Advanced Micro Devices 10-Q 2023-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2023

OR

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

For the transition period from to

Commission File Number 001-07882

ADVANCED MICRO DEVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware									94-1692300
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

2485 Augustine Drive

Santa Clara, California 95054

(Address of principal executive offices)

(408) 749-4000

Registrant’s telephone number, including area code

N/A

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer						☑						Accelerated filer						☐			Non-accelerated filer						☐
Smaller reporting company						☐						Emerging growth company						☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of October 27, 2023: 1,615,498,891

INDEX

						Page No.
Part I Financial Information
Item 1			Condensed Consolidated Financial Statements (Unaudited)
			Condensed Consolidated Statements of Operations			3
			Condensed Consolidated Statements of Comprehensive Income			4
			Condensed Consolidated Balance Sheets			5
			Condensed Consolidated Statements of Cash Flows			6
			Condensed Consolidated Statements of Stockholders’ Equity			8
			Notes to Condensed Consolidated Financial Statements			9
Item 2			Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3			Quantitative and Qualitative Disclosures about Market Risk			29
Item 4			Controls and Procedures			29
Part II Other Information
Item 1			Legal Proceedings			30
Item 1A			Risk Factors			30
Item 2			Unregistered Sales of Equity Securities and Use of Proceeds			54
Item 5			Other Information			55
Item 6			Exhibits			56
Signature						57

PART I. FINANCIAL INFORMATION

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

			Three Months Ended												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(In millions, except per share amounts)
Net revenue			$	5,800					$	5,565					$	16,512					$	18,002
Cost of sales			2,843						2,799						8,236						8,797
Amortization of acquisition-related intangibles			210						412						727						1,005
Total cost of sales			3,053						3,211						8,963						9,802
Gross profit			2,747						2,354						7,549						8,200
Research and development			1,507						1,279						4,361						3,639
Marketing, general and administrative			576						557						1,708						1,746
Amortization of acquisition-related intangibles			450						590						1,449						1,499
Licensing gain			(10)						(8)						(28)						(97)
Operating income (loss)			224						(64)						59						1,413
Interest expense			(26)						(31)						(79)						(69)
Other income (expense), net			59						22						148						(24)
Income (loss) before income taxes and equity income			257						(73)						128						1,320
Income tax provision (benefit)			(39)						(135)						(49)						32
Equity income in investee			3						4						10						11
Net income			$	299					$	66					$	187					$	1,299
Earnings per share
Basic			$	0.18					$	0.04					$	0.12					$	0.84
Diluted			$	0.18					$	0.04					$	0.11					$	0.84
Shares used in per share calculation
Basic			1,616						1,615						1,613						1,542
Diluted			1,629						1,625						1,625						1,555

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

			Three Months Ended												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(In millions)
Net income			$	299					$	66					$	187					$	1,299
Other comprehensive loss, net of tax:
Net change in unrealized gains on cash flow hedges			(18)						(55)						(9)						(85)
Total comprehensive income			$	281					$	11					$	178					$	1,214

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

			September 30, 2023						December 31, 2022
			(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents			$	3,561					$	4,835
Short-term investments			2,224						1,020
Accounts receivable, net			5,054						4,126
Inventories			4,445						3,771
Receivables from related parties			1						2
Prepaid expenses and other current assets			1,403						1,265
Total current assets			16,688						15,019
Property and equipment, net			1,566						1,513
Operating lease right-of-use assets			507						460
Goodwill			24,186						24,177
Acquisition-related intangibles, net			21,950						24,118
Investment: equity method			93						83
Deferred tax assets			76						58
Other non-current assets			2,560						2,152
Total assets			$	67,626					$	67,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	2,245					$	2,493
Payables to related parties			325						463
Accrued liabilities			3,376						3,077
Current portion of long-term debt, net			752						—
Other current liabilities			929						336
Total current liabilities			7,627						6,369
Long-term debt			1,715						2,467
Long-term operating lease liabilities			395						396
Deferred tax liabilities			1,152						1,934
Other long-term liabilities			1,767						1,664
Commitments and contingencies (See Note 12)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,660 and 1,645; shares outstanding: 1,615 and 1,612			17						16
Additional paid-in capital			59,182						58,005
Treasury stock, at cost (shares held: 45 and 33)			(4,235)						(3,099)
Retained earnings (Accumulated deficit)			56						(131)
Accumulated other comprehensive loss			(50)						(41)
Total stockholders’ equity			54,970						54,750
Total liabilities and stockholders’ equity			$	67,626					$	67,580

See accompanyi

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The statements in this report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements and should not be relied upon as predictions of future events, as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” “anticipates,” or the negative of these words and phrases, other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things: possible impact of future accounting rules on AMD’s condensed consolidated financial statements; demand for AMD’s products; the growth, change and competitive landscape of the markets in which AMD participates; international sales will continue to be a significant portion of total sales in the foreseeable future; that AMD’s cash, cash equivalents and short-term investment balances and cash flows from operations together with the availability under the revolving credit facility (the Revolving Credit Agreement) and commercial paper program 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 access capital markets should it require additional funds; 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; a small number of customers will continue to account for a substantial part of AMD’s revenue in the future; the legal and regulatory environment relating to emerging technologies; and AMD expects to fund stock repurchases through cash generated from operations. 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, Alveo, Athlon, EPYC, FidelityFX, Kria, Radeon, Ryzen, Versal, Xilinx and combinations thereof are trademarks of Advanced Micro Devices, 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 codename 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 31, 2022 and December 25, 2021, and for each of the three years for the period ended December 31, 2022 as filed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Overview and Recent Developments

We are a global semiconductor company primarily offering:

• 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;

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

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

• embedded CPUs, GPUs, APUs, FPGAs, and Adaptive SoC products.

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

In this section, we will describe the general financial condition and the results of operations of Advanced Micro Devices, Inc. and its wholly-owned subsidiaries (collectively, “us,” “our” or “AMD”), including a discussion of our results of operations for the three and nine months ended September 30, 2023 compared to the prior year period and an analysis of changes in our financial condition.

Net revenue for the three months ended September 30, 2023 was $5.8 billion, a 4% increase compared to the prior year period. The increase in net revenue was driven mainly by a 42% increase in Client segment revenue primarily due to higher Ryzen mobile processor sales as PC market conditions improved, partially offset by an 8% decrease in Gaming segment revenue primarily due to lower semi-custom product revenue, and a 5% decrease in Embedded segment revenue primarily due to lower sales in the communications market.

Gross margin for the three months ended September 30, 2023 was 47% compared to gross margin of 42% for the prior year period. The increase in gross margin was primarily driven by lower amortization of acquisition-related intangible assets, higher Client segment revenue and product mix.

Operating income for the three months ended September 30, 2023 was $224 million compared to operating loss of $64 million for the prior year period. Net income for the three months ended September 30, 2023 was $299 million compared to net income of $66 million for the prior year period. The increase in operating and net income was primarily driven by higher Client segment revenue and lower amortization of acquisition-related intangible assets.

We introduced a number of new products during the third quarter of 2023, including the new AMD Radeon™ PRO W7000 Series: the AMD Radeon PRO W7600 and AMD Radeon PRO W7500. We designed these workstation graphics cards for mainstream professional workflows. We also unveiled the AMD Radeon RX 7800 XT and Radeon RX 7700 XT graphics cards optimized to deliver high-performance and high-refresh 1440p gaming experiences along with AMD FidelityFX™ Super Resolution 3 designed to offer performance boosts in supported games. We announced the availability of the new AMD EPYC™ 8004 Series processors that bring the “Zen 4c” core into a purpose-built CPU, enabling hardware providers to create energy efficient and differentiated platforms. For our adaptive System-on-Modules (SOMs), we announced the addition of AMD Kria™ K24 SOM and KD240 Drives Starter Kit which offer power-efficient compute in a small factor and target cost-sensitive industrial and commercial edge applications. We also announced the AMD Alveo™ UL3524 accelerator card, a new fintech accelerator designed for ultra-low latency electronic trading applications providing execution performance at nanosecond speed.

As of September 30, 2023 our cash, cash equivalents and short-term investments were $5.8 billion compared to $5.9 billion as of December 31, 2022. During the nine months ended September 30, 2023, we generated $1.3 billion of cash from operating activities, and returned $752 million to shareholders through our stock repurchase program. We have an approved stock repurchase program authorizing repurchases of up to $12 billion of our common stock (Repurchase Program), of which $5.8 billion remains available for future stock repurchases as of September 30, 2023.

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 condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenue, inventories, goodwill, long-lived and intangible assets, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes there have been no significant changes for the three and nine months ended September 30, 2023 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 31, 2022.

Results of Operations

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												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(In millions)
Net revenue:
Data Center			$	1,598					$	1,609					$	4,214					$	4,388
Client			1,453						1,022						3,190						5,298
Gaming			1,506						1,631						4,844						5,161
Embedded			1,243						1,303						4,264						3,155
Total net revenue			$	5,800					$	5,565					$	16,512					$	18,002
Operating income (loss):
Data Center			$	306					$	505					$	601					$	1,404
Client			140						(26)						(101)						1,342
Gaming			208						142						747						687
Embedded			612						635						2,167						1,553
All Other			(1,042)						(1,320)						(3,355)						(3,573)
Total operating income (loss)			$	224					$	(64)					$	59					$	1,413

Data Center

Data Center net revenue of $1.6 billion for the three months ended September 30, 2023 was flat, compared to net revenue of $1.6 billion for the prior year period. Higher sales of EPYC processors was offset by lower sales of adaptive SoC data center products.

Data Center net revenue of $4.2 billion for the nine months ended September 30, 2023 decreased by 4%, compared to net revenue of $4.4 billion for the prior year period primarily due to lower EPYC processor sales.

Data Center operating income was $306 million for the three months ended September 30, 2023, compared to operating income of $505 million for the prior year period. The decrease in operating income was primarily due to increased Research and Development (R&D) investment in artificial intelligence (AI) and product mix.

Data Center operating income was $601 million for the nine months ended September 30, 2023, compared to operating income of $1.4 billion for the prior year period. The decrease in operating income was primarily due to lower revenue and increased investment in R&D.

Client

Client net revenue of $1.5 billion for the three months ended September 30, 2023 increased by 42%, compared to net revenue of $1.0 billion for the prior year period, primarily due to a 62% increase in unit shipments driven by higher Ryzen mobile processor sales as PC market conditions improved, partially offset by a 10% decrease in average selling price.

Client net revenue of $3.2 billion for the nine months ended September 30, 2023 decreased by 40%, compared to net revenue of $5.3 billion for the prior year period, primarily due to a 19% decrease in average selling price and a 27% decrease in unit shipments driven by lower Ryzen processor sales. The decrease in shipments and average selling price resulted from a weaker PC market and inventory correction across the PC supply chain impacting the first half of 2023.

Client operating income was $140 million for the three months ended September 30, 2023, compared to operating loss of $26 million for the prior year period. The increase in operating income was primarily driven by higher revenue and lower operating expenses.

Client operating loss was $101 million for the nine months ended September 30, 2023, compared to operating income of $1.3 billion for the prior year period. The decrease in operating income was primarily due to lower revenue.

Gaming

Gaming net revenue of $1.5 billion for the three months ended September 30, 2023 decreased by 8%, compared to net revenue of $1.6 billion for the prior year period, primarily due to lower semi-custom product revenue, partially offset by higher Radeon GPU sales.

Gaming net revenue of $4.8 billion for the nine months ended September 30, 2023 decreased by 6%, compared to net revenue of $5.2 billion for the prior year period, primarily due to lower gaming graphics revenue.

Gaming operating income was $208 million for the three months ended September 30, 2023, compared to operating income of $142 million for the prior year period. The increase in operating income was primarily driven by higher Radeon GPU sales.

Gaming operating income was $747 million for the nine months ended September 30, 2023, compared to operating income of $687 million for the prior year period. The increase in operating income was primarily driven by product mix.

