UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 29, 200726, 2009

OR

For the transition period from ____________ to ____________

Commission File Number 001-07882

ADVANCED MICRO DEVICES, INC.

(Exact name of registrant as specified in its charter)

(408) 749-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x  No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  ¨  No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):  Yes  ¨  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x

As of June 29, 2007,27, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $7.9$1.7 billion based on the reported closing sale price of $14.30$3.62 per share as reported on the New York Stock Exchange on June 29, 2007,26, 2009, which was the last business day of the registrant’s most recently completed second fiscal quarter.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 605,554,534672,132,143 shares of common stock, $0.01 par value per share, as of February 11, 2008.16, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders, towhich we expect will be held on May 8, 2008 (2008or about April 29, 2010 (2010 Proxy Statement) are incorporated into Part II and III hereof.

Advanced Micro Devices, Inc.

FORM 10-K

For The Fiscal Year Ended December 29, 200726, 2009

INDEX

i

PART I

Cautionary Statement Regarding Forward-Looking Statements

The statements in this report include forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things: demand for our products in 2010 and beyond; the timing of new product releases; volume shipments of products; shipments of chipsets for Intel CPUs;releases and technology transitions; the growth and competitive landscape of the markets in which we participate; our revenues; our capital expenditures; our planned research and development spending; our product roadmap; our cost of sales and our operating expenses; our depreciation and amortizationinterest expense; our acquisition-related charges; our income tax expense; our aggregate contractual obligations; and availability of external financing. Material factors and assumptions that were applied in making these forward-looking statements include, without limitation, the following: (1) the expected rate of market growth and demand for our products and technologies (and the mix thereof); (2) our expected market share; (3) our expected product and manufacturing costs and average selling prices;price; (4) our overall competitive position and the competitiveness of our current and future products; (5) our ability to introduce new products, and effect transitions to more advanced manufacturing process technologies, consistent with our current plans in terms of timing and capital expenditures;roadmap; (6) our ability to raise sufficient capital on favorable terms; (7) our ability to make additional investment in research and development and that such opportunities will be available; (8) our ability to realize the anticipated benefits of the GLOBALFOUNDRIES (GF) manufacturing joint venture and (8)of our asset smart strategy; (9) the expected demand for computerscomputers; and consumer electronics products.(10) the state of credit markets and macroeconomic conditions. Material factors that could cause actual results to differ materially from current expectations include, without limitation, the following: (1) that Intel Corporation’s pricing, marketing and rebating programs, product bundling, standard setting, new product introductions or other activities may negatively impact sales;our plans; (2) that we may be unable to develop, launch and ramp new products and technologies in the volumes that are required by the market at mature yields on a timely basis; (3) that our substantial indebtedness could adversely affect our financial position and prevent us from implementing our strategy or fulfilling our contractual obligations; (3)(4) that we will require additional funding and may be unable to raise sufficient capital on favorable terms, or at all; (4)(5) that we may be unable to realize the anticipated benefits of our acquisition of ATI Technologies Inc. (ATI)asset smart strategy or the GF manufacturing joint venture because, among other things, the revenues, cost savings, growth prospects and any other synergies expected from the transaction may not be fully realized or may take longer to realize than expected; (5)(6) that customers stop buying our products or materially reduce their operations or demand for our products; (7) that we may be unable to maintain the level of investment in research and development and capacity that is required to remain competitive; (6) that we may be unable to develop, launch and ramp new products and technologies in the volumes that is required by the market at mature yields on a timely basis; (7) that we may be unable to transition to advanced manufacturing process technologies in a timely and effective way, consistent with planned capital expenditures; (8) that there may be unexpected variations in market growth and demand for our products and technologies in light of the product mix that we may have available at any particular time or a decline in demand; (9) that macroeconomic conditions and credit market conditions will be worse than currently expected; (10) that demand for computers and consumer electronics products will be lower than currently expected; (10) that we may be unable to obtain sufficient manufacturing capacity (either in our own facilities or at foundries) or components to meet demand for our products;and (11) that we may under-utilize our microprocessor manufacturing facilities; and (12) the effect of political or economic instability, domestically or internationally, on our sales or production.

For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see “Part I, Item 1A—Risk Factors” and the “Financial Condition” section set forth in “Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or MD&A, beginning on page 4842 below and such other risks and uncertainties as set forth below in this report or detailed in our other Securities and Exchange Commission (SEC) reports and filings. We assume no obligation to update forward-looking statements.

