Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

			Nine Months Ended
			September 30, 2023						September 24, 2022
			(In millions)
Cash flows from operating activities:
Net income			$	187					$	1,299
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,654						2,954
Stock-based compensation			1,010						766
Amortization of operating lease right-of-use assets			73						63
Amortization of inventory fair value adjustment			3						187
Loss on sale or disposal of property and equipment			10						15
Deferred income taxes			(800)						(1,328)
(Gain) loss on equity investments, net			(1)						57
Other			(43)						(9)
Changes in operating assets and liabilities
Accounts receivable, net			(929)						(1,301)
Inventories			(674)						(997)
Receivables from related parties			1						(1)
Prepaid expenses and other assets			(380)						(825)
Payables to related parties			(137)						313
Accounts payable			(238)						811
Accrued and other liabilities			550						994
Net cash provided by operating activities			1,286						2,998
Cash flows from investing activities:
Purchases of property and equipment			(407)						(326)
Purchases of short-term investments			(3,312)						(2,399)
Proceeds from maturity of short-term investments			1,917						2,864
Proceeds from sale of short-term investments			248						—
Cash received from acquisition of Xilinx			—						2,366
Acquisitions, net of cash acquired			(14)						(1,558)
Other			(5)						(15)
Net cash provided by (used in) investing activities			(1,573)						932
Cash flows from financing activities:
Proceeds from debt, net of issuance costs			—						991
Repayment of debt			—						(312)
Proceeds from sales of common stock through employee equity plans			148						79
Repurchases of common stock			(752)						(3,452)
Common stock repurchases for tax withholding on employee equity plans			(382)						(371)
Other			(1)						(2)
Net cash used in financing activities			(987)						(3,067)
Net increase (decrease) in cash and cash equivalents			(1,274)						863
Cash and cash equivalents at beginning of period			4,835						2,535
Cash and cash equivalents at end of period			$	3,561					$	3,398

Advanced Micro Devices, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
			Nine Months Ended
			September 30, 2023						September 24, 2022
			(In millions)
Supplemental cash flow information:
Cash paid for taxes, net of refunds			$	34					$	584
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid			$	113					$	122
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
Non-cash activities for leases:
Operating lease right-of-use assets acquired by assuming related liabilities			$	121					$	119

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

			Three Months Ended												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(In millions)
Capital stock:
Common stock, par value
Balance, beginning of period			$	16					$	16					$	16					$	12
Common stock issued under employee equity plans			1						—						1						—
Issuance of common stock as consideration for acquisition			—						—						—						4
Balance, end of period			$	17					$	16					$	17					$	16
Additional paid-in capital
Balance, beginning of period			$	58,825					$	57,297					$	58,005					$	11,069
Common stock issued under employee equity plans			4						1						153						79
Stock-based compensation			353						275						1,010						765
Issuance of common stock to settle convertible debt			—						—						1						—
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			—						8						13						21
Balance, end of period			$	59,182					$	57,581					$	59,182					$	57,581
Treasury stock
Balance, beginning of period			$	(3,430)					$	(1,893)					$	(3,099)					$	(2,130)
Repurchases of common stock			(511)						(617)						(752)						(3,452)
Common stock repurchases for tax withholding on employee equity plans			(294)						(305)						(384)						(371)
Reissuance of treasury stock as consideration for acquisition			—						—						—						3,138
Balance, end of period			$	(4,235)					$	(2,815)					$	(4,235)					$	(2,815)
Retained earnings (Accumulated deficit):
Balance, beginning of period			$	(243)					$	(218)					$	(131)					$	(1,451)
Net income			299						66						187						1,299
Balance, end of period			$	56					$	(152)					$	56					$	(152)
Accumulated other comprehensive loss:
Balance, beginning of period			$	(32)					$	(33)					$	(41)					$	(3)
Other comprehensive loss			(18)						(55)						(9)						(85)
Balance, end of period			$	(50)					$	(88)					$	(50)					$	(88)
Total stockholders' equity			$	54,970					$	54,542					$	54,970					$	54,542

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), and Adaptive SoC 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 and nine months ended September 30, 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 and nine months ended September 30, 2023 and September 24, 2022 each consisted of 13 and 39 weeks, respectively.