Embedded

Embedded net revenue of $1.2 billion for the three months ended September 30, 2023 decreased by 5%, compared to net revenue of $1.3 billion for the prior year period. The decrease in net revenue was primarily due to lower revenue in the communications market.

Embedded net revenue of $4.3 billion for the nine months ended September 30, 2023 increased by 35%, compared to net revenue of $3.2 billion for the prior year period. The increase in net revenue was primarily driven by the inclusion of embedded product revenue from Xilinx, Inc. (Xilinx) for the full nine months period in 2023 as compared to a partial period from February 14, 2022 (the Xilinx Acquisition Date) in the prior year period.

Embedded operating income was $612 million for the three months ended September 30, 2023, compared to operating income of $635 million for the prior year period, the decrease was primarily due to increased investment in R&D.

Embedded operating income was $2.2 billion for the nine months ended September 30, 2023, compared to operating income of $1.6 billion for the prior year period. The increase in operating income was primarily driven by the inclusion of Xilinx for the full nine months period as compared to a partial period from the Xilinx Acquisition Date in the prior year period.

All Other

All Other operating loss of $1.0 billion for the three months ended September 30, 2023 primarily consisted of $660 million of amortization of acquisition-related intangibles, $353 million of stock-based compensation expense, and $39 million of acquisition-related costs. All Other operating loss of $1.3 billion for the prior year period primarily consisted of $1.0 billion of amortization of acquisition-related intangibles, $275 million of stock-based compensation expense, and $51 million of acquisition-related costs.

All Other operating loss of $3.4 billion for the nine months ended September 30, 2023 primarily consisted of $2.2 billion of amortization of acquisition-related intangibles, $1.0 billion of stock-based compensation expense, and $184 million of acquisition-related costs. All Other operating loss of $3.6 billion for the prior year period primarily consisted of $2.5 billion of amortization of acquisition-related intangibles, $766 million of stock-based compensation expense, $400 million of acquisition-related costs, and $97 million of licensing gain.

Acquisition-related costs primarily include transaction costs, purchase price adjustments for inventory, certain compensation charges, contract termination and workforce rebalancing charges.

International Sales

International sales as a percentage of net revenue were 68% and 62% for the three months ended September 30, 2023 and September 24, 2022, respectively. International sales as a percentage of net revenue was 67% for both the nine month periods ended September 30, 2023 and September 24, 2022. 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 Income (Expense) and Income Taxes

The following is a summary of certain condensed consolidated statement of operations data for the periods indicated:

			Three Months Ended												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
Net revenue			$	5,800					$	5,565					$	16,512					$	18,002
Cost of sales			2,843						2,799						8,236						8,797
Amortization of acquisition-related intangibles			210						412						727						1,005
Gross profit			2,747						2,354						7,549						8,200
Gross margin			47		%				42		%				46		%				46		%
Research and development			1,507						1,279						4,361						3,639
Marketing, general and administrative			576						557						1,708						1,746
Amortization of acquisition-related intangibles			450						590						1,449						1,499
Licensing gain			(10)						(8)						(28)						(97)
Interest expense			(26)						(31)						(79)						(69)
Other income (expense), net			59						22						148						(24)
Income tax provision (benefit)			(39)						(135)						(49)						32
Equity income in investee			3						4						10						11

Gross Margin

Gross margin was 47% and 42% for the three months ended September 30, 2023 and September 24, 2022, respectively. The increase in gross margin was primarily driven by lower amortization of acquisition-related intangible assets, higher Client segment revenue and product mix.

Gross margin remained flat at 46% for the nine months ended September 30, 2023 and September 24, 2022, primarily due to higher Embedded segment performance and lower amortization of acquisition-related intangible assets, partially offset by lower Client segment performance.

Expenses

Research and Development Expenses

Research and development expenses of $1.5 billion for the three months ended September 30, 2023 increased by $228 million, or 18%, compared to $1.3 billion for the prior year period. Research and development expenses of $4.4 billion for the nine months ended September 30, 2023 increased by $722 million, or 20%, compared to $3.6 billion for the prior year period. The increase in both periods was primarily driven by an increase in employee-related costs due to an increase in headcount to support increased investment in AI.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses of $576 million for the three months ended September 30, 2023 increased by $19 million, or 3%, compared to $557 million for the prior year period, primarily due to an increase in employee-related costs.

