business. With respect to these matters, based on the management’s current knowledge, the Company believes that the amount or range of reasonably possible loss, if any, will not, either individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows.