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

The statements in this report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements and should not be relied upon as predictions of future events, as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” “anticipates,” or the negative of these words and phrases, other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things: possible impact of future accounting rules on AMD’s condensed consolidated financial statements; demand for AMD’s products; AMD’s strategy and expected benefits; the growth, change and competitive landscape of the markets in which AMD participates; the expectation that international sales will continue to be a significant portion of total sales in the foreseeable future; the expectation 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, purchase commitments and strategic activities 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; the expectation that revenue allocated to remaining performance obligations that are unsatisfied will be recognized in the next 12 months and that 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; the expected benefits of AMD’s acquisition of ZT Group Int’l, Inc. (ZT Systems); AMD seeking a strategic partner to acquire ZT Systems manufacturing business; the extent of impact of export restrictions imposed on by the U.S. on our business; and AMD’s expectation 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 28, 2024 and December 30, 2023, and for each of the three years for the period ended December 28, 2024 as filed in our Annual Report on Form 10-K for the fiscal year ended December 28, 2024.

Overview and Recent Developments

We are a global semiconductor company primarily offering:

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

• CPUs, APUs, chipsets for desktops and notebooks, discrete GPUs, semi-custom SoC products and development services; and

• embedded CPUs, GPUs, APUs, FPGAs, System on Modules (SOMs), and Adaptive SoC products.

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

In this section, we will describe the general financial condition and the results of operations of Advanced Micro Devices, Inc. and its wholly-owned subsidiaries (collectively, “us,” “our” or “AMD”), including a discussion of our results of operations for the three months ended March 29, 2025 compared to the prior year period and an analysis of changes in our financial condition.

Beginning with the fiscal year ending December 27, 2025, we combined the Client and Gaming segments into one reportable segment to align with how we manage our business. Net revenue for the three months ended March 29, 2025 was $7.4 billion, a 36% 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 growth in AMD EPYC™ CPU and AMD Instinct™ GPU sales, and an increase in Client and Gaming segment revenue primarily driven by strong demand for the latest “Zen 5” AMD Ryzen™ processors and a richer mix, partially offset by a decrease in semi-custom revenue. Embedded segment revenue decreased as demand in end markets remained mixed.

Gross margin for the three months ended March 29, 2025 was 50% compared to gross margin of 47% for the prior year period. The increase in gross margin was driven by higher Data Center segment revenue and a richer mix of Ryzen processor sales.

Operating income for the three months ended March 29, 2025 was $806 million compared to operating income of $36 million for the prior year period. Net income for the three months ended March 29, 2025 was $709 million compared to net income of $123 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 March 29, 2025, our cash, cash equivalents and short-term investments were $7.3 billion compared to $5.1 billion as of December 28, 2024. During the three months ended March 29, 2025, we generated $939 million of cash from operating activities, and we returned $749 million to stockholders through the repurchase of common stock under our Repurchase Program.

To fund a portion of the acquisition of ZT Group Int’l Inc. (ZT Systems), on March 24, 2025, we issued $1.5 billion in aggregate principal amount of senior notes, consisting of $875 million aggregate principal amount of 4.212% Senior Notes due 2026, $625 million aggregate principal amount of 4.319% Senior Notes due 2028, and $950 million in aggregate principal amount of unsecured commercial paper, with maturities of up to 60 days.

On March 31, 2025, we completed the acquisition of ZT Systems to help accelerate the end-to-end design and deployment of AMD-powered AI infrastructure at scale for the cloud. At the close of the acquisition, we paid $3.375 billion in cash, subject to certain purchase price adjustments, and issued 8,335,849 shares of our common stock. To the extent certain conditions are met, we will pay an additional $300 million in cash and issue up to 740,961 shares of our common stock. We are actively seeking a strategic partner to acquire ZT Systems' manufacturing business.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.

Critical Accounting Policies and Estimates

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

Management believes there have been no significant changes for the three months ended March 29, 2025 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 28, 2024.

Results of Operations

Beginning with the fiscal year ending December 27, 2025, we combined the Client and Gaming segments into one reportable segment to align with how we manage our business. Each of the Client and Gaming businesses do not qualify as a reportable operating segment, however, we continue to separately disclose revenues for each business. All prior period segment data were retrospectively adjusted.

Our operating results tend to vary seasonally. Historically, our net revenue has been generally higher in the second half of the year than in the first half of the year, although market conditions and product transitions could impact this trend.

