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 July 1, 2023

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)

(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	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, as of July 28, 2023: 1,615,671,380

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	21
Item 3	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4	Controls and Procedures	29
Part II Other Information
Item 1	Legal Proceedings	30
Item 1A	Risk Factors	30
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6	Exhibits	53
Signature		54

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(In millions, except per share amounts)
Net revenue	$	5,359	$	6,550	$	10,712	$	12,437
Cost of sales	2,704		3,115		5,393		5,998
Amortization of acquisition-related intangibles	212		407		517		593
Total cost of sales	2,916		3,522		5,910		6,591
Gross profit	2,443		3,028		4,802		5,846
Research and development	1,443		1,300		2,854		2,360
Marketing, general and administrative	547		592		1,132		1,189
Amortization of acquisition-related intangibles	481		616		999		909
Licensing gain	(8)		(6)		(18)		(89)
Operating income (loss)	(20)		526		(165)		1,477
Interest expense	(28)		(25)		(53)		(38)
Other income (expense), net	46		(4)		89		(46)
Income (loss) before income taxes and equity income	(2)		497		(129)		1,393
Income tax provision (benefit)	(23)		54		(10)		167
Equity income in investee	6		4		7		7
Net income (loss)	$	27	$	447	$	(112)	$	1,233
Earnings (loss) per share
Basic	$	0.02	$	0.28	$	(0.07)	$	0.82
Diluted	$	0.02	$	0.27	$	(0.07)	$	0.81
Shares used in per share calculation
Basic	1,612		1,618		1,612		1,506
Diluted	1,627		1,632		1,612		1,521

See accompanying notes.

3

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(In millions)
Net income (loss)	$	27	$	447	$	(112)	$	1,233
Other comprehensive income (loss), net of tax:
Net change in unrealized gains on cash flow hedges	(11)		(31)		9		(30)
Total comprehensive income (loss)	$	16	$	416	$	(103)	$	1,203

See accompanying notes.

4

Advanced Micro Devices, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	July 1, 2023		December 31, 2022
	(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	3,841	$	4,835
Short-term investments	2,444		1,020
Accounts receivable, net	4,312		4,126
Inventories	4,567		3,771
Receivables from related parties	2		2
Prepaid expenses and other current assets	1,339		1,265
Total current assets	16,505		15,019
Property and equipment, net	1,541		1,513
Operating lease right-of-use assets	461		460
Goodwill	24,177		24,177
Acquisition-related intangibles, net	22,598		24,118
Investment: equity method	90		83
Deferred tax assets	68		58
Other non-current assets	2,527		2,152
Total assets	$	67,967	$	67,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,779	$	2,493
Payables to related parties	313		463
Accrued liabilities	2,971		3,077
Current portion of long-term debt, net	753		—
Other current liabilities	756		336
Total current liabilities	7,572		6,369
Long-term debt	1,714		2,467
Long-term operating lease liabilities	393		396
Deferred tax liabilities	1,365		1,934
Other long-term liabilities	1,787		1,664
Commitments and Contingencies (See Note 12)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,651 and 1,645; shares outstanding: 1,614 and 1,612	16		16
Additional paid-in capital	58,825		58,005
Treasury stock, at cost (shares held: 37 and 33)	(3,430)		(3,099)
Accumulated deficit	(243)		(131)
Accumulated other comprehensive loss	(32)		(41)
Total stockholders’ equity	55,136		54,750
Total liabilities and stockholders’ equity	$	67,967	$	67,580

See accompanying notes.

5

Advanced Micro Devices, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	July 1, 2023		June 25, 2022
	(In millions)
Cash flows from operating activities:
Net income (loss)	$	(112)	$	1,233
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,831		1,789
Stock-based compensation	657		491
Amortization of operating lease right-of-use assets	48		40
Amortization of inventory fair value adjustment	3		185
Loss on sale or disposal of property and equipment	7		15
Deferred income taxes	(582)		(618)
Losses on equity investments, net	2		54
Other	(20)		(4)
Changes in operating assets and liabilities
Accounts receivable, net	(186)		(1,016)
Inventories	(796)		(274)
Receivables from related parties	—		(1)
Prepaid expenses and other assets	(237)		(237)
Payables to related parties	(150)		277
Accounts payable	309		28
Accrued and other liabilities	91		71
Net cash provided by operating activities	865		2,033
Cash flows from investing activities:
Purchases of property and equipment	(283)		(203)
Purchases of short-term investments	(2,816)		(620)
Proceeds from maturity of short-term investments	1,171		2,248
Proceeds from sale of short-term investments	248		1
Cash received from acquisition of Xilinx	—		2,366
Acquisition of Pensando, net of cash acquired	—		(1,558)
Other	5		(4)
Net cash provided by (used in) investing activities	(1,675)		2,230
Cash flows from financing activities:
Proceeds from debt, net of issuance costs	—		991
Proceeds from sales of common stock through employee equity plans	144		78
Repurchases of common stock	(241)		(2,835)
Common stock repurchases for tax withholding on employee equity plans	(87)		(66)
Other	—		(2)
Net cash used in financing activities	(184)		(1,834)
Net increase (decrease) in cash and cash equivalents	(994)		2,429
Cash and cash equivalents at beginning of period	4,835		2,535
Cash and cash equivalents at end of period	$	3,841	$	4,964

6

Advanced Micro Devices, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
	Six Months Ended
	July 1, 2023		June 25, 2022
	(In millions)
Supplemental cash flow information:
Cash paid for taxes, net of refunds	$	46	$	544
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid	$	99	$	149
Issuance of common stock and treasury stock for the acquisition of Xilinx	$	—	$	48,514
Fair value of replacement share-based awards related to acquisition of Xilinx	$	—	$	275
Non-cash activities for leases:
Operating lease right-of-use assets acquired by assuming related liabilities	$	50	$	87

See accompanying notes.

7

Advanced Micro Devices

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(In millions)
Capital stock:
Common stock, par value
Balance, beginning of period	$	16	$	16	$	16	$	12
Issuance of common stock as consideration for acquisition	—		—		—		4
Balance, end of period	$	16	$	16	$	16	$	16
Additional paid-in capital
Balance, beginning of period	$	58,331	$	56,925	$	58,005	$	11,069
Common stock issued under employee equity plans	145		76		149		78
Stock-based compensation	348		292		657		491
Issuance of common stock to settle convertible debt	1		—		1		—
Issuance of common stock as consideration for acquisition	—		—		—		45,372
Fair value of replacement share-based awards related to acquisition	—		—		—		275
Issuance of common stock warrants	—		4		13		12
Balance, end of period	$	58,825	$	57,297	$	58,825	$	57,297
Treasury stock
Balance, beginning of period	$	(3,362)	$	(941)	$	(3,099)	$	(2,130)
Repurchases of common stock	—		(921)		(241)		(2,835)
Common stock repurchases for tax withholding on employee equity plans	(68)		(31)		(90)		(66)
Reissuance of treasury stock as consideration for acquisition	—		—		—		3,138
Balance, end of period	$	(3,430)	$	(1,893)	$	(3,430)	$	(1,893)
Accumulated deficit:
Balance, beginning of period	$	(270)	$	(665)	$	(131)	$	(1,451)
Net income (loss)	27		447		(112)		1,233
Balance, end of period	$	(243)	$	(218)	$	(243)	$	(218)
Accumulated other comprehensive income (loss):
Balance, beginning of period	$	(21)	$	(2)	$	(41)	$	(3)
Other comprehensive income (loss)	(11)		(31)		9		(30)
Balance, end of period	$	(32)	$	(33)	$	(32)	$	(33)
Total stockholders' equity	$	55,136	$	55,169	$	55,136	$	55,169

See accompanying notes.

