2008 ANNUAL REPORT ON FORM 10-K “Only two companies in the world develop and deliver x86 microprocessors in volume. Only two companies in the world deliver leading-edge 3D graphics. Only AMD does both.” – Dirk Meyer, AMD president and CEO To Our Stockholders: Against the backdrop of an economically challenging year, AMD made bold moves in 2008 designed to strengthen the company and create a more flexible operating model. We exhibited solid product execution, implemented restructuring plans to help reduce our break-even point, and worked to divest our non-strategic businesses to focus on what we do best: delivering leading PC and data center platforms. Given the economic realities of the market, we are sizing the company in an effort to achieve consistent profitability, while continuing to invest in and deliver the strongest product and technology roadmap in AMD’s history. 2008: Year of Transformation Marked by Strategic Moves We recently announced the close of our Asset Smart transaction with the Advanced Technology Investment Corporation (ATIC) and the Mubadala Development Company of Abu Dhabi, creating GLOBALFOUNDRIES, a leading-edge semiconductor manufacturing company. GLOBALFOUNDRIES will allow AMD to scale our manufacturing needs without having to fund the high costs of leading-edge semiconductor manufacturing. As a result, AMD improved its cash position by approximately $825 million, excluding its consolidation of the operations of GLOBALFOUNDRIES for financial reporting purposes, and transferred the repayment obligations for approximately $1.1 billion in indebtedness to GLOBALFOUNDRIES. We have astute, strategic partners in Mubadala and ATIC, who are committed to AMD’s long-term success, while driving new industry innovation with GLOBALFOUNDRIES. Strong Execution Leading to New Product Momentum 2008 was also a year in which we showed solid execution across our product lines. We delivered our first platforms, codenamed “Spider” and “Puma”, combining leading graphics with microprocessors to create a superior computing experience for today’s PC users. We reestablished the ATI Radeon™ brand as the single fastest graphics card with the launch of ATI Radeon™ HD 4870 X2 graphics. By the end of the year, the ATI Radeon HD 4800 series extended graphics leadership from the ultra-enthusiast to the value segment of the market, with a winning product in every price band. Customers embraced our Quad-Core AMD Opteron™ processor code-named “Shanghai,” which excels in the workloads that matter most to IT users. Fusion: More than a Brand We launched a new corporate brand initiative called Fusion. The power of Fusion is much more than the convergence of computing and graphics processing on a single chip. It is a business approach that describes how AMD ignites next-generation solutions at work, home and play through an adaptive combination of three tenets: technology integration, customer intimacy and industry impact. These tenets are a driving force for the ongoing development of products, programs and activities at AMD. Technology integration refers to how we combine our x86 processing and graphics expertise to power next-generation solutions. Customer intimacy describes the collaborative bond that we aim to create with customers and partners. Finally, industry impact describes how we deliver previously unattainable technology to the mainstream, fueling competition and energizing industry innovation. Significant Progress in the Fight for Fair and Open Competition 2008 saw several major developments in the fight for fair and open competition go favorably for AMD, the global computing industry and the billions of consumers that depend on technology as Intel came under increasingly intense global antitrust scrutiny. The Korean Fair Trade Commission ruled that Intel broke that country’s antitrust laws and imposed a substantial fine and a cease and desist order. In January, the European Union’s Court of First Instance denied Intel’s attempt to delay ongoing antitrust proceedings against it, and we expect that the European Commission will render a final ruling in the Intel antitrust matter in 2009. In the United States, both the U.S. Federal Trade Commission and the New York Attorney General’s Office have very active formal antitrust investigations into Intel’s business practices. We believe that 2009 will be an important year for us and the industry as leading competition authorities continue to act to address Intel’s illegal abuses of monopoly power; illegal abuses that clearly subvert competition, hurt consumers, and slow the pace of innovation. 