The following table provides a summary of net revenue and operating income (loss) by segment:

									Three Months Ended
															March 29, 2025						March 30, 2024
															(In millions)
Net revenue:
Data Center															$	3,674					$	2,337
Client and Gaming
Client															$	2,294					1,368
Gaming															647						922
Total Client and Gaming															2,941						2,290
Embedded															823						846
Total net revenue															$	7,438					$	5,473
Cost of sales and operating expenses:
Data Center															$	2,742					$	1,796
Client and Gaming															2,445						2,053
Embedded															495						504
All other															950						1,084
Total cost of sales and operating expenses															$	6,632					$	5,437
Operating Income (Loss):
Data Center															$	932					$	541
Client and Gaming															496						237
Embedded															328						342
All other															(950)						(1,084)
Total operating income															$	806					$	36

Data Center

Data Center net revenue of $3.7 billion for the three months ended March 29, 2025 increased by 57%, compared to net revenue of $2.3 billion for the prior year period. The increase was primarily driven by the growth in AMD EPYC CPU and AMD Instinct GPU sales.

Data Center operating income was $932 million for the three months ended March 29, 2025, compared to operating income of $541 million for the prior year period. The increase in operating income was primarily driven by higher revenue, partially offset by higher operating expenses.

Client and Gaming

Client and Gaming net revenue of $2.9 billion for the three months ended March 29, 2025 increased by 28%, compared to net revenue of $2.3 billion for the prior year period. Client revenue was $2.3 billion, up 68% from the prior year period, primarily driven by a 43% increase in average selling price, and a 23% increase in unit shipments of AMD Ryzen mobile and desktop processors. Gaming revenue was $647 million, down 30% from the prior year period, primarily due to a decrease in semi-custom revenue.

Client and Gaming operating income was $496 million for the three months ended March 29, 2025, compared to operating income of $237 million for the prior year period. The increase in operating income was primarily driven by higher revenue, partially offset by higher operating expenses.

Embedded

Embedded net revenue of $823 million for the three months ended March 29, 2025 decreased by 3%, compared to net revenue of $846 million for the prior year period. Net revenue decreased as demand in end markets remain mixed.

Embedded operating income was $328 million for the three months ended March 29, 2025, compared to operating income of $342 million for the prior year period. The decrease in operating income was primarily due to lower revenue.

All Other

All Other operating loss of $950 million for the three months ended March 29, 2025 primarily consisted of $567 million of amortization of acquisition-related intangibles and $364 million of stock-based compensation expense. All Other operating loss of $1.1 billion for the prior year period primarily consisted of $622 million of amortization of acquisition-related intangibles, $371 million of stock-based compensation expense and $65 million of inventory loss at a contract manufacturer.

International Sales

International sales as a percentage of net revenue were 66% and 60% for the three months ended March 29, 2025 and March 30, 2024, respectively. We expect that international sales will continue to be a significant portion of total sales in the foreseeable future. Substantially all of our sales transactions were denominated in U.S. dollars.

Comparison of Gross Margin, Expenses, Interest Expense, Other Income (Expense) and Income Taxes

The following is a summary of certain Condensed Consolidated Statement of Operations data for the periods indicated:

									Three Months Ended
															March 29, 2025						March 30, 2024
															In millions, except percentages
Net revenue															$	7,438					$	5,473
Cost of sales															3,451						2,683
Amortization of acquisition-related intangibles															251						230
Gross profit															3,736						2,560
Gross margin															50			%			47			%
Research and development															1,728						1,525
Marketing, general and administrative															886						607
Amortization of acquisition-related intangibles															316						392
Interest expense															(20)						(25)
Other income (expense), net															39						53
Income tax provision (benefit)															123						(52)
Equity income in investee															7						7

Gross Margin

Gross margin was 50% and 47% for the three months ended March 29, 2025 and March 30, 2024, respectively. The increase was driven by higher Data Center segment revenue and a richer mix of Ryzen processor sales.

Expenses

Research and Development Expenses

Research and development expenses of $1.7 billion for the three months ended March 29, 2025 increased by $203 million, or 13%, compared to $1.5 billion for the prior year period. The increase 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 $886 million for the three months ended March 29, 2025 increased by $279 million, or 46%, compared to $607 million for the prior year period. The increase was primarily due to an increase in go-to-market activities in our Client and Gaming segment.

Amortization of Acquisition-Related Intangibles

Amortization of acquisition-related intangibles of $567 million for the three months ended March 29, 2025 decreased by $55 million, or 9%, compared to $622 million for the prior year period. The decrease was primarily due to certain acquisition-related intangibles that were fully amortized in the prior fiscal year.

