Advanced Micro Devices 10-Q 2024-06-29

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 June 29, 2024

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)(Zip Code)

(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 per share			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 per share, as of July 24, 2024: 1,618,481,845

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 (Loss)			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			19
Item 3			Quantitative and Qualitative Disclosures about Market Risk			26
Item 4			Controls and Procedures			26
Part II Other Information
Item 1			Legal Proceedings			27
Item 1A			Risk Factors			27
Item 2			Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 5			Other Information			53
Item 6			Exhibits			54
Signature						55

PART I. FINANCIAL INFORMATION

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

			Three Months Ended												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions, except per share amounts)
Net revenue			$	5,835					$	5,359					$	11,308					$	10,712
Cost of sales			2,740						2,704						5,423						5,393
Amortization of acquisition-related intangibles			231						212						461						517
Total cost of sales			2,971						2,916						5,884						5,910
Gross profit			2,864						2,443						5,424						4,802
Research and development			1,583						1,443						3,108						2,854
Marketing, general and administrative			650						547						1,270						1,132
Amortization of acquisition-related intangibles			372						481						764						999
Licensing gain			(10)						(8)						(23)						(18)
Operating income (loss)			269						(20)						305						(165)
Interest expense			(25)						(28)						(50)						(53)
Other income (expense), net			55						46						108						89
Income (loss) before income taxes and equity income			299						(2)						363						(129)
Income tax provision (benefit)			41						(23)						(11)						(10)
Equity income in investee			7						6						14						7
Net income (loss)			$	265					$	27					$	388					$	(112)
Earnings (loss) per share
Basic			$	0.16					$	0.02					$	0.24					$	(0.07)
Diluted			$	0.16					$	0.02					$	0.24					$	(0.07)
Shares used in per share calculation
Basic			1,618						1,612						1,617						1,612
Diluted			1,637						1,627						1,638						1,612

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

			Three Months Ended												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions)
Net income (loss)			$	265					$	27					$	388					$	(112)
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on cash flow hedges			(1)						(11)						(19)						9
Total comprehensive income (loss)			$	264					$	16					$	369					$	(103)

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

			June 29, 2024						December 30, 2023
			(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents			$	4,113					$	3,933
Short-term investments			1,227						1,840
Accounts receivable, net			5,749						5,376
Inventories			4,991						4,351
Receivables from related parties			24						9
Prepaid expenses and other current assets			1,361						1,259
Total current assets			17,465						16,768
Property and equipment, net			1,666						1,589
Operating lease right-of-use assets			635						633
Goodwill			24,262						24,262
Acquisition-related intangibles, net			20,138						21,363
Investment: equity method			113						99
Deferred tax assets			617						366
Other non-current assets			2,990						2,805
Total assets			$	67,886					$	67,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	1,699					$	2,055
Payables to related parties			420						363
Accrued liabilities			3,629						3,082
Current portion of long-term debt, net			—						751
Other current liabilities			447						438
Total current liabilities			6,195						6,689
Long-term debt, net of current portion			1,719						1,717
Long-term operating lease liabilities			526						535
Deferred tax liabilities			1,192						1,202
Other long-term liabilities			1,716						1,850
Commitments and contingencies (See Note 12)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,668 and 1,663; shares outstanding: 1,618 and 1,616			17						17
Additional paid-in capital			60,542						59,676
Treasury stock, at cost (shares held: 50 and 47)			(5,103)						(4,514)
Retained earnings			1,111						723
Accumulated other comprehensive loss			(29)						(10)
Total stockholders’ equity			56,538						55,892
Total liabilities and stockholders’ equity			$	67,886					$	67,885

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

			Six Months Ended
			June 29, 2024						July 1, 2023
			(In millions)
Cash flows from operating activities:
Net income (loss)			$	388					$	(112)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			1,553						1,831
Stock-based compensation			717						657
Amortization of operating lease right-of-use assets			52						48
Deferred income taxes			(256)						(582)
Inventory loss at contract manufacturer			65						—
Other			(37)						(8)
Changes in operating assets and liabilities
Accounts receivable, net			(373)						(186)
Inventories			(710)						(796)
Prepaid expenses and other assets			(234)						(237)
Receivables from and payables to related parties, net			42						(150)
Accounts payable			(356)						309
Accrued and other liabilities			263						91
Net cash provided by operating activities			1,114						865
Cash flows from investing activities:
Purchases of property and equipment			(296)						(283)
Purchases of short-term investments			(565)						(2,816)
Proceeds from maturity of short-term investments			1,202						1,171
Proceeds from sale of short-term investments			2						248
Other			(92)						5
Net cash provided by (used in) investing activities			251						(1,675)
Cash flows from financing activities:
Repayment of debt			(750)						—
Proceeds from sales of common stock through employee equity plans			148						144
Repurchases of common stock			(356)						(241)
Common stock repurchases for tax withholding on employee equity plans			(226)						(87)
Other			(1)						—
Net cash used in financing activities			(1,185)						(184)
Net increase (decrease) in cash and cash equivalents			180						(994)
Cash and cash equivalents at beginning of period			3,933						4,835
Cash and cash equivalents at end of period			$	4,113					$	3,841

Advanced Micro Devices, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
			Six Months Ended
			June 29, 2024						July 1, 2023
			(In millions)
Supplemental cash flow information:
Cash paid for taxes, net of refunds			$	311					$	46
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid			$	110					$	99
Non-cash activities for leases:
Operating lease right-of-use assets acquired by assuming related liabilities			$	53					$	50

See accompanying notes.

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

			Three Months Ended												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions)
Capital stock:
Common stock, par value
Balance, beginning of period			$	17					$	16					$	17					$	16
Balance, end of period			$	17					$	16					$	17					$	16
Additional paid-in capital
Balance, beginning of period			$	60,053					$	58,331					$	59,676					$	58,005
Common stock issued under employee equity plans			143						145						149						149
Stock-based compensation			346						348						717						657
Issuance of common stock to settle convertible debt			—						1						—						1
Issuance of common stock warrants			—						—						—						13
Balance, end of period			$	60,542					$	58,825					$	60,542					$	58,825
Treasury stock
Balance, beginning of period			$	(4,690)					$	(3,362)					$	(4,514)					$	(3,099)
Repurchases of common stock			(352)						—						(356)						(241)
Common stock repurchases for tax withholding on employee equity plans			(61)						(68)						(233)						(90)
Balance, end of period			$	(5,103)					$	(3,430)					$	(5,103)					$	(3,430)
Retained earnings (Accumulated deficit):
Balance, beginning of period			$	846					$	(270)					$	723					$	(131)
Net income (loss)			265						27						388						(112)
Balance, end of period			$	1,111					$	(243)					$	1,111					$	(243)
Accumulated other comprehensive loss:
Balance, beginning of period			$	(28)					$	(21)					$	(10)					$	(41)
Other comprehensive income (loss)			(1)						(11)						(19)						9
Balance, end of period			$	(29)					$	(32)					$	(29)					$	(32)
Total stockholders' equity			$	56,538					$	55,136					$	56,538					$	55,136

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), System on Modules (SOMs), Smart Network Interface Cards (SmartNICs), Artificial Intelligence (AI) Accelerators 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 six months ended June 29, 2024 shown in this report are not necessarily indicative of results to be expected for the full year ending December 28, 2024 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 30, 2023. 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 six months ended June 29, 2024 and July 1, 2023 each consisted of 13 weeks and 26 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, long-lived and intangible 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 30, 2023.

NOTE 3 – Supplemental Financial Statement Information

Accounts Receivable, net

As of June 29, 2024 and December 30, 2023, Accounts receivable, net included unbilled accounts receivable of $1.7 billion and $1.1 billion, respectively. Unbilled accounts receivable primarily represent work completed on development services and on custom products for which revenue has been recognized but not yet invoiced. Unbilled accounts receivable that are included in Accounts receivable, net are expected to be billed and collected within 12 months.

Inventories			June 29, 2024						December 30, 2023
			(In millions)
Raw materials			$	338					$	279
Work in process			3,727						3,260
Finished goods			926						812
Total inventories			$	4,991					$	4,351

Property and Equipment, net			June 29, 2024						December 30, 2023
			(In millions)
Land, building and leasehold improvements			$	834					$	821
Equipment			2,603						2,346
Construction in progress			217						209
Property and equipment, gross			3,654						3,376
Accumulated depreciation			(1,988)						(1,787)
Total property and equipment, net			$	1,666					$	1,589

Accrued Liabilities			June 29, 2024						December 30, 2023
			(In millions)
Customer-related liabilities			$	1,402					$	788
Accrued marketing programs			828						827
Accrued compensation and benefits			755						884
Other accrued liabilities			644						583
Total accrued liabilities			$	3,629					$	3,082

