Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

62K characters. Original on sec.gov · Markdown

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended
		April 1, 2023		March 26, 2022
		(In millions, except per share amounts)
Net revenue		$	5,353	$	5,887
Cost of sales		2,689		2,883
Amortization of acquisition-related intangibles		305		186
Total cost of sales		2,994		3,069
Gross profit		2,359		2,818

Research and development		1,411		1,060
Marketing, general and administrative		585		597
Amortization of acquisition-related intangibles		518		293
Licensing gain		(10)		(83)
Operating income (loss)		(145)		951

Interest expense		(25)		(13)
Other income (expense), net		43		(42)
Income (loss) before income taxes and equity income		(127)		896

Income tax provision		13		113
Equity income in investee		1		3
Net income (loss)		$	(139)	$	786

Earnings (loss) per share
Basic		$	(0.09)	$	0.56
Diluted		$	(0.09)	$	0.56
Shares used in per share calculation
Basic		1,611		1,393
Diluted		1,611		1,410

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended
		April 1, 2023		March 26, 2022
		(In millions)
Net income (loss)		$	(139)	$	786
Other comprehensive income (loss), net of tax:
Net change in unrealized gains on cash flow hedges		20		1
Total comprehensive income (loss)		$	(119)	$	787

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


	April 1, 2023		December 31, 2022
	(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	3,825	$	4,835
Short-term investments	2,114		1,020
Accounts receivable, net	4,040		4,126
Inventories	4,235		3,771
Receivables from related parties	2		2
Prepaid expenses and other current assets	1,442		1,265
Total current assets	15,658		15,019
Property and equipment, net	1,500		1,513
Operating lease right-of-use assets	447		460
Goodwill	24,177		24,177
Acquisition-related intangibles, net	23,291		24,118
Investment: equity method	84		83
Deferred tax assets	67		58
Other non-current assets	2,410		2,152
Total assets	$	67,634	$	67,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,518	$	2,493
Payables to related parties	353		463
Accrued liabilities	3,167		3,077

Other current liabilities	539		336
Total current liabilities	6,577		6,369
Long-term debt	2,467		2,467
Long-term operating lease liabilities	381		396
Deferred tax liabilities	1,641		1,934
Other long-term liabilities	1,874		1,664
Commitments and Contingencies (See Note 12)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,646 and 1,645; shares outstanding: 1,609 and 1,612	16		16
Additional paid-in capital	58,331		58,005
Treasury stock, at cost (shares held: 37 and 33)	(3,362)		(3,099)
Accumulated deficit	(270)		(131)
Accumulated other comprehensive loss	(21)		(41)
Total stockholders’ equity	54,694		54,750
Total liabilities and stockholders’ equity	$	67,634	$	67,580

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended
	April 1, 2023		March 26, 2022
	(In millions)
Cash flows from operating activities:
Net income (loss)	$	(139)	$	786
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	982		609
Stock-based compensation	309		199
Amortization of operating lease right-of-use assets	24		19
Amortization of inventory fair value adjustment	2		89

Loss on sale or disposal of property and equipment	6		15
Deferred income taxes	(308)		(342)
(Gains) losses on equity investments, net	(1)		44
Other	(2)		(2)
Changes in operating assets and liabilities
Accounts receivable, net	86		(672)
Inventories	(464)		(26)
Receivables from related parties	—		(1)
Prepaid expenses and other assets	(191)		(260)
Payables to related parties	(109)		121
Accounts payable	73		4
Accrued and other liabilities	218		412
Net cash provided by operating activities	486		995
Cash flows from investing activities:
Purchases of property and equipment	(158)		(71)
Purchases of short-term investments	(1,703)		(100)
Proceeds from maturity of short-term investments	473		963
Proceeds from sale of short-term investments	145		1
Cash received from acquisition of Xilinx	—		2,366

Other	6		(1)
Net cash provided by (used in) investing activities	(1,237)		3,158
Cash flows from financing activities:


Proceeds from sales of common stock through employee equity plans	3		2
Repurchases of common stock	(241)		(1,914)
Common stock repurchases for tax withholding on employee equity plans	(21)		(35)
Other	—		(1)
Net cash used in financing activities	(259)		(1,948)
Net increase (decrease) in cash and cash equivalents	(1,010)		2,205
Cash and cash equivalents at beginning of period	4,835		2,535
Cash and cash equivalents at end of period	$	3,825	$	4,740


Advanced Micro Devices, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
	Three Months Ended
	April 1, 2023		March 26, 2022
	(In millions)
Supplemental cash flow information:

Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid	$	69	$	67

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

See accompanying notes.

