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2012 ANNUAL REPORT ON FORM 10-K To Our Stockholders: During 2012, a fundamental shift occurred that is re-defining the landscape of our industry and providing new growth opportunities for AMD. Despite annual revenue declining 17% from the prior year, we faced the macro environment challenges head-on by taking decisive actions to position AMD for long-term success. Although we believe the PC market has begun to stabilize, we expect demand for PCs to remain choppy through the first half of 2013. As we embrace shifts in the industry that provide new growth opportunities, we are executing a three-step plan to stabilize, accelerate and ultimately transform AMD: • Completing the restructuring of our business. This is a critical step to reduce our operating costs and help return us to profitability. • Accelerating our business in 2013. We have already successfully passed several key milestones as we execute the delivery and launch of a new set of powerful product offerings based on our differentiated intellectual property (IP). • Transforming AMD to take advantage of high growth opportunities in adjacent markets where our IP provides a competitive advantage and a path for growth. Restructuring Plan: Reduce Operating Expenses and Better Position AMD Competitively In the fourth quarter of 2012, we completed the majority of the restructuring initiatives we laid out during the third quarter. We are simplifying our product development cycles, streamlining our supply chain operations, and methodically reviewing every process within the company to improve our cost structure and gain efficiencies. Our restructuring efforts are expected to reduce our quarterly operating expenses by approximately 25% from early 2012 levels and position us for improved financial results in the second half of the year. We also remain focused on maintaining a healthy balance sheet. Accelerating our Business: Innovate and Create Great Products We have built a strong portfolio of new products that position us to regain share in several key markets. Our newest A-series Accelerated Processing Unit (APUs), codenamed “Richland,” and our “Brazos” follow-on offering “Kabini,” designed for low-power mainstream notebooks, began shipping at the beginning of 2013. We are seeing strong customer response for our ultra-low power “Temash” and “Kabini” APUs for notebooks, convertibles and tablets. “Temash” and “Kabini” are our first full System-on-a-Chip (SoCs) APUs, and they are both exceeding our performance expectations. “Kabini,” a revolutionary SoC, will be the industry’s first true quad-core x86 SoC, and we expect “Temash” to be the highest-performing SoC designed for the tablet market: more than doubling the graphics performance of our current generation tablet offering.1 We also plan to introduce new notebook and desktop graphics chips based on our Graphics Core Next architecture, and intend to sustain our leadership position in the graphics market. Our high-performance graphics technologies remain a cornerstone of our end-to-end product strategy. Consumers are seeking visually rich, graphics intensive experiences, and we intend to be their ideal graphics partner. We also expect our first semi-custom APU design wins to come to market this year, with the goal of growing our embedded and semi- custom revenue to approximately 20% of our revenue by the fourth quarter of 2013. Sony announced that its next-generation PlayStation 4 game console will be powered by a semi-custom AMD APU that combines an 8-core AMD “Jaguar” CPU with next-generation AMD Radeon graphics to deliver 1.84 TFLOPS of performance. We believe that this is a strong endorsement of our technology and design capabilities by one of the largest consumer electronics companies in the world. Our customers are very excited about our strategy, our products and our roadmap. Today, AMD technology can be found in the world’s top 10 PC makers. We were proud to welcome VIZIO as a new customer earlier this year based on the strength of our 2013 products, including the industry-leading graphics performance and long battery life of our APUs. We have also bolstered our channel partnerships to grow APU and AMD Radeon discrete graphics add-in-board sales. We are as focused as ever on anticipating the needs of the market and ensuring we are the partner of choice for our customers. Transforming AMD: Successfully Integrating a New Operating Model The third phase of our growth strategy focuses on taking our world-class IP and design capabilities and applying them to adjacent markets where we can create true leadership. We are confident that by combining our differentiated IP and design capabilities with our ability to anticipate the needs of the market and emerging trends, AMD is well-positioned for future success and profitability. Our strategy remains unchanged: we will continue diversifying our product offerings, driving a larger portion of our