Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Revolving 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 and beyond; AMD’s ability to obtain sufficient external financing on favorable terms, or at all; AMD’s expectation that based management’s current knowledge, the potential liability related to AMD’s current litigation will not have a material adverse effect on its financial position, results of operation or cash flows; 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 in the next 12 months; and a small number of customers will continue to account for a substantial part of AMD’s revenue in the future. 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, Kria, Radeon, Ryzen, Threadripper, Versal, Xilinx and combinations thereof are trademarks of Advanced Micro Devices, Inc. Microsoft and Xbox 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:

• server microprocessors, graphics processing units (GPUs), data processing units (DPUs), Field Programmable Gate Arrays (FPGAs) and adaptive System-on-Chip (SoC) products for data centers;

• microprocessors, accelerated processing units (APUs) that integrate microprocessors and graphics, and chipsets for desktop and notebook personal computers;

• discrete GPUs, semi-custom SoC products and development services; and

• embedded microprocessors, GPUs, FPGAs, adaptive SoC products, and Adaptive Compute Acceleration Platform (ACAP) products.

From time to time, we may also sell or license portions of our intellectual property (IP) portfolio.

On May 26, 2022, we completed the acquisition of Pensando Systems, Inc. (Pensando) 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 our ability to offer leadership solutions for cloud, enterprise, and edge customers.

In this section, we will describe the general financial condition and the results of operations of Advanced Micro Devices, Inc. and its wholly-owned subsidiaries (collectively, “us,” “our” or “AMD”), including a discussion of our results of operations for the three and six months ended June 25, 2022 compared to the prior year period and an analysis of changes in our financial condition.

Net revenue for the three months ended June 25, 2022 was $6.6 billion, a 70% increase compared to the prior year period. Net revenue increased across all our segments, led by an 83% increase in Data Center segment revenue primarily due to higher sales of our EPYC™ server processors, a 25% increase in Client segment revenue primarily due to higher sales of our Ryzen™ mobile processors, and a 32% increase in Gaming segment revenue primarily due to higher semi-custom revenue. In addition, our Embedded segment revenue increased significantly driven primarily by the inclusion of Xilinx, Inc. (Xilinx) revenue.

Gross margin for the three months ended June 25, 2022 was 46% compared to gross margin of 48% for the prior year period. The decrease in gross margin was primarily due to the amortization of acquisition-related intangible assets associated with the Xilinx acquisition, partially offset by an increase in margin due to higher Data Center and Embedded segment revenue.

Our operating income for the three months ended June 25, 2022 was $526 million compared to operating income of $831 million for the prior year period. The decrease in operating income was primarily driven by the amortization of acquired intangible assets associated with the Xilinx acquisition and higher operating expenses, partially offset by higher revenue.

Our net income for the three months ended June 25, 2022 was $447 million compared to net income of $710 million for the prior year period. The decrease in net income was primarily driven by lower operating income.

As of June 25, 2022, our cash, cash equivalents and short-term investments were $6.0 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 June 25, 2022, the principal amount of our outstanding debt obligations was $2.8 billion, which primarily includes $1.5 billion of debt assumed from Xilinx and $1.0 billion of debt issued on June 9, 2022, compared to $313 million of debt as of December 25, 2021.

On June 9, 2022, we issued $1.0 billion in aggregate principal amount of senior notes, consisting of $500 million in aggregate principal amount of 3.924% Senior Notes due 2032 (3.924% Notes) and $500 million in aggregate principal amount of 4.393% Senior Notes due 2052 (4.393% Notes). The 3.924% Notes will mature on June 1, 2032 and bear interest at a rate of 3.924% per annum, and the 4.393% Notes will mature on June 1, 2052 and bear interest at a rate of 4.393% per annum. The 3.924% Notes and the 4.393% Notes are senior unsecured obligations.

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 June 25, 2022, we repurchased 10.2 million shares of our common stock for $0.9 billion under the Repurchase Program. As of June 25, 2022, $7.4 billion remains available for future stock repurchases under the Repurchase Program. The Repurchase Program does not obligate us to acquire any common stock, has no termination date and may be suspended or discontinued at any time.