Marketing, general and administrative expenses of $1.7 billion for the nine months ended September 30, 2023 decreased by $38 million, or 2%, compared to $1.7 billion for the prior year period, primarily due to a decrease in acquisition-related costs.

Amortization of Acquisition-Related Intangibles

Amortization of acquisition-related intangibles of $660 million for the three months ended September 30, 2023 decreased by $342 million, or 34%, compared to $1.0 billion for the prior year period. Amortization of acquisition-related intangibles of $2.2 billion for the nine months ended September 30, 2023 decreased by $328 million or 13% compared to $2.5 billion amortization for the prior year period. The decrease was primarily due to certain acquisition-related intangibles being fully amortized in the first half of the current fiscal year.

Licensing Gain

During the three and nine months ended September 30, 2023, we recognized $10 million and $28 million of licensing gain from royalty income associated with certain intellectual property licensed to two joint ventures in which we have an equity interest in with Higon Information Technology Co., Ltd., a third-party Chinese entity (Licensed IP). During the three and nine months ended September 24, 2022, we recognized $8 million of licensing gain from royalty income and $97 million of licensing gain from a milestone achievement and royalty income associated with the Licensed IP.

Interest Expense

Interest expense for the three months ended September 30, 2023 and September 24, 2022 was $26 million and $31 million, respectively, the decrease was primarily due to the 7.5% Senior Notes due 2022, which matured and were repaid in 2022.

Interest expense for the nine months ended September 30, 2023 and September 24, 2022 was $79 million and $69 million, respectively, the increase was primarily due to interest expense from the 3.924% Senior Notes Due 2032 (3.924% Notes) and the 4.393% Senior Notes Due 2052 (4.393% Notes) that were issued in June 2022.

Other Income (Expense), Net

Other income (expense), net is primarily comprised of interest income from short-term investments, changes in valuation of equity investments, and foreign currency transaction gains and losses.

Other income, net for the three and nine months ended September 30, 2023 was $59 million and $148 million, respectively, primarily due to interest income driven by rising interest rates.

Other income, net for the three months ended September 24, 2022 was $22 million, primarily due to interest income driven by rising interest rates. Other expenses, net for the nine months ended September 24, 2022 was $24 million, primarily due to a $57 million decrease in the fair value of equity investments, partially offset by $33 million of interest income driven by rising interest rates.

Income Tax Provision (Benefit)

We determine income taxes for interim reporting periods by applying our estimated annual effective tax rate to the year-to-date results and adjusted for tax items discrete to each period. The difference between the U.S. federal statutory tax rate of 21% and our effective tax rate for the three and nine months ended September 30, 2023 and September 24, 2022 was primarily due to the income tax benefit from foreign-derived intangible income (FDII) and research and development tax credits.

We recorded an income tax benefit of $39 million and $49 million for the three and nine months ended September 30, 2023, respectively, representing effective tax rates of (15.2)% and (35.8)%, respectively. We recorded the tax effects of stock-based compensation, uncertain tax positions, and other items discrete to the period resulting in income tax benefit of $17 million and $29 million for the three and nine months ended September 30, 2023, respectively.

We recorded an income tax benefit of $135 million and a provision of $32 million for the three and nine months ended September 24, 2022, representing effective tax rates of 195.7% and 2.4%, respectively. For the three and nine months ended September 24, 2022, the impact of tax items discrete to the periods was not material to the total tax expense or the effective tax rate.

FINANCIAL CONDITION

Liquidity and Capital Resources

As of September 30, 2023 and December 31, 2022, our cash, cash equivalents and short-term investments were $5.8 billion and $5.9 billion, respectively. The percentage of cash, cash equivalents and short-term investments held domestically as of September 30, 2023 and December 31, 2022 were 81% and 73%, respectively.

