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View Annual Report 2013 ANNUAL REPORT ON FORM 10-K Dear Stockholders: In 2013, we made significant progress in bringing AMD closer to our mission of becoming the world’s leading designer and integrator of innovative, tailored technology solutions that empower people to push the boundaries of what is possible. Throughout the year, we achieved many goals the Company set going into 2013 despite broader PC industry challenges. Transformation and Progress: Profitability and Acceleration of Our Business Our strategic three-phase plan to transform AMD began with resetting and restructuring our business to lay the foundation for the acceleration of our growth. By the end of 2013, we successfully implemented phase one and phase two of our turnaround plan to create a more efficient and sustainable business model in the following ways: • Reducing our operating expenses more than 30 percent from the first quarter of 2012 to the fourth quarter of 2013. • Generating more than 30 percent of our net revenues in the second half of 2013 from our semi-custom and embedded businesses, both high-growth focus areas for AMD. • Exiting the year with cash balances, including marketable securities, of $1.2 billion, above our optimal cash balance target of $1.1 billion, and establishing an incremental secured revolving line of credit up to $500 million. • Returning to profitability and free cash flow in the second half of the year. I’m very pleased to report that AMD has also made steady progress on phase three of our plan: to transform our business into a high-growth market competitor. Our business transformation is being propelled by an increasingly diversified product portfolio and a focus on driving to 50 percent of AMD revenue from five high-growth markets by the end of 2015: semi-custom solutions, ultra-low power client PC, embedded, dense server, and professional graphics. We will measure our success in 2014 and beyond as follows: • Increasing profitability. • Further expanding our portfolio of differentiated and reusable IP, and leveraging our IP across a broader set of products. • Generating preference for the AMD brand and our products globally, spring-boarding off the comprehensive brand revitalization work we executed this year. • Retaining the industry’s best top talent and capabilities. As we drive results externally, I’m proud to report that motivation and morale is very high internally, as well. In fact, AMD employees are among the most engaged and optimistic in the industry. Even in the face of difficult cost-cutting and restructuring actions, our 2013 annual employee satisfaction survey yielded our highest levels of employee engagement and confidence in leadership that we’ve seen in more than five years because our people believe in and are committed to our transformation plan. Solid Foundation for Growth: Unique, World-Class Strengths are Setting AMD Apart As we continue to successfully achieve the milestones we’ve set along our transformation journey, it’s exciting to see the industry taking notice of our progress. AMD is being recognized as an innovation powerhouse with a highly-prized IP portfolio that uniquely positions our business to meet the needs of customers across a variety of growth markets. Our IP prowess and capabilities as a world-class System-on-Chip (SoC) designer were perhaps most evident in 2013 in the gaming space, with tailored AMD solutions powering the world’s newest gaming and entertainment consoles from Microsoft and Sony, who chose AMD because of our ability to meet each of their exacting standards for these most critical products. More than seven million Sony Playstation® 4 and Microsoft® Xbox One™ units were shipped globally in less than two months following their respective launches, and AMD executed flawlessly to ensure these customers were able to meet the incredible worldwide demand they experienced. As a part of AMD’s push into embedded markets, we also extended our product portfolio with the world’s first quad-core x86 SoC, the new low-power AMD Embedded G-Series SoC for fanless designs at approximately 3-watts average power.1 The G-Series SoC has received numerous industry awards, and wide-ranging adoption by industry-leading companies like GE Intelligent Platforms and Fujitsu, which helped our embedded business achieve record revenue in 2013. We also detailed our plans to become the first company to offer both 64-bit ARM® and x86 embedded solutions in 2014. Our semi-custom and embedded products enabled us to exceed the goal we set for those businesses to generate over 30 percent of AMD’s net revenue by the third and fourth quarters of 2013. We are also making strides in other growth markets we’ve targeted. Our professional graphics business set a record for full-year revenue in 2013. Apple’s new Mac Pro desktop with dual AMD FirePro™ graphics processing units (GPUs) is a perfect example of our momentum in this margin-accretive market. HP’s new