Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

58K characters. Original on sec.gov · Markdown

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended				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.

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