AMD 2008 Annual Report Download - page 58

declined 4 percent compared to 2007 due to lower average selling prices and unit volumes for our Computing
Solutions segment. Although 2008 net revenue was approximately flat compared to 2007, net revenue for the
fourth quarter of 2008 decreased 35 percent compared to the third quarter of 2008 and 33 percent compared to
the fourth quarter of 2007. Excluding the $191 million process technology license revenue from the third quarter
of 2008, net revenue for the fourth quarter of 2008 would have decreased 28 percent from the third quarter of
2008. The decline was primarily due to the global economic environment, which significantly affected demand
during the fourth quarter of 2008. Although the fourth quarter results for our Graphics segment were not immune
to the impact of the global economic recession, with net revenue for our Graphics segment declining by 30
percent in the fourth quarter of 2008 compared to the third quarter of 2008, net revenue for the Graphics segment
increased by 17 percent compared to 2007. 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, a 3 percent increase compared to 37
percent in 2007. During the fourth quarter of 2008 we experienced a large incremental write-down of inventory
due to a weak economic outlook. This $227 million incremental inventory write-down negatively impacted gross
margin in 2008 by 4 percentage points. Gross margin in 2008 was favorably impacted by 2 percentage points as a
result of the process technology license revenue referenced above. Without the impact of the incremental write-
down of inventory and the technology license revenue, 2008 gross margin would have increased 5 percentage
points compared to 2007 primarily due to an improvement in fab utilization and reductions in manufacturing
costs.
Our operating loss for 2008 was $2 billion compared to $2.3 billion in 2007. The reduction in the operating
loss was primarily due to a $193 million gain on the sale of 200 millimeter equipment, which is included in the
caption “Gain on sale of 200 millimeter equipment” in our 2008 consolidated statement of operations, and the
$191 million of process technology license revenue referenced above. Without the impact of the above
mentioned gain on tool sales and process technology license revenue, our 2008 operating loss would have been
flat compared to 2007.
In light of the current economic environment, one of our key priorities is to preserve cash. Our cash, cash
equivalents and marketable securities as of December 27, 2008 were $1.1 billion compared to $1.9 billion at
December 29, 2007. This decline in our cash, cash equivalents and marketable securities was primarily due to our
significant losses. To that end, during 2008 we undertook, and plan to continue to undertake, a number of actions
to decrease our expenses. For 2008 our capital expenditures decreased to $621 million compared to $1.7 billion
in 2007. Moreover, in the second and fourth fiscal quarters of 2008 we implemented restructuring plans to reduce
our expenses. The plans primarily involve the termination of employees, contract or program terminations and
facility site consolidations and closures. In January 2009 we announced additional headcount reductions,
primarily focused on our back-end manufacturing and sales, marketing, and general and administrative functions,
and cost reduction activities including temporary salary reductions for employees in the United States and
Canada and suspension of certain employee benefits. We also plan to reduce our manufacturing output in order to
control our inventory levels.
Moreover, in the fourth quarter of 2008 and in January 2009, we divested our Digital Television business
unit and certain assets related to our Handheld business unit, respectively. The aggregate cash consideration for
these divestures was over $200 million, and the divestitures will allow us to focus on our core strategy of
computing and graphics market opportunities. In addition, in October 2008 we entered into a Master Transaction
Agreement with ATIC and WCH to form a manufacturing joint venture, The Foundry Company. Upon
consummation of the transactions contemplated by the Master Transaction Agreement, we anticipate certain
benefits to our business, including, on a consolidated basis, the infusion of approximately $2.2 billion of cash, of
which approximately $800 million will be available for current working capital purposes and $1.4 billion will go
to The Foundry Company to fund its operations, including capital expenditures and repayment of approximately
$1.1 billion (as of December 27, 2008) of indebtedness, which we will transfer to The Foundry Company upon
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