AMD 2008 Annual Report Download

Download and view the complete annual report

Please find the complete 2008 AMD annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 184

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184

2008 ANNUAL REPORT ON FORM 10-K

Table of contents

  • Page 1
    2008 ANNUAL REPORT ON FORM 10-K

  • Page 2

  • Page 3
    ... graphics leadership from the ultra-enthusiast to the value segment of the market, with a winning product in every price band. Customers embraced our Quad-Core AMD Opteronâ„¢ processor code-named "Shanghai," which excels in the workloads that matter most to IT users. Fusion: More than a Brand...

  • Page 4
    ...HP to develop a notebook platform for the ultrathin market that offers a feature-rich experience at an affordable price. The HP Pavilion dv2 Entertainment Notebook PC was launched to industry accolades and received a CES Best of Show from Laptop Magazine earlier this year. In 2009, we plan to double...

  • Page 5
    ... and power capabilities, our Quad-Core AMD Opteronâ„¢ processor codenamed "Shanghai" offers superior performance in the workloads that matter most to our customers. Later this year, we plan to launch the industry's first x86 six-core processor for 2-, 4-, and 8-socket servers, code-named "Istanbul...

  • Page 6

  • Page 7
    ...Employer Identification No.) One AMD Place, Sunnyvale, California (Address of principal executive offices) 94088 (Zip Code) (408) 749-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Title of each class) (Name of each exchange...

  • Page 8

  • Page 9
    ... GOVERNANCE ...EXECUTIVE COMPENSATION ...SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ...CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE ...PRINCIPAL ACCOUNTANT FEES AND SERVICES ... PART IV ...ITEM 15. EXHIBITS, FINANCIAL...

  • Page 10

  • Page 11
    ... investment; demand for our products in 2009; the timing of new product releases and technology transitions; the growth and competitive landscape of the markets in which we participate; our revenues; capital expenditures by us and The Foundry Company; our planned research and development spending...

  • Page 12
    ... for desktop and notebook personal computers, or PCs, professional workstations and servers; and (ii) graphics, video and multimedia products for desktop and notebook PCs, including home media PCs, professional workstations and servers and technology for game consoles. For financial information...

  • Page 13
    ...our common stock on the NYSE for the 20 trading days immediately prior to the closing date of the transactions contemplated by the Master Transaction Agreement. The warrants will be exercisable after the earlier of (i) public ground-breaking of a proposed Foundry Company manufacturing facility in up...

  • Page 14
    ... Stock Exchange under the symbol "AMD." Our mailing address and executive offices are located at One AMD Place, Sunnyvale, California 94088, and our telephone number is (408) 749-4000. References in this report to "AMD," "we," "us," "management," "our," or the "Company" means Advanced Micro Devices...

  • Page 15
    ... and filings are available free of charge. Please note that information contained on our Web site is not incorporated by reference in, or considered to be a part of, this report. Our Industry Semiconductors are components used in a variety of electronic products and systems. An integrated circuit...

  • Page 16
    ...servers and workstations with Direct Connect Architecture are designed to enable simultaneous 32-bit and 64-bit computing. These processors can be used in a variety of server applications, including business processing (enterprise resource planning, customer relationship management, and supply chain...

  • Page 17
    ... system, longer battery life, and enhanced security and compatibility with the latest wireless technologies and graphics solutions. In addition, the process used to manufacture AMD Turion X2 Ultra processors results in a more thermally efficient processor and reduced power consumption. In June 2008...

  • Page 18
    ... scale with quad-core processors. In April 2008 we introduced commercial desktop platforms, branded as AMD Business Class technology. AMD Business Class technology features AMD Athlon X2 dual-core processors and AMD Phenom triple- and quad-core processors, AMD 7-Series chipsets, as well as optional...

  • Page 19
    ... monitor, hard drive and CD or DVD drive. Chipsets perform essential logic functions, such as balancing the performance of the system and removing bottlenecks. Chipsets also extend the graphics, audio, video and other capabilities of computer systems. All desktop, notebook and server PCs incorporate...

  • Page 20
    ... Our products include 3D graphics and video and multimedia products developed for use in desktop and notebook PCs, including home media PCs, professional workstations and servers. With each of our graphics products, we provide drivers and supporting software packages that enable the effective use of...

  • Page 21
    ... quality options enabled. They offer HDMI video and audio support and reduce CPU utilization, increase extended battery life and improve the visual quality of HD video playback, such as from Blu-ray disc drives. ATI Mobility Radeon HD 3400 series support multi-GPU hybrid graphics, external graphics...

  • Page 22
    ... that use AMD technology. We promote our gaming platforms for desktop and notebook PCs under the AMD Game! brand, and our platforms engineered for business-related applications and users under the AMD Business Class brand. We market our products through our direct marketing and co-marketing programs...

  • Page 23
    ...on three types of OEMs: multi-nationals, selected regional accounts and target market customers. Large multi-nationals and regional accounts are our core OEM customers. Our OEM customers include numerous foreign and domestic manufacturers of servers and workstations, desktop and notebook PCs, and PC...

  • Page 24
    ... and potential customers; control over industry standards, PC manufacturers and other PC industry participants, including motherboard, memory, chipset and basic input/output system, or BIOS, suppliers and software companies as well as the graphics interface for Intel platforms; and marketing and...

  • Page 25
    ... and India. We conduct research and development activities for our graphics and chipset products at design centers located throughout the world, including in the United States, Canada, India and China. In 2008, we conducted our microprocessor manufacturing process development activities primarily...

  • Page 26
    ...qualifying 40-nanometer process technology for certain products and expect to release these products in the second half of 2009. We outsource board-level graphics product manufacturing to third-party manufacturers. These include Foxconn and PC Partner with locations in China. Our facility in Markham...

