AMD 2009 Annual Report Download - page 59

for both our microprocessors and chipset products. Although our microprocessor product mix improved, the
average selling price for our microprocessors decreased due to competitive market conditions. The average
selling price for our chipsets decreased due to competitive pricing pressure and an unfavorable shift in our
product mix toward older generation chipsets. Unit shipments decreased due to decreased shipments of our
microprocessors as a result of significantly lower end-user demand in the fourth quarter of 2008, which resulted
in our customers reducing or cancelling orders for our products in order to bring their inventory levels into
balance to address end-user demand and the uncertain macroeconomic environment.
Computing Solutions operating income was $127 million in 2009 compared to an operating loss of $461
million in 2008. Operating results for 2009 are not comparable to operating results for 2008 because of the
creation of the Foundry segment in the first quarter of 2009, which resulted in our reporting certain research and
development and marketing, general and administrative expenses in the Foundry segment that we would
previously have reported in the Computing Solutions segment. Operating loss in 2008 included a $193 million
gain on the sale of 200 millimeter equipment and $191 million of process technology license revenue that did not
occur in 2009.
Computing Solutions operating loss was $461 million in 2008 compared to an operating loss of $712
million in 2007. The reduction in operating loss was due to the recognition of the $191 million of process
technology license revenue referenced above, a $193 million gain on the sale of 200 millimeter equipment that
did not occur in 2007, a $168 million decrease in cost of sales, and a $97 million decrease in marketing, general
and administrative expenses partially offset by a $63 million increase in research and development expenses.
Cost of sales decreased due to lower microprocessor unit volume and manufacturing cost reductions in 2008. The
lower costs were partially offset by a $214 million incremental write-down of inventory related to Computing
Solutions products in the fourth quarter of 2008. Research and development expenses increased and marketing,
general and administrative expenses decreased for the reasons set forth under “Expenses” below.
Graphics
Graphics net revenue of $1.21 billion in 2009 increased 3 percent compared to net revenue of $1.17 billion
in 2008. The increase was due to a 5 percent increase in revenue from the sale of GPU products partially offset
by a 3 percent decrease in royalty revenue received in connection with sales of game console systems that
incorporate our graphics technology. Revenue from the sale of GPU products increased due to an increase in
GPU unit shipments partially offset by a decrease in GPU average selling price. GPU unit shipments increased
primarily due to an increase in demand for our graphics products, especially our 40 nm ATI Radeon HD 5000
series of products, which we introduced in September 2009. We believe that the increase in GPU unit shipments
was limited as a result of supply constraints with respect to our next generation GPUs. GPU average selling price
decreased due to competitive pricing pressure and a shift in our product mix to more value-priced GPUs.
However, the decline in GPU average selling price that we experienced during the first three quarters of 2009
was mitigated by improved GPU average selling price in the fourth quarter of 2009 primarily due to sales of our
higher priced ATI Radeon HD 5000 series of products. Royalty revenue decreased primarily due to decreased
demand for the latest generation of game consoles in light of the macroeconomic environment in the first half of
2009.
Graphics net revenue of $1.17 billion in 2008 increased 17 percent compared to 2007 revenue of $992
million. The increase was primarily due to a 12 percent increase in revenue from sales of GPU products and a 76
percent increase in royalty revenue from the sales of game consoles that incorporate our graphics
technology. Revenue from the sales of GPU products increased due to an increase in unit shipments of GPUs
while the GPU average selling price was approximately flat. GPU unit shipments increased in 2008 compared to
2007 due to demand for new products, including the ATI Radeon HD 4000 series of products which we
introduced in June 2008. Although unit shipments increased in 2008 compared to 2007, we saw a significant
decline in unit shipments in the fourth quarter of 2008 due to the weak macroeconomic environment and
resulting decrease in demand. Royalty revenue increased due to increased demand for the latest generation of
game consoles.
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