During the second quarter of 2022, we expanded our lineup of high-performance AMD Ryzen processors with the introduction of the AMD Ryzen 5000 C-Series processors bringing “Zen 3” architecture to premium Chrome OS devices for work and collaboration. The processors offer up to eight high-performance x86 cores. We announced new graphics cards to the AMD Radeon RX 6000 Series product line: the AMD Radeon RX 6950 XT, the AMD Radeon RX 6750 XT and the AMD Radeon RX 6650 XT. These new graphics cards are built on AMD RDNA 2 gaming architecture and GDDR6 memory at up to 18Gbps. We introduced the AMD Ryzen Embedded R2000 Series, second-generation mid-range system-on-chip processors optimized for a wide range of industrial and robotics systems, machine vision, IoT (Internet of Things) and thin-client equipment. The processors are scalable up to four “Zen+” CPU cores with eight threads, 2MB of L2 cache and 4MB of share L3 cache giving designers flexibility to scale performance and power efficiencies with a single processing platform. We also introduced the Kria™ KR260 Robotics Starter Kit, the latest addition to the Kria portfolio. The kit enables rapid development of hardware-accelerated applications for robotics, machine vision and industrial communication and control.

During the second 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 remotely.

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 acquisitions, 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 and six months ended June 25, 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 Combinations**.** 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 asset 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 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 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 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 our historical consolidated financial statements.

Results of Operations

During the second quarter of fiscal year 2022, we changed our reporting segments to align our financial reporting with the manner in which we manage our business in strategic end markets. This is consistent with the revised manner in which our CODM assesses our financial performance and allocates resources. As a result, we report our financial performance based on the following four reportable segments: Data Center, Client, Gaming, and Embedded. Additional information on our reportable segments is contained in Note 4—Segment Reporting of the Notes to Condensed Consolidated Financial Statements (Part I, Financial Information of this Form 10-Q). All prior-period segment data have been retrospectively adjusted.

Our operating results tend to vary seasonally. Historically, our net revenue has been generally higher in the second half of the year than in the first half of the year, although market conditions and product transitions could impact this trend.

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

			Three Months Ended												Six Months Ended
			June 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			(1,450)						(92)						(2,253)						(188)
Total operating income			$	526					$	831					$	1,477					$	1,493

Data Center

Data Center net revenue of $1.5 billion for the three months ended June 25, 2022 increased by 83%, compared to net revenue of $813 million for the prior year period. Data Center net revenue of $2.8 billion for the six months ended June 25, 2022 increased by 95%, compared to net revenue of $1.4 billion for the prior year period. The increase in both periods was driven by higher sales of our EPYC server processors.

Data Center operating income was $472 million for the three months ended June 25, 2022, compared to operating income of $204 million for the prior year period. Data Center operating income was $899 million for the six months ended June 25, 2022, compared to operating income of $314 million for the prior year period. The increase in operating income for both periods was primarily driven by higher revenue, partially offset by higher operating expenses. Operating expenses increased for the reasons outlined under “Expenses” below.

Client

Client net revenue of $2.2 billion for the three months ended June 25, 2022 increased by 25%, compared to net revenue of $1.7 billion for the prior year period, primarily due to higher sales of our Ryzen mobile processors driven by a 35% increase in average selling price, partially offset by an 8% decrease in unit shipments. The increase in average selling price was driven by a richer mix of Ryzen mobile processor sales.

Client net revenue of $4.3 billion for the six months ended June 25, 2022 increased by 27%, compared to net revenue of $3.4 billion for the prior year period, primarily due to higher sales of our Ryzen mobile processors driven by a 37% increase in average selling price, partially offset by a 7% decrease in unit shipments. The increase in average selling price was driven by a richer mix of Ryzen mobile processor sales.

Client operating income was $676 million for the three months ended June 25, 2022, compared to operating income of $538 million for the prior year period. Client operating income was $1.4 billion for the six months ended June 25, 2022, compared to operating income of $1.1 billion for the prior year period. The increase in operating income for both periods was primarily driven by higher revenue, partially offset by higher operating expenses. Operating expenses increased for the reasons outlined under “Expenses” below.

Gaming

Gaming net revenue of $1.7 billion for the three months ended June 25, 2022 increased by 32%, compared to net revenue of $1.3 billion for the prior year period. The increase in net revenue was primarily driven by an increase in semi-custom revenue, partially offset by a decline in gaming graphics revenue. Gaming net revenue of $3.5 billion for the six months ended June 25, 2022 increased by 46%, compared to net revenue of $2.4 billion for the prior year period. The increase in net revenue was primarily driven by an increase in semi-custom revenue.

Gaming operating income was $187 million for the three months ended June 25, 2022, compared to operating income of $175 million for the prior year period. Gaming operating income was $545 million for the six months ended June 25, 2022, compared to operating income of $296 million for the prior year period. The increase in operating income for both periods was primarily driven by higher revenue, partially offset by higher operating expenses. Operating expenses increased for the reasons outlined under “Expenses” below.

