AMD 2003 Annual Report Download - page 30

Table of Contents
amortization of these grants and subsidies is recognized as credits to research and development expenses and cost of sales. The credits to cost of sales totaled
$46.2 million in 2003 and $37.5 million in 2002.
Gross margin percentage decreased to 22 percent in 2002 compared to 33 percent in 2001. This decrease was primarily due to a 31 percent decrease in the
combined sales of PC processors and Flash memory products, as a result of lower unit demand and average selling prices due to weakened customer demand and
industry-wide excess inventory, partially offset by cost savings realized from the closure of certain facilities pursuant to the 2001 Restructuring Plan, which is
discussed below.
Research and development expenses of $852 million in 2003 increased four percent from $816 million in 2002 due primarily to an increase in expenses as
a result of the FASL LLC transaction, $23 million in research and development efforts related to new microprocessors, and $58 million in expenses related to
amounts paid to IBM to jointly develop new logic process technologies for use in future high-performance microprocessor products. These increases were offset
by a $35 million reduction in internal research and development costs from 2002 to 2003, primarily due to the reduction of research and development activities
associated with our PCS products and the absence of the $42 million charge representing amounts paid to IBM in 2002 in exchange for consulting services
relating to optimizing the performance of our manufacturing processes.
We amortize capital grants and allowances, interest subsidies and research and development subsidies that we receive from the State of Saxony and the
Federal Republic of Germany for Fab 30 as they are earned. The amortization of these grants and subsidies is recognized as credits to research and development
expenses and cost of sales. The credits to research and development expenses totaled $29.0 million in 2003 and $21.8 million in 2002.
Research and development expenses of $816 million in 2002 increased 25 percent compared to $651 million in 2001. This increase was primarily due to
an overall increase in research and development efforts directed to our microprocessors. In addition, research and development expenses in 2002 included a $42
million charge for amounts paid to IBM in exchange for consulting services relating to optimizing the performance of our manufacturing processes in the fourth
quarter of 2002, as well as the reallocation of $30 million from manufacturing resources, previously included in costs of goods sold, to research and development
activities for microprocessors.
Marketing, general and administrative expenses of $587 million in 2003 decreased 12 percent compared to $670 million in 2002. The decrease was
primarily due to decreased cooperative advertising and marketing expenses of $55 million and cost reductions from the 2002 Restructuring Plan and other cost
reduction initiatives.
Marketing, general and administrative expenses of $670 million in 2002 increased eight percent compared to $620 million in 2001 primarily as a result of
increased advertising and marketing expenses associated with the launch of our branding campaign.
In December 2002, we began implementing a restructuring plan (the 2002 Restructuring Plan) to further align our cost structure to industry conditions
resulting from weak customer demand and industry-wide excess inventory.
As part of this plan, and as a result of our agreement with IBM to jointly develop future generations of our logic process technology, we ceased logic
research and development in the SDC and eliminated most of those related resources, including the sale or abandonment of certain equipment used in the SDC.
The 2002 Restructuring Plan resulted in the consolidation of facilities, primarily at our Sunnyvale, California site and at sales offices worldwide. We
vacated and are attempting to sublease certain facilities
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Source: ADVANCED MICRO DEVIC, 10-K, March 09, 2004