General

We are a global semiconductor company with facilities around the world.that designs and sells microprocessors, chipsets and graphics processors. Within the global semiconductor industry, we offer primarily:

For financial information about geographic areas and for segment information with respect to revenues and operating results, refer to the information set forth in Note 1114 of our consolidated financial statements, beginning on page 128115 below.

GLOBALFOUNDRIES, Inc.

On March 2, 2009, together with Advanced Technology Investment Company LLC (ATIC) and West Coast Hitech L.P., (WCH), acting through its general partner, West Coast Hitech G.P., Ltd., we formed GLOBALFOUNDRIES, Inc. (GF), a manufacturing joint venture that manufactures semiconductor products and provides certain foundry services to us. Pursuant to the Master Transaction Agreement entered into among the parties on October 6, 2008, as amended, we contributed certain assets and liabilities to GF in exchange for securities of GF and the assumption of specified AMD liabilities by GF. Specifically, we contributed our ownership interests in certain of our subsidiaries including the groups of German subsidiaries owning our wafer manufacturing facilities in Dresden, Germany (Fab 30 and Fab 36), other manufacturing assets, employees performing manufacturing-related functions, certain real property, tangible personal property, inventories, books and records, a portion of our patent portfolio and intellectual property, and rights under certain material contracts and permits. In exchange, GF issued to us GF securities and assumed certain liabilities. ATIC contributed approximately $1.4 billion of cash to GF in exchange for GF securities consisting of equity and convertible notes and ATIC paid $700 million in cash to us in exchange for additional GF securities. At the completion of the transaction (the Closing), we issued to WCH 58 million shares of our common stock and warrants to purchase 35 million shares of our common stock at an exercise price of $0.01 per share for an aggregate purchase price of approximately $125 million. The warrants are currently exercisable and have a ten-year term.

At the Closing, we also entered into a Shareholders’ Agreement (the Shareholders’ Agreement), a Funding Agreement (the Funding Agreement), and a Wafer Supply Agreement (the Wafer Supply Agreement), with ATIC and GF, certain terms of each of which are summarized below.

Shareholders’ Agreement.    The Shareholders’ Agreement sets forth the rights and obligations of AMD and ATIC as shareholders of GF. We currently have the right to designate three directors. The number of directors a GF shareholder may designate is determined according to the percentage of GF shares it owns on a fully diluted basis.

Pursuant to the Shareholders’ Agreement, if a change of control of AMD occurs within two years of the consummation of the transaction, ATIC will have the right to put any or all GF securities (valued at their fair market value) held by ATIC and its permitted transferees to us in exchange for cash, or if a change of control of AMD occurs after a specified event, ATIC will have the option to purchase in cash any or all GF securities (valued at their fair market value) held by us and our permitted transferees.

Funding Agreement.    The Funding Agreement provides for the future funding of GF and governs the terms and conditions under which ATIC is obligated to provide such funding. Pursuant to the Funding Agreement, ATIC committed to additional equity funding of a minimum of $3.6 billion and up to $6.0 billion to be provided in phases over a five year period commencing from the Closing. We have the right, but not the obligation, to provide additional future capital to GF in an amount pro rata to our interest in the fully converted ordinary shares of GF. To the extent we choose not to participate in an equity financing of GF, ATIC is obligated to purchase our share of GF securities, subject to ATIC’s funding commitments under the Funding Agreement. ATIC’s obligations to provide funding are subject to certain conditions including the accuracy of GF representations and warranties in the Funding Agreement, the absence of a material adverse effect on GF or AMD and the absence of a material breach or default by GF or AMD under the provisions of any transaction document. There are additional funding conditions for each of the phases which are set forth in more detail in the Funding Agreement. In July 2009, pursuant to a funding request from GF in accordance with the Funding Agreement, ATIC contributed $260 million of cash to GF in exchange for GF securities. We declined to participate in the funding. As of December 26, 2009, on a fully converted basis, we owned approximately 31.6 percent of GF and ATIC owned approximately 68.4 percent.

Wafer Supply Agreement.    The Wafer Supply Agreement governs the terms by which we purchase products manufactured by GF. For more information about the Wafer Supply Agreement, please see page 15.