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 June 29, 2024, the aggregate transaction price allocated to remaining performance obligations under contracts with an original expected duration of more than one year was $76 million, of which $42 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 8% and 12% of the Company’s revenue for the three and six months ended June 29, 2024, respectively and 27% and 28% of the Company’s revenue for the three and six months ended July 1, 2023, 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), 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;

• the Client segment, which primarily includes CPUs, APUs, and chipsets for desktop, notebook and handheld personal computers;

• the Gaming segment, which primarily includes discrete GPUs, and semi-custom SoC products and development services; and

• the Embedded segment, which primarily includes embedded CPUs, GPUs, APUs, FPGAs, System on Modules (SOMs), 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, inventory loss at contract manufacturer, acquisition-related and other costs, and licensing gain. Acquisition-related and other 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 (loss) by segment:

			Three Months Ended												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions)
Net revenue:
Data Center			$	2,834					$	1,321					$	5,171					$	2,616
Client			1,492						998						2,860						1,737
Gaming			648						1,581						1,570						3,338
Embedded			861						1,459						1,707						3,021
Total net revenue			$	5,835					$	5,359					$	11,308					$	10,712
Operating income (loss):
Data Center			$	743					$	147					$	1,284					$	295
Client			89						(69)						175						(241)
Gaming			77						225						228						539
Embedded			345						757						687						1,555
All Other(1)			(985)						(1,080)						(2,069)						(2,313)
Total operating income (loss)			$	269					$	(20)					$	305					$	(165)

(1)			For the three and six months ended June 29, 2024, all other operating losses primarily included $603 million and $1.2 billion of amortization of acquisition-related intangibles, and $346 million and $717 million of stock-based compensation expense, respectively. For the three and six months ended July 1, 2023, all other operating losses primarily included $693 million and $1.5 billion of amortization of acquisition-related intangibles, and $348 million and $657 million of stock-based compensation expense, respectively.

NOTE 5 – Acquisition-related Intangibles, net

Acquisition-related intangibles, net were as follows:

			June 29, 2024																		December 30, 2023
			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
			(In millions)																		(In millions)
Developed technology			$	13,390					$	(2,045)					$	11,345					$	13,390					$	(1,583)					$	11,807
Customer relationships			12,324						(4,479)						7,845						12,324						(3,755)						8,569
Customer backlog			809						(809)						—						809						(809)						—
Corporate trade name			65						(65)						—						65						(65)						—
Product trademarks			914						(186)						728						914						(147)						767
Identified intangible assets subject to amortization			27,502						(7,584)						19,918						27,502						(6,359)						21,143
In-process research and development (IPR&D) not subject to amortization			220						—						220						220						—						220
Total acquisition-related intangible assets			$	27,722					$	(7,584)					$	20,138					$	27,722					$	(6,359)					$	21,363

Developed technology and customer relationships were acquired primarily from the Xilinx acquisition on February 14, 2022. Acquisition-related intangible amortization expense was $603 million and $1.2 billion for the three and six months ended June 29, 2024, and $693 million and $1.5 billion for the three and six months ended July 1, 2023, respectively.

Based on the carrying value of acquisition-related intangibles recorded as of June 29, 2024, 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 2024			$	1,146
2025			2,145
2026			2,034
2027			1,922
2028			1,846
2029 and thereafter			10,825
Total			$	19,918

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 six months ended June 29, 2024 were $389 million and $839 million, respectively. The Company’s purchases from the ATMP JV during the three and six months ended July 1, 2023 were $412 million and $779 million, respectively. As of June 29, 2024 and December 30, 2023, the amounts payable to the ATMP JV were $420 million and $363 million, respectively, and are reflected as Payables to related parties on the Company’s condensed consolidated balance sheets. The Company’s resales to the ATMP JV during the three and six months ended June 29, 2024 were $30 million and $70 million, respectively. The Company’s resales to the ATMP JV during the three and six months ended July 1, 2023 were $1 million and $3 million, respectively. As of June 29, 2024 and December 30, 2023, the Company’s receivables from the ATMP JV were $24 million and $9 million, respectively, and are reflected as Receivables from related parties on the Company’s condensed consolidated balance sheets.