  • Page 27
    .... The price for GPU products will be determined by the parties when The Foundry Company is able to begin manufacturing GPU products for us. The Wafer Supply Agreement would terminate no later than February 2024. The Wafer Supply Agreement may also be terminated if and when a business plan deadlock...

  • Page 28
    ... January 1, 2001. Under this agreement we granted each other a non-exclusive license under each party's patents for the manufacture and sale of semiconductor products worldwide. We pay Intel a royalty for certain licensed microprocessor products sold by us or any AMD affiliate anywhere in the world...

  • Page 29
    ... the use of lead, among other chemicals, in electronic products. These regulations affect semiconductor packaging. Other regulatory requirements potentially affecting our manufacturing processes and the design and marketing of our products are in development throughout the world. We have management...

  • Page 30
    ... and potential customers; control over industry standards, PC manufacturers and other PC industry participants, including motherboard, memory, chipset and basic input/output system, or BIOS, suppliers and software companies as well as the graphics interface for Intel platforms; and marketing and...

  • Page 31
    ... plans to purchase our products. For example, in the fourth quarter of 2008, typically, the strongest quarter of our fiscal year, end user demand for PCs and servers decreased significantly. In turn, our customers sharply reduced orders for our products in order to balance their inventory levels...

  • Page 32
    ... be unable to make all of our planned investments in research and development. Although we make substantial investments in research and development, we cannot be certain that we will be able to develop, obtain or successfully implement new products and technologies on a timely basis. Our ability to...

  • Page 33
    ... to borrow sufficient funds or sell assets or equity. The agreements governing our borrowing arrangements impose restrictions on us that may adversely affect our ability to operate our business. The indenture governing our 7.75% Notes contains various covenants that limit our ability to incur...

  • Page 34
    ... products or technologies, we may lose competitive positioning, which could cause us to lose market share and require us to discount the selling prices of our products. Delays in developing or qualifying new products can also cause us to miss our customers' product design windows. If our customers...

  • Page 35
    ..., during the fourth quarter of 2008, which is typically our strongest quarter during the fiscal year, end user demand for PCs and servers decreased significantly. In turn, our customers sharply reduced orders for our products in order to balance their inventory levels to end customer demand, which...

  • Page 36
    ... companies for the design, manufacture and supply of motherboards, BIOS software and other components that support our microprocessor offerings. In addition, we continue to work with other third parties to obtain graphics chips in order to provide our customers with a greater choice of technologies...

  • Page 37
    ... which can exacerbate the difficulty in forecasting capacity requirements. If the demand from our target markets is below our expectations, we may under-utilize our manufacturing facilities, which may result in write-downs or write-offs of inventories and losses on products for which demand is lower...

  • Page 38
    ... new process technology or design rules, any transition difficulties may result in lower yields or poorer performance of our products. Because it could take several quarters to establish a strategic relationship with a new manufacturing partner, we may be unable to secure an alternative supply for...

  • Page 39
    ... limited number of foreign companies to supply the majority of certain types of integrated circuit packages for our microprocessor products. Similarly, certain non-proprietary materials or components such as memory, PCBs, substrates and capacitors used in the manufacture of our graphics products are...

  • Page 40
    ... earnings per share to the extent that the price of our common stock exceeds the conversion price of the 5.75% Notes and 6.00% Notes. Any sales in the public market of our common stock issuable upon conversion of the 5.75% Notes or 6.00% Notes could adversely affect prevailing market prices of our...

  • Page 41
    ... manage the transportation of our work-in-process and finished products among our facilities and to our customers. In addition, we rely on a third party in India to provide certain information technology services to us, including helpdesk support, desktop application services, business and software...

  • Page 42
    ...have removed from our price book and that is not more than twelve months older than the manufacturing code date. Some agreements with our distributors also contain standard stock rotation provisions permitting limited levels of product returns. We defer the gross margins on our sales to distributors...

  • Page 43
    ...-term financial outlook for the businesses of the former ATI in light of then-current market conditions and economic outlook, which we conducted as part of our annual strategic planning cycles and based on the preliminary findings of our annual and interim goodwill impairment testing. For 2008, the...

  • Page 44
    ... also may result in volatility of the market price for our securities. Unfavorable currency exchange rate fluctuations could continue to adversely affect us. We have costs, assets and liabilities that are denominated in foreign currencies, primarily the Euro and the Canadian dollar. As a result of...

  • Page 45
    ...could have an adverse effect on our business, financial condition, results of operations and cash flow. In addition, the majority of our product sales are denominated in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the local currency can cause increases or decreases in...

  • Page 46
    ... processes, import/export restrictions, sales limitations, criminal and civil liabilities or other sanctions. We could also be held liable for any and all consequences arising out of exposure to hazardous materials used, stored, released, disposed of by us or located at or under our facilities...

  • Page 47
    ...for microprocessors is located in Germany. Nearly all product assembly and final testing of our microprocessor products is performed at manufacturing facilities in China, Malaysia and Singapore. The independent foundries we use to manufacture our graphics and chipset products are located in the Asia...

  • Page 48
    ... the California Business and Professions Code. The complaint alleges that Intel has unlawfully maintained a monopoly in the x86 microprocessor market by engaging in anti-competitive financial and exclusionary business practices that in effect limit Intel's customers' ability and/or incentive to deal...

  • Page 49
    ... computers with Intel microprocessors, and thereby artificially limiting consumer choice; and Forcing PC makers and technology partners to boycott AMD product launches or promotions. • • We requested the following findings and remedies: • • A finding that Intel is abusing its market power...

  • Page 50
    ... its investigation announced in November 2006 into potential antitrust violations related to graphics processing units and cards. On October 10, 2008, the DOJ informed AMD that it had closed its investigation into ATI's pricing and marketing practices in the sales of GPUs. No action was taken by the...

