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

The statements in this report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements and should not be relied upon as predictions of future events, as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” “anticipates,” or the negative of these words and phrases, other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things: possible impact of future accounting rules on AMD’s condensed consolidated financial statements; demand for AMD’s products; AMD’s strategy and expected benefits; the growth, change and competitive landscape of the markets in which AMD participates; international sales will continue to be a significant portion of total sales in the foreseeable future; that AMD’s cash, cash equivalents and short-term investment balances, together with the availability under that certain revolving credit facility (the Revolving Credit Agreement) made available to AMD and certain of its subsidiaries, our commercial paper program, and our cash flows from operations will be sufficient to fund AMD’s operations including capital expenditures and purchase commitments and debt payments over the next 12 months and beyond; AMD’s ability to access capital markets; AMD’s ability to obtain sufficient external financing on favorable terms, or at all; AMD’s expectation that based on management’s current knowledge, the potential liability related to AMD’s current litigation will not have a material adverse effect on its financial positions, results of operation or cash flows; anticipated ongoing and increased costs related to enhancing and implementing information security controls; all unbilled accounts receivables are expected to be billed and collected within 12 months; revenue allocated to remaining performance obligations that are unsatisfied which will be recognized in the next 12 months; a small number of customers will continue to account for a substantial part of AMD’s revenue in the future; the expected implications from the development of the legal and regulatory environment relating to emerging technologies, such as AI; AMD’s ability to achieve its corporate responsibility initiatives; expected future AI trends and developments; 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, EPYC, Radeon, Ryzen, 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 30, 2023 and December 31, 2022, and for each of the three years for the period ended December 30, 2023 as filed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.

Overview and Recent Developments

We are a global semiconductor company primarily offering:

• server microprocessors (CPUs), graphics processing units (GPUs), accelerated processing units (APUs), data processing units (DPUs), Field Programmable Gate Arrays (FPGAs), Smart Network Interface Cards (SmartNICs), Artificial Intelligence (AI) accelerators and Adaptive System-on-Chip (SoC) products for data centers;

• CPUs, APUs and chipsets for desktop, notebook, and handheld personal computers;

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

• embedded CPUs, GPUs, APUs, FPGAs, System on Modules (SOMs), 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 months ended March 30, 2024 compared to the prior year period and an analysis of changes in our financial condition.

Net revenue for the three months ended March 30, 2024 was $5.5 billion, a 2% increase compared to the prior year period. The increase in net revenue was driven by an increase in Data Center segment revenue from higher sales of AMD Instinct™ GPUs and 4th Gen AMD EPYC™ CPUs, and an increase in Client segment revenue primarily driven by Ryzen™ 8000 Series processor sales, partially offset by a decrease in Gaming segment revenue primarily due to a decrease in semi-custom revenue and lower Radeon™ GPU sales, and a decrease in Embedded segment revenue as customers continued to manage their inventory levels.

Gross margin for the three months ended March 30, 2024 was 47% compared to gross margin of 44% for the prior year period. The increase in gross margin was primarily driven by higher Data Center and Client segments revenue, and lower amortization of acquisition-related intangible assets, partially offset by lower Embedded and Gaming segments revenue.

Operating income for the three months ended March 30, 2024 was $36 million compared to operating loss of $145 million for the prior year period. Net income for the three months ended March 30, 2024 was $123 million compared to net loss of $139 million for the prior year period. The increase in operating and net income was primarily driven by higher Data Center and Client segments revenue, and lower amortization of acquisition-related intangible assets.

As of March 30, 2024, our cash, cash equivalents and short-term investments were $6.0 billion compared to $5.8 billion as of December 30, 2023. During the three months ended March 30, 2024, we generated $521 million of cash from operating activities.

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 ongoing 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 months ended March 30, 2024 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 30, 2023.

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
															March 30, 2024						April 1, 2023
															(In millions)
Net revenue:
Data Center															$	2,337					$	1,295
Client															1,368						739
Gaming															922						1,757
Embedded															846						1,562
Total net revenue															$	5,473					$	5,353
Operating income (loss):
Data Center															$	541					$	148
Client															86						(172)
Gaming															151						314
Embedded															342						798
All Other															(1,084)						(1,233)
Total operating income (loss)															$	36					$	(145)

Data Center

Data Center net revenue of $2.3 billion for the three months ended March 30, 2024 increased by 80%, compared to net revenue of $1.3 billion for the prior year period primarily driven by higher sales of AMD Instinct GPUs and 4th Gen AMD EPYC CPUs.

