AMD 2012 Annual Report Download - page 49

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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 29, 2012 and December 31, 2011 and for each of the three years in the period ended December 29,
2012 and related notes, 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.”
Introduction
We are a global semiconductor company with facilities around the world. Within the global semiconductor
industry, we offer primarily:
(i) x86 microprocessors, as standalone devices or as incorporated as an APU, for the commercial and
consumer markets, embedded microprocessors for commercial, commercial client and consumer
markets and chipsets for desktop and mobile devices, including mobile PCs and tablets, professional
workstations and servers; and
(ii) graphics, video and multimedia products for desktop and mobile devices, including mobile PCs and
tablets, home media PCs and professional workstations, servers and technology for game consoles.
In this MD&A, we will describe the results of operations and the financial condition for Advanced Micro
Devices, Inc. and our consolidated subsidiaries, including a discussion of our results of operations for 2012
compared to 2011 and 2011 compared to 2010, an analysis of changes in our financial condition and a discussion
of our contractual obligations and off balance sheet arrangements. References in this Item 7 and in Item 8,
“Financial Statements and Supplementary Data,” to “us,” “our,” or “AMD” include the operating results of AMD
and our consolidated subsidiaries.
Overview
2012 was a challenging year for our industry and for AMD. The significant macroeconomic issues and
unprecedented level and pace of change occurring across the industry magnified the challenges in our business
and negatively impacted our 2012 financial results. In the second half of 2012, in particular, broader
macroeconomic issues and changing PC dynamics impacted demand for end-user PC products. Weakness in the
global economy, a reluctance on the part of OEMs to build inventory in advance of Microsoft’s Windows 8™
launch and the increasing popularity of tablets as a consumer device of choice contributed to the challenging
business environment. As a result, we faced a difficult selling environment, which adversely affected our 2012
financial performance.
Net revenue for 2012 was $5.4 billion, a decrease of 17% compared to 2011 net revenue of $6.6 billion.
Gross margin, as a percentage of net revenue for 2012 was 23% compared to 45% in 2011. Gross margin in 2012
included the following charges, which resulted in a negative impact of 22% in 2012: a $273 million Lower Cost
or Market (LCM) charge, a $703 million charge related to a limited waiver of exclusivity from GF and a $5
million charge related to a legal settlement. Gross margin in 2011 included a $24 million charge recorded in
connection with a payment to GF, primarily related to certain GF manufacturing assets, and a $5 million charge
related to a legal settlement. Absent the effects of these events, which we believe are not indicative of our
ongoing operating performance, our gross margin would have been 41% in 2012 compared to 45% in 2011.
Gross margin in 2012 was adversely impacted by an inventory write-down of $100 million during the third
quarter of 2012 as a result of lower than anticipated future demand for certain products as well as lower average
selling price for microprocessor products due to the challenging macroeconomic conditions described above. Our
operating loss for 2012 was $1.06 billion compared to operating income of $368 million in 2011. Our net loss for
2012 was $1.18 billion compared to net income of $491 million for 2011. Cash, cash equivalents and marketable
securities, including long-term marketable securities, as of December 29, 2012 were $1.2 billion compared to
$1.9 billion at December 31, 2011.
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