  • Page 51
    ... class of individuals and entities who purchased graphics processing card products online from defendants' websites in the United States during the period from December 4, 2002 to November 7, 2007. On September 16, 2008, we and certain indirect subsidiaries and NVIDIA executed a settlement agreement...

  • Page 52
    ... in various other actions that arose in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No...

  • Page 53
    ... OF EQUITY SECURITIES Our common stock (symbol "AMD") is listed on the New York Stock Exchange. On February 9, 2009, there were 7,761 registered holders of our common stock. The following table sets forth on a per share basis the high and low intra-day sales prices on the New York Stock Exchange for...

  • Page 54
    ...through December 27, 2008. The past performance of our common stock is no indication of future performance. Comparison of Five Year Total Return Comparison of Cumulative Five Year Total Return $250 $200 $150 $100 $50 $0 2003 2004 2005 2006 2007 2008 Advanced Micro Devices, Inc. S&P 500 Index...

  • Page 55
    ...27, 2008 (In millions except per share amounts) 2008(1)(3) 2007(1)(3) 2006(2)(3) 2005(3) 2004(3) Net revenue ...Cost of sales ...Gross margin ...Research and development ...Marketing, general and administrative ...In-process research and development ...Amortization of acquired intangible assets and...

  • Page 56
    ... of accounting and began accounting for this investment as "available-for-sale" marketable securities. In 2007 we recorded impairment charges of $111 million. In 2008 we recorded impairment charges of $53 million. See Part II, Item 7 "MD&A-Equity in net loss of Spansion Inc and other." The 2006 and...

  • Page 57
    ... client and consumer markets and chipsets for desktop and notebook PCs, professional workstations and servers; and graphics, video and multimedia products for desktop and notebook PCs, including home media PCs, professional workstations and servers, and technology for game consoles. • In the...

  • Page 58
    ...The increase in Graphics net revenue was primarily due to the successful introduction of ATI Radeon HD 4000 series of GPU products and a 76 percent increase in royalties received in connection with the sale of game console systems. Gross margin, as a percentage of net revenue for 2008 was 40 percent...

  • Page 59
    ... both of our businesses. In November 2008 we launched our first 45-nanometer quad-core AMD Opteron processors, and we expect the transition to 45-nanometer process technology to be completed at Fab 36 by mid-2009. In 2008 and early 2009, we also introduced several new platform products such as our...

  • Page 60
    ... first fiscal quarter of 2009, we will have a separate reportable segment for The Foundry Company in our financial statement disclosures. ATI Acquisition On October 25, 2006, we completed the acquisition of all of the outstanding shares of ATI Technologies, a publicly held company headquartered in...

  • Page 61
    ... 24, 2006 as set forth below: (In millions) Cash and marketable securities ...Accounts receivable ...Inventories ...Goodwill ...Developed product technology ...Game console royalty agreement ...Customer relationships ...Trademarks and trade names ...Customer backlog ...In-process research and...

  • Page 62
    ... 27, 2008, the developed product technology intangible assets had an estimated average remaining useful life of 12 months. Game console royalty agreements represent agreements existing as of October 24, 2006 with video game console manufacturers for the payment of royalties to ATI for intellectual...

  • Page 63
    ...to estimates developed at the time of the completion of the ATI acquisition. The updated financial forecast for our Graphics segment was lower primarily because of intense pricing competition with our primary competitor throughout 2007, which required an increase in sales and marketing activities to...

  • Page 64
    ... resulted in lower forecasted sales to those companies employing our technology. In addition, our Handheld business was dependant on a small number of mobile handset customers for its revenues. During 2007, one handset customer experienced severe competition and eroding market share for its consumer...

  • Page 65
    ... for sale and included in the caption, "Prepaid expenses and other current assets" in our 2008 consolidated balance sheet. Pursuant to our agreement with Qualcomm, we retained the AMD Imageon media processor brand and the right to continue selling the products that were part of the Handheld business...

  • Page 66
    ... cost of sales, resulting in a net benefit to our gross margin in that period. Business Combinations. In accordance with business combination accounting, we have allocated the purchase price of ATI to related tangible and intangible assets acquired, including in-process research and development, and...

  • Page 67
    ... ultimately employed the income approach which requires estimates of future operating results and cash flows of each of the reporting units discounted using estimated discount rates. We recorded a portion of the impairment charges in the caption "Impairment of goodwill and acquired intangible assets...

  • Page 68
    ...exception of auction rate securities (ARS). This is because cash equivalents and marketable securities are valued primarily using quoted market prices or alternative pricing sources and models utilizing market observable inputs, as provided to us by our brokers. ARS investments are classified within...

  • Page 69
    ... with sales of game console systems that incorporated our technology. From the first quarter of 2007 through the first quarter of 2008, in conjunction with the integration of ATI's operations into ours, we began reviewing and addressing operating performance using the following three reportable...

  • Page 70
    ..., chipsets and embedded processors and related revenue; and the Graphics segment, which includes graphics, video and multimedia products and related revenue as well as revenue from royalties received in connection with the sale of game console systems that incorporate our graphics technology...

  • Page 71
    ... of sales of processors for desktop and notebook PCs in 2007, which generally carry lower average selling prices than our processors for servers. In particular, our competitor first offered quad-core multi-chip module processors for servers and desktop PCs in November 2006, and these products were...

  • Page 72
    ... royalty revenue from the sales of game consoles that incorporate our graphics technology. Revenue from the sales of GPU products increased due to an increase in unit shipments of GPUs while GPU average selling prices were approximately flat. GPU unit shipments increased in 2008 compared to 2007 due...

  • Page 73
    ... 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. Gross margin as a percent of net revenue decreased to 37...

