AMD 2004 Annual Report Download - page 32

Table of Contents
increased 15 percent while average selling prices of microprocessor products decreased by four percent, and we realized revenues of $63 million, or
approximately two gross margin percentage points, from the sale of microprocessor products that had been previously written off. Further quantification of the
improvement in gross margin percentage is not practical due to the consolidation of Spansion’s operating results as of June 30, 2003.
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 a credit to research and development
expenses and cost of sales. The credit to cost of sales totaled $67.1 million in 2004, $46.2 million in 2003 and $37.5 million in 2002.
Research and development expenses of $935 million in 2004 increased ten percent from $852 million in 2003 due in part to higher research and
development expenses as result of the consolidation of Spansion’s results of operation, an increase in start-up costs of approximately $29 million associated with
the Fab 36 project and a $24 million increase in silicon design related to future generations of our microprocessors. These factors were partially offset by a $23
million decrease in Fab 30 research and development activities. Research and development expenses of $852 million in 2003 increased four percent from $816
million in 2002, due in part to higher research and development expenses as a result of the consolidation of Spansion’s results of operation, $23 million in
research and development efforts related to new microprocessors, and $58 million paid to IBM to jointly develop new process technologies for use in future
microprocessor products. The increases in research and development expenses were offset by a $35 million reduction in research and development costs,
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 a credit to research and development
expenses and cost of sales. The credit to research and development expenses totaled $20.7 million in 2004, $29 million in 2003 and $21.8 million in 2002.
Marketing, general and administrative expenses of $807 million in 2004 increased 37 percent compared to $587 million in 2003, primarily due to
increased sales and cooperative advertising and marketing expenses of $112 million primarily associated with our AMD 64-based processors, expenses from
Spansion of $153 million for 12 months of 2004 compared to $78 million for six months in 2003 and new regulatory compliance costs of $15 million.
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.
Effects of 2002 Restructuring Plan
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 microprocessor manufacturing process
technology, we ceased microprocessor related research and development in the SDC and eliminated most of the related resources, including the sale or
abandonment of certain equipment used in the SDC.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005