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Comparison of Gross Margin, Interest Income, Interest Expense, Other Income (Expense), Net, Income Taxes
and Other Expenses
The following is a summary of certain consolidated statement of operations data for 2009, 2008 and 2007.
2009 2008 2007
(In millions except for percentages)
Cost of sales ...................................................... $3,131 $3,488 $3,669
Gross margin ..................................................... 2,272 2,320 2,189
Gross margin percentage ............................................ 42% 40% 37%
Research and development ........................................... $1,721 $1,848 $1,771
Marketing, general and administrative .................................. 994 1,304 1,360
Legal settlement ................................................... (1,242) — —
Amortization of acquired intangible assets and integration charges ........... 70 137 236
Impairment of goodwill and acquired intangible assets ..................... — 1,089 1,132
Restructuring charges ............................................... 65 90 —
Gain on sale of 200 millimeter equipment ............................... — (193) —
Interest income .................................................... 16 39 73
Interest expense ................................................... (438) (391) (382)
Other income (expense), net .......................................... 166 (37) (118)
Equity in net loss of investees ........................................ — — (44)
Provision (benefit) for income taxes ................................... 112 68 27
Gross Margin
Gross margin as a percentage of net revenue was 42 percent in 2009, a 2 percentage point increase
compared to 40 percent in 2008. Gross margin in 2009 included a $171 million, or 3 percent, benefit related to
the sale of inventory that had been written-down in the fourth quarter of 2008. Gross margin in 2008 included a
$191 million, or 2 percent, benefit from process technology license revenue recorded in our Computing Solutions
segment and a $227 million, or 4 percent, negative impact from an incremental write-down of inventory. Without
the effect of the above events in 2009 and 2008, which we believe gives a more comparable view, gross margin
would have been 39 percent in 2009 compared to 42 percent in 2008. Gross margin in the first half of 2009 was
adversely impacted by depressed average selling price and the under-utilization of GF’s manufacturing facilities
as a result of reduced demand for our microprocessor products. However, the adverse impact of these factors on
2009 gross margin was partially mitigated by developments during the second half of 2009, including
improvements in utilization of GF’s manufacturing facilities and an improvement in our unit costs primarily due
to an increase in unit shipments of microprocessors manufactured using 45 nm process technology.
Gross margin as a percent of net revenue increased to 40 percent in 2008 compared to 37 percent in 2007.
However, gross margin in 2008 was impacted by the following two events: the $191 million process technology
license revenue recorded in our Computing Solutions segment favorably impacted gross margin in 2008 by 2
percentage points while the $227 million incremental write-down of inventory negatively impacted gross margin
in 2008 by 4 percentage points. Without the effect of these items, gross margin would have been 42 percent in
2008 compared to 37 percent in 2007. This improvement in gross margin was primarily due to an improvement
in fab utilization and reductions in manufacturing costs. Gross margin in 2008 was also favorably impacted by 1
percentage point due to the 76 percent increase in royalty revenue in connection with the sale of game consoles
that incorporate our graphics technology. Although we experienced a richer product mix in 2008 compared to
2007, competitive pricing pressures mitigated any significant benefits to gross margin.
We record the grants and allowances that GF receives from the State of Saxony and the Federal Republic of
Germany for their Dresden facilities as long-term liabilities on our consolidated financial statements. We
amortize these amounts as they are earned as a reduction to operating expenses. The amortization of the
production related grants and allowances is recorded as a credit to cost of sales. The credit to cost of sales totaled
53