  • Page 74
    ... and design costs for our next generation microprocessor products. In addition, research and development expenses attributable to ATI's chipset business were included for the full year in 2007 compared to only nine weeks in 2006. Research and development expenses attributable to our Graphics segment...

  • Page 75
    ... products, increased legal expenses and additional investments in information technology, partially offset by a $9 million reduction in bonus expense. In-process research and development, amortization of acquired intangible assets and integration charges, and impairment of goodwill and acquired...

  • Page 76
    ...of certain employee benefits, contract or program termination costs, asset impairments and exit costs for facility site consolidations and closures. The second quarter 2008 restructuring plan was substantially completed during the fourth quarter of 2008. The fourth quarter 2008 restructuring plan is...

  • Page 77
    ...2008. In 2007, we incurred a charge of $22 million for the write-off of unamortized debt issuance costs incurred in connection with out repayment of the October 2006 Term Loan, which was partially offset by a gain of $19 million on the sale of vacant land in Sunnyvale, California. Other expense, net...

  • Page 78
    ... from the equity method of accounting to accounting for this investment as "available-for-sale" marketable securities. During 2007, we recorded other than temporary impairment charges of $111 million on our investment in Spansion after considering Spansion's operating results, its stock price trends...

  • Page 79
    ... follows: Year Ended December 27, 2008 Year Ended December 29, 2007 (In millions) Year Ended December 31, 2006 Cost of sales ...Research and development ...Marketing, general, and administrative ...Total stock-based compensation expense ...Tax benefit ...Stock-based compensation expense, net of tax...

  • Page 80
    ... to the inclusion of sales of our graphics and chipsets products to contract manufacturers and add-in-board manufacturers based outside the United States, principally in China and Taiwan, for the full year in 2007 compared to 9 weeks in 2006. In 2008, 2007 and 2006, substantially all of our...

  • Page 81
    ... of available-for-sale securities, $157 million in proceeds from sales of Spansion shares, and $73 million from sales of assets, including excess land in Sunnyvale, California and customer deposits on the sale of 200-millimeter wafer fabrication equipment. Net cash used in investing activities was...

  • Page 82
    ... in AMD Fab 36 KG held by Leipziger Messe and $19 million in payments for the guaranteed return on the unaffiliated limited partners' limited partnership contributions. During 2008, we did not realize any excess tax benefit related to stock-based compensation. Therefore, we did not record any...

  • Page 83
    ...from the issuance of the Convertible Notes to ATIC and $400 million as equity from the issuance of securities to ATIC. Because we will consolidate the accounts of The Foundry Company after the consummation of the transactions contemplated by the Master Transaction Agreement, our consolidated balance...

  • Page 84
    ...-sale" category to the "trading securities" category. Changes to the estimated fair value of these ARS are recorded in earnings following this reclassification. As of December 27, 2008, we classified our investments in ARS as current assets because we reasonably expect that we will be able to sell...

  • Page 85
    ... is equivalent to an initial conversion price of approximately $20.13 per share. This initial conversion price represents a premium of 50% relative to the last reported sale price of our common stock on August 8, 2007 (the trading date preceding the date of pricing of the 5.75% Notes) of $13.42 per...

  • Page 86
    ... of $28.08 per share. This initial conversion price represents a premium of 100% relative to the last reported sale price of our common stock on April 23, 2007 (the trading date preceding the date of pricing of the 6.00% Notes) of $14.04 per share. The conversion rate will be adjusted for certain...

  • Page 87
    ... higher for fiscal years 2007, 2008 and 2009, respectively, as a result of adopting this FSP. We may elect to purchase or otherwise retire our 6.00% Notes with cash, stock or other assets from time to time in open market or privately negotiated transactions, either directly or through intermediaries...

  • Page 88
    ... Our 300-millimeter wafer fabrication facility, Fab 36, is located in Dresden, Germany at our wafer fabrication site. Fab 36 is owned by AMD Fab 36 Limited Liability Company & Co. KG (or AMD Fab 36 KG), a German limited partnership. We control the management of AMD Fab 36 KG through a wholly owned...

  • Page 89
    .... Our credit rating was B3 with Moody's and B with Standard and Poor's as of December 27, 2008. AMD Fab 36 KG pledged substantially all of its current and future assets as security under the Fab 36 Loan Agreements, we pledged our equity interest in AMD Fab 36 Holding and AMD Fab 36 LLC, AMD Fab 36...

  • Page 90
    ... full. The partnership agreements also specify that the unaffiliated limited partners will receive a guaranteed rate of return of between 11 percent and 13 percent per annum on their total investment depending upon the monthly wafer output of Fab 36. We guaranteed these payments by AMD Fab 36 KG. In...

  • Page 91
    ... by the partnership agreements, investments significantly in excess of the business plan, or certain dispositions of the limited partnership interests of AMD Fab 36 Holding and AMD Fab 36 Admin. The purchase price under the put option is Leipziger Messe's capital account balance plus accumulated...

  • Page 92
    ... on the business, assets or condition of AMD Fab 36 KG or AMD or their ability to perform under the Fab 36 Loan Agreements; filings or proceedings in bankruptcy or insolvency with respect to us, AMD Fab 36 KG or any limited partner; occurrence of a change in control (as defined in the Fab 36 Loan...

  • Page 93
    ... on the ability of the restricted subsidiaries to pay dividends or make other distributions to us; using the proceeds from sales of assets; entering into certain types of transactions with affiliates; and consolidating, merging or selling our assets as an entirety or substantially as an entirety...

  • Page 94
    ... under the Investment Canada Act including that we will: increase spending on research and development in Canada to a specified amount over the course of a three-year period when compared to ATI's expenditures in this area in prior years; maintain Canadian employee headcount at specified levels by...