thin and light HP ZBook 14 mobile workstations also rely on AMD FirePro™ professional graphics. We believe we can drive additional growth in the professional graphics market as we further strengthen our product offerings, expand our work with key software developers, and secure more design wins. In dense servers, we remained on track to launch one of the industry’s first 64-bit ARM server SoCs in 2014. Our unique position offering both x86 and ARM solutions combined with our years of experience in the server market and industry- leading fabric technology differentiates us as we bring an expanding set of solutions to this important market. Verizon selected AMD to drive its high-performance public cloud — one of the largest public cloud deployments in the world — choosing our best-in-class reliability powered by SeaMicro SM15000™ servers. We collaborated with Verizon to co- develop a tailored global cloud solution that provides unprecedented performance and high reliability. In our traditional server business, we launched AMD Opteron™ X-Series processors, the industry’s highest performance small core x86 server processors.2 In our mainstream graphics business, we launched a new family of discrete mobile GPU products in the AMD Radeon™ R9, R7, and R5 M200 Series mobile GPUs – all powered by our award-winning Graphics Core Next (GCN) architecture and bolstered by our groundbreaking Mantle technology, which enables game developers to more easily harness the full capabilities of AMD graphics silicon across PCs and consoles and deliver unmatched levels of performance and image quality to users. These new Radeon offerings include the fastest3 desktop and notebook graphics solutions in the world for enthusiasts wanting the best PC gaming experience the market has to offer. Our mainstream graphics and semi-custom businesses have enabled AMD to become the world’s leading silicon provider in gaming, and we expect to regain share in the graphics market in 2014 based on continued channel momentum, secured wins for our new AMD Radeon R7 and R9 discrete mobile GPUs. Earlier in 2013, we unleashed new additions to our A-Series and E-Series Mobile Accelerated Processing Units (APUs) for notebooks and desktop PCs, focusing on increased performance and power efficiency, as well as superior gaming and graphics capabilities. We launched the 2013 AMD Elite Mobility APU (codenamed “Temash”) – the world’s first 28nm, quad-core x86 SoC APU designed for touch small form-factor notebooks, tablets, and hybrids, and the 2013 AMD Mainstream APU (codenamed “Kabini”) – the first and only quad-core x86 SoC solution for entry-level and small-form factor touch notebooks. AMD APUs are enabling our customers and partners to win. As an example, AMD worked with HP to sell over one million APU-powered HP laptops to high school graduates in India’s northern state of Uttar Pradesh in 2013. In addition, our commercial client business in India has also grown tremendously, and in 2013 one in three commercial notebooks in India was powered by AMD APUs. And as we deliver exciting new products, we remain mindful of our environmental, social and governance performance. AMD consistently ranks very highly in this area and has been recognized by third party groups, such as the Dow Jones Sustainability Indexes. In 2013, we were added to Corporate Responsibility magazine’s 100 Best Corporate Citizens list, listed as a Prime Environmental, Social and Governance Investment by Oekom Research and received Grade “A” in the 2013 Intangible Asset Rating from Morgan Stanley Capital International . These ratings and awards reflect our strong and supportive culture, which makes AMD a great place to work, innovate, and win. The Road Ahead: Managing our Business We began 2014 the same way we ended 2013, with a focus on consistently executing our new product introduction commitments for the year and building on the positive progress our Company made in the second half of 2013. It is easy to sound cliché, but cloud computing truly does change everything. The cloud resets consumer expectations for not only when and how they access their data but for how this information is presented in a consistent, easy-to-consume manner independent of a device’s technical specifics. Continued consumer adoption of cloud-dependent devices presents new challenges and opportunities for the providers of server computers, as well. The industry must work to find new ways to deliver this ever increasing need to store and access the data that defines the modern computing experience in vast data centers in the most energy and space efficient way possible. Our industry continues to evolve, and the companies who will win will be the ones who embrace the changes being driven by the increasing proliferation of cloud-based computing. AMD is one of these companies, and we are well- positioned to leverage our unique IP to capitalize in the growth markets we have targeted.
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