8

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – The Company

Advanced Micro Devices, Inc. is a global semiconductor company. References herein to AMD or the Company mean Advanced Micro Devices, Inc. and its consolidated subsidiaries. AMD’s products include x86 microprocessors (CPUs) and graphics processing units (GPUs), as standalone devices or as incorporated into accelerated processing units (APUs), chipsets, data center and professional GPUs, embedded processors, semi-custom System-on-Chip (SoC) products, microprocessor and SoC development services and technology, data processing units (DPUs), Field Programmable Gate Arrays (FPGAs), and Adaptive SoC products. From time to time, the Company may also sell or license portions of its intellectual property (IP) portfolio.

NOTE 2 – Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of AMD have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the three and six months ended July 1, 2023 shown in this report are not necessarily indicative of results to be expected for the full year ending December 30, 2023 or any other future period. In the opinion of the Company’s management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity. All such adjustments are of a normal, recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Certain immaterial prior period amounts have been reclassified to conform to current period presentation.

The Company uses a 52- or 53-week fiscal year ending on the last Saturday in December. The three and six months ended July 1, 2023 and June 25, 2022 each consisted of 13 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 and long-lived assets, and income taxes.

Significant Accounting Policies. There have been no material changes to the Company’s significant accounting policies in Note 2 - Basis of Presentation and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

NOTE 3 – Supplemental Financial Statement Information

Accounts Receivable, net

As of July 1, 2023 and December 31, 2022, Accounts receivable, net included unbilled accounts receivable of $1.3 billion and $1.1 billion, respectively. Unbilled accounts receivable primarily represents work completed on development services and on custom products for which revenue has been recognized but not yet invoiced. All unbilled accounts receivable are expected to be billed and collected within 12 months.

Inventories	July 1, 2023		December 31, 2022
	(In millions)
Raw materials	$	154	$	231
Work in process	3,470		2,648
Finished goods	943		892
Total inventories	$	4,567	$	3,771

9

Prepaid Expenses and Other Current Assets	July 1, 2023		December 31, 2022
	(In millions)
Prepaid supply agreements	$	842	$	673
Other	497		592
Total prepaid expenses and other current assets	$	1,339	$	1,265

Prepaid supply agreements relate to the short-term portion of payments made to vendors to secure long-term supply capacity.

Property and Equipment, net	July 1, 2023		December 31, 2022
	(In millions)
Land	$	120	$	120
Building and leasehold improvements	675		594
Equipment	2,216		2,163
Construction in progress	212		143
Property and equipment, gross	3,223		3,020
Accumulated depreciation	(1,682)		(1,507)
Total property and equipment, net	$	1,541	$	1,513

Accrued Liabilities	July 1, 2023		December 31, 2022
	(In millions)
Accrued marketing programs	$	752	$	876
Accrued compensation and benefits	643		701
Customer program liabilities	848		859
Other accrued liabilities	728		641
Total accrued liabilities	$	2,971	$	3,077

Other Current Liabilities	July 1, 2023		December 31, 2022
	(In millions)
Tax liabilities	$	635	$	156
Other current liabilities	121		180
Total other current liabilities	$	756	$	336

Revenue

Revenue allocated to remaining performance obligations that are unsatisfied (or partially unsatisfied) include amounts received from customers and amounts that will be invoiced and recognized as revenue in future periods for development services, IP licensing and product revenue. As of July 1, 2023, the aggregate transaction price allocated to remaining performance obligations under contracts with an original expected duration of more than one year was $274 million, of which $199 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 27% and 28% of the Company’s revenue for the three and six months ended July 1, 2023, respectively and 20% and 21% of the Company’s revenue for the three and six months ended June 25, 2022, respectively,

10

NOTE 4 – Segment Reporting

Management, including the Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, reviews and assesses operating performance using segment net revenue and operating income (loss). These performance measures include the allocation of expenses to the reportable segments based on management’s judgment.

The Company’s four reportable segments are:

•the Data Center segment, which primarily includes server microprocessors (CPUs) and graphics processing units (GPUs), data processing units (DPUs), Field Programmable Gate Arrays (FPGAs) and Adaptive System-on-Chip (SoC) products for data centers;

•the Client segment, which primarily includes CPUs, accelerated processing units (APUs) that integrate CPUs and GPUs, and chipsets for desktop and notebook personal computers;

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

•the Embedded segment, which primarily includes embedded CPUs and GPUs, APUs, FPGAs and Adaptive SoC products.

From time to time, the Company may also sell or license portions of its IP portfolio.

In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment. This category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because the CODM does not consider these expenses and credits in evaluating the performance of the reportable segments. This category primarily includes amortization of acquisition-related intangibles, employee stock-based compensation expense, acquisition-related costs and licensing gain. Acquisition-related costs primarily include transaction costs, depreciation related to the Xilinx, Inc. (Xilinx) fixed assets fair value step-up adjustment, certain compensation charges, and contract termination costs.

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

	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(In millions)
Net revenue:
Data Center	$	1,321	$	1,486	$	2,616	$	2,779
Client	998		2,152		1,737		4,276
Gaming	1,581		1,655		3,338		3,530
Embedded	1,459		1,257		3,021		1,852
Total net revenue	$	5,359	$	6,550	$	10,712	$	12,437
Operating income (loss):
Data Center	$	147	$	472	$	295	$	899
Client	(69)		676		(241)		1,368
Gaming	225		187		539		545
Embedded	757		641		1,555		918
All Other(1)	(1,080)		(1,450)		(2,313)		(2,253)
Total operating income (loss)	$	(20)	$	526	$	(165)	$	1,477

(1) 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, $348 million and $657 million of stock-based compensation expense and $34 million and $145 million of acquisition-related costs, respectively. For the three and six months ended June 25, 2022, all other operating losses primarily included $1.0 billion and $1.5 billion of amortization of acquisition-related intangibles, $292 million and $491 million of stock-based compensation expense and $141 million and $349 million of acquisition-related costs, respectively.

11

NOTE 5 – Acquisition-related Intangible Assets and Goodwill

Xilinx Acquisition

On February 14, 2022, the Company completed the acquisition of Xilinx for a total purchase consideration of $48.8 billion. The Company allocated the purchase price to $27.3 billion of identified intangible assets and $1.3 billion of net liabilities, with the excess purchase price of $22.8 billion recorded as goodwill.

Pensando Acquisition

On May 26, 2022, the Company completed the acquisition of Pensando Systems, Inc. (Pensando) for a total purchase consideration of $1.7 billion. The Company allocated the purchase price to $349 million of identified intangible assets and $208 million of other net assets, with the excess purchase price of $1.1 billion recorded as goodwill.