  • Page 95
    ... the guaranteed rate of return. This $28 million is expected to expire in 2009. No incremental liabilities are recorded on our consolidated balance sheet for this guarantee. Upon the closing of the transactions contemplated by the Master Transaction Agreement, AMD Fab 36 Holding and AMD Fab 36...

  • Page 96
    ... the revolving credit facility may be extended by two additional one-year periods. Pursuant to a guarantee agreement, each joint venture partner guaranteed one third of AMTC's outstanding loan balance under the revolving credit facility. In September 2008, Qimonda provided cash security equal to one...

  • Page 97
    ... assets" in our 2008 consolidated balance sheet. As part of our agreement with Qualcomm, we retained the AMD Imageonâ„¢ media processor brand and the right to continue selling the products that were part of the Handheld business unit. We intend to support our existing handheld products and customers...

  • Page 98
    .... In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of SFAS 141(R) will change our accounting treatment for business combinations on a prospective basis beginning in the first quarter of 2009. In...

  • Page 99
    ...% Notes for approximately $57 million in cash. As of December 27, 2008, the majority of our outstanding debt is fixed rate debt. Therefore, our exposure to market risk for changes in interest rates on reported interest expense and corresponding cash flows is limited. We will continue to monitor our...

  • Page 100
    ... market. See "Part II, Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report for further information. The following table presents the cost basis, fair value and related weighted-average interest rates by year of maturity for our investment...

  • Page 101
    ... and Canadian dollar. For example, some fixed asset purchases and certain expenses of our German subsidiaries, AMD Saxony and AMD Fab 36 KG, are denominated in euros while sales of products are denominated in U.S. dollars. Additionally, as a result of our acquisition of ATI in October 2006, some of...

  • Page 102
    ...Years Ended December 27, 2008 2008 2007 2006 (In millions, except per share amounts) Net revenue ...Cost of sales ...Gross margin ...Research and development ...Marketing, general and administrative ...In-process research and development ...Amortization of acquired intangible assets and integration...

  • Page 103
    Advanced Micro Devices, Inc. and Subsidiaries Consolidated Balance Sheets December 27, December 29, 2008 2007 (In millions, except par value amounts) ASSETS Current assets: Cash and cash equivalents ...Marketable securities ...Total cash and cash equivalents and marketable securities ...Accounts ...

  • Page 104
    Advanced Micro Devices Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit) Three Years Ended December 27, 2008 Accumulated Total Number Capital in Retained other stockholders' of excess of Treasury earnings comprehensive equity shares Amount par value stock (deficit) ...

  • Page 105
    ... acquired intangible assets ...Gain on sale of 200 millimeter equipment ...Amortization of foreign grant and allowance income ...Write off of in-process research and development ...Compensation recognized under employee stock plans ...Minority interest in consolidated subsidiaries ...Equity in net...

  • Page 106
    ...ATI Technologies Inc. (ATI) (see Note 3). As a result of the acquisition, AMD began to supply 3D graphic, video and multimedia products and chipsets for personal computers, or PCs, including desktop and notebook PCs, professional workstations, and servers and products for consumer electronic devices...

  • Page 107
    ... from its price book or that are not more than twelve months older than the manufacturing code date. In addition, some agreements with distributors may contain standard stock rotation provisions permitting limited levels of product returns. Accordingly, the Company defers the gross margin resulting...

  • Page 108
    ... frequently if there are indicators of impairment present. The Company performs its annual goodwill impairment analysis as of the first day of the fourth quarter of each fiscal year. The Company evaluates whether goodwill has been impaired at the reporting unit level by first determining whether the...

  • Page 109
    ...-for-sale or trading securities. Substantially all of the Company's investments in marketable debt and equity securities are classified as available-for-sale or trading securities. Available-for-sale securities are reported at fair value with the related unrealized gains and losses included, net of...

  • Page 110
    ... its graphics and chipsets will conform to its approved specifications and be free from defects in material and workmanship under normal use and service for a period of one year beginning on shipment of such products to its customers. The Company generally warrants that ATI-branded PC workstation...

  • Page 111
    ... benefit received is recorded as a reduction of revenue. Net Income (Loss) Per Share. Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding. Diluted net income (loss) per share is computed using the weightedaverage number of common shares...

  • Page 112
    ... the requisite service period. The application of the lattice-binomial option-pricing model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility of the Company's common stock, risk-free interest rate, and...

  • Page 113
    ..., acquired in-process research and development is measured at fair value, capitalized as an indefinite-life intangible asset and tested for impairment pursuant to FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). The adoption of SFAS 141(R) will change the Company's accounting...

  • Page 114
    ... 25, 2006, the Company completed the acquisition of all of the outstanding shares of ATI, a publicly held company headquartered in Markham, Ontario, Canada (the Acquisition) for a combination of cash and shares of the Company's common stock. ATI was engaged in the design, manufacture and sale of...

  • Page 115
    ... 24, 2006 as set forth below: (In millions) Cash and marketable securities ...Accounts receivable ...Inventories ...Goodwill ...Developed product technology ...Game console royalty agreement ...Customer relationships ...Trademarks and trade names ...Customer backlog ...In-process research and...

  • Page 116
    ... 27, 2008, the developed product technology intangible assets have an estimated average remaining useful life of 12 months. Game console royalty agreements represent agreements existing as of October 24, 2006 with video game console manufacturers for the payment of royalties to ATI for intellectual...

  • Page 117
    ...financial information for the period presented includes the nonrecurring business combination accounting effect on ATI inventories acquired, write off of in-process research and development and integration charges as well as the recurring effect from amortization of acquired intangible assets, stock...

  • Page 118
    ... charges are not included in Computing Solutions and Graphics operating income (loss) in the Company's segment disclosures in Note 10. 2007 Impairment In the fourth quarter of 2007, pursuant to its accounting policy, the Company performed an annual impairment test of goodwill. As a result of this...