Embedded

Embedded net revenue of $1.3 billion for the three months ended June 25, 2022 increased significantly, compared to net revenue of $54 million for the prior year period. Embedded net revenue of $1.9 billion for the six months ended June 25, 2022 increased significantly, compared to net revenue of $96 million for the prior year period. The significant increase in net revenue for both periods was primarily driven by the inclusion of Xilinx embedded revenue.

Embedded operating income was $641 million for the three months ended June 25, 2022, compared to operating income of $6 million for the prior year period. Embedded operating income was $918 million for the six months ended June 25, 2022, compared to operating income of $3 million for the prior year period. The significant increase in operating income for both periods was primarily driven by the inclusion of Xilinx revenue.

All Other

All Other operating loss of $1.5 billion for the three months ended June 25, 2022 primarily consisted of $1 billion of amortization of acquisition-related intangibles, $292 million of stock-based compensation expense, and $141 million of acquisition-related costs, which primarily include transaction costs, amortization of acquired inventory fair value step-up adjustment, depreciation related to the acquired fixed assets fair value step-up adjustment, certain compensation charges related to the acquisitions of Xilinx and Pensando, and a licensing gain. All Other operating loss of $92 million for the prior year period primarily consisted of $83 million of stock-based compensation expense and $10 million of acquisition-related costs.

All Other operating loss of $2.3 billion for the six months ended June 25, 2022 primarily consisted of $1.5 billion of amortization of acquisition-related intangibles, $491 million of stock-based compensation expense, and $349 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, certain compensation charges related to the acquisitions of Xilinx and Pensando, and licensing gain. All Other operating loss of $188 million for the prior year period primarily consisted of $168 million of stock-based compensation expense and $25 million of acquisition-related costs.

International Sales

International sales as a percentage of net revenue were 70% and 74% for the three months ended June 25, 2022 and June 26, 2021, respectively. International sales as a percentage of net revenue were 70% and 75% for the six months ended June 25, 2022 and June 26, 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												Six Months Ended
															June 25, 2022						June 26, 2021						June 25, 2022						June 26, 2021
															(In millions except for percentages)
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						—
Gross profit															3,028						1,830						5,846						3,417
Gross margin															46		%				48		%				47		%				47		%
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)
Interest expense															(25)						(10)						(38)						(19)
Other expense, net															(4)						—						(46)						(11)
Income tax provision															54						113						167						202
Equity income in investee															4						2						7						4

Gross Margin

Gross margin was 46% and 48% for the three months ended June 25, 2022 and June 26, 2021, respectively. The decrease in gross margin was primarily due to the amortization of acquisition-related intangible assets associated with the Xilinx acquisition, partially offset by an increase in margin driven by higher Data Center and Embedded revenue.

Gross margin was 47% for the six months ended June 25, 2022 and June 26, 2021. The consistent gross margin was the result of a decrease in margin due to an increase in the amortization of acquisition-related intangible assets associated with the Xilinx acquisition, offset by an increase in margin driven by higher Data Center and Embedded revenue.

Expenses

Research and Development Expenses

Research and development expenses of $1.3 billion for the three months ended June 25, 2022 increased by $641 million, or 97%, compared to $659 million for the prior year period. The increase was primarily driven by an increase in headcount through acquisitions and organic growth, and an increase in product development costs.

Research and development expenses of $2.4 billion for the six months ended June 25, 2022 increased by $1.1 billion, or 86%, compared to $1.3 billion for the prior year period. The increase was primarily driven by an increase in headcount through acquisitions and organic growth, and an increase in product development costs.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses of $592 million for the three months ended June 25, 2022 increased by $251 million, or 74%, compared to $341 million for the prior year period. The increase was primarily due to an increase in go-to-market activities, an increase in headcount through acquisitions and organic growth, and higher acquisition-related costs.

Marketing, general and administrative expenses of $1.2 billion for the six months ended June 25, 2022 increased by $529 million, or 80%, compared to $660 million for the prior year period. The increase was due to an increase in go-to-market activities, an increase in headcount through acquisitions and organic growth, and higher acquisition-related costs.

Amortization of Acquisition-Related Intangibles

For the three months ended June 25, 2022, cost of sales and operating expense included $407 million and $616 million, respectively, of amortization expense from intangible assets acquired.

For the six months ended June 25, 2022, cost of sales and operating expense included $593 million and $909 million, respectively, of amortization expense from intangible assets acquired.

Licensing Gain

During the three and six months ended June 25, 2022, we recognized $6 million of licensing gain from royalty income and $89 million of licensing gain from a milestone achievement and royalty income, respectively, both associated with Licensed IP. During the three and six months ended June 26, 2021, we recognized $1 million and $5 million, respectively of licensing gain from royalty income, both associated with Licensed IP.