Data Center operating income was $541 million for the three months ended March 30, 2024, compared to operating income of $148 million for the prior year period. The increase in operating income was primarily driven by higher revenue.

Client

Client net revenue of $1.4 billion for the three months ended March 30, 2024 increased by 85%, compared to net revenue of $739 million for the prior year period, primarily driven by a 58% increase in unit shipments and a 16% increase in average selling price of Ryzen processors, resulting from a recovery of weak PC market conditions and inventory corrections across the PC supply chain experienced in the first half of fiscal year 2023.

Client operating income was $86 million for the three months ended March 30, 2024, compared to operating loss of $172 million for the prior year period. The increase in operating income was primarily driven by higher revenue.

Gaming

Gaming net revenue of $922 million for the three months ended March 30, 2024 decreased by 48%, compared to net revenue of $1.8 billion for the prior year period, primarily due to a decrease in semi-custom revenue and lower Radeon GPU sales.

Gaming operating income was $151 million for the three months ended March 30, 2024, compared to operating income of $314 million for the prior year period. The decrease in operating income was primarily due to a decrease in semi-custom revenue and lower Radeon GPU sales.

Embedded

Embedded net revenue of $846 million for the three months ended March 30, 2024 decreased by 46%, compared to net revenue of $1.6 billion for the prior year period, as customers continued to manage their inventory levels.

Embedded operating income was $342 million for the three months ended March 30, 2024, compared to operating income of $798 million for the prior year period. The decrease in operating income was primarily due to lower revenue.

All Other

All Other operating loss of $1.1 billion for the three months ended March 30, 2024 primarily consisted of $622 million of amortization of acquisition-related intangibles, $371 million of stock-based compensation expense, $65 million of inventory loss at contract manufacturer and $39 million of acquisition-related and other costs. All Other operating loss of $1.2 billion for the prior year period primarily consisted of $823 million of amortization of acquisition-related intangibles, $309 million of stock-based compensation expense, and $111 million of acquisition-related and other costs.

Acquisition-related and other 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 60% and 68% for the three months ended March 30, 2024 and April 1, 2023, respectively. We expect that international sales will continue to be a significant portion of total sales in the foreseeable future. Substantially all of our sales transactions were denominated in U.S. dollars.

Comparison of Gross Margin, Expenses, Licensing Gain, Interest Expense, Other 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
															March 30, 2024						April 1, 2023
															In millions, except percentages
Net revenue															$	5,473					$	5,353
Cost of sales															2,683						2,689
Amortization of acquisition-related intangibles															230						305
Gross profit															2,560						2,359
Gross margin															47			%			44			%
Research and development															1,525						1,411
Marketing, general and administrative															620						585
Amortization of acquisition-related intangibles															392						518
Licensing gain															(13)						(10)
Interest expense															(25)						(25)
Other income (expense), net															53						43
Income tax provision (benefit)															(52)						13
Equity income in investee															7						1

Gross Margin

Gross margin was 47% and 44% for the three months ended March 30, 2024 and April 1, 2023, respectively, primarily driven by higher Data Center and Client segments revenue, and lower amortization of acquisition-related intangible assets, partially offset by lower Embedded and Gaming segments revenue.

Expenses

Research and Development Expenses

Research and development expenses of $1.5 billion for the three months ended March 30, 2024 increased by $114 million, or 8%, compared to $1.4 billion for the prior year period. The increase was primarily due to 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 $620 million for the three months ended March 30, 2024 increased by $35 million, or 6%, compared to $585 million for the prior year period, primarily due to an increase in go-to market activities.

Amortization of Acquisition-Related Intangibles

Amortization of acquisition-related intangibles of $622 million for the three months ended March 30, 2024 decreased by $201 million, or 24%, compared to $823 million for the prior year period. The decrease was primarily due to certain acquisition-related intangibles being fully amortized in the prior fiscal year.