Advanced Micro Devices

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Three Months Ended
		April 1, 2023		March 26, 2022
		(In millions)
Capital stock:
Common stock, par value
Balance, beginning of period		$	16	$	12
Issuance of common stock as consideration for acquisition		—		4
Balance, end of period		$	16	$	16
Additional paid-in capital
Balance, beginning of period		$	58,005	$	11,069
Common stock issued under employee equity plans		4		2
Stock-based compensation		309		199

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		13		8

Balance, end of period		$	58,331	$	56,925
Treasury stock
Balance, beginning of period		$	(3,099)	$	(2,130)
Repurchases of common stock		(242)		(1,914)
Common stock repurchases for tax withholding on employee equity plans		(21)		(35)
Reissuance of treasury stock as consideration for acquisition		—		3,138
Balance, end of period		$	(3,362)	$	(941)

Accumulated deficit:
Balance, beginning of period		$	(131)	$	(1,451)

Net income (loss)		(139)		786
Balance, end of period		$	(270)	$	(665)

Accumulated other comprehensive income (loss):
Balance, beginning of period		$	(41)	$	(3)
Other comprehensive income		20		1
Balance, end of period		$	(21)	$	(2)

Total stockholders' equity		$	54,694	$	55,333

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) and graphics processing units (GPUs), as standalone devices or as incorporated into accelerated processing units (APUs), chipsets, data center and professional GPUs, embedded processors, semi-custom System-on-Chip (SoC) products, microprocessor and SoC development services and technology, data 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.

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 months ended April 1, 2023 shown in this report are not necessarily indicative of results to be expected for the full year ending December 30, 2023 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 31, 2022. Certain immaterial prior period amounts have been reclassified to conform to current period presentation.

The Company uses a 52- or 53-week fiscal year ending on the last Saturday in December. The three months ended April 1, 2023 and March 26, 2022 each consisted of 13 weeks.

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, valuation of goodwill and long-lived assets, and income taxes.

Significant Accounting Policies. There have been no material changes to the Company’s significant accounting policies in Note 2 - Basis of Presentation and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

NOTE 3 – Supplemental Financial Statement Information

Accounts Receivable, net

As of April 1, 2023 and December 31, 2022, Accounts receivable, net included unbilled accounts receivable of $1.1 billion. 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	April 1, 2023		December 31, 2022
	(In millions)
Raw materials	$	241	$	231
Work in process	3,129		2,648
Finished goods	865		892
Total inventories	$	4,235	$	3,771


Prepaid Expenses and Other Current Assets	April 1, 2023		December 31, 2022
	(In millions)
Prepaid supply agreements	$	867	$	673
Other	575		592
Total prepaid expenses and other current assets	$	1,442	$	1,265

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


Property and Equipment, net	April 1, 2023		December 31, 2022
	(In millions)
Land	$	120	$	120
Building and leasehold improvements	653		594
Equipment	2,173		2,163
Construction in progress	147		143
Property and equipment, gross	3,093		3,020
Accumulated depreciation	(1,593)		(1,507)
Total property and equipment, net	$	1,500	$	1,513


Accrued Liabilities	April 1, 2023		December 31, 2022
	(In millions)
Accrued marketing programs	$	672	$	876
Accrued compensation and benefits	708		701
Customer program liabilities	1,006		859
Other accrued and current liabilities	781		641
Total accrued liabilities	$	3,167	$	3,077

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 April 1, 2023, the aggregate transaction price allocated to remaining performance obligations under contracts with an original expected duration of more than one year was $346 million, of which $263 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 29% and 21% of the Company’s revenue for the three months ended April 1, 2023 and March 26, 2022, respectively.

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.

The Company’s four reportable segments are:

the Data Center segment, which primarily includes server microprocessors (CPUs) and graphics processing units (GPUs), data processing units (DPUs), Field Programmable Gate Arrays (FPGAs) and Adaptive System-on-Chip (SoC) products for data centers;
the Client segment, which primarily includes CPUs, accelerated processing units (APUs) that integrate CPUs and GPUs, 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 CPUs and GPUs, APUs, FPGAs and Adaptive SoC 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. Acquisition-related costs primarily include transaction costs, depreciation related to the Xilinx fixed assets fair value step-up adjustment, certain compensation charges, and contract termination costs.