Recent Developments

On December 18, 2009, ATIC International Investment Company, or ATIC II, an affiliate of ATIC, acquired Chartered Semiconductor Manufacturing Ltd. On December 28, 2009, with our consent, ATIC II, Chartered and GF entered into a Management and Operating Agreement, or MOA, which provides for the joint management and operation of GF and Chartered, thereby allowing GF and Chartered to share costs, take advantage of operating synergies and market wafer fabrications services on a collective basis. In order to allow for the signing of the MOA on December 28, 2009 prior to obtaining any required regulatory approvals we agreed to irrevocably waive rights under the Shareholders Agreement with respect to certain matters that require unanimous GF board approval. Additionally, if any such matters come before the GF board, we agreed that our designated GF directors will vote in the same manner as the majority of ATIC-designated GF board members voting on any such matters. As a result of waiving such approval rights, as of December 28, 2009, for financial reporting purposes we no longer shared control with ATIC over GF.

In June 2009, the FASB issued an amendment to improve financial reporting by enterprises involved with variable interest entities. This new guidance became effective for us beginning the first day of fiscal 2010. Under the new guidance, the investor who is deemed to both (i) have the power to direct the activities of the variable interest entity that most significantly impact the variable interest entity’s economic performance and (ii) be exposed to losses and returns, will be the primary beneficiary who should then consolidate the variable interest entity. We evaluated whether the governance changes described above would, pursuant to the new guidance, affect our consolidation of GF. We considered the purpose and design of GF, the activities of GF that most significantly affect the economic performance of GF and the concept of “who has the power,” as contemplated by the new guidance. Based on the results of this evaluation and in light of the governance changes whereby we now only have protective rights relative to the operations of GF, we concluded that ATIC is the party who has the power to direct the activities of GF that most significantly impact GF’s performance and is, therefore, the primary beneficiary of GF. Accordingly, beginning fiscal 2010, we will deconsolidate GF and account for GF under the equity method of accounting. We will continue applying the equity method of accounting until we are deemed to no longer have the ability to significantly influence the operations of GF.

Additional Information

We were incorporated under the laws of Delaware on May 1, 1969 and became a publicly held company in 1972. Since 1979 our common stock has been listed on the New York Stock Exchange under the symbol “AMD.

“AMD.” Our mailing address and executive offices are located at One AMD Place, Sunnyvale, California 94088, and our telephone number is (408) 749-4000. References in this report to “AMD,” “we,” “us,” “management,” “our,” or the “Company” means Advanced Micro Devices, Inc. and our consolidated majority-owned subsidiaries and GF and its subsidiaries. However, references in the “Business” and “Risk Factors” sections to “AMD,” “we,” “us,” “management,” “our,” or the “Company” do not include GF or its subsidiaries unless specifically stated otherwise.

AMD, the AMD Arrow logo, Athlon, Opteron, Sempron, Turion, LIVE!, Geode, PowerNow!, CoolCore, Virtualization and combinations thereof; ATI, and the ATI logo, and Avivo, TV Wonder, Fire, Mobility, Theater, Imageon,AMD Athlon, AMD Opteron, AMD Phenom, AMD PowerNow!, AMD Sempron, AMD Turion, Cool‘n’Quiet, Geode, FirePro, Radeon, Xilleon, Crossfire and combinations thereof are trademarks of Advanced Micro Devices, Inc. Microsoft, Windows, and Windows Vista, and DirectX are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other jurisdictions. MIPS is a registered trademark of MIPS Technologies, Inc. in the United States and/or other jurisdictions. HyperTransport is a licensed trademark of the HyperTransport Technology Consortium. NetWare is a registered trademark of Novell, Inc. in the United States and/or other jurisdictions. Other names are for informational purposes only and are used to identify companies and products and may be trademarks of their respective owners.

Website Access to Company Reports and Corporate Governance Documents

We post on the Investor Relations pages of our Web site,www.amd.com, a link to our filings with the SEC, our Principles of Corporate Governance, our Code of Ethics for our Chief Executive Officer, Chief Financial Officer, Corporate Controller and other senior finance executives, our “Worldwide Standards of Business Conduct,” which applies to our directors and all of our employees, and the charters of our Audit and Finance, Compensation Finance and Nominating and Corporate Governance committees of our Board of Directors. Our filings with the SEC are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. You can also obtain copies of these documents by writing to us at: Corporate Secretary, AMD, 5204 E. Ben White Blvd.,7171 Southwest Parkway, M/S 562,100, Austin, Texas 78741,78735, or emailing us at:Corporate.Secretary@amd.com. All of these documents and filings are available free of charge. Please note that information contained on our Web site is not incorporated by reference in, or considered to be a part of, this report.