Interest Expense

Interest expense for the three months ended June 25, 2022 was $25 million compared to $10 million for the prior year period. Interest expense for the six months ended June 25, 2022 was $38 million compared to $19 million for the prior year period. The increase for both periods was primarily due to interest expense from the 2.95% Senior Notes due 2024, the 2.375% Senior Notes due 2030 (together, the Assumed Xilinx Notes), the 3.924% Notes and the 4.393% Notes.

Other Income (Expense), Net

Other expense, net was $46 million for the six months ended June 25, 2022, compared to $11 million of Other expense, net for the prior year period. The change was primarily due to a decrease of $54 million in the fair value of equity investments in the first two quarters of fiscal year 2022, partially offset by lower impairment on investment of $8 million and losses from the conversion of our convertible debt of $7 million in the same period of fiscal year 2021.

Income Tax Provision

We recorded an income tax provision of $54 million and provision of $167 million for the three and six months ended June 25, 2022, representing effective tax rates of 10.8% and 11.9%, respectively. We 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 our 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 (FDII) and research credits.

The difference between the U.S. federal statutory tax rate of 21% and our 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, we continued 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 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, 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, including $863 million of GILTI net deferred tax liability. We also recorded $147 million of current tax payable as of the date we acquired Xilinx. 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 June 25, 2022, our cash, cash equivalents and short-term investments were $6.0 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, $1.6 billion of short-term investments acquired from Xilinx, $1.0 billion from debt issuance, and cash flows from operations, partially offset by stock repurchases and cash paid for the acquisition of Pensando. The percentage of cash, cash equivalents and short-term investments held domestically as of June 25, 2022 and December 25, 2021 were 81% and 91%, respectively.

Our operating, investing and financing activities for the six months ended June 25, 2022 compared to the prior year period are as described below:

			Six Months Ended
			June 25, 2022						June 26, 2021
			(In millions)
Net cash provided by (used in):
Operating activities			$	2,033					$	1,850
Investing activities			2,230						(603)
Financing activities			(1,834)						(219)
Net increase in cash and cash equivalents			$	2,429					$	1,028

As of June 25, 2022, our principal debt obligations were $2.8 billion, which primarily included $1.5 billion of the Assumed Xilinx Notes and $1.0 billion of newly issued 3.924% Notes and 4.393% Notes, 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.

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 $2.0 billion in the six months ended June 25, 2022, primarily due to our net income of $1.2 billion, adjusted for non-cash and non-operating charges of $2.0 billion and net cash outflows of $1.2 billion from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $1.0 billion increase in accounts receivable driven primarily by higher revenue in the first half of 2022, a $274 million increase in inventory driven by an increase in product build in support of customer demand, partially offset by a $277 million increase in payables to related parties driven primarily by an increase in purchases and timing of payments.

Net cash provided by operating activities was $1.9 billion in the six months ended June 26, 2021, primarily due to our net income of $1.3 billion, adjusted for non-cash and non-operating charges of $562 million and net cash inflows of $23 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $346 million increase in accounts payable due to timing of payments to our suppliers, partially offset by a $46 million decrease in accounts receivable driven primarily by higher revenue in the second quarter of 2021 compared to the first quarter of 2021, and a $366 million increase in inventories driven by an increase in product build in support of customer demand.

Investing Activities

Net cash provided by investing activities was $2.2 billion for the six months ended June 25, 2022 which primarily consisted of $2.4 billion of cash received from Xilinx in the acquisition and $2.2 billion of proceeds from the maturity of short-term investments, partially offset by cash used in the acquisition of Pensando of $1.6 billion, purchases of short-term investments of $620 million and purchases of property and equipment of $203 million.

Net cash used in investing activities was $603 million for the six months ended June 26, 2021 which primarily consisted of $1.1 billion for purchases of short-term investments and $130 million for purchases of property and equipment, partially offset by $655 million for maturities of short-term investments.

Financing Activities

Net cash used in financing activities was $1.8 billion for the six months ended June 25, 2022, which primarily consisted of common stock repurchases of $2.8 billion and repurchases for tax withholding on employee equity plans of $66 million, partially offset by proceeds from the issuance of debt of $991 million and a cash inflow of $78 million from issuance of common stock under our employee equity plans.

Net cash used in financing activities was $219 million for the six months ended June 26, 2021, which primarily consisted of common stock repurchases for tax withholding on employee equity plans of $14 million, partially offset by a cash inflow of $51 million from exercises of stock options under our employee equity plans.