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


	Three Months Ended
		April 1, 2023		March 26, 2022
		(In millions)
Net revenue:
Data Center		$	1,295	$	1,293
Client		739		2,124
Gaming		1,757		1,875
Embedded		1,562		595
Total net revenue		$	5,353	$	5,887
Operating income (loss):
Data Center		148		$	427
Client		(172)		692
Gaming		314		358
Embedded		798		277
All Other(1)		(1,233)		(803)
Total operating income (loss)		$	(145)	$	951


(1)			For the three months ended April 1, 2023, all other operating losses primarily included $823 million of amortization of acquisition-related intangibles, $309 million of stock-based compensation expense and $111 million of acquisition-related costs. For the three months ended March 26, 2022, all other operating losses primarily included $479 million of amortization of acquisition-related intangibles, $199 million of stock-based compensation expense and $208 million of acquisition-related costs.

NOTE 5 – Acquisition-related Intangible Assets and Goodwill

Xilinx Acquisition

On February 14, 2022, the Company completed the acquisition of Xilinx, Inc. (Xilinx), a leading provider of adaptive computing solutions, for a total purchase consideration of $48.8 billion. The acquisition of Xilinx expands the Company’s product portfolio, which now includes FPGAs, Adaptive SoC products and ACAP products. The Company allocated the purchase price to $27.3 billion of identified intangible assets and $1.3 billion of net liabilities, with the excess purchase price of $22.8 billion recorded as goodwill.

Pensando Acquisition

On May 26, 2022, the Company completed the acquisition of Pensando Systems, Inc. (Pensando), a leader in next-generation distributed computing, for a total purchase consideration of $1.7 billion. 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 Company allocated the purchase price to $349 million of identified intangible assets and $208 million of other net assets, with the excess purchase price of $1.1 billion recorded as goodwill.

Acquisition-related Intangible Assets

Acquisition-related intangibles were as follows:


	April 1, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(In millions)						(In millions)
Developed technology	$	12,360	$	(948)	$	11,412	$	12,360	$	(738)	$	11,622
Customer relationships	12,324		(2,464)		9,860		12,324		(1,973)		10,351
Customer backlog	809		(806)		3		809		(712)		97
Corporate trade name	65		(65)		—		65		(57)		8
Product trademarks	914		(88)		826		914		(68)		846
Identified intangible assets subject to amortization	26,472		(4,371)		22,101		26,472		(3,548)		22,924
IPR&D not subject to amortization	1,190		—		1,190		1,194				1,194
Total acquisition-related intangible assets	$	27,662	$	(4,371)	$	23,291	$	27,666	$	(3,548)	$	24,118

Acquisition-related intangible amortization expense was $823 million and $479 million for the three months ended April 1, 2023 and March 26, 2022, respectively.

Based on the carrying value of acquisition-related intangibles recorded as of April 1, 2023, 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 2023	$	1,981
2024	2,286
2025	2,061
2026	1,951
2027	1,844
2028 and thereafter	11,978
Total	$	22,101

NOTE 6 – 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 months ended April 1, 2023 and March 26, 2022 amounted to $367 million and $348 million, respectively. As of April 1, 2023 and December 31, 2022, the amounts payable to the ATMP JV were $353 million and $463 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 months ended April 1, 2023 and March 26, 2022 amounted to $1 million and $4 million, respectively. As of both April 1, 2023 and December 31, 2022, the Company had receivables from the ATMP JV of $2 million, included in Receivables from related parties on the Company’s condensed consolidated balance sheets.