Licensing Gain

During the three months ended March 30, 2024 and April 1, 2023, we recognized $13 million and $10 million, respectively, of licensing gain from royalty income associated with certain intellectual property licensed to two joint ventures in which we have an equity interest with Higon Information Technology Co., Ltd., a third-party Chinese entity (Licensed IP).

Interest Expense

Interest expense for the three months ended March 30, 2024 and April 1, 2023 was flat at $25 million since there was no material change in the Company’s interest bearing notes payable balance. Our 2.95% Notes with a principal amount of $750 million are due in June 2024.

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 months ended March 30, 2024 was $53 million, an increase of $10 million or 23% compared to $43 million for the prior year period. The increase was primarily driven by higher interest income from 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.

For the three months ended March 30, 2024, we recorded an income tax benefit of $52 million representing an effective tax rate of (73.2)%. The difference between the U.S. federal statutory tax rate of 21% and our estimated annual effective tax rate was primarily due to the income tax benefit from foreign-derived intangible income (FDII) and research and development (R&D) tax credits. In addition, the tax benefit reflected discrete income tax benefits of $61 million, primarily related to stock-based compensation.

For the three months ended April 1, 2023, we recorded an income tax provision of $13 million representing an effective tax rate of (10.3)%. The difference between the U.S. federal statutory tax rate of 21% and our estimated annual effective tax rate was primarily due to a higher mix of income taxed in lower tax rate jurisdictions, R&D tax credits, and beneficial rate impact from FDII tax benefit. In addition, the tax provision reflected discrete tax expense related to interest and penalties accrued for uncertain tax position.

FINANCIAL CONDITION

Liquidity and Capital Resources

As of March 30, 2024 and December 30, 2023, our cash, cash equivalents and short-term investments were $6.0 billion and $5.8 billion, respectively. The percentage of cash, cash equivalents and short-term investments held domestically as of March 30, 2024 and December 30, 2023 were 86% and 77%, respectively.

Our operating, investing and financing activities for the three months ended March 30, 2024 compared to the prior year period are as described below:

			Three Months Ended
			March 30, 2024						April 1, 2023
			(In millions)
Net cash provided by (used in):
Operating activities			$	521					$	486
Investing activities			(135)						(1,237)
Financing activities			(129)						(259)
Net (decrease) increase in cash and cash equivalents			$	257					$	(1,010)

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 three months ended March 30, 2024. 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 three months ended March 30, 2024.

As of March 30, 2024, 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 March 30, 2024, we had unconditional purchase commitments of approximately $4.0 billion, of which $3.3 billion are for the remainder of fiscal year 2024. 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, purchase commitments and debt payments, 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 $521 million in the three months ended March 30, 2024, primarily due to our net income of $123 million, adjusted for non-cash and non-operating charges of $1.2 billion and net cash outflows of $760 million from changes in our operating assets and liabilities. The primary drivers of the change in operating assets and liabilities was a $636 million decrease in accounts payable driven primarily by the timing of payments and inventory receipts, and a $368 million increase in inventory primarily to support the continued ramp of Data Center and Client products in advanced process nodes.

Net cash provided by operating activities was $486 million in the three months ended April 1, 2023, primarily due to our net loss of $139 million, adjusted for non-cash and non-operating charges of $1.0 billion and net cash outflows of $387 million from changes in our operating assets and liabilities. The primary driver of the change in operating assets and liabilities was a $464 million increase in inventory primarily in anticipation of the ramp of Data Center and Client products in advanced process nodes.

Investing Activities

Net cash used in investing activities was $135 million for the three months ended March 30, 2024 which primarily consisted of cash used in the purchases of short-term investments of $433 million and purchases of property and equipment of $142 million, partially offset by $443 million of proceeds from the maturity and sale of short-term investments.

Net cash used in investing activities was $1.2 billion for the three months ended April 1, 2023 which primarily consisted of cash used in the purchases of short-term investments of $1.7 billion and purchases of property and equipment of $158 million, partially offset by $618 million of proceeds from the maturity and sale of short-term investments.

Financing Activities

Net cash used in financing activities was $129 million for the three months ended March 30, 2024, which primarily consisted of repurchases for tax withholding on employee equity plans of $129 million.

Net cash used in financing activities was $259 million for the three months ended April 1, 2023, which primarily consisted of common stock repurchases of $241 million.