  • Page 119
    ... in lower forecasted sales to those companies employing the Companies technology. In addition, the Company's Handheld business was dependant on a small number of mobile handset customers for its revenues. During 2007, one handset customer experienced severe competition and eroding market share for...

  • Page 120
    ... to the Company's agreement with Qualcomm, the Company retained the AMD Imageon media processor brand and the right to continue selling the products that were part of the Handheld business unit, and the Company intends to support the existing Handheld products and customers through the current...

  • Page 121
    ... Developed console Trademark product royalty Customer and trade technology agreements relationships name Customer backlog Total Cost of ATI Acquisition-Related Intangible Assets ...Reclassification to discontinued operations(1) ...Amortization expense ...Intangible Assets, Net December 31, 2006...

  • Page 122
    ... Class B common stock to Spansion and, accordingly, relinquished the right to appoint a director to Spansion's Board of Directors. Therefore, the Company changed its accounting for this investment from the equity method to accounting for this investment as "available-for-sale" marketable securities...

  • Page 123
    ... amount that it invoiced Spansion's customers. In performing these services, the Company acted as Spansion's agent for the sale of Spansion's Flash memory products, and the Company did not receive a commission or fees for these services. Under the agreement, Spansion assumed full responsibility for...

  • Page 124
    ... Value 2008 Cash equivalents: Commercial paper ...Money market funds ...Time deposits ...Total cash equivalents ...Marketable securities: Auction rate securities ...Spansion Class A common stock ...Total marketable securities ...Long-term investments: Equity investments (included in other assets...

  • Page 125
    ... Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) (In millions) December 27, 2008 Money market mutual funds(1) ...Commercial paper(2) ...Time deposits(3) ...Auction rate securities(4) ...UBS put option(5) ...Marketable equity securities(6) ...Foreign currency derivative contracts...

  • Page 126
    ... in the credit markets have affected all of the Company's ARS investments and auctions for these securities have failed to settle on their respective settlement dates. As a result, reliable Level 1 or Level 2 pricing is not available for these ARS. In light of these developments, to determine the...

  • Page 127
    ... the financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Year Ended December 27, 2008 Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Auction Rate Securities UBS Put Option (In millions) Beginning balance ...Sales at...

  • Page 128
    ... rated AA, Aa or better, and investments in repurchase agreements must have securities of the type and quality listed above as collateral. The Company believes that concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers...

  • Page 129
    ... number of foreign companies to supply the majority of certain types of integrated circuit packages for the Company's microprocessor products. Similarly, certain non-proprietary materials or components such as memory, PCBs, substrates and capacitors used in the manufacture of the Company's graphics...

  • Page 130
    ...deductible ...Acquired intangibles ...Tax deductible goodwill ...Investments ...Federal and state tax credit carryovers ...Foreign capitalized research and development costs ...Foreign research and development ITC credits ...Discount of convertible notes ...Other ...Total deferred tax assets ...Less...

  • Page 131
    ... Statutory federal income tax expense ...State taxes, net of federal benefit ...Foreign income at other than U.S. rates ...Foreign losses not benefited ...US net operating losses not benefited ...Research and development credit monetization ...2007 Statutory federal income tax expense ...State taxes...

  • Page 132
    ... 2007 (less than $0.03 per share, diluted) and decrease the Company's net loss by approximately $5 million in fiscal year 2006, (less than $0.01 per share, diluted). In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an...

  • Page 133
    ... the Canadian Revenue Agency, or CRA, is auditing ATI for the years 2000 through 2004. The audit has been completed and is currently in the review process. The U.S. Internal Revenue Service is auditing AMD's tax years 2004 through 2006. As of December 27, 2008 the German tax authorities are auditing...

  • Page 134
    ... of $28.08 per share. This initial conversion price represents a premium of 100% relative to the last reported sale price of the Company's common stock on April 23, 2007 (the trading date preceding the date of pricing of the 6.00% Notes) of $14.04 per share. The conversion rate will be adjusted for...

  • Page 135
    ...cap price of $42.12 per share. The capped call was intended to reduce the potential common stock dilution to then existing stockholders upon conversion of the 6.00% Notes because the call option allowed the Company to receive shares of common stock from the counterparty generally equal to the number...

  • Page 136
    ... 300-millimeter wafer fabrication facility, Fab 36, is located in Dresden, Germany at the Company's wafer fabrication site. Fab 36 is owned by AMD Fab 36 Limited Liability Company & Co. KG (or AMD Fab 36 KG), a German limited partnership. The Company controls the management of AMD Fab 36 KG through...

  • Page 137
    ... Company's rating was B3 with Moody's and B with Standard and Poor's as of December 27, 2008. AMD Fab 36 KG pledged substantially all of its current and future assets as security under the Fab 36 Loan Agreements, the Company pledged its equity interest in AMD Fab 36 Holding and AMD Fab 36 LLC, AMD...

  • Page 138
    ... the terms of the Guarantee Agreement among the Company, as guarantor, AMD Fab 36 KG, Dresdner Bank AG and Dresdner Bank AG, Niederlassung Luxemburg, the Company has to comply with specified adjusted tangible net worth and EBITDA financial covenants if the Company's group consolidated cash declines...

  • Page 139
    ... by the partnership agreements, investments significantly in excess of the business plan, or certain dispositions of the limited partnership interests of AMD Fab 36 Holding and AMD Fab 36 Admin. The purchase price under the put option is Leipziger Messe's capital account balance plus accumulated...

  • Page 140
    ... effect on the business, assets or condition of AMD Fab 36 KG or AMD or their ability to perform under the Fab 36 Loan Agreements; filings or proceedings in bankruptcy or insolvency with respect to the Company, AMD Fab 36 KG or any limited partner; occurrence of a change in control (as defined in...