During the three and six months ended June 29, 2024, the Company recorded a gain of $7 million and $14 million, in Equity income in investee on its condensed consolidated statements of operations, respectively. During the three and six months ended July 1, 2023, the Company recorded a gain of $6 million and $7 million, in Equity income in investee on its condensed consolidated statements of operations, respectively. As of June 29, 2024 and December 30, 2023, the carrying value of the Company’s investment in the ATMP JV was $113 million and $99 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 June 29, 2024 and December 30, 2023, the carrying value of the investment was zero. The Company licenses certain of its intellectual property (Licensed IP) to the THATIC JV and receives royalties based on sales of the THATIC JV’s products, which is recorded within operating income as licensing gain. During the three and six months ended June 29, 2024, the Company recognized $10 million and $23 million of licensing gain from royalties associated with Licensed IP, respectively. During the three and six months ended July 1, 2023, the Company recognized $8 million and $18 million of licensing gain from royalties associated with Licensed IP, respectively. As of June 29, 2024 and December 30, 2023, 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, Revolving Credit Facility and Commercial Paper Program

Debt

The Company’s total debt as of June 29, 2024 and December 30, 2023 consisted of the following:

			June 29, 2024						December 30, 2023
			(In millions)
2.95% Senior Notes Due 2024 (2.95% Notes)			$	—					$	750
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)			1,750						2,500
Unamortized debt discount and issuance costs			(31)						(32)
Total debt (net)			1,719						2,468
Less: current portion of long-term debt and related unamortized debt premium and issuance costs			—						(751)
Total long-term debt			$	1,719					$	1,717

2.95% Senior Notes Due 2024

The 2.95% Notes with a principal amount of $750 million were repaid in June 2024.

2.375% Senior Notes Due 2030, 3.924% Senior Notes Due 2032 and 4.393% Senior Notes Due 2052

The 2.375% Notes, 3.924% Notes and 4.393% Notes are general unsecured senior obligations of the Company with semi-annual fixed interest payments due on June 1 and December 1.

As of June 29, 2024, the Company was in compliance with the covenants associated with its debt.

Revolving Credit Facility

The Company has $3.0 billion available under a revolving credit facility that expires on April 29, 2027. During the three and six months ended June 29, 2024, the Company did not borrow under the revolving credit facility and as of June 29, 2024 and December 30, 2023, the Company had no outstanding borrowings under the revolving credit facility. As of June 29, 2024, the Company was in compliance with the covenants under the revolving credit facility.

Commercial Paper Program

The Company has a commercial paper program under which it can issue unsecured commercial paper notes up to $3.0 billion. During the three and six months ended June 29, 2024, the Company did not issue any commercial paper under the program and as of June 29, 2024 and December 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

			June 29, 2024																		December 30, 2023
(In millions)			Level 1						Level 2						Total						Level 1						Level 2						Total
Cash equivalents
Money market funds			$	1,229					$	—					$	1,229					$	969					$	—					$	969
Corporate debt securities			—						995						995						—						753						753
U.S. government and agency securities			724						—						724						1,252						—						1,252
Non-U.S. government and agency securities			—						149						149						—						135						135
Time deposits and certificates of deposits			—						151						151						—						205						205
Short-term investments
Corporate debt securities			—						302						302						—						506						506
Time deposits and certificates of deposits			—						10						10						—						9						9
Asset-backed and mortgage-backed securities			—						31						31						—						34						34
U.S. government and agency securities			818						43						861						1,209						28						1,237
Non-U.S. government and agency securities			—						23						23						—						54						54
Other non-current assets
Deferred compensation plan investments			153						—						153						133						—						133
Total assets measured at fair value			$	2,924					$	1,704					$	4,628					$	3,563					$	1,724					$	5,287

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:

			June 29, 2024																								December 30, 2023
			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			$	33					$	—					$	(2)					$	31					$	35					$	—					$	(2)					$	33
Corporate debt securities			1,298						—						(1)						1,297						1,259						—						—						1,259
Money market funds			1,229						—						—						1,229						969						—						—						969
Time deposits and certificates of deposits			161						—						—						161						214						—						—						214
U.S. government and agency securities			1,586						—						(1)						1,585						2,487						3						—						2,490
Non-U.S. government and agency securities			172						—						—						172						189						—						—						189
			$	4,479					$	—					$	(4)					$	4,475					$	5,153					$	3					$	(2)					$	5,154

As of June 29, 2024 and December 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:

			June 29, 2024												December 30, 2023
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
			(In millions)												(In millions)
Due within 1 year			$	2,762					$	2,762					$	3,792					$	3,792
Due in 1 year through 5 years			459						457						361						364
Due in 5 years and later			29						27						32						30
			$	3,250					$	3,246					$	4,185					$	4,186

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:

			June 29, 2024												December 30, 2023
			Carrying Amount						Estimated Fair Value						Carrying Amount						Estimated Fair Value
			(In millions)												(In millions)
Current portion of long-term debt, net			$	—					$	—					$	751					$	741
Long-term debt, net of current portion			$	1,719					$	1,537					$	1,717					$	1,630

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 June 29, 2024 and December 30, 2023, the Company had non-marketable securities in privately-held companies of $245 million and $155 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 six months ended June 29, 2024 and July 1, 2023.

