Business Context and Reporting Period
Advanced Micro Devices, Inc. (AMD) filed this Form 10-K for the 52-week fiscal year ended December 30, 2023. AMD is a global semiconductor company serving data center, client computing, gaming and embedded markets with CPUs, GPUs, FPGAs, Adaptive SoCs, AI accelerators, DPUs, semi-custom SoCs and related software.
The company reports four segments: Data Center, Client, Gaming and Embedded. Fiscal 2022 included 53 weeks, while fiscal 2023 included 52 weeks. AMD completed the Xilinx acquisition in February 2022; therefore, fiscal 2023 includes a full year of Xilinx-related revenue compared with a partial period in 2022.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net revenue | $22.680 billion | $23.601 billion | Down 4% |
| Gross profit | $10.460 billion | $10.603 billion | Down 1% |
| Gross margin | 46% | 45% | Up 1 percentage point |
| Operating income | $401 million | $1.264 billion | Down 68% |
| Net income | $854 million | $1.320 billion | Down 35% |
| Diluted EPS | $0.53 | $0.84 | Down 37% |
| Operating cash flow | $1.667 billion | $3.565 billion | Down 53% |
| Capital expenditures | $546 million | $450 million | Up 21% |
| Cash, cash equivalents and short-term investments | $5.8 billion | $5.9 billion | Down $0.1 billion |
| Total debt principal | $2.5 billion | $2.5 billion | Approximately unchanged |
Net cash decreased by $902 million during 2023. Investing activities used $1.423 billion, while financing activities used $1.146 billion. The balance sheet included $16.768 billion of current assets, $6.689 billion of current liabilities and $55.892 billion of stockholders’ equity.
Segment Results
| Segment | 2023 Revenue | Year-over-year change | 2023 Operating Income/(Loss) |
|---|---|---|---|
| Data Center | $6.496 billion | Up 7% | $1.267 billion |
| Client | $4.651 billion | Down 25% | $(46) million |
| Gaming | $6.212 billion | Down 9% | $971 million |
| Embedded | $5.321 billion | Up 17% | $2.628 billion |
| All Other | Not applicable | Not applicable | $(4.419) billion |
Material Changes Versus the Prior Comparable Period
- Data Center revenue increased primarily from higher AMD Instinct GPU and fourth-generation EPYC CPU sales. Management reported strong demand for data center GPUs and significant hyperscaler commitments for MI300 accelerators.
- Client revenue declined because of weak PC market conditions and inventory correction. Ryzen processor average selling price declined 16% and unit shipments declined 12%.
- Gaming revenue declined primarily because of lower semi-custom product revenue, although segment operating income increased modestly due to product mix.
- Embedded revenue increased primarily because fiscal 2023 included a full year of Xilinx revenue. Embedded operating income also benefited from the full-year contribution.
- Research and development expense increased 17% to $5.872 billion, primarily from higher employee-related costs and increased investment in AI.
- Acquisition-related intangible amortization declined to $2.811 billion from $3.548 billion because certain assets became fully amortized. However, AMD expects approximately $2.371 billion of related amortization in fiscal 2024.
- Stock-based compensation increased to $1.384 billion from $1.081 billion.
- Other income increased to $197 million from $8 million, primarily because of higher interest income.
- AMD recorded an income tax benefit of $346 million, producing a negative 68% effective tax rate, compared with a $122 million benefit and negative 10% effective tax rate in 2022. The 2023 benefit included $185 million of foreign-derived intangible income benefit and $169 million of research and development tax credits.
- Accounts receivable increased to $5.376 billion from $4.126 billion, and inventory increased to $4.351 billion from $3.771 billion, reflecting higher year-end sales and inventory builds for advanced process nodes and new product ramps.
Guidance, Outlook, Management Commentary and Risks
The filing does not provide a formal fiscal 2024 revenue or earnings guidance range. Management emphasized its AI strategy, including a broad CPU, GPU and adaptive-computing roadmap, expansion of the ROCm open software ecosystem and deeper customer and ecosystem engagements. AMD acquired Mipsology and Nod in 2023 to strengthen AI software capabilities.
AMD expects its cash, cash equivalents, short-term investments, operating cash flows, revolving credit facility and commercial paper program to fund operations, capital expenditures and purchase commitments for the next 12 months and beyond. The company had $3.0 billion available under its revolving credit facility, no borrowings under that facility, and no commercial paper outstanding at year-end.
- A $750 million senior note matures in June 2024.
- Unconditional purchase commitments totaled $4.594 billion, including $3.858 billion due in 2024, primarily for wafers, substrates, software and technology licenses.
- AMD relies heavily on third-party manufacturing, particularly TSMC for advanced-node products, GLOBALFOUNDRIES for certain products at larger nodes, and third-party assembly, test and packaging providers.
- One customer accounted for 18% of 2023 consolidated revenue, and one customer represented approximately 13% of accounts receivable at year-end.
- International sales represented 65% of 2023 revenue. Export controls, particularly restrictions affecting advanced computing products shipped to China and certain other jurisdictions, may limit sales and product development flexibility.
- Principal competitive risks include Intel in CPUs and FPGAs, NVIDIA in GPUs and AI accelerators, ARM-based alternatives, customer-developed chips, aggressive pricing and rapid product cycles.
- Key operational risks include inventory excess or obsolescence, manufacturing capacity and yield constraints, supply-chain disruptions, product defects, cybersecurity incidents and delays in new product launches.
- Goodwill was $24.262 billion and acquisition-related intangible assets were $21.363 billion at year-end. AMD reported no goodwill impairment in its annual qualitative assessment.
- AMD maintained a valuation allowance of approximately $2.1 billion against certain deferred tax assets. Gross unrecognized tax benefits were $1.463 billion.
- No material legal proceedings were reported. AMD recorded an estimated $4.8 million environmental liability related to three Superfund sites in Sunnyvale, California.
- The company authorized up to $12 billion of stock repurchases. It repurchased $985 million of stock during 2023, with $5.6 billion remaining available at year-end, and stated that it does not expect to pay dividends in the near term.
Most Important Facts an Investor Should Verify
- Whether MI300 and subsequent AI accelerator shipments can scale sufficiently to offset continued competition and support Data Center growth.
- Whether Client and Embedded inventory corrections have ended and whether inventory of $4.351 billion can be sold without significant additional write-downs or margin pressure.
- The effect of the $750 million debt maturity, $4.594 billion of purchase commitments and expected 2024 acquisition-related amortization on liquidity and earnings.
- Customer concentration, including the 18% Gaming customer, and the effect of any change in console or semi-custom demand.
- TSMC, GLOBALFOUNDRIES and assembly-and-test capacity, wafer purchase obligations and potential supply or yield constraints.
- Changes in U.S. export controls, China-related restrictions and other geopolitical developments affecting advanced computing products.
- The sustainability of the unusually favorable 2023 tax benefit and the realizability of deferred tax assets subject to the $2.1 billion valuation allowance.
- Execution of the AI software ecosystem, including ROCm adoption, integration of the Mipsology and Nod acquisitions and associated R&D spending.
- Potential impairment or accelerated amortization of the company’s substantial goodwill and acquisition-related intangible asset balances.
- Cybersecurity, product vulnerability, litigation, environmental remediation and third-party manufacturing risks, none of which was identified as materially adverse at filing but each could materially affect future results.