Interest Expense

Interest expense for the three months ended March 29, 2025 was $20 million, a decrease of $5 million, or 20%, compared to $25 million for the prior year period. Interest expense decreased due to the repayment of our 2.95% Senior Notes that matured in June 2024.

Other Income (Expense), Net

Other income (expense), net primarily consists 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 three months ended March 29, 2025 was $39 million, a decrease of $14 million, or 26%, compared to $53 million for the prior year period. The decrease for the three months period was primarily due to lower interest income from lower balances held in short-term investments compared to the prior period.

Income Taxes

We determine income taxes for interim reporting periods by applying our estimated annual effective tax rate to the year-to-date results and adjusted for tax items discrete to each period.

For the three months ended March 29, 2025, we recorded an income tax provision of $123 million representing an effective tax rate of 14.8%. 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, partially offset by the tax rate detriment from foreign earnings.

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

FINANCIAL CONDITION

Liquidity and Capital Resources

As of March 29, 2025 and December 28, 2024, our cash, cash equivalents and short-term investments were $7.3 billion and $5.1 billion, respectively.

Our operating, investing and financing activities for the three months ended March 29, 2025 compared to the prior year period are as described below:

			Three Months Ended
			March 29, 2025						March 30, 2024
			(In millions)
Net cash provided by (used in):
Operating activities			$	939					$	521
Investing activities			(357)						(135)
Financing activities			1,666						(129)
Net increase in cash, cash equivalents and restricted cash			$	2,248					$	257

As of March 29, 2025, our principal long-term debt obligations were $3.3 billion.

To fund a portion of the acquisition of ZT Systems, on March 24, 2025, we issued $1.5 billion of senior notes, consisting of $875 million aggregate principal amount of our 4.212% Senior Notes due 2026, $625 million aggregate principal amount of our 4.319% Senior Notes due 2028, and $950 million in aggregate amount of commercial paper.

We may issue unsecured commercial paper up to a maximum principal amount outstanding, at any time, of $3.0 billion, with a maturity of up to 397 days from the date of issue. As of March 29, 2025, we had $950 million of commercial paper outstanding, with maturities of up to 60 days.

We have $3.0 billion available under an unsecured revolving credit facility that expires on April 29, 2027. No funds were drawn from this credit facility during the three months ended March 29, 2025.

As of March 29, 2025, we had unconditional purchase commitments of approximately $8.2 billion, of which $5.6 billion are for the remainder of fiscal year 2025. On an ongoing basis, we work with our suppliers and partners on the timing of payments and deliveries of purchase commitments, taking into account business conditions.

On March 31, 2025, we completed the acquisition of ZT Systems. At the close of the acquisition, we paid $3.375 billion in cash, subject to certain purchase price adjustments, and issued 8,335,849 shares of our common stock. In addition, to the extent certain conditions are met following the closing of the acquisition, we will pay an additional $300 million in cash and issue up to 740,961 shares of our common stock. We are actively seeking a strategic partner to acquire ZT Systems' manufacturing business.

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, capital expenditures, purchase commitments and strategic activities 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 $939 million in the three months ended March 29, 2025, primarily due to our net income of $709 million, adjusted for non-cash and non-operating charges of $1.0 billion and net cash outflows of $0.7 billion from changes in our operating assets and liabilities. The primary drivers of the change in operating assets and liabilities were a $748 million decrease in accounts receivable due to customer payments, and a $682 million increase in inventory primarily to support the continued ramp of Data Center products in advanced process technology nodes.

Net cash provided by operating activities was $521 million in the three months ended March 30, 2024, primarily due to our net income of $123 million, adjusted for non-cash and non-operating charges of $1.2 billion and net cash outflows of $760 million from changes in our operating assets and liabilities. The primary drivers of the change in operating assets and liabilities was a $636 million decrease in accounts payable driven primarily by the timing of payments and inventory receipts, and a $368 million increase in inventory primarily to support the continued ramp of Data Center and Client and Gaming products in advanced process nodes.

Investing Activities

Net cash used in investing activities was $357 million for the three months ended March 29, 2025, which primarily consisted of cash used in the purchases of short-term investments of $304 million, purchases of strategic investments of $239 million, and purchases of property and equipment of $212 million, partially offset by $398 million of proceeds from the maturity and sale of short-term investments.

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

Financing Activities

Net cash provided by financing activities was $1.7 billion for the three months ended March 29, 2025, which primarily consisted of cash received from the issuance of senior notes for $1.5 billion and commercial paper of $950 million, partially offset by stock repurchases of $749 million and stock repurchases for tax withholding on employee equity plans of $30 million.

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