Our operating, investing and financing activities for the nine months ended September 30, 2023 compared to the prior year period are as described below:

			Nine Months Ended
			September 30, 2023						September 24, 2022
			(In millions)
Net cash provided by (used in):
Operating activities			$	1,286					$	2,998
Investing activities			(1,573)						932
Financing activities			(987)						(3,067)
Net (decrease) increase in cash and cash equivalents			$	(1,274)					$	863

We have $3.0 billion available under an unsecured revolving credit agreement (Revolving Credit Agreement) that expires on April 29, 2027. No funds were drawn from this credit facility during the nine months ended September 30, 2023.

We also have a commercial paper program where we may issue unsecured commercial paper notes up to a maximum principal amount outstanding, at any time, of $3.0 billion, with a maturity of up to 397 days from the date of issue. We did not issue any commercial paper during the nine months ended September 30, 2023.

As of September 30, 2023, our principal debt obligations were $2.5 billion. Our 2.95% Notes with a principal amount of $750 million are due in June 2024.

As of September 30, 2023, we had unconditional purchase commitments of approximately $5.0 billion, of which $2.4 billion are for the remainder of fiscal year 2023. On an ongoing basis, we work with our suppliers on the timing of payments and deliveries of purchase commitments, taking into account business conditions.

We believe our cash, cash equivalents, short-term investments and cash flows from operations along with our Revolving Credit Agreement and commercial paper program will be sufficient to fund operations, including capital expenditures and purchase commitments, over the next 12 months and beyond. We believe we will be able to access the capital markets should we require additional funds. However, we cannot assure that such funds will be available on favorable terms, or at all.

Operating Activities

Our working capital cash inflows and outflows from operations are primarily cash collections from our customers, payments for inventory purchases and payments for employee-related expenditures.

Net cash provided by operating activities was $1.3 billion in the nine months ended September 30, 2023, primarily due to our net income of $187 million, adjusted for non-cash and non-operating charges of $2.9 billion and net cash outflows of $1.8 billion from changes in our operating assets and liabilities. The primary driver of the change in operating assets and liabilities was a $929 million increase in accounts receivable driven primarily by higher revenue in the last month of the quarter ended September 30, 2023 compared to the last month of the quarter ended December 31, 2022, and a $674 million increase in inventory primarily to support the continued ramp of Data Center and Client products in advanced process technology nodes.

Net cash provided by operating activities was $3.0 billion in the nine months ended September 24, 2022, primarily due to our net income of $1.3 billion, adjusted for non-cash and non-operating charges of $2.7 billion and net cash outflows of $1.0 billion from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $1.3 billion increase in accounts receivable driven primarily by higher revenue in the first three quarters of 2022, a $997 million increase in inventory primarily driven by product build in the Client segment, partially offset by a $994 million increase in accrued liabilities and other driven primarily by higher customer-related accruals.

Investing Activities

Net cash used in investing activities was $1.6 billion for the nine months ended September 30, 2023 which primarily consisted of cash used in the purchases of short-term investments of $3.3 billion and purchases of property and equipment of $407 million, partially offset by $2.2 billion of proceeds from the maturity and sale of short-term investments.

Net cash provided by investing activities was $932 million for the nine months ended September 24, 2022 which primarily consisted of $2.4 billion of cash received from Xilinx and $2.9 billion of proceeds from the maturity of short-term investments, partially offset by cash used in the acquisition of Pensando Systems, Inc. of $1.6 billion, purchases of short-term investments of $2.4 billion and purchases of property and equipment of $326 million.

Financing Activities

Net cash used in financing activities was $987 million for the nine months ended September 30, 2023, which primarily consisted of common stock repurchases of $752 million and repurchases for tax withholding on employee equity plans of $382 million, partially offset by a cash inflow of $148 million from issuance of common stock under our employee equity plans.

Net cash used in financing activities was $3.1 billion for the nine months ended September 24, 2022, which primarily consisted of common stock repurchases of $3.5 billion and repurchases for tax withholding on employee equity plans of $371 million and repayment of debt of $312 million, partially offset by proceeds from the issuance of debt of $991 million and a cash inflow of $79 million from issuance of common stock under our employee equity plans.

Reference is made to “Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

There have not been any material changes in interest rate risk, default risk or foreign exchange risk since December 31, 2022.