During the three months ended April 1, 2023 and March 26, 2022, the Company recorded a gain of $1 million and $3 million, respectively, in Equity income in investee on its condensed consolidated statements of operations. As of April 1, 2023 and December 31, 2022, the carrying value of the Company’s investment in the ATMP JV was $84 million and $83 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 April 1, 2023 and December 31, 2022, 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 months ended April 1, 2023, the Company recognized $10 million of licensing gain from royalty income associated with Licensed IP. During the three months ended March 26, 2022, the Company recognized $83 million of licensing gain from a milestone achievement and royalty income associated with Licensed IP. As of both April 1, 2023 and December 31, 2022, 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 7 – Debt and Revolving Credit Facility

Debt

The Company’s total debt as of April 1, 2023 and December 31, 2022 consisted of the following:


	April 1, 2023		December 31, 2022
	(In millions)
2.95% Senior Notes Due 2024 (2.95% Notes)	$	750	$	750
2.125% Convertible Senior Notes Due 2026 (2.125% Notes)	—		1
2.375% Senior Notes Due 2030 (2.375% Notes)	750		750
3.924% Senior Notes Due 2032 (3.924% Notes)	500		500
4.393% Senior Notes Due 2052 (4.393% Notes)	500		500
Total debt (principal amount)	2,500		2,501
Unamortized debt discount and issuance costs	(33)		(34)


Total long-term debt	$	2,467	$	2,467

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). 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.

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 April 1, 2023, 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 three months ended April 1, 2023 and March 26, 2022, the activity on the 2.125% Notes was immaterial.

Future Debt Payment Obligations

As of April 1, 2023, the Company’s future principal debt payment obligations were as follows:


Fiscal Year	(In millions)
Remainder of 2023	$	—
2024	750
2025	—
2026	—
2027	—
2028 and thereafter	1,750
Total	$	2,500

Revolving Credit Facility

The Company has $3.0 billion available under a revolving credit agreement (Revolving Credit Agreement) that expires on April 29, 2027. As of April 1, 2023, the Company had no outstanding borrowings under the Revolving Credit Agreement. Revolving loans under the Revolving Credit Agreement can be either 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 plus a margin between 0.625% and 1.250%. Each Base Rate Loan will bear interest equal to the Base Rate plus a margin between 0.000% and 0.250%. 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, affirmative and negative covenants, and events of default applicable to the Company and its subsidiaries. As of April 1, 2023, the Company was in compliance with these covenants.

Commercial Paper

On November 3, 2022, the Company established a commercial paper program, under which the Company may issue unsecured commercial paper notes up to a maximum principal amount outstanding at any time of $3 billion with a maturity of up to 397 days from the date of issue. The commercial paper will be sold at a discount from par or, alternatively, will be sold at par and bear interest at rates that will vary based on market conditions at the time of issuance. As of April 1, 2023, the Company had no commercial paper outstanding.

NOTE 8 – 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.

Financial Instruments Recorded at Fair Value on a Recurring Basis


	April 1, 2023						December 31, 2022
(In millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash equivalents
Money market funds	$	2,624	$	—	$	2,624	$	3,017	$	—	$	3,017
Commercial paper	—		149		149		—		224		224
U.S. Treasury and agency securities	248		—		248		—		—		—
Time deposits and certificate of deposits	—		65		65		—		159		159
Short-term investments
Commercial paper	—		814		814		—		441		441

Asset-backed and mortgage-backed securities	—		38		38		—		39		39
U.S. Treasury and agency securities	868		—		868		466		—		466
Foreign government securities	—		394		394		—		74		74
Other non-current assets
Time deposits and certificates of deposits	—		10		10		—		9		9
Equity investments	8		—		8		8		—		8
Deferred compensation plan investments	98		—		98		90		—		90
Total assets measured at fair value	$	3,846	$	1,470	$	5,316	$	3,581	$	946	$	4,527

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:


	April 1, 2023								December 31, 2022
	Cost/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Cost/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in millions)								(in millions)
Asset-backed and mortgage-backed securities	$	41	$	—	$	(3)	$	38	$	42	$	—	$	(3)	$	39
Commercial paper	967		—		(4)		963		669		—		(4)		665
Money market funds	2,624		—		—		2,624		3,017		—		—		3,017
Time deposits and certificates of deposits	65		—		—		65		159		—		—		159
U.S. Treasury and agency securities	1,122		—		(6)		1,116		471		—		(5)		466
Foreign government securities	395		—		(1)		394		74		—		—		74
	$	5,214	$	—	$	(14)	$	5,200	$	4,432	$	—	$	(12)	$	4,420

As of April 1, 2023, the Company did not have material 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:


	April 1, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In millions)				(In millions)
Due within 1 year	$	2,474	$	2,464	$	1,224	$	1,218
Due in 1 year through 5 years	87		85		159		156
Due in 5 years and later	39		37		41		38
	$	2,600	$	2,586	$	1,424	$	1,412

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:


	April 1, 2023				December 31, 2022
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In millions)				(In millions)


Long-term debt	$	2,467	$	2,345	$	2,467	$	2,281

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

The Company’s investments in non-marketable securities in privately-held 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. As of April 1, 2023 and December 31, 2022, the Company had non-marketable securities in privately-held companies of $135 million and $137 million, respectively, that are recorded under Other non-current assets in the balance sheet. Impairment losses or observable price adjustments were not material during the three months ended April 1, 2023 and December 31, 2022.