Our Industry

Semiconductors are components used in a variety of electronic products and systems. An integrated circuit, or IC, is a semiconductor device that consists of many interconnected transistors on a single chip. Since the invention of the transistor in 1948, improvements in IC process and design technologies have led to the development of

smaller, more complex and more reliable ICs at a lower cost per function. In order to satisfy the demand for faster, smaller and lower-cost ICs, semiconductor manufacturers have continually developed improvements in manufacturing and process technology. ICs are increasingly being manufactured using smaller geometries on larger silicon wafers. Use of smaller process geometries can result in products that are higher performing, use less power and cost less to manufacture on a per unit basis. Use

As a result of larger wafers can contribute furtherthe credit market crisis in 2008 and other macroeconomic challenges affecting the global economy, end user demand for PCs and servers, and therefore ICs, decreased significantly in the first half of 2009. Although end-user PC demand stabilized in the second half of 2009, end-customers continue to a decrease in manufacturing costs per unit and to an increase in capacity by yielding more chips per wafer.demand value-priced products.

Computing Solutions

The x86 Microprocessor Market

A microprocessor is an IC that serves as the central processing unit, or CPU, of a computer. It generally consists of millions of transistors that process data and control other devices in the system, acting as the brain of the computer. The performance of a microprocessor is a critical factor impacting the performance of a computer and numerous other electronic systems. The principal indicators of CPU performance are work-per-cycle, or how many instructions are executed per cycle, clock speed, representing the rate at which a CPU’s internal logic operates, measured in units of hertz, or cycles per second, and power consumption. Other factors impacting microprocessor performance include the number of CPUs, or cores, on a microprocessor, the bit rating of the microprocessor, memory size and data access speed.

Developments in circuit design and manufacturing process technologies have resulted in significant advances in microprocessor performance. Currently, microprocessors are designed to process 32-bits or 64-bits of information at one time. The bit rating of a microprocessor generally denotes the largest size of numerical data that a microprocessor can handle. While 32-bit processors have historically been sufficient, they have faced increasing challenges as new data and memory-intensive consumer and enterprise software applications gain popularity. Microprocessors with 64-bit processing capabilities enable systems to have greater performance by allowing software applications and operating systems to access more memory.

Moreover, as businesses and consumers require greater performance from their computer systems due to the exponential growth of digital data and increasingly sophisticated software applications, semiconductor manufacturers have transitioned from manufacturing single-core microprocessors to also manufacturingcompanies are designing and developing multi-core microprocessors, where multiple processor cores are placed on a single die or in a single processor. Multi-core microprocessors offer enhanced overall system performance and efficiency because computing tasks can be spread across two or more processing cores each of which can execute a task at full speed. Moreover, two or moremultiple processor cores packaged together can increase performance of a computer system without greatly increasing the total amount of power consumed and the total amount of heat emitted. This type of “symmetrical multiprocessing” is effective in both multi-tasking environments where multiple cores can enable operating systems to prioritize and manage tasks from multiple software applications simultaneously and also for “multi threaded”“multi-threaded” software applications where multiple cores can process different parts of the software program, or “threads,” simultaneously thereby enhancing performance of the application. Businesses and consumers also require computer systems with improved power management technology, which allows them to reduce the power consumption of their computer systems thereby reducing the total cost of ownership. With

While general purpose computer architectures based on the releasex86 architecture are sufficient for a large portion of Microsoft^® Windows Vista^™ and withcustomers, for selected applications, an architecture that enables the proliferation of applicationsideal resource to be used for multimedia and gaming, grid computing and extensive enterprise databases, the demand for 64-bit computing, multi-core technology and improved power management technology continues to increase.