business outside of the traditional PC segment which accounts for approximately 85% of our revenue today. Dense servers represent the fastest growing part of the server market. In 2012 we acquired SeaMicro, a leader in energy-efficient, high- bandwidth microservers. Servers based on our unique dense server SeaMicro IP can reduce power consumption by up to one-half while taking as little as one-third of the space and delivering up to 12x the bandwidth of traditional servers.2 During the year we also formed a strategic relationship with ARM, becoming the first company to announce plans for both 64-bit ARM and x86-based server solutions. The unmatched combination of AMD’s design capabilities, system and fabric IP acquired in the SeaMicro acquisition, and our forthcoming 64- bit ARM processors position us well to attack the fastest growing segment of the server market. In the ultra-low power client space, we continue to drive performance-per-watt improvements and enhanced capabilities that deliver better user experiences in our client processors. Our APUs are ideally suited for these new products, from ultrathins and tablets to a new breed of entry-level notebooks designed to drive growth in emerging markets. To take advantage of this opportunity, we formed the Heterogeneous Systems Architecture (HSA) Foundation with other industry leaders like ARM, Imagination Technologies, MediaTek, Qualcomm, Samsung, and Texas Instruments. The HSA Foundation is creating a common hardware standard for heterogeneous computing that will make it easier for software developers to tap into the full potential of the IP that powers our APUs. In the embedded and semi-custom markets, we believe our low-power APUs, graphics IP and re-useable IP blocks give AMD a distinct advantage to offer differentiated solutions. In addition to high-volume semi-custom design, we are focused on growing share in targeted embedded markets including communications, industrial and gaming. Building an Industry Leader: Poised for Growth This year we expect to see the benefits from our lower-cost operating model and more efficient business processes. Our portfolio of new products is designed to accelerate our business and position us for improved financial results and consistent growth. The PC business will remain a good business for AMD, but we must diversify to drive growth and take advantage of new leadership opportunities. When I joined AMD in 2011, more than 95% of the company’s revenue came from the traditional PC space. We expect that by the end of 2013, less than 80% of our revenue will come from the PC market. In two to three years, we expect revenue outside the PC space to account for approximately 50% of total revenue. To become a leader in these new markets, we are building a more agile AMD well-suited to capture new opportunities in a cloud-driven, interconnected and mobile world. Cloud computing is the big shift that will define the next industry era, and we are embracing this shift and helping to drive the transition that will move the industry forward. We are tremendously optimistic about what lies ahead for AMD. Our team knows that success will not come without hard work and we are determined to take AMD to the next level. We are energized, focused and already well on our way to transforming AMD. We will continue to build a better, stronger AMD for the industry and for you. Sincerely, Rory P. Read President and Chief Executive Officer AMD March 2013 1 Test conducted in AMD Performance Labs using FutureMark 3DMark Vantage P as a metric for GPU performance and PC Mark Vantage as a metric for CPU performance. The AMD Z-60 APU-based system scored 455 and 1914 in 3DMark and PCMark respectively. The AMD A6- 1450 APU-based system delivers scores of 981 and 3123 in 3DMark and PCMark respectively. The platforms tested were the AMD Z-60 APU with AMD Radeon HD 6250 graphics, 2x 2GB DDR3-1066, Microsoft Windows 7 and the “Larne” reference platform with an AMD A6- 1450 Quad Core 1.0GHz APU, AMD Radeon™ HD 8280 series graphics, 2GB DDR3-1066 system memory and Microsoft Windows 7. TEM-2 2 1/2 the power or twice the compute per-watt based on a comparison of same throughput achieved by 28 traditional 2P Hex Core 1U Westmere rack servers @ 7300 total watts at 100% utilization and 64 1P SeaMicro servers in a single 10U chassis at 3,550 total watts at 100% utilization, running SPEC_intrate and SPEC_fprate workload. 1/3 the floor space or three times the compute-per-unit space is based on a comparison of 28 1U traditional dual socket hex core servers plus 1RU rack switch and 1RU terminal versus one SeaMicro chassis at 10U. 12X throughput is based on a traditional Dual socket platform with 12 cores (2 socket x six cores) and 2x1GB NICs (2 Gig/12 cores = 167 Mbps bandwidth per core) compared to a SeaMicro single socket server 4 cores and aggregated bandwidth of up to 8 1 Gig NICs for each socket (8 Gig/4 cores = 2Gbps bandwidth per core) 2/.167 = 12.