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 24 months and are designated as accounting hedges. As of April 1, 2023 and December 31, 2022, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $1.7 billion and $1.9 billion, respectively. The fair value of these contracts, recorded as a liability, was $5 million and $27 million as of April 1, 2023 and December 31, 2022, respectively.

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 April 1, 2023 and December 31, 2022, the notional value of these outstanding contracts was $486 million and $485 million, respectively. The fair value of these contracts was not material as of April 1, 2023 and December 31, 2022.

NOTE 9 – Earnings (Loss) Per Share

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


	Three Months Ended
		April 1, 2023		March 26, 2022
		(In millions, except per share amounts)
Numerator
Net income (loss) for basic earnings per share		$	(139)	$	786
Denominator
Basic weighted average shares		1,611		1,393
Potentially dilutive shares from employee equity plans and warrants		—		17
Diluted weighted average shares		1,611		1,410
Earnings (loss) per share:
Basic		$	(0.09)	$	0.56
Diluted		$	(0.09)	$	0.56

Securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share in all periods presented.

NOTE 10 – Common Stock and Employee Equity Plans

Common Stock

Shares of common stock outstanding were as follows:


	Three Months Ended
		April 1, 2023	March 26, 2022
		(In millions)
Balance, beginning of period		1,612	1,207
Common stock issued in the acquisition of Xilinx		—	429
Common stock issued under employee equity plans		1	1
Common stock repurchases for tax withholding on equity awards		(1)	(1)

Repurchases of common stock		(3)	(16)
Balance, end of period		1,609	1,620

Stock Repurchase Program

In May 2021, the Company’s Board of Directors approved a stock repurchase program authorizing repurchases 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 months ended April 1, 2023, the Company returned $241 million to shareholders through the repurchase of 3.0 million shares of its common stock under the Repurchase Program. As of April 1, 2023, $6.3 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 recorded in the Condensed Consolidated Statements of Operations was as follows:


	Three Months Ended
		April 1, 2023		March 26, 2022
		(In millions)
Cost of sales		$	8	$	4
Research and development		214		113
Marketing, general and administrative		87		82
Total		$	309	$	199

During the three months ended April 1, 2023 and March 26, 2022, the Company recorded $4 million and $25 million of acquisition-related stock-based compensation expense under post-acquisition service conditions.

NOTE 11 – Income Taxes

The Company recorded an income tax provision of $13 million and $113 million for the three months ended April 1, 2023, and March 26, 2022, respectively, representing effective tax rates of (10.3)% and 12.6%, respectively.

The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate for the three months ended April 1, 2023 and March 26, 2022, was primarily due to a higher mix of income taxed in lower tax rate jurisdictions, research credits and the beneficial rate impact from the foreign-derived intangible income (FDII) tax benefit.

The lower tax provision for the three months ended April 1, 2023 was primarily due to the year-to-date pre-tax loss, which was more than offset by the impact of discrete interest and penalties on liabilities for uncertain tax positions.

The determination of the Company’s income taxes for the three months ended April 1, 2023 was based on applying the Company’s estimated annual effective tax rate to the year-to-date pre-tax book income adjusted for discrete tax items, such as excess tax benefits from stock-based compensation.

As of April 1, 2023, 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 April 1, 2023 and December 31, 2022, the Company had long-term income tax liabilities of $1.3 billion recorded under Other long-term liabilities in the balance sheet.

NOTE 12 – 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 April 1, 2023 were as follows:


Fiscal Year	(In millions)
Remainder of 2023	$	4,424
2024	1,558
2025	355
2026	219
2027	86
2028 and thereafter	186
Total unconditional purchase commitments	$	6,828

On an ongoing basis, the Company works with suppliers on timing of payments and deliveries of purchase commitments, taking into account business conditions.

Contingencies

During the quarterly period ended April 1, 2023, there were no material legal proceedings. 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 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.

Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS