AMD 2009 Annual Report Download - page 62

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$46 million in 2009, $86 million in 2008 and $138 million in 2007. The fluctuations in the recognition of these
credits have not significantly impacted our consolidated gross margins. With the deconsolidation of GF, our
future consolidated financial statements will no longer directly reflect such credits to cost of sales. However,
these credits will have a favorable impact on the amounts that we pay GF pursuant to the Wafer Supply
Agreement.
Pursuant to Wafer Supply Agreement between AMD and GF, we agreed to compensate GF on a cost-plus
basis, which results in increased per unit manufacturing costs for AMD compared to manufacturing wafers
in-house. Although this cost-plus arrangement has not impacted our consolidated financial statements while we
were consolidating the financial results of GF, as of the first quarter of 2010, we will no longer consolidate the
financial results of GF, and this cost-plus arrangement will have a negative impact on our reported gross margins.
Expenses
Research and Development Expenses
Research and development expenses decreased $127 million, or 7 percent, from $1.8 billion in 2008 to
$1.7 billion in 2009. This decrease was primarily due to a $193 million decrease in product engineering and
design costs, which reflected our efforts to reduce operating expenses, and was partially offset by a $62 million
increase in manufacturing process technology expenses mainly incurred by GF. As a result of the deconsolidation
of GF, we expect that our future research and development expenses will decrease.
Research and development expenses increased $77 million, or 4 percent, from $1,771 million in 2007 to
$1,848 million in 2008. This increase was primarily due to a $63 million increase in research and development
expenses attributable to the Computing Solutions segment and a $9 million increase in research and development
expenses attributable to the Graphics segment. Research and development expenses for the Computing Solutions
segment increased primarily due to higher product engineering and design costs for our next generation
microprocessor products and start-up costs for our former manufacturing facility, Fab 38. Research and
development expenses for the Graphics segment increased primarily due to higher product engineering and
design costs.
From time to time, GF applies for subsidies relating to certain research and development projects. We
recorded these research and development subsidies in our consolidated financial statements as a reduction of
research and development expenses when all conditions and requirements set forth in the subsidy allowance are
met. The credit to research and development expenses was $46 million in 2009, $36 million in 2008 and $30
million in 2007.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses decreased $310 million or 24 percent, from $1.3 billion in
2008 to $994 million in 2009. This decrease was primarily due to a $216 million decrease in cooperative
advertising programs due to decreased sales and cost reduction activities, a $99 million decrease in corporate
sales and marketing expenses due to our cost cutting efforts and a $16 million decrease in other administrative
expenses. On November 12, 2009, Intel and AMD entered into an agreement to end all outstanding legal disputes
between the companies including antitrust litigation and patent cross license disputes. As a result of this
agreement, we expect that our legal expenses will decrease in 2010. In addition, as a result of the deconsolidation
of GF, we expect that our future marketing, general and administrative expenses will decrease.
Marketing, general and administrative expenses decreased $56 million, or 4 percent, from $1.4 billion in
2007 to $1.3 billion in 2008. This decrease was primarily due to a $97 million decrease in corporate marketing
and branding expenses for our Computing Solutions segment and a $25 million decrease in stock-based
compensation expense, which decreased for the reasons set forth under “Stock-Based Compensation Expense,”
below. These decreases were partially offset by a $33 million increase in marketing, general and administrative
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