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 June 29, 2024 and December 30, 2023, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $2.1 billion and $2.4 billion, respectively. The fair value of these contracts, recorded as a liability, was $14 million as of June 29, 2024 and as an asset was $6 million as of December 30, 2023.

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 June 29, 2024 and December 30, 2023, the notional value of these outstanding contracts was $460 million and $568 million, respectively. The fair value of these contracts was not material as of June 29, 2024 and December 30, 2023.

NOTE 9 – Earnings (Loss) Per Share

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

			Three Months Ended												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions, except per share amounts)
Numerator
Net income (loss) for basic earnings per share			$	265					$	27					$	388					$	(112)
Denominator
Basic weighted average shares			1,618						1,612						1,617						1,612
Potentially dilutive shares from employee equity plans			19						15						21						—
Diluted weighted average shares			1,637						1,627						1,638						1,612
Earnings (loss) per share:
Basic			$	0.16					$	0.02					$	0.24					$	(0.07)
Diluted			$	0.16					$	0.02					$	0.24					$	(0.07)

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 Stock-based Compensation

Common Stock

Shares of common stock outstanding were as follows:

			Three Months Ended												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions)
Balance, beginning of period			1,618						1,609						1,616						1,612
Common stock issued under employee equity plans			2						4						5						5
Common stock repurchases for tax withholding on equity awards			—						—						(1)						(1)
Issuance of common stock upon warrant exercise			—						1						—						1
Repurchases of common stock			(2)						—						(2)						(3)
Balance, end of period			1,618						1,614						1,618						1,614

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 six months ended June 29, 2024, the Company returned $352 million and $356 million, respectively, to shareholders through the repurchase of its common stock under the Repurchase Program. As of June 29, 2024, $5.2 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												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions)
Cost of sales			$	5					$	10					$	11					$	18
Research and development			262						247						541						461
Marketing, general and administrative			79						91						165						178
Total			$	346					$	348					$	717					$	657

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.

For the three and six months ended June 29, 2024, the Company recorded an income tax provision of $41 million and an income tax benefit of $11 million representing an effective tax rate of 13.4% and (2.9)%, respectively. The difference between the U.S. federal statutory tax rate of 21% and the Company's 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. The tax provision for the three months ended June 29, 2024 reflected a discrete tax expense of $21 million, primarily related to interest and penalties accrued for uncertain tax positions partially offset by the tax effects of stock-based compensation. The tax benefit for the six months ended June 29, 2024 reflected a discrete tax benefit of $40 million, primarily related to stock-based compensation.

For the three months and six months ended July 1, 2023, the Company recorded an income tax benefit of $23 million and $10 million representing an effective tax rate of (511.4)% and 8.0%, respectively. The difference between the U.S. federal statutory tax rate of 21% and the Company's estimated annual effective tax rate was primarily due to the income tax benefit from FDII and R&D tax credits. The tax benefit for the three months ended July 1, 2023 reflected a discrete tax benefit of $34 million that had a disproportionate impact on the effective tax rate because the pre-tax income was close to breakeven for the period. The tax benefit for the six months ended July 1, 2023, reflected a discrete tax benefit of $12 million which was not material to the total tax expense or the effective tax rate.

As of June 29, 2024 and December 30, 2023, the Company had long-term income tax liabilities related to unrecognized tax benefits of $1.5 billion and $1.4 billion, respectively, 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 June 29, 2024 were as follows:

Fiscal Year			(In millions)
Remainder of 2024			$	3,056
2025			371
2026			268
2027			44
2028			44
2029 and thereafter			95
Total unconditional purchase commitments			$	3,878

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 June 29, 2024, 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 Event

On July 9, 2024, the Company entered into a definitive agreement to acquire Silo AI Oy, an AI lab based in Helsinki, Finland, in an all-cash transaction valued at approximately $665 million. The transaction is subject to customary closing conditions and is expected to close in the second half of fiscal year 2024.

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 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 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; AMD’s acquisition of Silo AI Oy is expected to close in the second half of fiscal year 2024; 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 and six months ended June 29, 2024 compared to the prior year period and an analysis of changes in our financial condition.