Acquisition-related Intangible Assets

Acquisition-related intangibles were as follows:

	July 1, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(In millions)						(In millions)
Developed technology	$	12,360	$	(1,157)	$	11,203	$	12,360	$	(738)	$	11,622
Customer relationships	12,324		(2,925)		9,399		12,324		(1,973)		10,351
Customer backlog	809		(809)		—		809		(712)		97
Corporate trade name	65		(65)		—		65		(57)		8
Product trademarks	914		(108)		806		914		(68)		846
Identified intangible assets subject to amortization	26,472		(5,064)		21,408		26,472		(3,548)		22,924
IPR&D not subject to amortization	1,190		—		1,190		1,194		—		1,194
Total acquisition-related intangible assets	$	27,662	$	(5,064)	$	22,598	$	27,666	$	(3,548)	$	24,118

Acquisition-related intangible amortization expense was $693 million and $1.5 billion for the three and six months ended July 1, 2023, respectively.

Acquisition-related intangible amortization expense was $1.0 billion and $1.5 billion for the three and six months ended June 25, 2022, respectively.

Based on the carrying value of acquisition-related intangibles recorded as of July 1, 2023, and assuming no subsequent impairment of the underlying assets, the estimated annual amortization expense for acquisition-related intangibles is expected to be as follows:

Fiscal Year	(In millions)
Remainder of 2023	$	1,288
2024	2,286
2025	2,061
2026	1,951
2027	1,844
2028 and thereafter	11,978
Total	$	21,408

12

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 July 1, 2023 amounted to $412 million and $779 million, respectively. The Company’s purchases from the ATMP JV during the three and six months ended June 25, 2022 amounted to $407 million and $755 million, respectively. As of July 1, 2023 and December 31, 2022, the amounts payable to the ATMP JV were $313 million and $463 million, respectively, and are included in Payables to related parties on the Company’s condensed consolidated balance sheets. The Company’s resales to the ATMP JV during the three and six months ended July 1, 2023 amounted to $1 million and $3 million, respectively. The Company’s resales to the ATMP JV during the three and six months ended June 25, 2022 amounted to $4 million and $8 million, respectively. As of both July 1, 2023 and December 31, 2022, the Company had receivables from the ATMP JV of $2 million, included in Receivables from related parties on the Company’s condensed consolidated balance sheets.

During the three and six months ended July 1, 2023, the Company recorded a gain of $6 million and $7 million, respectively, in Equity income in investee on its condensed consolidated statements of operations. During the three and six months ended June 25, 2022, the Company recorded a gain of $4 million and $7 million, respectively, in Equity income in investee on its condensed consolidated statements of operations. As of July 1, 2023 and December 31, 2022, the carrying value of the Company’s investment in the ATMP JV was $90 million and $83 million, respectively.

THATIC Joint Ventures

The Company holds equity interests in two joint ventures (collectively, the THATIC JV) with Higon Information Technology Co., Ltd. (THATIC), a third-party Chinese entity. As of both July 1, 2023 and December 31, 2022, the carrying value of the investment was zero.

In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV, payable over several years upon achievement of certain milestones. The Company also receives a royalty based on the sales of the THATIC JV’s products developed on the basis of such Licensed IP. The Company classifies Licensed IP and royalty income associated with the February 2016 agreement as Licensing gain within operating income. During the three and six months ended July 1, 2023, the Company recognized $8 million and $18 million of licensing gain from royalty income associated with Licensed IP, respectively. During the three and six months ended June 25, 2022, the Company recognized $6 million of licensing gain from royalty income and $89 million of licensing gain from a milestone achievement and royalty income, respectively. As of both July 1, 2023 and December 31, 2022, the Company had no receivables from the THATIC JV.

In June 2019, the Bureau of Industry and Security of the United States Department of Commerce added certain Chinese entities to the Entity List, including THATIC and the THATIC JV. The Company is complying with U.S. law pertaining to the Entity List designation.

13

NOTE 7 – Debt and Revolving Credit Facility

Debt

The Company’s total debt as of July 1, 2023 and December 31, 2022 consisted of the following:

	July 1, 2023		December 31, 2022
	(In millions)
2.95% Senior Notes Due 2024 (2.95% Notes)	$	750	$	750
2.125% Convertible Senior Notes Due 2026 (2.125% Notes)	—		1
2.375% Senior Notes Due 2030 (2.375% Notes)	750		750
3.924% Senior Notes Due 2032 (3.924% Notes)	500		500
4.393% Senior Notes Due 2052 (4.393% Notes)	500		500
Total debt (principal amount)	2,500		2,501
Unamortized debt premium, discount and issuance costs, net	(33)		(34)
Total debt (net)	2,467		2,467
Less: current portion of long-term debt (principal amount)	(750)		—
Less: unamortized debt premium related to current portion of debt	(3)		—
Total long-term debt	$	1,714	$	2,467

Assumed Xilinx Notes

In connection with the acquisition of Xilinx, the Company assumed $1.5 billion in aggregate principal of Xilinx’s 2.95% Notes and 2.375% Notes (together, the Assumed Xilinx Notes). The Assumed Xilinx Notes are general unsecured senior obligations of the Company with semi-annual fixed interest payments due on June 1 and December 1.

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

On June 9, 2022, the Company issued $1.0 billion in aggregate principal amount of 3.924% Notes and 4.393% Notes. The 3.924% Notes and 4.393% Notes are general unsecured senior obligations of the Company. The interest is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2022. The 3.924% and 4.393% Notes are governed by the terms of an indenture dated June 9, 2022 between the Company and US Bank Trust Company, National Association as trustee. As of July 1, 2023, the outstanding aggregate principal amount of the 3.924% Notes and 4.393% Notes was $1.0 billion.

The Company may redeem some or all of the 3.924% Notes and 4.393% Notes prior to March 1, 2032 and December 1, 2051, respectively, at a price equal to the greater of the present value of the principal amount and future interest through the maturity of the 3.924% Notes or 4.393% Notes or 100% of the principal amount plus accrued and unpaid interest. Holders have the right to require the Company to repurchase all or a portion of the 3.924% Notes or 4.393% Notes in the event that the Company undergoes a change of control as defined in the indenture, at a repurchase price of 101% of the principal amount plus accrued and unpaid interest. Additionally, an event of default may result in the acceleration of the maturity of the 3.924% Notes and 4.393% Notes.

2.125% Convertible Senior Notes Due 2026

During the six months ended July 1, 2023 and June 25, 2022, the activity on the 2.125% Notes was immaterial.

