AMD 2014 Annual Report Download - page 55

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Gross Margin
Gross margin as a percentage of net revenue was 33% in 2014 compared to 37% in 2013. Gross margin in
2014 included a $58 million lower of cost or market inventory adjustment, which accounted for one gross margin
percentage point, and a $27 million benefit from technology licensing revenue, which accounted for less than one
gross margin percentage point. Gross margin in 2013 included a $57 million benefit from sales of inventory that
was previously reserved in the third quarter of 2012, which accounted for one gross margin percentage point as
compared to $8 million in 2014 which had a less than one percentage point impact. Gross margin in 2014 was
adversely impacted by lower average gross margins in our Enterprise, Embedded and Semi-Custom segment
driven by increased sales of lower margin semi-custom SoC products.
Gross margin as a percentage of net revenue was 37% in 2013 compared to 23% in 2012. Gross margin in
2012 included a $703 million charge related to the limited waiver of exclusivity from GF, a lower of cost or
market charge of $273 million and a $5 million charge recorded to cost of sales related to a legal settlement.
Absent the effect of these charges, which we believe are not indicative of our ongoing operating performance,
our gross margin would have been 41% in 2012 compared to 37% in 2013. Gross margin in 2013 was adversely
impacted by the lower average gross margins in our Enterprise, Embedded and Semi-Custom segment primarily
driven by lower margin semi-custom SoC products, which we began shipping in the second quarter of 2013.
Gross margin in 2012 was adversely impacted by an inventory write-down of $100 million during the third
quarter of 2012 as a result of lower than anticipated future demand for certain products, mainly first generation
A-Series APU products, codenamed “Llano,” which accounted for two gross margin percentage points. Gross
margin in 2013 included a $57 million benefit from sales of this previously reserved inventory, which accounted
for one gross margin percentage point.
Expenses
Research and Development Expenses
Research and development expenses of $1.1 billion in 2014 decreased by $129 million, or 11%, compared
to $1.2 billion in 2013. The decrease was primarily due to a $201 million decrease in research and development
expenses attributable to our Computing and Graphics segment, partially offset by a $64 million increase in
research and development expenses attributable to our Enterprise, Embedded and Semi-Custom segment and a $9
million increase in the All Other category related to a workforce rebalancing severance charge recorded in the
first quarter of 2014. Research and development expenses attributable to our Computing and Graphics segment
decreased primarily due to a $171 million decrease in product engineering and design costs, a $22 million
decrease in other employee compensation and benefit expenses and a $10 million decrease in manufacturing
process technology expenses. Research and development expenses attributable to our Enterprise, Embedded and
Semi-Custom segment, where we expect to continue to increase our investment, increased primarily due to a $59
million increase in product engineering and design costs and a $3 million increase in other employee
compensation and benefit expenses.
Research and development expenses of $1.2 billion in 2013 decreased by $153 million, or 11%, compared
to $1.4 billion in 2012. The decrease was primarily due to a $112 million decrease in research and development
expense attributable to our Enterprise, Embedded and Semi-Custom segment, a $37 million decrease in research
and development expenses attributable to our Computing and Graphics segment and a $4 million decrease in
stock-based compensation expense recorded in the All Other category. Research and development expenses
attributable to our Enterprise, Embedded and Semi-Custom segment decreased as a result of a $103 million
decrease in product engineering costs and a $9 million decrease in manufacturing process technology expenses.
The decrease in research and development expenses attributable to our Computing and Graphics segment was
primarily due to a $38 million decrease in product engineering costs and a $35 million decrease in manufacturing
process technology expenses, partially offset by a $34 million increase in other employee compensation and
benefit expenses.
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