AMD 2008 Annual Report Download - page 57

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 as of
December 27, 2008 and December 29, 2007 and for each of the three years in the period ended December 27,
2008 and related notes thereto, which are included in this Form 10-K as well as with the other sections of this
Form 10-K, including “Part I, Item 1: Business,” “Part II, Item 6: Selected Financial Data,” and “Part II, Item 8:
Financial Statements and Supplementary Data.”
In the second quarter of 2008, we decided to divest our Handheld and Digital Television business units,
which were previously part of our former Consumer Electronics segment. As a result, we classified them as
discontinued operations in our financial statements. In the fourth quarter of 2008, we determined that, based on
ongoing negotiations related to the divestiture of the Handheld business unit, the discontinued operations
classification criteria for this business unit were no longer met. As a result we classified the results of the
Handheld business unit back into continuing operations. The following discussion is limited to our continuing
operations, unless otherwise noted.
Introduction
We are a global semiconductor company with facilities around the world. We design, develop and offer
primarily:
• x86 microprocessors, for the commercial and consumer markets, embedded microprocessors for
commercial, commercial 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A,
we will describe the general financial condition and the results of continuing operations for AMD and its
consolidated subsidiaries, including a discussion of our results of operations for 2008 compared to 2007 and 2007
compared to 2006, an analysis of changes in our financial condition and a discussion of our contractual
obligations and off-balance sheet arrangements. Our results of continuing operations include sales of graphics
and chipset products from the effective date of the ATI acquisition on October 25, 2006 through December 27,
2008 in the following reportable segments: (i) Computing Solutions, which includes Chipsets and (ii) Graphics.
We are not able to provide any comparative information for the Graphics segment prior to the ATI acquisition,
since we did not previously participate in this market.
Overview
The credit market crisis and other macro-economic challenges currently affecting the global economy
resulted in a number of challenges for AMD in 2008. In particular, due to the credit markets and the reduced
leverage in the economy, both business and consumer spending decreased, including with respect to end-user
products that incorporate our products. In particular, 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 address
end-customer demand. We believe this inventory correction trend will continue across the supply chain into at
least the first half of 2009, particularly in connection with notebook PCs.
AMD net revenue for 2008 was $5.8 billion, a decrease of 1 percent compared to 2007 net revenue of $5.86
billion. Net revenue in 2008 included $191 million of process technology license revenue related to the sale of
200 millimeter equipment. Excluding this process technology license revenue, 2008 net revenue would have
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