Net revenue for the three months ended June 29, 2024 was $5.8 billion, a 9% increase compared to the prior year period. The increase in net revenue was driven by an increase in Data Center segment revenue primarily driven by the steep ramp of AMD Instinct™ GPU shipments and strong growth in 4th Gen AMD EPYC™ CPU sales, and an increase in Client segment revenue primarily driven by higher sales of AMD Ryzen™ processors, partially offset by a decrease in Gaming segment revenue primarily due to lower semi-custom revenue, and a decrease in Embedded segment revenue due to customers continuing to normalize their inventory levels.

Gross margin for the three months ended June 29, 2024 was 49% compared to gross margin of 46% for the prior year period. The increase in gross margin was primarily driven by higher Data Center segment revenue.

Operating income for the three months ended June 29, 2024 was $269 million compared to operating loss of $20 million for the prior year period. Net income for the three months ended June 29, 2024 was $265 million compared to net income of $27 million for the prior year period. The increase in operating and net income was primarily driven by higher revenue and gross margin, and lower amortization of acquisition-related intangible assets, partially offset by increased operating expenses.

As of June 29, 2024, our cash, cash equivalents and short-term investments were $5.3 billion compared to $5.8 billion as of December 30, 2023. During the three and six months ended June 29, 2024, we generated $593 million and $1.1 billion of cash, respectively, from operating activities, and we returned $352 million and $356 million, respectively, to shareholders through the repurchase of common stock under our Repurchase Program. During the quarter, we also used available cash to repay $750 million of debt that matured in June 2024.

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 and six months ended June 29, 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												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			(In millions)
Net revenue:
Data Center			$	2,834					$	1,321					$	5,171					$	2,616
Client			1,492						998						2,860						1,737
Gaming			648						1,581						1,570						3,338
Embedded			861						1,459						1,707						3,021
Total net revenue			$	5,835					$	5,359					$	11,308					$	10,712
Operating income (loss):
Data Center			$	743					$	147					$	1,284					$	295
Client			89						(69)						175						(241)
Gaming			77						225						228						539
Embedded			345						757						687						1,555
All Other			(985)						(1,080)						(2,069)						(2,313)
Total operating income (loss)			$	269					$	(20)					$	305					$	(165)

Data Center

Data Center net revenue of $2.8 billion for the three months ended June 29, 2024 increased by 115%, compared to net revenue of $1.3 billion for the prior year period. Data Center net revenue of $5.2 billion for the six months ended June 29, 2024 increased by 98%, compared to net revenue of $2.6 billion for the prior year period. The increase in both periods was primarily driven by the steep ramp of AMD Instinct GPU shipments and strong growth in 4th Gen AMD EPYC CPU sales.

Data Center operating income was $743 million for the three months ended June 29, 2024, compared to operating income of $147 million for the prior year period. Data Center operating income was $1.3 billion for the six months ended June 29, 2024, compared to operating income of $295 million for the prior year period. The increase in operating income in both periods was primarily driven by higher revenue.

Client

Client net revenue of $1.5 billion for the three months ended June 29, 2024 increased by 49%, compared to net revenue of $1.0 billion for the prior year period, primarily driven by a 34% increase in unit shipments and a 12% increase in average selling price of Ryzen mobile and desktop processors. Client net revenue of $2.9 billion for the six months ended June 29, 2024 increased by 65%, compared to net revenue of $1.7 billion for the prior year period, primarily driven by a 44% increase in unit shipments and a 14% increase in average selling price of Ryzen mobile and desktop processors. The increase in both periods was driven by a recovery from weak PC market conditions and inventory corrections across the PC supply chain experienced in the first half of fiscal year 2023.

Table of Contents

Client operating income was $89 million for the three months ended June 29, 2024, compared to operating loss of $69 million for the prior year period. Client operating income was $175 million for the six months ended June 29, 2024, compared to operating loss of $241 million for the prior year period. The increase in operating income in both periods was primarily driven by higher revenue, partially offset by higher operating expenses.

Gaming

Gaming net revenue of $648 million for the three months ended June 29, 2024 decreased by 59%, compared to net revenue of $1.6 billion for the prior year period. Gaming net revenue of $1.6 billion for the six months ended June 29, 2024 decreased by 53%, compared to net revenue of $3.3 billion for the prior year period. The decrease in both periods was primarily due to lower semi-custom revenue.

Gaming operating income was $77 million for the three months ended June 29, 2024, compared to operating income of $225 million for the prior year period. Gaming operating income was $228 million for the six months ended June 29, 2024, compared to operating income of $539 million for the prior year period. The decrease in operating income in both periods was primarily due to lower revenue.