14

Future Debt Payment Obligations

As of July 1, 2023, the Company’s future principal debt payment obligations were as follows:

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

Revolving Credit Facility

The Company has $3.0 billion available under a revolving credit agreement that expires on April 29, 2027 (Revolving Credit Agreement). As of July 1, 2023, the Company had no outstanding borrowings under the Revolving Credit Agreement. Revolving loans under the Revolving Credit Agreement can be either Secure Overnight Financing Rate (SOFR) Loans or Base Rate Loans (each as defined in the Revolving Credit Agreement) at the Company's option. Each SOFR Loan will bear interest at a rate per annum equal to the applicable SOFR plus a margin between 0.625% and 1.250%. Each Base Rate Loan will bear interest equal to the Base Rate plus a margin between 0.000% and 0.250%. The Revolving Credit Agreement also contains a sustainability-linked pricing component which provides for interest rate and facility fee reductions or increases based on the Company meeting or missing targets related to environmental sustainability, specifically greenhouse gas emissions. The Revolving Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and events of default applicable to the Company and its subsidiaries. As of July 1, 2023, the Company was in compliance with these covenants.

Commercial Paper

On November 3, 2022, the Company established a commercial paper program, under which the Company may issue unsecured commercial paper notes up to a maximum principal amount outstanding at any time of $3 billion with a maturity of up to 397 days from the date of issue. The commercial paper will be sold at a discount from par or, alternatively, will be sold at par and bear interest at rates that will vary based on market conditions at the time of issuance. As of July 1, 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.

15

Financial Instruments Recorded at Fair Value on a Recurring Basis

	July 1, 2023						December 31, 2022
(In millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash equivalents
Money market funds	$	1,750	$	—	$	1,750	$	3,017	$	—	$	3,017
Commercial paper	—		269		269		—		224		224
U.S. Treasury and agency securities	897		—		897		—		—		—
Time deposits and certificate of deposits	—		129		129		—		159		159
Short-term investments
Commercial paper	—		738		738		—		441		441
Time deposits and certificates of deposits	—		4		4		—		—		—
Asset-backed and mortgage-backed securities	—		36		36		—		39		39
U.S. Treasury and agency securities	1,370		—		1,370		466		—		466
Foreign government securities	—		296		296		—		74		74
Other non-current assets
Time deposits and certificates of deposits	—		6		6		—		9		9
Equity investments	9		—		9		8		—		8
Deferred compensation plan investments	107		—		107		90		—		90
Total assets measured at fair value	$	4,133	$	1,478	$	5,611	$	3,581	$	946	$	4,527

Deferred compensation plan investments are primarily mutual fund investments held in a Rabbi trust established to maintain the Company’s executive deferred compensation plan.

The following is a summary of cash equivalents and short-term investments:

	July 1, 2023								December 31, 2022
	Cost/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Cost/ Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in millions)								(in millions)
Asset-backed and mortgage-backed securities	$	39	$	—	$	(3)	$	36	$	42	$	—	$	(3)	$	39
Commercial paper	1,007		—		—		1,007		669		—		(4)		665
Money market funds	1,750		—		—		1,750		3,017		—		—		3,017
Time deposits and certificates of deposits	133		—		—		133		159		—		—		159
U.S. Treasury and agency securities	2,271		—		(4)		2,267		471		—		(5)		466
Foreign government securities	296		—		—		296		74		—		—		74
	$	5,496	$	—	$	(7)	$	5,489	$	4,432	$	—	$	(12)	$	4,420

As of July 1, 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.

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The contractual maturities of cash equivalents and investments classified as available-for-sale are as follows:

	July 1, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In millions)				(In millions)
Due within 1 year	$	3,563	$	3,558	$	1,224	$	1,218
Due in 1 year through 5 years	151		151		159		156
Due in 5 years and later	38		36		41		38
	$	3,752	$	3,745	$	1,424	$	1,412

Financial Instruments Not Recorded at Fair Value

The Company carries its financial instruments at fair value except for its debt. The carrying amounts and estimated fair values of the Company’s debt are as follows:

	July 1, 2023				December 31, 2022
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In millions)				(In millions)
Current portion of long-term debt, net	$	753	$	732	$	—	$	—
Long-term debt, net of current portion	$	1,714	$	1,575	$	2,467	$	2,281

The estimated fair value of the Company’s long-term debt is based on Level 2 inputs of quoted prices for the Company’s debt and comparable instruments in inactive markets.

The fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing terms.

Financial Instruments Measured at Fair Value on a Non-Recurring Basis

The Company’s investments in non-marketable securities in privately-held companies are recorded using a measurement alternative that adjusts the securities to fair value when the Company recognizes an observable price adjustment or an impairment. As of July 1, 2023 and December 31, 2022, the Company had non-marketable securities in privately-held companies of $131 million and $137 million, respectively, that are recorded under Other non-current assets in the balance sheet. Impairment losses or observable price adjustments were not material during the three and six months ended July 1, 2023 and June 25, 2022.

Hedging Transactions and Derivative Financial Instruments

Foreign Currency Forward Contracts Designated as Accounting Hedges

The Company enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate risk related to future forecasted transactions denominated in currencies other than the U.S. Dollar. These contracts generally mature within 24 months and are designated as accounting hedges. As of July 1, 2023 and December 31, 2022, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $2 billion and $1.9 billion, respectively. The fair value of these contracts, recorded as a liability, was $15 million and $27 million as of July 1, 2023 and December 31, 2022, respectively.

Foreign Currency Forward Contracts Not Designated as Accounting Hedges

The Company also enters into foreign currency forward contracts to reduce the short-term effects of foreign currency fluctuations on certain receivables or payables denominated in currencies other than the U.S. Dollar. These forward contracts generally mature within 3 months and are not designated as accounting hedges. As of July 1, 2023 and December 31, 2022, the notional value of these outstanding contracts was $517 million and $485 million, respectively. The fair value of these contracts was not material as of July 1, 2023 and December 31, 2022.

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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
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(In millions, except per share amounts)
Numerator
Net income (loss) for basic earnings per share	$	27	$	447	$	(112)	$	1,233
Denominator
Basic weighted average shares	1,612		1,618		1,612		1,506
Potentially dilutive shares from employee equity plans and warrants	15		14		—		15
Diluted weighted average shares	1,627		1,632		1,612		1,521
Earnings (loss) per share:
Basic	$	0.02	$	0.28	$	(0.07)	$	0.82
Diluted	$	0.02	$	0.27	$	(0.07)	$	0.81

Securities which would have been anti-dilutive are immaterial and are excluded from the computation of diluted earnings (loss) per share for all periods presented.

NOTE 10 – Common Stock and Employee Equity Plans

Common Stock

Shares of common stock outstanding were as follows:

	Three Months Ended		Six Months Ended
	July 1, 2023	June 25, 2022	July 1, 2023	June 25, 2022
	(In millions)
Balance, beginning of period	1,609	1,620	1,612	1,207
Common stock issued in the acquisition of Xilinx	—	—	—	429
Common stock issued under employee equity plans	4	3	5	3
Common stock repurchases for tax withholding on equity awards	—	(1)	(1)	(1)
Issuance of common stock upon warrant exercise	1	—	1	—
Repurchases of common stock	—	(10)	(3)	(26)
Balance, end of period	1,614	1,612	1,614	1,612

Stock Repurchase Program

The Company has an approved stock repurchase program authorizing repurchases of up to $12 billion of the Company’s common stock (Repurchase Program). During the six months ended July 1, 2023, the Company returned $241 million to shareholders through the repurchase of 3 million shares of its common stock under the Repurchase Program. Repurchases during the three months ended July 1, 2023 were immaterial. As of July 1, 2023, $6.3 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.

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Stock-based Compensation

Stock-based compensation expense recorded in the Condensed Consolidated Statements of Operations was as follows: 

	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(In millions)
Cost of sales	$	10	$	8	$	18	$	12
Research and development	247		180		461		293
Marketing, general and administrative	91		104		178		186
Total	$	348	$	292	$	657	$	491

NOTE 11 – Income Taxes

The Company determines its income taxes for interim reporting periods by applying the Company’s estimated annual effective tax rate to the year-to-date results, adjusted for tax items discrete to each period.

The Company recorded an income tax benefit of $23 million and $10 million for the three and six months ended July 1, 2023, respectively, representing effective tax rates of (511.4)% and 8.0%, respectively. The Company recorded the tax effects of stock-based compensation, uncertain tax positions, and other items discrete to the period resulting in income tax benefit of $34 million and $12 million for the three and six months ended July 1, 2023, respectively. These discrete items had a disproportionate impact on our effective tax rate for the three months ended July 1, 2023 because our pre-tax income was close to break-even for the period. For the six months ended July 1, 2023, the impact of tax items discrete to the period was not material to the total tax expense or the effective tax rate.

The Company recorded an income tax provision of $54 million and $167 million for the three and six months ended June 25, 2022, representing effective tax rates of 10.8% and 11.9%, respectively. For the three and six months ended June 25, 2022, the impact of tax items discrete to the periods was not material to the total tax expense or the effective tax rate.

The difference between the U.S. federal statutory tax rate of 21% and the Company's estimated annual effective tax rate for the three and six months ended July 1, 2023 and June 25, 2022 was primarily due to the income tax benefit from foreign-derived intangible income (FDII) and research and development tax credits.

As of July 1, 2023 and December 31, 2022, the Company had long-term income tax liabilities of $1.5 billion recorded under Other long-term liabilities in the balance sheet.

NOTE 12 – Commitments and Contingencies

Commitments

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

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Total future unconditional purchase commitments as of July 1, 2023 were as follows:

Fiscal Year	(In millions)
Remainder of 2023	$	3,944
2024	1,599
2025	345
2026	183
2027	53
2028 and thereafter	160
Total unconditional purchase commitments	$	6,284

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 July 1, 2023, there were no material legal proceedings. The Company is a defendant or plaintiff in various actions that arose in the normal course of business. With respect to these matters, based on management’s current knowledge, the Company believes that the amount or range of reasonably possible loss, if any, will not, either individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

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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; 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 and cash flows from operations together with the availability under the revolving credit facility (the Revolving Credit Agreement) and commercial paper program 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 should it require additional funds; 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; a small number of customers will continue to account for a substantial part of AMD’s revenue in the future; the legal and regulatory environment relating to emerging technologies; 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, Athlon, EPYC, Radeon, Ryzen, Versal, 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 31, 2022 and December 25, 2021, and for each of the three years for the period ended December 31, 2022 as filed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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Overview and Recent Developments

We are a global semiconductor company primarily offering:

•server microprocessors (CPUs) and graphics processing units (GPUs), data processing units (DPUs), Field Programmable Gate Arrays (FPGAs) and Adaptive System-on-Chip (SoC) products for data centers;

•CPUs, accelerated processing units (APUs) that integrate CPUs and GPUs, and chipsets for desktop and notebook personal computers;

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

•embedded CPUs, GPUs, APUs, FPGAs, 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 July 1, 2023 compared to the prior year period and an analysis of changes in our financial condition.

Net revenue for the three months ended July 1, 2023 was $5.4 billion, an 18% decrease compared to the prior year period. The decrease in net revenue was driven mainly by a 54% decrease in Client segment revenue primarily due to lower processor shipments resulting from a weaker PC market and a significant inventory correction across the PC supply chain, partially offset by a 16% increase in Embedded segment revenue primarily due to higher revenue across multiple end markets.

Gross margin for the three months ended July 1, 2023 remained flat at 46% compared to the prior year period. Lower Client segment performance was offset by higher Embedded segment performance and by lower amortization of acquisition-related intangible assets.

Operating loss for the three months ended July 1, 2023 was $20 million compared to operating income of $526 million for the prior year period. Net income for the three months ended July 1, 2023 was $27 million compared to net income of $447 million for the prior year period. The decrease in operating and net income was primarily due to lower Client segment performance.

We introduced a number of new products during the second quarter of 2023, including the 4th Gen EPYC™ 97X4 processors for cloud native computing and 4th Gen EPYC processors with AMD 3D V-Cache™ technology for technical computing. We expanded our commercial portfolio with AMD Ryzen™ PRO 7040 Series Mobile processors to bring advanced and power efficient x86 processors to business notebooks and mobile workstations. We also announced the availability of AMD Ryzen and Athlon™ 7020 C-Series processors for personal and professional Chromebooks. We introduced the AMD Radeon™ PRO W7000 Series graphic cards for workstations based on our advanced chiplet design, and our AMD Radeon RX 7600 graphics card, optimized to provide next-generation, high performance 1080p gaming, streaming and content creation. For handheld PC gaming consoles, we introduced the AMD Ryzen Z1 Series processors, and we bolstered our embedded portfolio with the AMD Ryzen™ Embedded 5000 Series processors for networking solutions designed for enterprise reliability needed by security and networking customers. We announced the AMD Versal™ Premium VP1902 adaptive SoC designed to help chipmakers streamline the verification of application-specific integrated circuits (ASICs) and SoC designs.

As of July 1, 2023 our cash, cash equivalents and short-term investments were $6.3 billion compared to $5.9 billion as of December 31, 2022. The increase in cash, cash equivalents and short-term investments was primarily driven by cash generated from operating activities.

During the six months ended July 1, 2023, we generated $865 million of cash from operating activities, and returned $241 million to shareholders. We have an approved stock repurchase program authorizing repurchases of up to $12 billion of our common stock (Repurchase Program). As of July 1, 2023, $6.3 billion remains available for future stock repurchases under our Repurchase Program.

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.

22

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 on-going 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 July 1, 2023 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 31, 2022.

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
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
	(In millions)
Net revenue:
Data Center	$	1,321	$	1,486	$	2,616	$	2,779
Client	998		2,152		1,737		4,276
Gaming	1,581		1,655		3,338		3,530
Embedded	1,459		1,257		3,021		1,852
Total net revenue	$	5,359	$	6,550	$	10,712	$	12,437
Operating income (loss):
Data Center	$	147	$	472	$	295	$	899
Client	(69)		676		(241)		1,368
Gaming	225		187		539		545
Embedded	757		641		1,555		918
All Other	(1,080)		(1,450)		(2,313)		(2,253)
Total operating income (loss)	$	(20)	$	526	$	(165)	$	1,477

Data Center

Data Center net revenue of $1.3 billion for the three months ended July 1, 2023 decreased by 11%, compared to net revenue of $1.5 billion for the prior year period primarily due to lower sales of EPYC server processors resulting from lower enterprise demand.

Data Center net revenue of $2.6 billion for the six months ended July 1, 2023 decreased by 6%, compared to net revenue of $2.8 billion for the prior year period primarily due to lower enterprise server processor sales, partially offset by higher sales of EPYC processors to cloud customers.

23

Data Center operating income was $147 million for the three months ended July 1, 2023, compared to operating income of $472 million for the prior year period. Data Center operating income was $295 million for the six months ended July 1, 2023, compared to operating income of $899 million for the prior year period. The decrease in operating income in both periods was primarily due to lower revenue and increased R&D investment.

Client

Client net revenue of $998 million for the three months ended July 1, 2023 decreased by 54%, compared to net revenue of $2.2 billion for the prior year period, primarily due to lower Client processor sales driven by a 22% decrease in average selling price and a 42% decrease in unit shipments. Client net revenue of $1.7 billion for the six months ended July 1, 2023 decreased by 59%, compared to net revenue of $4.3 billion for the prior year period, primarily due to lower Client processor sales driven by a 24% decrease in average selling price and a 49% decrease in unit shipments. The decrease in shipments and average selling price in both periods resulted from a weaker PC market and inventory correction across the PC supply chain.

Client operating loss was $69 million for the three months ended July 1, 2023, compared to operating income of $676 million for the prior year period. Client operating loss was $241 million for the six months ended July 1, 2023, compared to operating income of $1.4 billion for the prior year period. The decrease in operating income in both periods was primarily due to lower revenue.

Gaming

Gaming net revenue of $1.6 billion for the three months ended July 1, 2023 decreased by 4%, compared to net revenue of $1.7 billion for the prior year period. Gaming net revenue of $3.3 billion for the six months ended July 1, 2023 decreased by 5%, compared to net revenue of $3.5 billion for the prior year period. The decrease in net revenue for both periods was due to lower gaming graphics revenue, partially offset by higher semi-custom revenue.

Gaming operating income was $225 million for the three months ended July 1, 2023, compared to operating income of $187 million for the prior year period. The increase in operating income was primarily driven by higher semi-custom revenue.

Gaming operating income was $539 million for the six months ended July 1, 2023, compared to operating income of $545 million for the prior year period. The decrease in operating income was primarily due to higher operating expenses.

Embedded

Embedded net revenue of $1.5 billion for the three months ended July 1, 2023 increased by 16%, compared to net revenue of $1.3 billion. The increase in net revenue was primarily driven by higher product revenue across multiple end markets.

Embedded net revenue of $3.0 billion for the six months ended July 1, 2023 increased by 63%, compared to net revenue of $1.9 billion for the prior year period. The increase in net revenue was primarily driven by the inclusion of embedded product revenue from Xilinx, Inc. (Xilinx) for the full six months period in 2023 as compared to a partial period from February 14, 2022 (the Xilinx Acquisition Date) in the prior year period.

Embedded operating income was $757 million for the three months ended July 1, 2023, compared to operating income of $641 million for the prior year period, primarily driven by higher revenue.

Embedded operating income was $1.6 billion for the six months ended July 1, 2023, compared to operating income of $918 million for the prior year period. The increase in operating income was primarily driven by the inclusion of Xilinx for the full six months period as compared to a partial period from the Xilinx Acquisition Date in the prior year period.

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All Other

All Other operating loss of $1.1 billion for the three months ended July 1, 2023 primarily consisted of $693 million of amortization of acquisition-related intangibles, $348 million of stock-based compensation expense, and $34 million of acquisition-related costs. All Other operating loss of $1.5 billion for the prior year period primarily consisted of $1 billion of amortization of acquisition-related intangibles, $292 million of stock-based compensation expense, and $141 million of acquisition-related costs.

All Other operating loss of $2.3 billion for the six months ended July 1, 2023 primarily consisted of $1.5 billion of amortization of acquisition-related intangibles, $657 million of stock-based compensation expense, and $145 million of acquisition-related costs. 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, $491 million of stock-based compensation expense, $349 million of acquisition-related costs, and $89 million of licensing gain.

Acquisition-related costs primarily include transaction costs, depreciation related to the Xilinx fixed assets fair value step-up adjustment, certain compensation charges, and contract termination costs.

International Sales

International sales as a percentage of net revenue were 66% and 70% for the three months ended July 1, 2023 and June 25, 2022, respectively. International sales as a percentage of net revenue were 67% and 70% for the six months ended July 1, 2023 and June 25, 2022, respectively. We expect that international sales will continue to be a significant portion of total sales in the foreseeable future. Substantially all of our sales transactions were denominated in U.S. dollars.

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

The following is a summary of certain condensed consolidated statement of operations data for the periods indicated: 

	Three Months Ended						Six Months Ended
	July 1, 2023			June 25, 2022			July 1, 2023			June 25, 2022
Net revenue	$	5,359		$	6,550		$	10,712		$	12,437
Cost of sales	2,704			3,115			5,393			5,998
Amortization of acquisition-related intangibles	212			407			517			593
Gross profit	2,443			3,028			4,802			5,846
Gross margin	46		%	46		%	45		%	47		%
Research and development	1,443			1,300			2,854			2,360
Marketing, general and administrative	547			592			1,132			1,189
Amortization of acquisition-related intangibles	481			616			999			909
Licensing gain	(8)			(6)			(18)			(89)
Interest expense	(28)			(25)			(53)			(38)
Other income (expense), net	46			(4)			89			(46)
Income tax provision (benefit)	(23)			54			(10)			167
Equity income in investee	6			4			7			7

Gross Margin

Gross margin remained at 46% for the three months ended July 1, 2023 and June 25, 2022 due to lower Client segment performance which was primarily offset by higher Embedded segment performance and lower amortization of acquisition-related intangible assets.

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Gross margin was 45% and 47% for the six months ended July 1, 2023 and June 25, 2022, respectively. The decrease in gross margin was primarily due to lower Client segment performance, partially offset by higher Embedded segment performance.

Expenses

Research and Development Expenses

Research and development expenses of $1.4 billion for the three months ended July 1, 2023 increased by $143 million, or 11%, compared to $1.3 billion for the prior year period. Research and development expenses of $2.9 billion for the six months ended July 1, 2023 increased by $494 million, or 21%, compared to $2.4 billion for the prior year period. The increase in both periods was primarily driven by an increase in headcount.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses of $547 million for the three months ended July 1, 2023 decreased by $45 million, or 8%, compared to $592 million for the prior year period. Marketing, general and administrative expenses of $1.1 billion for the six months ended July 1, 2023 decreased by $57 million, or 5%, compared to $1.2 billion for the prior year period. The decrease in both periods was primarily due to a decrease in acquisition-related costs.

Amortization of Acquisition-Related Intangibles

Amortization of acquisition-related intangibles of $693 million for the three months ended July 1, 2023 decreased by $330 million, or 32%, compared to $1.0 billion for the prior year period. The decrease was primarily due to certain acquisition-related intangibles being fully amortized in the first half of the current fiscal year.

Amortization of acquisition-related intangibles of $1.5 billion for the six months ended July 1, 2023 remained flat compared to amortization for the prior year period.

Licensing Gain

During the three and six months ended July 1, 2023, we recognized $8 million and $18 million of licensing gain from royalty income associated with certain intellectual property licensed to two joint ventures in which we have an equity interest in with Higon Information Technology Co., Ltd., a third-party Chinese entity (Licensed IP). During the three and six months ended June 25, 2022, we recognized $6 million of licensing gain from royalty income and $89 million of licensing gain from a milestone achievement and royalty income associated with the Licensed IP.

Interest Expense

Interest expense for the three and six months ended July 1, 2023 was $28 million and $53 million, respectively, compared to $25 million and $38 million, respectively, for the prior year period. The increase was primarily due to interest expense from the 3.924% Senior Notes Due 2032 (3.924% Notes) and the 4.393% Senior Notes Due 2052 (4.393% Notes) that were issued in June 2022.

Other Income (Expense), Net

Other income (expense), net is primarily comprised of interest income from short-term investments, changes in valuation of equity investments, and foreign currency transaction gains and losses.

Other income, net for the three and six months ended July 1, 2023 was $46 million and $89 million, respectively, primarily due to interest income driven by rising interest rates. Other expense, net for the prior year period was $4 million and $46 million, respectively, primarily due to a decrease in the fair value of equity investments.

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.

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We recorded an income tax benefit of $23 million and $10 million for the three and six months ended July 1, 2023, respectively, representing effective tax rates of (511.4)% and 8.0%, respectively. We recorded the tax effects of stock-based compensation, uncertain tax positions, and other items discrete to the period resulting in income tax benefit of $34 million and $12 million for the three and six months ended July 1, 2023, respectively. These discrete items had a disproportionate impact on our effective tax rate for the three months ended July 1, 2023 because our pre-tax income was close to break-even for the period. For the six months ended July 1, 2023, the impact of tax items discrete to the period was not material to the total tax expense or the effective tax rate.

We recorded an income tax provision of $54 million and $167 million for the three and six months ended June 25, 2022, representing effective tax rates of 10.8% and 11.9%, respectively. For the three and six months ended June 25, 2022, the impact of tax items discrete to the periods was not material to the total tax expense or the effective tax rate.

The difference between the U.S. federal statutory tax rate of 21% and our effective tax rate for the three and six months ended July 1, 2023 and June 25, 2022 was primarily due to the income tax benefit from foreign-derived intangible income (FDII) and research and development tax credits.

FINANCIAL CONDITION

Liquidity and Capital Resources    

As of July 1, 2023 and December 31, 2022, our cash, cash equivalents and short-term investments were $6.3 billion. The percentage of cash, cash equivalents and short-term investments held domestically as of July 1, 2023 and December 31, 2022 were 79% and 81%, respectively.

Our operating, investing and financing activities for the six months ended July 1, 2023 compared to the prior year period are as described below:

	Six Months Ended
	July 1, 2023		June 25, 2022
	(In millions)
Net cash provided by (used in):
Operating activities	$	865	$	2,033
Investing activities	(1,675)		2,230
Financing activities	(184)		(1,834)
Net (decrease) increase in cash and cash equivalents	$	(994)	$	2,429

We have $3.0 billion available under an unsecured revolving credit agreement (Revolving Credit Agreement) that expires on April 29, 2027. No funds were drawn from this credit facility during the six months ended July 1, 2023.

We also have a commercial paper program where we may issue unsecured commercial paper notes up to a maximum principal amount outstanding, at any time, of $3.0 billion, with a maturity of up to 397 days from the date of issue. We did not issue any commercial paper during the six months ended July 1, 2023.

As of July 1, 2023, our principal debt obligations were $2.5 billion, which primarily included $1.5 billion of the Assumed Xilinx Notes and $1.0 billion of 3.924% Notes and 4.393% Notes. Our 2.95% Assumed Xilinx Notes with a principal amount of $750 million are due in June 2024.

As of July 1, 2023, we had unconditional purchase commitments of approximately $6.3 billion, of which $3.9 billion are for the remainder of fiscal year 2023. On an ongoing basis, we work with our suppliers on the timing of payments and deliveries of purchase commitments, taking into account business conditions.

We believe our cash, cash equivalents, short-term investments and cash flows from operations along with our Revolving Credit Agreement and commercial paper program will be sufficient to fund operations, including capital expenditures 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.

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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 $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.

Net cash provided by operating activities was $2.0 billion in the six months ended June 25, 2022, primarily due to our net income of $1.2 billion, adjusted for non-cash and non-operating charges of $2.0 billion and net cash outflows of $1.2 billion from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $1.0 billion increase in accounts receivable driven primarily by higher revenue in the first half of 2022, a $274 million increase in inventory driven by an increase in product build in support of customer demand, partially offset by a $277 million increase in payables to related parties driven primarily by an increase in purchases and timing of payments.

Investing Activities

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.

Net cash provided by investing activities was $2.2 billion for the six months ended June 25, 2022 which primarily consisted of $2.4 billion of cash received from Xilinx and $2.2 billion of proceeds from the maturity of short-term investments, partially offset by cash used in the acquisition of Pensando Systems, Inc. of $1.6 billion, purchases of short-term investments of $620 million and purchases of property and equipment of $203 million.

Financing Activities

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.

Net cash used in financing activities was $1.8 billion for the six months ended June 25, 2022, which primarily consisted of common stock repurchases of $2.8 billion and repurchases for tax withholding on employee equity plans of $66 million, partially offset by proceeds from the issuance of debt of $991 million and a cash inflow of $78 million from issuance of common stock under our employee equity plans.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to “Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

There have not been any material changes in interest rate risk, default risk or foreign exchange risk since December 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports made under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of July 1, 2023, the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

During the first half of fiscal year 2023, we completed the initial phase of the implementation of our new enterprise resource planning (ERP) system to help us manage our operations and financial reporting. In connection with this implementation, we modified the design and documentation of our internal control processes and procedures relating to the new system. Following the initial phase of the implementation, the changes to our control environment were validated according to our established processes and our internal controls over financial reporting continued to operate as designed.

As the phased implementation of the new ERP system continues, we could have changes to our processes and procedures, which in turn, could result in changes to our internal control over financial reporting. As such changes occur, we will evaluate whether they materially affect our internal control over financial reporting.

There were no other changes in our internal controls over financial reporting for the three months ended July 1, 2023 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, refer to Note 12—Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q).

ITEM 1A. RISK FACTORS

The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously.

Risk Factors Summary

The following is a summary of the principal risks that could adversely affect our business, operations and financial results.

Economic and Strategic Risks

•Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively on a level playing field.

•Global economic and market uncertainty may adversely impact our business and operating results.

•The semiconductor industry is highly cyclical and has experienced severe downturns that have materially adversely affected, and may continue to materially adversely affect, our business in the future.

•The demand for our products depends in part on the market conditions in the industries into which they are sold. Fluctuations in demand for our products or a market decline in any of these industries could have a material adverse effect on our results of operations.

•The loss of a significant customer may have a material adverse effect on us.

•The ongoing COVID-19 pandemic could materially adversely affect our business, financial condition and results of operations.

•The markets in which our products are sold are highly competitive.

•Our operating results are subject to quarterly and seasonal sales patterns.

