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Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and related notes as of December 25, 2005 and
December 26, 2004, and for each of the three years in the period ended December 25, 2005, which are included in this annual report. Certain prior period
amounts have been reclassified to conform to the current period presentation.
Overview
We design, manufacture and market microprocessors for the computing, communications and consumer electronics markets. We also sell embedded
microprocessors for personal connectivity devices and other consumer markets. Prior to the closing of the initial public offering, or IPO, of Spansion Inc., our
formerly consolidated majority owned subsidiary, on December 21, 2005, which is described in more detail below, we also manufactured and sold Flash memory
devices through, Spansion (formerly Spansion LLC).
Total net sales for 2005 of $5.8 billion increased 17 percent compared with net sales for 2004 of $5.0 billion. This growth was driven by the performance
of our Computation Products segment where net sales of $3.8 billion increased by 50 percent compared to 2004, due to increased unit sales and average selling
prices. We believe that our strategy of developing new generations of products based on our customers’ needs contributed to accelerating customer and end-user
adoption of our microprocessors across all geographies.
In particular, our introduction of AMD Turion 64 processors for notebook PCs in March 2005, AMD Opteron dual-core processors for servers and
workstations in April 2005, and AMD Athlon 64 dual-core processors for desktop PCs in May 2005 helped drive increasing customer adoption of our products.
Moreover, we believe that our sales growth in each of our product lines outpaced the industry, resulting in increased market share for us. Sales of products for the
server market was the fastest growing part of our business in 2005, followed by sales of products for notebook PCs and sales of products for desktop PCs.
Increasing demand from enterprises for our products allowed us to add a number of new customers. As a result, 90 percent of the top 100, and more than 45
percent of the top 500 of the Forbes Global 2000 companies or their subsidiaries use AMD64 technology.
On December 21, 2005, Spansion Inc. completed its IPO of 47,264,000 shares of its Class A common stock. Prior to the IPO, Spansion was our majority
owned subsidiary and its financial position, results of operations and cash flows were consolidated with ours. However, due to Spansion’s IPO, our ownership
interest in Spansion was diluted from 60 percent to 37.9 percent. As a result, we no longer exercise control over Spansion and we no longer consolidate
Spansion’s financial position, results of operations or cash flows with ours. We began applying the equity method of accounting to reflect our investment in
Spansion and our share of Spansion’s net income from December 21, 2005 based on our remaining equity interest, which is currently 37.9 percent.
The overall growth of our annual net sales was partially offset by the results of our Memory Products segment. In 2005, net sales of our Memory Products
segment of approximately $1.9 billion decreased 18 percent compared to net sales of approximately $2.3 billion in 2004. In 2005, we consolidated Spansion’s
results of operations in our Memory Products segment only through December 20, 2005 because of Spansion’s IPO. Therefore, approximately $104 million of
Spansion’s net sales from December 21, 2005 through December 25, 2005 were excluded from our Memory Products net sales in 2005. Other factors that
contributed to the decline in Memory Products net sales included aggressive pricing by competitors due in most cases to oversupply of products in the NOR
Flash memory market and a delay in Spansion’s qualification of a Flash memory product for the wireless category, which contributed to lower Memory Products
net sales during the first half of 2005.
During 2005, we reduced our debt and capital lease obligations by $489 million, which includes the deconsolidation of $370 million of Spansion’s
indebtedness to third parties as a result of Spansion’s IPO.
24
Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006