2008 Financial Results The credit market crisis and related other macro-economic conditions affecting the global economy challenged us greatly in 2008. In particular, during the fourth quarter of 2008, which is typically our strongest quarter of the fiscal year, end user demand for PCs and servers decreased. In turn, our customers sharply reduced orders for our products in order to balance their inventory levels to address the decline in end-customer demand. We believe this state of weak end-customer demand will continue. Although 2008 net revenue was approximately flat compared to 2007, net revenue for the fourth quarter of 2008 decreased 35 percent compared to the third quarter of 2008 and 33 percent compared to the fourth quarter of 2007 due primarily to deteriorating global economic environment. In light of the current economic environment, we are focused on preserving and generating cash while protecting our core investments, and of course, continuing to serve our customers’ needs. Our primary goals are 1) cash management, 2) investment in the future and 3) improving our financial performance. Despite the uncertainty of the market, we believe our product line-up is strong and we look forward to achieving our goal to exit 2009 free cash-flow positive*. 2009: A New Economic Reality that Plays to AMD’s Strengths 2009 marks AMD’s 40th anniversary as a semiconductor industry innovator that designs and markets products and platforms to enable the next-generation of applications at home, work and play. With the close of our Asset Smart transaction, we continue transforming AMD into a stronger, more agile innovation engine. I am confident that with our new operating model, strong roadmap and portfolio of world-class customers, AMD is primed for long-term success and growth. Meanwhile, the world is going through an unprecedented shift to value—one that is unlikely to change in the foreseeable future. We are well positioned to benefit because, in our business, ‘when you think value, you think AMD.’ In the markets we serve, the definition of value is changing—to one grounded in real-world experiences and applications that define them. The user experience is no longer defined by the raw speed of the processor, but by how well the overall system performs on the most relevant workloads and usage models. Platforms: Providing a Superior User Experience The era of components is ending and the future is about platforms. We are creating platforms that combine our unique technology assets to deliver a superior user experience. For example, AMD recently announced a new notebook platform for the ultrathin market in response to the growing interest in netbooks. Although today’s users want mobility, many do not want to sacrifice the full-feature PC experience. AMD collaborated with HP to develop a notebook platform for the ultrathin market that offers a feature-rich experience at an affordable price. The HP Pavilion dv2 Entertainment Notebook PC was launched to industry accolades and received a CES Best of Show from Laptop Magazine earlier this year. In 2009, we plan to double the number of platforms we deliver year-over-year. Raising the Bar in Graphics Regardless of the form factor, today’s user demands an experience that is visually-rich and media intensive. AMD is focused on delivering the world’s leading graphics solutions for PCs, workstations and game consoles. Last year, we changed the rules of the game in graphics and captured the hearts of the enthusiast community. By combining two ATI Radeon HD 4800 series GPUs with an advanced cross-GPU connection, we created a more scalable * Defined as cash flow from operations less capital expenditures. architecture that delivered greater power efficiency and astonishing frame rates. As an encore, we plan to introduce even higher performing solutions in 2009, cascading the technology through the stack to integrated solutions. Performance Leadership in Server Workloads that Matter Today’s data centers are moving to consolidation and cloud computing to improve their hardware utilization and energy-efficiency to reduce costs. With innovations designed to deliver leading virtualization and power capabilities, our Quad-Core AMD Opteron™ processor codenamed “Shanghai” offers superior performance in the workloads that matter most to our customers. Later this year, we plan to launch the industry’s first x86 six-core processor for 2-, 4-, and 8-socket servers, code-named “Istanbul.” “Istanbul” has been designed to offer a substantial performance leap over “Shanghai.” With the same socket infrastructure, customers will essentially drop-in “Istanbul,” load a new BIOS and upgrade their dual- or quad-core servers to six-cores, dramatically increasing the utilization of their data center. Converting AMD’s Potential into Business Success As I was transitioning to become CEO, I spent time thinking about the type of company that AMD will become. With our Asset Smart transaction, we are redefining who we are. We are a company like no other company in our industry. We are a design and marketing leader in computing and graphics with a unique portfolio of intellectual property and a combination of world-class design expertise that is supported by leading-edge manufacturing. We have an impressive roster of world-class customers, a highly-talented global workforce, a sleek new operating model and we are optimized for rapid innovation. As CEO, my goal is to work with my executive team to convert all of this potential into business success.