AMD 2008 Annual Report Download - page 74

2006. Gross margin percentage in the first half of 2007 was also negatively impacted by higher manufacturing
unit costs for our microprocessor products due to a shift in our product mix to higher-end microprocessors and
increased depreciation expenses associated with the expansion of Fab 36. However, manufacturing efficiencies,
improved inventory management, and a richer product mix in the second half of 2007 offset the unfavorable
impact in the first half of 2007. On an annual basis, the inclusion of ATI’s lower margin operations in our
consolidated operations adversely impacted our gross margins by approximately two percentage points.
We record grants and allowances that we receive from the State of Saxony and the Federal Republic of
Germany for our Dresden facilities as long-term liabilities on our consolidated financial statements. We amortize
these amounts as they are earned as a reduction to operating expenses. We record the amortization of the
production related grants and allowances as a credit to cost of sales. The credit to cost of sales totaled $86 million
in 2008, $138 million in 2007 and $116 million in 2006. The fluctuations in the recognition of these credits have
not significantly impacted our gross margins.
Expenses
Research and Development Expenses
Research and development expenses increased $77 million, or 4 percent, from $1.8 billion in 2007 to $1.9
billion in 2008. This increase was primarily due to a $63 million increase in research and development expenses
attributable to the Computing Solutions segment and a $9 million increase in research and development expenses
attributable to our Graphics segment. Research and development expenses for the Computing Solutions segment
increased primarily due to higher product engineering and design costs for our next generation microprocessor
products and start-up costs for Fab 38. Research and development expenses for the Graphics segment increased
primarily due to higher product engineering and design costs.
Research and development expenses increased $581 million, or 49 percent, from $1.2 billion in 2006 to $1.8
billion in 2007. The increase was primarily attributable to: a $329 million increase in research and development
expenses attributable to our Computing Solutions segment and a $189 million increase in research and
development expenses attributable to our Graphics segment. Research and development expenses attributable to
our Computing Solutions segment increased due primarily to higher product engineering 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 increased primarily due to the inclusion of operations
related to this segment for the full year in 2007 compared to nine weeks in 2006.
From time to time, we also apply for subsidies relating to certain research and development projects. These
research and development subsidies are recorded as a reduction of research and development expenses when all
conditions and requirements set forth in the subsidy grant are met. The credit to research and development
expenses totaled $36 million in 2008, $30 million in 2007 and $27 million in 2006.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses decreased $56 million, or 4 percent, from $1.4 billion in
2007 to $1.3 billion in 2008. This decrease was primarily due to a $97 million decrease in corporate marketing
and branding expenses for our Computing Solutions segment and a $25 million decrease in stock-based
compensation expense, which decreased for the reasons set forth under “Stock-Based Compensation Expense,”
below. These decreases were partially offset by a $33 million increase in marketing, general and administrative
expenses for the Graphics segment and $23 million of expenses in connection with the formation of The Foundry
Company manufacturing joint venture. Graphics’ marketing, general and administrative expenses increased due
to higher marketing and cooperative advertising costs related to the launch of new products.
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