We also believe that businesses and consumers want more integrated computing solutions or platform products. A platform is a collection of technologies that are designed to work together togiven workload can provide a more completesubstantial improvement in user experience, performance and energy efficiency. In this environment, we believe our vision of “heterogeneous computing” and an accelerated computing solution.architecture can benefit customers. Heterogeneous computing refers to computer systems that rely on multiple computational units such as the CPU and the GPU. An accelerated computing architecture enables “offloading” of selected tasks, thereby optimizing the use of a CPU or GPU, depending on the application or workload. For example, serial workloads are better suited for CPUs while highly parallel tasks may be better performed by a GPU. Our vision for an accelerated computing architecture is that the CPU and GPU components are combined onto a single piece of silicon, which we refer to as an AMD Fusion Accelerated Processing Unit (or APU). We believe that integrated platforms will bring end users improved system stability, better time-to-markethigh performance computing workloads, workloads that are visual in nature and increased performanceeven traditional applications such as photo and energy efficiency.video editing or other multi-media applications stand to benefit from our accelerated computing architecture and heterogeneous computing approach.

Microprocessor Products

We currently offer single-core and multi-core microprocessor products for servers, workstations, notebooks and desktop PCs. OurWe base our microprocessors currently are designed with both 32-bit and 64-bit processing capabilities. We based our microprocessorschipsets on the x86 instruction set architecture and most of these processors are also based on the AMD64 technology platform withAMD’s Direct Connect Architecture. The AMD64 technology platform extends the industry-standard x86 instruction set architecture to 64-bit computing. Direct Connect Architecture, which connects an on-chip memory controller and input/output, or I/O, channels directly to one or more microprocessor cores. For multi-core microprocessors, weWe typically integrate two or more processor cores onto a single die, and each core has its own dedicated cache, which is memory that is located on the semiconductor die, permitting quicker access to frequently used data and instructions. Some of our microprocessors have additional levels of cache such as L2, or second level cache, and L3, or third level cache, to enable faster data access and higher performance. We believe this architecture, and the integrated memory controller in particular, enables substantially higher performance than traditional front-side bus architectures because memory can be accessed more directly, resulting in increased bandwidth and reduced memory latencies.

Our processors and chipsets support HyperTransport^™multiple generations of HyperTransport™ technology, which is a high-bandwidth communications interface that enables substantially higher levels of multi-processor performance and scalability than competing x86 architectures. In designingover traditional front side bus-based microprocessor technology. Energy efficiency and power consumption continue to be key design principles for our processors, we alsoproducts. We focus on continuouslycontinually improving power management technology, or “performance-per-watt.” To that end, we offer processors and chipsets with features that feature AMD PowerNow!^™ technology, which weare designed to reduce system level energy consumption, with multiple levels of lower clock speed and voltage states that can significantly reduce processor power consumption during idle times. We design our microprocessors to be compatible with operating system software such as the Microsoft^® Windows^® family of operating systems, Linux^®, NetWare^®, Solaris and UNIX. We

Our microprocessors and chipsets are incorporated into computing platforms that also designed the AMD64 architecture to enhance the securityinclude graphics processing units, or GPUs, and core software. A platform is a collection of a user’s computing environment by integrating security featurestechnologies that are designed to preventwork together to provide a more complete computing solution. We believe that integrated, balanced platforms consisting of CPUs, GPUs, and chipsets that work together at the spreadsystem level bring end users improved system stability, increased performance and enhanced power efficiency. Also, by offering our customers an all-AMD platform, we are able to provide them with a single point of certain viruses when enabled bycontact for the anti-virus featureskey platform components and enable them to bring the platforms to market faster in a variety of current versions of certain operating systems, including Linux, the Microsoft^® Windows^® family of operating systemsclient and Solaris operating systems.server system form factors.

ServersServer and Workstation Microprocessors.Workstation.    Our microprocessors for servers and workstationsworkstation platforms consist primarily of our six-core, quad-core dual-core and single-coredual-core AMD Opteron^™ processors. A server is a devicesystem that performs services for connected clients as part of a client-server architecture. TheyServers are designed to run an application or applications, often for extended periods of time with minimal human direction. Examples of servers include web servers, e-mail servers, database services, file servers and fileprint servers. A workstation is essentially a high-end desktop,PC, designed for technical applications such as computer-aided design and digital content creation. Workstations usually offer higher performance than is normally seen on a personal computer,PC, especially with respect to graphics, processing power, memory capacity and multitasking activity.

We based ourdesign AMD Opteron processors for servers and workstations on ourwith Direct Connect Architecture and the AMD64 technology platform, and designed them to allowenable simultaneous 32-bit and 64-bit computing. These processors can be used in a variety of server applications, including businessdatabase processing (enterprise resource planning, customer relationship management and supply chain management) and business intelligence. They can also be used in workstation applications such as engineering and digital content creation software and other information technology infrastructure applications such as intensive Web serving, cloud computing, high performance computing and email messaging.

Our multi-core Cloud computing is a computing model where data, applications and services are delivered over the Internet. High performance computing involves the use of AMD Opteron processors offer improved overall performance on many applications comparedprocessor based supercomputers and computer clusters to single-core AMD processors by executing more operations simultaneously during each clock cycle,solve advanced computational problems in industries ranging from oil and by improving performance-per-watt, which can reduce the operational costs relatedgas to power usage. At the same time, servers based on multi-core AMD Opteron processors are easier to manage because more processing capacity can be concentrated into fewer servers. For this reason, servers based on multi-core processors are less costly to operate.

Multi-coreweather forecasting. AMD Opteron processors also allow our enterprise customers to more easilyefficiently implement virtualization across their businesses. Virtualization is the use of software to allow multiple discrete operating

systems and application environments to share a single physical computer by providing the illusion that each operating system has full control over the underlying hardware. By enabling different operating systems and applications to run on the same server, virtualization offers the benefit of consolidating workloads and reducing hardware requirements, which can also reduce power, cooling and system management costs.

In August 2007,June 2009, we introduced our quad-core AMD Opteron processors.six-core server processor with Direct Connect Architecture for two-, four- and eight-socket servers. These processors incorporate fourincorporated six processor cores on a single die of silicon addand added a 6MB shared L3 cache. The increased cache and offer features designed to improve performance for virtualized application environments, as well as on floating-point applications (e.g. mathematic and scientific applications). Quad-corehelps increase the speed of memory-intensive applications. Our new six-core AMD Opteron processors also feature a variety of power-saving technologies, including AMD CoolCore^™ technology, which reducesare more energy consumption by turning off unused parts ofefficient than our previous generation quad-core processors. Furthermore, the processor and enhanced AMD Powernow! technology, which allows each core to vary its clock frequency depending on the performance requirements of the application being supported, and dual dynamic power management, which provides an independent power supply to the cores and the memory controller. We expect to ship quad-coresix-core AMD Opteron processors in more significant volumes in the first half of 2008.

Our dual-core AMD Opteron processors provide several new features including improved virtualization support through AMD Virtualization^™ technologyleverage existing platform infrastructure and the use of energy efficient DDR2 technology, which isa low-cost, power-efficient DDR-2 memory architecture, a memory technology used for high speed storage of working data. In addition, these processorsdata, which can help lower system acquisition costs for end users. High performance computing (HPC), virtualization and database workloads can also benefit from the increased memory bandwidth enabled by HyperTransport™ technology and HT Assist, which helps reduce processor to processor latency and traffic. Finally, AMD Virtualization™ (AMD-V™) technology and the AMD-P suite of power management features are designedavailable across all performance and power bands, so that our customers do not have to be socket and thermally compatible with quad-core AMD processors.compromise on saving power in order to obtain the highest performing product.

Notebook Microprocessors.Client Notebook.    There has been a shift in consumer demand towards thinner and lighter notebook platforms with longer battery life. To participate in this market shift, we are increasing our investment in low power notebook platforms. In January 2009, we launched the “Yukon” platform, which was our code name for our first generation ultrathin notebook platform. The Yukon platform incorporates the AMD Athlon Neo processor with ATI Radeon™ X1250 integrated graphics and ATI Mobility Radeon™ HD 3410 discrete graphics. The Yukon platform offers a complete PC experience at lower price points. Our second generation

AMD Ultrathin notebook platform launched in September 2009 incorporates the AMD Turion™ Neo X2 Dual-Core Processor. This platform provides up to six hours of resting battery life and superior video performance.

Our microprocessors for notebook PCsPC platforms consist primarily of the AMD Turion™ X2 Mobile Processor, AMD Turion^™ 64 X2 Ultra Mobile Processor, AMD Turion™ Neo X2 Mobile Processor, Mobile AMD Sempron™ processor, and the AMD Athlon™ Neo and AMD Athlon^™ 64 and mobile AMD Sempron^™ Neo X2 processors. We designeddesign our mobile processor products for high-performance, longerhigh performance, long battery life and wireless connectivity.support.