Embedded

Embedded net revenue of $861 million for the three months ended June 29, 2024 decreased by 41%, compared to net revenue of $1.5 billion for the prior year period. Embedded net revenue of $1.7 billion for the six months ended June 29, 2024 decreased by 43%, compared to net revenue of $3.0 billion for the prior year period. The decrease in both periods was primarily due to customers continuing to normalize their inventory levels.

Embedded operating income was $345 million for the three months ended June 29, 2024, compared to operating income of $757 million for the prior year period. Embedded operating income was $687 million for the six months ended June 29, 2024, compared to operating income of $1.6 billion for the prior year period. The decrease in operating income in both periods was primarily due to lower revenue.

All Other

All Other operating loss of $985 million for the three months ended June 29, 2024 primarily consisted of $603 million of amortization of acquisition-related intangibles and $346 million of stock-based compensation expense. All Other operating loss of $1.1 billion for the prior year period primarily consisted of $693 million of amortization of acquisition-related intangibles and $348 million of stock-based compensation expense.

All Other operating loss of $2.1 billion for the six months ended June 29, 2024 primarily consisted of $1.2 billion of amortization of acquisition-related intangibles and $717 million of stock-based compensation expense. All Other operating loss of $2.3 billion for the prior year period primarily consisted of $1.5 billion of amortization of acquisition-related intangibles and $657 million of stock-based compensation expense.

International Sales

International sales as a percentage of net revenue were 60% and 66% for the three months ended June 29, 2024 and July 1, 2023, respectively. International sales as a percentage of net revenue were 60% and 67% for the six months ended June 29, 2024 and July 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.

Table of Contents

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												Six Months Ended
			June 29, 2024						July 1, 2023						June 29, 2024						July 1, 2023
			In millions, except percentages
Net revenue			$	5,835					$	5,359					$	11,308					$	10,712
Cost of sales			2,740						2,704						5,423						5,393
Amortization of acquisition-related intangibles			231						212						461						517
Gross profit			2,864						2,443						5,424						4,802
Gross margin			49			%			46			%			48			%			45			%
Research and development			1,583						1,443						3,108						2,854
Marketing, general and administrative			650						547						1,270						1,132
Amortization of acquisition-related intangibles			372						481						764						999
Licensing gain			(10)						(8)						(23)						(18)
Interest expense			(25)						(28)						(50)						(53)
Other income (expense), net			55						46						108						89
Income tax provision (benefit)			41						(23)						(11)						(10)
Equity income in investee			7						6						14						7

Gross Margin

Gross margin was 49% and 46% for the three months ended June 29, 2024 and July 1, 2023, respectively. Gross margin was 48% and 45% for the six months ended June 29, 2024 and July 1, 2023, respectively. The increase in both periods was primarily driven by higher Data Center segment revenue.

Expenses

Research and Development Expenses

Research and development expenses of $1.6 billion for the three months ended June 29, 2024 increased by $140 million, or 10%, compared to $1.4 billion for the prior year period. Research and development expenses of $3.1 billion for the six months ended June 29, 2024 increased by $254 million, or 9%, compared to $2.9 billion for the prior year period. The increase in both periods was primarily due to higher employee-related costs from an increase in headcount in support of our continued focus on our AI strategy.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses of $650 million for the three months ended June 29, 2024 increased by $103 million, or 19%, compared to $547 million for the prior year period. Marketing, general and administrative expenses of $1.3 billion for the six months ended June 29, 2024 increased by $138 million, or 12%, compared to $1.1 billion for the prior year period. The increase in both periods was primarily due to an increase in go-to market activities.

Amortization of Acquisition-Related Intangibles

Amortization of acquisition-related intangibles of $603 million for the three months ended June 29, 2024 decreased by $90 million, or 13%, compared to $693 million for the prior year period. Amortization of acquisition-related intangibles of $1.2 billion for the six months ended June 29, 2024 decreased by $291 million, or 19%, compared to $1.5 billion for the prior year period. The decrease was primarily due to certain acquisition-related intangibles that were fully amortized in the prior fiscal year.