Use of Estimates. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results are likely to differ from those estimates, and such differences may be material to the financial statements. Areas where management uses judgment include, but are not limited to, revenue allowances, inventory valuation, 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 September 30, 2023 and December 31, 2022, Accounts receivable, net included unbilled accounts receivable of $1.1 billion for both periods. 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			September 30, 2023						December 31, 2022
			(In millions)
Raw materials			$	245					$	231
Work in process			3,270						2,648
Finished goods			930						892
Total inventories			$	4,445					$	3,771

Prepaid Expenses and Other Current Assets			September 30, 2023						December 31, 2022
			(In millions)
Prepaid supply agreements			$	913					$	673
Other			490						592
Total prepaid expenses and other current assets			$	1,403					$	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			September 30, 2023						December 31, 2022
			(In millions)
Land, building and leasehold improvements			$	800					$	714
Equipment			2,295						2,163
Construction in progress			201						143
Property and equipment, gross			3,296						3,020
Accumulated depreciation			(1,730)						(1,507)
Total property and equipment, net			$	1,566					$	1,513

Accrued Liabilities			September 30, 2023						December 31, 2022
			(In millions)
Accrued marketing programs			$	896					$	876
Accrued compensation and benefits			871						701
Customer program liabilities			723						859
Other accrued liabilities			886						641
Total accrued liabilities			$	3,376					$	3,077

Other Current Liabilities			September 30, 2023						December 31, 2022
			(In millions)
Tax liabilities			$	769					$	156
Other current liabilities			160						180
Total other current liabilities			$	929					$	336

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 September 30, 2023, the aggregate transaction price allocated to remaining performance obligations under contracts with an original expected duration of more than one year was $192 million, of which $129 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 25% and 27% of the Company’s revenue for the three and nine months ended September 30, 2023, respectively and 30% and 24% of the Company’s revenue for the three and nine months ended September 24, 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, purchase price adjustments for inventory, certain compensation charges, contract termination and workforce rebalancing charges.

The following table provides a summary of net revenue and operating income 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)			(1,042)						(1,320)						(3,355)						(3,573)
Total operating income (loss)			$	224					$	(64)					$	59					$	1,413

(1)			For the three and nine months ended September 30, 2023, all other operating losses primarily included $660 million and $2.2 billion of amortization of acquisition-related intangibles, $353 million and $1.0 billion of stock-based compensation expense and $39 million and $184 million of acquisition-related costs, respectively. For the three and nine months ended September 24, 2022, all other operating losses primarily included $1.0 billion and $2.5 billion of amortization of acquisition-related intangibles, $275 million and $766 million of stock-based compensation expense and $51 million and $400 million of acquisition-related costs, respectively.

NOTE 5 – Acquisition-related Intangible Assets

Xilinx Acquisition

On February 14, 2022, the Company completed the acquisition of Xilinx for a total purchase consideration of $48.8 billion. 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) for a total purchase consideration of $1.7 billion. 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:

			September 30, 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			$	12,372					$	(1,368)					$	11,004					$	12,360					$	(738)					$	11,622
Customer relationships			12,324						(3,355)						8,969						12,324						(1,973)						10,351
Customer backlog			809						(809)						—						809						(712)						97
Corporate trade name			65						(65)						—						65						(57)						8
Product trademarks			914						(127)						787						914						(68)						846
Identified intangible assets subject to amortization			26,484						(5,724)						20,760						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			$	27,674					$	(5,724)					$	21,950					$	27,666					$	(3,548)					$	24,118

Acquisition-related intangible amortization expense was $660 million and $2.2 billion for the three and nine months ended September 30, 2023, respectively.

Acquisition-related intangible amortization expense was $1.0 billion and $2.5 billion for the three and nine months ended September 24, 2022, respectively.

Based on the carrying value of acquisition-related intangibles recorded as of September 30, 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			$	630
2024			2,290
2025			2,065
2026			1,954
2027			1,844
2028 and thereafter			11,977
Total			$	20,760

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 and nine months ended September 30, 2023 amounted to $448 million and $1.2 billion, respectively. The Company’s purchases from the ATMP JV during the three and nine months ended September 24, 2022 amounted to $455 million and $1.2 billion, respectively. As of September 30, 2023 and December 31, 2022, the amounts payable to the ATMP JV were $325 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 and nine months ended September 30, 2023 amounted to $2 million and $5 million, respectively. The Company’s resales to the ATMP JV during the three and nine months ended September 24, 2022 amounted to $5 million and $13 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had receivables from the ATMP JV of $1 million and $2 million, respectively, included in Receivables from related parties on the Company’s condensed consolidated balance sheets.