  • Page 141
    ...1933, as amended. On April 22, 2005, the Company exchanged these notes for publicly registered notes which have substantially identical terms as the old notes except that the publicly registered notes are registered under the Securities Act of 1933, and, therefore, do not contain legends restricting...

  • Page 142
    ... the ability of the restricted subsidiaries to pay dividends or make other distributions to the Company; using the proceeds from sales of assets; entering into certain types of transactions with affiliates; and consolidating, merging or selling the Company's assets as an entirety or substantially as...

  • Page 143
    ... Kingdom Financial Services Ltd. (IBM UK), pursuant to which the Company and AMDISS agreed to sell to each of IBM Credit and IBM UK certain receivables. Pursuant to the sales agreements, the IBM parties agreed to purchase from the AMD parties invoices of specified AMD customers up to credit limits...

  • Page 144
    ... on management's judgment. From December 26, 2005 through October 24, 2006, the Company had two reportable segments: • • the Computation Products segment, which included microprocessors, AMD chipsets and related revenue; and the Embedded Products segment, which included embedded processors and...

  • Page 145
    ...with sales of game console systems that incorporate the Company's technology. From the first quarter of 2007 through the first quarter of 2008, in conjunction with the integration of ATI's operations, the CODM began reviewing and addressing operating performance using the following three reportable...

  • Page 146
    ...nor does management evaluate operating segments using discrete asset information. The Company's operations outside the United States include both manufacturing and sales activities. The Company's manufacturing subsidiaries are located in Germany, Malaysia, Singapore and China. Its sales subsidiaries...

  • Page 147
    ... customers are based on the customer's billing location. Long-lived assets are those assets used in each geographic area. The Company markets and sells its products primarily to a broad base of customers including third-party distributors, OEMs, ODMs, add-in-board manufacturers, system integrators...

  • Page 148
    ... follows: Year Ended December 27, 2008 Year Ended December 29, 2007 (In millions) Year Ended December 31, 2006 Cost of sales ...Research and development ...Marketing, general, and administrative ...Total stock-based compensation expense ...Tax benefit ...Stock-based compensation expense, net of tax...

  • Page 149
    ...31, 2006 Expected life (years) ...Expected stock price volatility ...Risk-free interest rate ... 3.19 72.0% 2.4% 3.55 53.1% 4.4% 2.38 53.07% 5.01% The Company used a combination of the historical volatility of its common stock and the implied volatility for two-year traded options on the Company...

  • Page 150
    ...The performance period is generally one to three years from the date of grant. The summary of the changes in restricted stock awards outstanding during the year ended December 27, 2008, December 29, 2007 and December 31, 2006 is presented below: Year Ended December 27, 2008 WeightedAverage Number of...

  • Page 151
    ... (years) ...Expected stock price volatility ...Risk-free interest rate ... 0.25 37.1% 4.92% 0.25 51.1% 4.89% Shares Reserved for Issuance. The Company had a total of approximately 5.7 million shares of common stock as of December 27, 2008 that were available for future grants under the 2004 Plan...

  • Page 152
    ... manufacturing and office equipment under agreements accounted for as operating leases for terms ranging from one to five years. Rent expense was approximately $81 million, $83 million and $57 million in 2008, 2007 and 2006. The previous operating lease for the Company's corporate marketing, general...

  • Page 153
    ... contributions that AMD Fab 36 KG Holding and AMD Fab 36 Admin are required to repurchase from Leipziger Messe and does not include the guaranteed rate of return. This $28 million is expected to expire by the end of 2009. No incremental liability is recorded on the Company's consolidated balance...

  • Page 154
    ... processor products. The Company has offered extended limited warranties to certain customers of "tray" microprocessor products who have written agreements with the Company and target their computer systems at the commercial and/or embedded markets. The Company generally warrants that its graphics...

  • Page 155
    ... of certain employee benefits, contract or program termination costs, asset impairments and exit costs for facility site consolidations and closures. The restructuring plan implemented in the second fiscal quarter of 2008 was substantially completed during the fourth fiscal quarter of 2008. The...

  • Page 156
    ... to industry conditions resulting from weak customer demand and industry-wide excess inventory. The 2002 Restructuring Plan resulted in the consolidation of facilities, primarily at the Sunnyvale, California site and at sales offices worldwide. The Company vacated and is attempting to sublease...

  • Page 157
    ...acquisition-related intangible assets associated with the Handheld and Digital Television business units were impaired and recorded an impairment charge of $876 million. (See Note 3) During the third quarter of 2008, the Company entered into an agreement with Broadcom Corporation to sell the Digital...

  • Page 158
    ...stockholders' equity in the Company's consolidated balance sheet due to the right that ATIC has to put those securities back to the Company in the event of a change of control of AMD during the two years following the closing of the transactions. The Company's net income (loss) per common share will...

  • Page 159
    ... 100% of the Class B Preferred Shares and the Convertible Notes. NOTE 19: Subsequent Events In January 2009, the Company completed the sale of certain graphics and multimedia technology assets and intellectual property that were formerly part of its Handheld business unit to Qualcomm Incorporated...

  • Page 160
    ... with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Advanced Micro Devices, Inc.'s internal control over financial reporting as of December 27, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee...

  • Page 161
    ... public accounting firm, Ernst & Young LLP, has issued an attestation report on the Company's internal control over financial reporting as of December 27, 2008, which is included immediately following this report. /s/ Derrick R. Meyer President and Chief Executive Officer February 20, 2009...

  • Page 162
    ... Registered Public Accounting Firm The Board of Directors and Stockholders of Advanced Micro Devices, Inc. We have audited Advanced Micro Devices, Inc.'s internal control over financial reporting as of December 27, 2008, based on criteria established in Internal Control-Integrated Framework...