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

As of September 30, 2023, the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

During the nine months ended September 30, 2023, we completed the implementation of our new enterprise resource planning (ERP) system to help us manage our operations and financial reporting. In connection with this implementation, we modified the design and documentation of our internal control processes and procedures relating to the new system. Following the implementation, the changes to our control environment were validated according to our established processes and our internal controls over financial reporting continued to operate as designed.

There were no other changes in our internal controls over financial reporting for the three months ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, refer to Note 12—Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q).

The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously.

Risk Factors Summary

The following is a summary of the principal risks that could adversely affect our business, operations and financial results.

Economic and Strategic Risks

• Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively on a level playing field.

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

• The semiconductor industry is highly cyclical and has experienced severe downturns that have materially adversely affected, and may continue to materially adversely affect, our business in the future.

• The demand for our products depends in part on the market conditions in the industries into which they are sold. Fluctuations in demand for our products or a market decline in any of these industries could have a material adverse effect on our results of operations.

• The loss of a significant customer may have a material adverse effect on us.

• The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations.

• The markets in which our products are sold are highly competitive.

• Our operating results are subject to quarterly and seasonal sales patterns.

• If we cannot adequately protect our technology or other intellectual property in the United States and abroad, through patents, copyrights, trade secrets, trademarks and other measures, we may lose a competitive advantage and incur significant expenses.

• Unfavorable currency exchange rate fluctuations could adversely affect us.

Operational and Technology Risks

• We rely on third parties to manufacture our products, and if they are unable to do so on a timely basis in sufficient quantities and using competitive technologies, our business could be materially adversely affected.

• If essential equipment, materials, substrates or manufacturing processes are not available to manufacture our products, we could be materially adversely affected.

• Failure to achieve expected manufacturing yields for our products could negatively impact our financial results.

• The success of our business is dependent upon our ability to introduce products on a timely basis with features and performance levels that provide value to our customers while supporting and coinciding with significant industry transitions.

• Our revenue from our semi-custom System-on-Chip (SoC) products is dependent upon our semi-custom SoC products being incorporated into customers’ products and the success of those products.

• Our products may be subject to security vulnerabilities that could have a material adverse effect on us.

• IT outages, data loss, data breaches and cyber-attacks could disrupt operations and compromise our intellectual property or other sensitive information, be costly to remediate or cause significant damage to our business, reputation and financial results.

• We may encounter difficulties in operating our newly upgraded enterprise resource planning (ERP) system, which could materially adversely affect us.

• Uncertainties involving the ordering and shipment of our products could materially adversely affect us.

• Our ability to design and introduce new products in a timely manner includes the use of third-party intellectual property.

• We depend on third-party companies for the design, manufacture and supply of motherboards, software, memory and other computer platform components to support our business and products.

• If we lose Microsoft Corporation’s support for our products or other software vendors do not design and develop software to run on our products, our ability to sell our products could be materially adversely affected.

• Our reliance on third-party distributors and add-in-board (AIB) partners subjects us to certain risks.

• Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.

• If our products are not compatible with some or all industry-standard software and hardware, we could be materially adversely affected.

• Costs related to defective products could have a material adverse effect on us.

• If we fail to maintain the efficiency of our supply chain as we respond to changes in customer demand for our products, our business could be materially adversely affected.

• We outsource to third parties certain supply-chain logistics functions, including portions of our product distribution, transportation management and information technology support services.

• Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.

Legal and Regulatory Risks

• Government actions and regulations such as export regulations, tariffs, and trade protection measures may limit our ability to export our products to certain customers.

• If we cannot realize our deferred tax assets, our results of operations could be adversely affected.

• Our business is subject to potential tax liabilities, including as a result of tax regulation changes.

• We are party to litigation and may become a party to other claims or litigation that could cause us to incur substantial costs or pay substantial damages or prohibit us from selling our products.

• We are subject to environmental laws, conflict minerals-related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as a variety of other laws or regulations that could result in additional costs and liabilities.