Table of Contents

Interest Expense

Interest expense for the three and six months ended June 29, 2024 was $25 million and $50 million, respectively, compared to $28 million and $53 million, respectively, for the prior year period. Our 2.95% Notes with a principal amount of $750 million were repaid 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 (expense), net for the three and six months ended June 29, 2024 was $55 million and $108 million, respectively. Other income (expense), net for the prior year period was $46 million and $89 million, respectively. The increase was primarily driven by interest income from higher 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 and six months ended June 29, 2024, we recorded an income tax provision of $41 million and income tax benefit of $11 million representing an effective tax rate of 13.4% and (2.9)%, respectively. 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. The tax provision for the three months ended June 29, 2024 reflected a discrete tax expense of $21 million, primarily related to interest and penalties accrued for uncertain tax positions, partially offset by the tax effects of stock-based compensation. The tax benefit for the six months ended June 29, 2024 reflected a discrete tax benefit of $40 million, primarily related to stock-based compensation.

For the three months and six months ended July 1, 2023, we recorded an income tax benefit of $23 million and $10 million representing an effective tax rate of (511.4)% and 8.0%, respectively. 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 FDII and R&D tax credits. The tax benefit for the three months ended July 1, 2023 reflected a discrete tax benefit of $34 million that had a disproportionate impact on the effective tax rate because the pre-tax income was close to breakeven for the period. The tax benefit for the six months ended July 1, 2023 reflected a discrete tax benefit of $12 million which was not material to the total expense or the effective tax rate.

FINANCIAL CONDITION

Liquidity and Capital Resources

As of June 29, 2024 and December 30, 2023, our cash, cash equivalents and short-term investments were $5.3 billion and $5.8 billion, respectively. The percentage of cash, cash equivalents and short-term investments held domestically as of June 29, 2024 and December 30, 2023 were 88% and 77%, respectively.

Our operating, investing and financing activities for the six months ended June 29, 2024 compared to the prior year period are as described below:

			Six Months Ended
			June 29, 2024						July 1, 2023
			(In millions)
Net cash provided by (used in):
Operating activities			$	1,114					$	865
Investing activities			251						(1,675)
Financing activities			(1,185)						(184)
Net (decrease) increase in cash and cash equivalents			$	180					$	(994)

We have $3.0 billion available under an unsecured revolving credit facility that expires on April 29, 2027. We also have $3.0 billion available under our commercial paper program.

Table of Contents

As of June 29, 2024, our principal debt obligations were $1.75 billion. Our 2.95% Notes with a principal amount of $750 million were repaid in June 2024 and our remaining debt will mature starting in 2030.

As of June 29, 2024, we had unconditional purchase commitments of approximately $3.9 billion, of which $3.1 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 facility 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 $1.1 billion in the six months ended June 29, 2024, primarily due to our net income of $388 million, adjusted for non-cash and non-operating charges of $2.1 billion and net cash outflows of $1.4 billion from changes in our operating assets and liabilities. The primary drivers of the change in operating assets and liabilities was a $710 million increase in inventory primarily to support the continued ramp of Data Center and Client products in advanced process nodes, and a $373 million increase in accounts receivable due to timing of customer payments.

Net cash provided by operating activities was $865 million in the six months ended July 1, 2023, primarily due to our net loss of $112 million, adjusted for non-cash and non-operating charges of $1.9 billion and net cash outflows of $1.0 billion from changes in our operating assets and liabilities. The primary driver of the change in operating assets and liabilities was a $796 million increase in inventory primarily to support the continued ramp of Data Center and Client products in advanced process technology nodes, and a $237 million increase in prepaid expenses and other assets primarily driven by the purchase of technology licenses, partially offset by a $309 million increase in accounts payable due to the timing of payments.

Investing Activities

Net cash provided by investing activities was $251 million for the six months ended June 29, 2024 which primarily consisted of $1.2 billion of proceeds from the maturity and sale of short-term investments, partially offset by cash used in the purchases of short-term investments of $565 million and purchases of property and equipment of $296 million.

Net cash used in investing activities was $1.7 billion for the six months ended July 1, 2023 which primarily consisted of cash used in the purchases of short-term investments of $2.8 billion and purchases of property and equipment of $283 million, partially offset by $1.4 billion of proceeds from the maturity and sale of short-term investments.

Financing Activities

Net cash used in financing activities was $1.2 billion for the six months ended June 29, 2024, which primarily consisted of repayment of the 2.95% Notes of $750 million, common stock repurchase of $356 million, and repurchases for tax withholding on employee equity plans of $226 million.

Net cash used in financing activities was $184 million for the six months ended July 1, 2023, which primarily consisted of common stock repurchases of $241 million and repurchases for tax withholding on employee equity plans of $87 million, partially offset by a cash inflow of $144 million from issuance of common stock under our employee equity plans.

Table of Contents