  • Page 163
    ..., except per share amounts) Mar. 31 Net revenue ...Cost of sales ...Gross margin ...Research and development ...Marketing, general and administrative ...Amortization of intangible assets and integration charges(1) ...Impairment of goodwill and acquired intangible assets(2) ...Restructuring ...Gain...

  • Page 164
    ...-for-sale" marketable securities under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. We recorded impairment charges of $69 million and $42 million in the quarters ended December 29 and September 29, respectively. All the charges in 2008 were impairment...

  • Page 165
    ...that are designed with the objective of providing reasonable assurance that information required to be disclosed in our reports filed under the Securities and Exchange Act of 1934, or the Exchange Act, such as this Annual Report on Form 10-K is recorded, processed, summarized and reported within the...

  • Page 166
    ... Benefits," "2008 Non-Employee Director Compensation," "Compensation Discussion & Analysis," "Executive Compensation" (including 2008 Summary Compensation Table, 2008 Nonqualified Deferred Compensation, Outstanding Equity Awards at 2008 Fiscal Year-End, Grants of Plan-Based Awards in 2008 and Option...

  • Page 167
    ... ULC and ATI Technologies Inc. dated as of July 23, 2006 filed as Exhibit 2.2 to AMD's Current Report on Form 8-K dated July 23, 2006, is hereby incorporated by reference. Asset Purchase Agreement by and among Broadcom Corporation, Broadcom International Limited, and Advanced Micro Devices, Inc...

  • Page 168
    Exhibit Number Description of Exhibits **2.6 Amendment No. 1 to Asset Purchase Agreement by and among Broadcom Corporation, Broadcom International Limited, and Advanced Micro Devices, Inc., dated October 27, 2008 filed as Exhibit 2.2 to AMD's Quarterly Report on Form 10-Q for the period ended ...

  • Page 169
    ... year ended December 30, 2001, is hereby incorporated by reference. 2004 Equity Incentive Plan, as amended, filed as Exhibit 10.16 to AMD's Quarterly Report on Form 10-Q for the period ended July 2, 2006, is hereby incorporated by reference. Advanced Micro Devices, Inc. Executive Investment Account...

  • Page 170
    ... Advanced Micro Devices, Inc. and International Business Machines Corp. filed as Exhibit 10.36(b) to AMD's Quarterly Report on Form 10-Q for the period ended September 26, 2004, is hereby incorporated by reference. Design and Build Agreement dated November 15, 1996, between AMD Saxony Manufacturing...

  • Page 171
    ...10-K for the fiscal year ended December 28, 2003, is hereby incorporated by reference. AMD Saxonia Research, Design and Development Agreement, dated as of March 11, 1997, between AMD Saxony Manufacturing GmbH and AMD Saxony Holding GmbH, filed as Exhibit 10.50(m) to AMD's Quarterly Report on Form 10...

  • Page 172
    ... Liability Company & Co KG and M+W Zander Facility Engineering GmbH, dated November 20, 2003 filed as Exhibit 10.47 to AMD's Annual Report on Form 10-K for the period ended December 26, 2004, is hereby incorporated by reference. Cooperation Agreement between Advanced Micro Devices, Inc., the Free...

  • Page 173
    ... to the Term Loan Facility Agreement by and between Advanced Micro Devices, Inc., AMD Fab 36 Limited Liability Company & Co. KG, AMD Fab 36 Holding GmbH and the financial institutions named therein dated October 10, 2006 filed as Exhibit 10.1 to AMD's Current Report on Form 8-K dated October...

  • Page 174
    ...1 to the AMD Fab 36 Management Services Agreement by and between Advanced Micro Devices, Inc., AMD Saxony Limited Liability Company & Co. KG., AMD Fab 36 Limited Liability Company & Co. KG and AMD Fab 36 Holding GmbH dated September 25, 2006 filed as Exhibit 10.1 to AMD's Quarterly Report on Form 10...

  • Page 175
    ... Stock Unit Award (2004 Equity Incentive Plan) filed as Exhibit 10.4 to AMD's Quarterly Report on Form 10-Q for the period ended October 1, 2006, is hereby incorporated by reference Underwriting Agreement by and between Spansion Inc., AMD Investments, Inc. and Fujitsu Limited dated November 15, 2006...

  • Page 176
    ... Kingdom Financial Services Ltd. dated March 26, 2008 filed as Exhibit 10.1 to AMD's Quarterly Report on Form 10-Q for the period ended June 28, 2008, is hereby incorporated by reference. Master Transaction Agreement by and among Advanced Micro Devices, Inc., Advanced Technology Investment Company...

  • Page 177
    ... of this Exhibit have been omitted pursuant to a request for confidential treatment. These portions have been filed separately with the Securities and Exchange Commission. AMD will furnish a copy of any exhibit on request and payment of AMD's reasonable expenses of furnishing such exhibit. 167

  • Page 178
    ... authorized. February 24, 2009 ADVANCED MICRO DEVICES, INC. By: /s/ ROBERT J. RIVET Robert J. Rivet Executive Vice President, Chief Operations and Administrative Officer, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 179
    SCHEDULE II ADVANCED MICRO DEVICES, INC. VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2006, December 29, 2007 and December 27, 2008 (In millions) Additions Charged (Reductions Credited) To Operations Balance Beginning of Period Deductions(1) Balance End of Period Allowance for ...

  • Page 180
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 181
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 182
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 183
    ... York Stock Exchange Listed Company Manual. This certification was provided without qualification. The Company also filed as Exhibits 31 and 32 to its Annual Report on Form 10-K for the year ended December 27, 2008, the certification of its Principal Executive Officer and Principal Financial Officer...

  • Page 184
    Cert no. SCS-COC-00648 AMD-31211-F