•If we cannot adequately protect our technology or other intellectual property in the United States and abroad, through patents, copyrights, trade secrets, trademarks and other measures, we may lose a competitive advantage and incur significant expenses.

•Unfavorable currency exchange rate fluctuations could adversely affect us.

Operational and Technology Risks

•We rely on third parties to manufacture our products, and if they are unable to do so on a timely basis in sufficient quantities and using competitive technologies, our business could be materially adversely affected.

•If essential equipment, materials, substrates or manufacturing processes are not available to manufacture our products, we could be materially adversely affected.

•Failure to achieve expected manufacturing yields for our products could negatively impact our financial results.

•The success of our business is dependent upon our ability to introduce products on a timely basis with features and performance levels that provide value to our customers while supporting and coinciding with significant industry transitions.

•Our revenue from our semi-custom System-on-Chip (SoC) products is dependent upon our semi-custom SoC products being incorporated into customers’ products and the success of those products.

•Our products may be subject to security vulnerabilities that could have a material adverse effect on us.

•IT outages, data loss, data breaches and cyber-attacks could compromise our intellectual property or other sensitive information, be costly to remediate or cause significant damage to our business, reputation and operations.

•We may encounter difficulties in upgrading and operating our new enterprise resource planning (ERP) system, which could materially adversely affect us.

•Uncertainties involving the ordering and shipment of our products could materially adversely affect us.

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•Our ability to design and introduce new products in a timely manner includes the use of third-party intellectual property.

•We depend on third-party companies for the design, manufacture and supply of motherboards, software, memory and other computer platform components to support our business and products.

•If we lose Microsoft Corporation’s support for our products or other software vendors do not design and develop software to run on our products, our ability to sell our products could be materially adversely affected.

•Our reliance on third-party distributors and add-in-board (AIB) partners subjects us to certain risks.

•Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.

•If our products are not compatible with some or all industry-standard software and hardware, we could be materially adversely affected.

•Costs related to defective products could have a material adverse effect on us.

•If we fail to maintain the efficiency of our supply chain as we respond to changes in customer demand for our products, our business could be materially adversely affected.

•We outsource to third parties certain supply-chain logistics functions, including portions of our product distribution, transportation management and information technology support services.

•Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.

Legal and Regulatory Risks

•Government actions and regulations such as export regulations, tariffs, and trade protection measures may limit our ability to export our products to certain customers.

•If we cannot realize our deferred tax assets, our results of operations could be adversely affected.

•Our business is subject to potential tax liabilities, including as a result of tax regulation changes.

•We are party to litigation and may become a party to other claims or litigation that could cause us to incur substantial costs or pay substantial damages or prohibit us from selling our products.

•We are subject to environmental laws, conflict minerals-related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as a variety of other laws or regulations that could result in additional costs and liabilities.

Merger, Acquisition and Integration Risks

•Acquisitions, joint ventures and/or investments, and the failure to integrate acquired businesses could disrupt our business and/or dilute or adversely affect the price of our common stock.

•Any impairment of our tangible, definite-lived intangible or indefinite-lived intangible assets, including goodwill, may adversely impact our financial position and results of operations.

Liquidity and Capital Resources Risks

•The agreements governing our notes, our guarantees of Xilinx’s 2.95% and 2.375% Notes (Assumed Xilinx Notes), and our Revolving Credit Agreement impose restrictions on us that may adversely affect our ability to operate our business.

•Our indebtedness could adversely affect our financial position and prevent us from implementing our strategy or fulfilling our contractual obligations.

•We may not be able to generate sufficient cash to meet our working capital requirements. If we cannot generate sufficient revenue and operating cash flow, we may face a cash shortfall and be unable to make all of our planned investments in research and development or other strategic investments. Also, our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.

General Risks

•Our worldwide operations are subject to political, legal and economic risks and natural disasters, which could have a material adverse effect on us.

•We may incur future impairments of our technology license purchases.

•Our inability to continue to attract and retain qualified personnel may hinder our business.

•Our stock price is subject to volatility.

For a more complete discussion of the material risks facing our business, see below.

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Economic and Strategic Risks

Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively on a level playing field.

Intel’s microprocessor market share position, significant financial resources, its introduction of competitive new products, and its existing relationships with top-tier OEMs have enabled it to market and price its products aggressively, to target our customers and our channel partners with special incentives and to influence customers who do business with us. These aggressive activities have in the past resulted in lower unit sales and a lower average selling price for many of our products and adversely affected our margins and profitability. Intel also dominates the computer system platform and has a heavy influence on PC manufacturers, other PC industry participants, and benchmarks. It is able to drive de facto standards and specifications for x86 microprocessors that could cause us and other companies to have delayed access to such standards. We may be materially adversely affected by Intel’s business practices, including rebating and allocation strategies and pricing actions, designed to limit our market share and margins; product mix and introduction schedules; product bundling, marketing and merchandising strategies; and exclusivity payments to its current and potential customers, retailers and channel partners. We expect Intel to continue to invest its substantial resources heavily in marketing, research and development, new manufacturing facilities and other technology companies. To the extent Intel manufactures a significantly larger portion of its microprocessor products using more advanced process technologies or introduces competitive new products into the market before we do, we may be more vulnerable to Intel’s aggressive marketing and pricing strategies for microprocessor products.

We also compete with Intel in field programmable gate arrays (FPGAs) and Adaptive SoC products. In the graphics processing unit (GPU) market, Intel has developed and released their own high-end discrete GPUs, including gaming focused discrete GPUs. Intel could take actions that place our GPUs at a competitive disadvantage, including giving one or more of our competitors in the graphics market preferential access to its proprietary graphics interface or other useful information or restricting access to external companies.

Global economic and market uncertainty may adversely impact our business and operating results.

Uncertain global economic conditions have and may in the future adversely impact our business. Uncertainty in the worldwide economic environment or other unfavorable changes in economic conditions, such as inflation, interest rates or recession, may negatively impact consumer confidence and spending causing our customers to postpone purchases. For example, we have experienced a decline in our Client segment revenue as a result of weak PC market macroeconomic conditions and inventory correction actions across the PC supply chain since the second half of 2022. During challenging economic times, our current or potential future customers may experience cash flow problems and as a result may modify, delay or cancel plans to purchase our products. Additionally, if our customers are not successful in generating sufficient revenue or are unable to secure financing, they may not be able to pay, or may delay payment of, accounts receivable that they owe us. The risk related to our customers potentially defaulting on or delaying payments to us is increased because we expect that a small number of customers will continue to account for a substantial part of our revenue. Any inability of our current or potential future customers to pay us for our products may adversely affect our earnings and cash flow. Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impacting our ability to manufacture our products. In addition, uncertain economic conditions may make it more difficult for us to raise funds through borrowings or private or public sales of debt or equity securities.

The semiconductor industry is highly cyclical and has experienced severe downturns that have materially adversely affected, and may continue to materially adversely affect, our business in the future.

The semiconductor industry is highly cyclical and has experienced significant downturns, often in conjunction with constant and rapid technological change, wide fluctuations in supply and demand, continuous new product introductions, price erosion and declines in general economic conditions. We have incurred substantial losses in previous downturns, due to substantial declines in average selli