During the three and nine months ended September 30, 2023, the Company recorded a gain of $3 million and $10 million, respectively, in Equity income in investee on its condensed consolidated statements of operations. During the three and nine months ended September 24, 2022, the Company recorded a gain of $4 million and $11 million, respectively, in Equity income in investee on its condensed consolidated statements of operations. As of September 30, 2023 and December 31, 2022, the carrying value of the Company’s investment in the ATMP JV was $93 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 September 30, 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 and nine months ended September 30, 2023, the Company recognized $10 million and $28 million of licensing gain from royalty income associated with Licensed IP, respectively. During the three and nine months ended September 24, 2022, the Company recognized $8 million of licensing gain from royalty income and $97 million of licensing gain from a milestone achievement and royalty income, respectively. As of both September 30, 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 September 30, 2023 and December 31, 2022 consisted of the following:

			September 30, 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 premium, discount and issuance costs, net			(33)						(34)
Total debt (net)			2,467						2,467
Less: current portion of long-term debt (principal amount)			(750)						—
Less: unamortized debt premium related to current portion of debt			(2)						—
Total long-term debt			$	1,715					$	2,467

2.95% Senior Notes Due 2024 and 2.375% Senior Notes Due 2030

The 2.95% Notes and 2.375% Notes, which were assumed from the acquisition of Xilinx, are general unsecured senior obligations of the Company with semi-annual fixed interest payments due on June 1 and December 1. The indentures governing the 2.95% Notes and 2.375% Notes contain various covenants which limit the Company’s ability to, among other things, create certain liens on principal property or the capital stock of certain subsidiaries, enter into certain sale and leaseback transactions with respect to principal property, and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company’s assets to another person.

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

On June 9, 2022, the Company issued $1.0 billion in aggregate principal amount of 3.924% Notes and 4.393% Notes. The 3.924% Notes and 4.393% Notes are general unsecured senior obligations of the Company. The interest is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2022. The 3.924% and 4.393% Notes are governed by the terms of an indenture dated June 9, 2022 between the Company and US Bank Trust Company, National Association as trustee. As of September 30, 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% Convertible Senior Notes Due 2026

During the nine months ended September 30, 2023 and September 24, 2022, the activity on the 2.125% Notes was immaterial.

Future Debt Payment Obligations

As of September 30, 2023, the Company’s future principal debt payment obligations were as follows:

Fiscal Year			(In millions)
2024			$	750
2028 and thereafter			1,750
Total			$	2,500

Revolving Credit Facility

The Company has $3.0 billion available under a revolving credit agreement, as amended, that expires on April 29, 2027 (Revolving Credit Agreement). As of September 30, 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 September 30, 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 September 30, 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

			September 30, 2023																		December 31, 2022
(In millions)			Level 1						Level 2						Total						Level 1						Level 2						Total
Cash equivalents
Money market funds			$	1,711					$	—					$	1,711					$	3,017					$	—					$	3,017
Commercial paper			—						822						822						—						224						224
U.S. Treasury and agency securities			229						—						229						—						—						—
Time deposits and certificate of deposits			—						212						212						—						159						159
Foreign government securities			—						47						47						—						—						—
Short-term investments
Commercial paper			—						464						464						—						441						441
Time deposits and certificates of deposits			—						7						7						—						—						—
Asset-backed and mortgage-backed securities			—						34						34						—						39						39
U.S. Treasury and agency securities			1,518						—						1,518						466						—						466
Foreign government securities			—						149						149						—						74						74
Equity investments			52						—						52						—						—						—
Other non-current assets
Time deposits and certificates of deposits			—						3						3						—						9						9
Equity investments			—						—						—						8						—						8
Deferred compensation plan investments			110						—						110						90						—						90
Total assets measured at fair value			$	3,620					$	1,738					$	5,358					$	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:

			September 30, 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			$	37					$	—					$	(3)					$	34					$	42					$	—					$	(3)					$	39
Commercial paper			1,286						—						—						1,286						669						—						(4)						665
Money market funds			1,711						—						—						1,711						3,017						—						—						3,017
Time deposits and certificates of deposits			219						—						—						219						159						—						—						159
U.S. Treasury and agency securities			1,750						—						(3)						1,747						471						—						(5)						466
Foreign government securities			196						—						—						196						74						—						—						74
Equity investments			50						2						—						52						—						—						—						—
			$	5,249					$	2					$	(6)					$	5,245					$	4,432					$	—					$	(12)					$	4,420

As of September 30, 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 cash equivalents and investments classified as available-for-sale are as follows:

			September 30, 2023												December 31, 2022
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
			(In millions)												(In millions)
Due within 1 year			$	3,067					$	3,063					$	1,224					$	1,218
Due in 1 year through 5 years			391						391						159						156
Due in 5 years and later			33						31						41						38
			$	3,491					$	3,485					$	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:

			September 30, 2023												December 31, 2022
			Carrying Amount						Estimated Fair Value						Carrying Amount						Estimated Fair Value
			(In millions)												(In millions)
Current portion of long-term debt, net			$	752					$	735					$	—					$	—
Long-term debt, net of current portion			$	1,715					$	1,483					$	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 September 30, 2023 and December 31, 2022, the Company had non-marketable securities in privately-held companies of $148 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 and nine months ended September 30, 2023 and September 24, 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 September 30, 2023 and December 31, 2022, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $2.3 billion and $1.9 billion, respectively. The fair value of these contracts, recorded as a liability, was $38 million and $27 million as of September 30, 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 September 30, 2023 and December 31, 2022, the notional value of these outstanding contracts was $673 million and $485 million, respectively. The fair value of these contracts was not material as of September 30, 2023 and December 31, 2022.

NOTE 9 – Earnings Per Share

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

			Three Months Ended												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(In millions, except per share amounts)
Numerator
Net income for basic earnings per share			$	299					$	66					$	187					$	1,299
Denominator
Basic weighted average shares			1,616						1,615						1,613						1,542
Potentially dilutive shares from employee equity plans and warrants			13						10						12						13
Diluted weighted average shares			1,629						1,625						1,625						1,555
Earnings per share:
Basic			$	0.18					$	0.04					$	0.12					$	0.84
Diluted			$	0.18					$	0.04					$	0.11					$	0.84

Securities which would have been anti-dilutive are not material and are excluded from the computation of diluted earnings per share for all periods presented.

NOTE 10 – Common Stock and Employee Equity Plans

Common Stock

Shares of common stock outstanding were as follows:

			Three Months Ended												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(In millions)
Balance, beginning of period			1,614						1,612						1,612						1,207
Common stock issued in the acquisition of Xilinx			—						—						—						429
Common stock issued under employee equity plans			9						10						14						14
Common stock repurchases for tax withholding on equity awards			(3)						(3)						(4)						(5)
Issuance of common stock upon warrant exercise			—						—						1						—
Repurchases of common stock			(5)						(7)						(8)						(33)
Balance, end of period			1,615						1,612						1,615						1,612

Stock Repurchase Program

The Company has an approved stock repurchase program authorizing repurchases of up to $12 billion of the Company’s common stock (Repurchase Program). During the three and nine months ended September 30, 2023, the Company returned $511 million and $752 million to shareholders through the repurchase of 5 million and 8 million shares of its common stock under the Repurchase Program, respectively. As of September 30, 2023, $5.8 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												Nine Months Ended
			September 30, 2023						September 24, 2022						September 30, 2023						September 24, 2022
			(In millions)
Cost of sales			$	6					$	8					$	24					$	20
Research and development			260						185						721						478
Marketing, general and administrative			87						82						265						268
Total			$	353					$	275					$	1,010					$	766

NOTE 11 – Income Taxes

The Company determines its income taxes for interim reporting periods by applying the Company’s estimated annual effective tax rate to the year-to-date results, adjusted for tax items discrete to each period. The difference between the U.S. federal statutory tax rate of 21% and the Company's estimated annual 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.

The Company recorded an income tax benefit of $39 million and $49 million for the three and nine months ended September 30, 2023, representing effective tax rates of (15.2)% and (35.8)%, respectively. The Company 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.

The Company 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.

As of September 30, 2023 and December 31, 2022, the Company had long-term income tax liabilities of $1.5 billion recorded under Other long-term liabilities in the balance sheet.

NOTE 12 – Commitments and Contingencies

Commitments

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

Total future unconditional purchase commitments as of September 30, 2023 were as follows:

Fiscal Year			(In millions)
Remainder of 2023			$	2,426
2024			1,893
2025			343
2026			182
2027			51
2028 and thereafter			146
Total unconditional purchase commitments			$	5,041

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 September 30, 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.

NOTE 13 – Subsequent Events

On October 27, 2023, the Company renewed its lease agreement on approximately 444,000 sq. ft. facility in Austin, Texas for a lease term extending through September 2038. Total noncancelable lease payments under the new lease are approximately $232 million.