AMD 2015 Annual Report Download - page 47

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 26, 2015 and December 27, 2014 and for each of the three years in the period ended December 26,
2015 and related notes, which are included in this Annual Report on Form 10-K as well as with the other sections
of this Annual Report on 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 primarily offering:
(i) x86 microprocessors, as a standalone central processing unit (CPU) or as incorporated into an
accelerated processing unit (APU), chipsets, and discrete graphics processing units (GPUs) for the
consumer, commercial and professional graphics markets; and
(ii) server and embedded CPUs, GPUs and APUs, and semi-custom System-on-Chip (SoC) products and
technology for game consoles.
In this MD&A, we will describe the results of operations and the financial condition for us and our
consolidated subsidiaries, including a discussion of our results of operations for 2015 compared to 2014 and 2014
compared to 2013, an analysis of changes in our financial condition and a discussion of our contractual
obligations and off balance sheet arrangements.
Overview
We faced a challenging business environment in 2015. The impact of global macro-economic conditions,
especially the volatility in the Greater China region contributed to a decrease in demand for our products.
Additionally, competitive pressures contributed to an overall challenging year. We also experienced reduced
demand from our Original Equipment Manufacturers (“OEM”) customers in advance of the launch of Microsoft
Windows®10. Net revenue for 2015 was approximately $4.0 billion, a decrease of 28% compared to 2014 net
revenue of $5.5 billion. The decrease in net revenue from 2014 was due to a 42% decrease in Computing and
Graphics segment revenue and an 8% decrease in Enterprise, Embedded and Semi-Custom segment revenue.
Computing and Graphics segment revenue declined year-over-year primarily due to lower client processor sales.
Enterprise, Embedded and Semi-Custom segment revenue declined year-over-year primarily due to lower server
and embedded revenue and lower game console royalties, partially offset by higher semi-custom SoC sales.
Gross margin, as a percentage of net revenue for 2015, was 27% compared to 33% in 2014. Gross margin in
2015 was adversely impacted by an inventory write-down of $65 million, which was primarily the result of lower
anticipated demand for older-generation APUs and a technology node transition charge of $33 million. The
impact of the write-down accounted for approximately two gross margin percentage points and the technology
node transition charge accounted for approximately one gross margin percentage point. Gross margin in 2015
was also adversely impacted by a lower proportion of revenue from Computing and Graphics segment due to
lower sales which has a higher average gross margin than our Enterprise, Embedded and Semi-Custom segment
and due to lower game console royalties. Gross margin in 2014 included a $58 million lower of cost or market
inventory adjustment, which accounted for one gross margin percentage point, and a $27 million benefit from
technology licensing revenue, which accounted for less than one gross margin percentage point. Operating loss
for 2015 was $481 million compared to an operating loss of $155 million in 2014. The decline in operating
performance in 2015 compared to 2014 was primarily due to a decrease in net revenue and in gross margin as
described above.
Despite the challenging business environment, we made important changes to our business. During 2015,
we continued to focus on introducing a more diverse product portfolio. As part of our long-term strategy to
deliver great products, we introduced a number of new products in 2015 including, our 6th Generation AMD A-
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