Merger, Acquisition and Integration Risks

• Acquisitions, joint ventures and/or investments, and the failure to integrate acquired businesses could disrupt our business and/or dilute or adversely affect the price of our common stock.

• Any impairment of our tangible, definite-lived intangible or indefinite-lived intangible assets, including goodwill, may adversely impact our financial position and results of operations.

Liquidity and Capital Resources Risks

• The agreements governing our notes, our guarantees of Xilinx’s 2.95% and 2.375% Notes (Xilinx Notes), and our Revolving Credit Agreement impose restrictions on us that may adversely affect our ability to operate our business.

• Our indebtedness could adversely affect our financial position and prevent us from implementing our strategy or fulfilling our contractual obligations.

• We may not be able to generate sufficient cash to meet our working capital requirements. If we cannot generate sufficient revenue and operating cash flow, we may face a cash shortfall and be unable to make all of our planned investments in research and development or other strategic investments. Also, our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.

General Risks

• Our worldwide operations are subject to political, legal and economic risks and natural disasters, which could have a material adverse effect on us.

• We may incur future impairments of our technology license purchases.

• Our inability to continue to attract and retain qualified personnel may hinder our business.

• Our stock price is subject to volatility.

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

Economic and Strategic Risks

Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively on a level playing field.

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On October 27, 2023, we entered into a seventh amendment (“Seventh Amendment”) with Summit Lantana Owner (the “Landlord”), the successor-in-interest to 7171 Southwest Parkway Holdings, LP, from whom we lease approximately 444,000 sq. ft. multi-building office complex (the “Premises”) located at 7171 Southwest Parkway, Austin, Texas (the “Property”). Pursuant to the Seventh Amendment, we extended the term of our lease, which is scheduled to expire on March 31, 2025. The extension term of the Seventh Amendment commences on April 1, 2025 and ends on September 30, 2038 (the “Extension Term”). The Seventh Amendment sets forth the monthly rent during the Extension Term that ranges from $1.3 million to $1.7 million.

The Seventh Amendment also provides that we are granted two options to extend the Extension Term for a period of ten years each (each a “Renewal Term”) for all or any portion of the Premises, provided we give written notice of the election to extend no later than twenty-one months and no more than twenty-four months prior to the expiration of the Extension Term or the first Renewal Term, as the case may be. In the Seventh Amendment, the Landlord has also agreed to provide us with an allowance of up to $26,639,220 for tenant improvements to be made to the Premises.

Under certain circumstances, we have the option to expand our Premises by 29,925 sq. ft. in Building B300 located on the Property by providing written notice to the Landlord prior to September 30, 2025. We also have a right of first offer to lease from the Landlord at least two full floors in a building located at 7201 Southwest Parkway, Austin, Texas. Also, if the Landlord receives an offer from a third party to lease all or any portion of the available space on the Property in either or both of Building B300 or Building B400, the Landlord will not accept the third party offer without offering to lease to us first on the same terms and conditions as the third-party offer.

The foregoing description of the terms of the Seventh Amendment does not purport to be complete and is qualified in its entirety by reference to the complete text of the Seventh Amendment filed hereto as Exhibit 10.2.

Item 5(c) Rule 10b5-1 Trading Plans

On August 18, 2023, Victor Peng, President, AMD, adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 100,000 shares of the Company’s common stock until November 20, 2024.

10.1						First Amendment to Credit Agreement by and among Advanced Micro Devices, Inc. as borrower, the lenders referred to therein, as lenders, and Wells Fargo Bank, National Association as administrative agent, swingline lender and an issuing lender, dated September 22, 2023.
10.2						Seventh Amendment to Lease by and between Summit Lantana Owner, LP and Advanced Micro Devices, Inc. for the property at 7171 Southwest Parkway, Austin, Texas, dated October 27, 2023.
31.1						Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document.
101.SCH						XBRL Taxonomy Extension Schema Document.
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document

SIGNATURE

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

						ADVANCED MICRO DEVICES, INC.
November 1, 2023						By:			/s/ Jean Hu
						Name:			Jean Hu
						Title:			Executive Vice President, Chief Financial Officer and Treasurer Signing on behalf of the Registrant as the Principal Financial Officer