AMD Turion 64 X2 dual-core mobile technology isUltra Mobile Processors are our most advanced dual-core processor family for notebook PCs. We designed thisThis technology to enablesupports leading-edge graphics for the more visual experience provided by the MicrosoftWindows^® Windows Vista^™7 operating system, longerlong battery life, and enhanced security and compatibility with the latest wireless technologies and graphics solutions. In addition, we have designed the process used to manufacture AMD Turion 64 X2 mobile technology for moreUltra Mobile Processors results in a thermally efficient processor operation and reducedlow power consumption.

Desktop Microprocessors.Client Desktop.    Our microprocessors for desktop PCsPC platforms consist primarily of the following tiered product brands: AMD Phenom™ II, AMD Phenom, AMD Athlon II, AMD Athlon X2, AMD Athlon and AMD Sempron processors. All AMD desktop microprocessors are based on AMD64 technology withAMD Direct Connect Architecture.

In November 2007,January 2009, we introduced a desktop platform product codenamed “Dragon.” The Dragon platform is a combination of the AMD Phenom II X4 microprocessor, the ATI Radeon HD 4800 series graphics processor and the AMD 7-Series chipset. The Dragon platform provides enthusiasts, gamers and other demanding users with an affordable system capable of delivering a graphic-intensive gaming experience. The Dragon platform works with existing DDR2 memory infrastructures and is designed to work with the upcoming DDR3 memory that is transitioning into the marketplace. We refreshed the Dragon platform in April 2009 to include the new AMD Phenom II X4 955 Black Edition processor, ATI Radeon™ HD 4890 graphics card and AMD 7-Series chipsets.

In January 2009, we introduced the AMD Phenom II 9000 series of microprocessors. The AMD Phenom II 9000 processors are true quad-core processors designed for high performance desktop PCs. The true quad-core design enables cores to communicate on the die rather than through a front side bus external to the processor, thereby reducing a bottleneck inherent in other competing x86 architectures. Additionally, our Direct Connect Architecture allows all four cores to have optimum access to the integrated memory controller and integrated HyperTransport links, so that performance scales well with the number of cores. This design also incorporates a shared L3 cache for quicker data access and enables end users to seamlessly upgrade from dual-core systems. In addition, AMD Phenom II microprocessors also feature Cool’n’Quiet 3.0 technology that we designed to enhance energy efficiency.

At the same time, we also introduced a desktop platform product codenamed “Spider”. The Spider platform is a combination ofWe design the AMD Phenom 9000 microprocessor and advanced chipset and graphics technologies, and is designed for enthusiasts, digital content creators and mainstream users who are seeking more immersive, visual computing experiences and who require computer systems with superior performance. The AMD Spider platform provides a scalable high-definition (HD), multi-GPU experience for digital entertainment and advanced multimedia productivity. It incorporates ATI PowerPlay^™, our power management technology that reduces the power consumption of our graphics processors, Cool’n’Quiet^™ 2.0 technology, which reduces power consumption by reducing the processor’s clock rate and voltage when idle, Microsoft DirectX 10.1 support, a collection of industry graphics technologies designed to deliver advanced graphics capabilities on Microsoft

platforms, HyperTransport 3.0 technology, and PCI Express 2.0, a new interface that connects GPUs with the computer system and doubles the bandwidth.

AMD Athlon processors are designed for advanced multitasking on mainstream desktop PCs, and they are currently available with single or dual-core technology. Refreshes of AMD Athlon X2 product occurred in April and June of 2009, marking the ten year anniversary of the AMD Athlon product family. We designed the AMD Athlon dual-core processors are designed for users who routinely run multiple processor-intensive software applications, such as productivity applications, multimedia applications and basic content creation, simultaneously. With AMD Athlon dual-core processors, computer users arefor example, an end-user may be able to perform multiple tasks with uninterrupted performance, and are designed toperformance. In addition, AMD Athlon dual-core processors enable systems to have the ability to simultaneously download audio files such as MP3s, record to digital media devices, check and write email and edit a digital photo, and run anti-virus scan software.all without compromising performance.

We design AMD Sempron processors are designed for everyday computing and provide performance for entryentry-level productivity and entertainment software for the mainstream segment.

Embedded Processor Products

Our products range from low-power x86 architecture-based embedded processors to high-performance, enterprise class, harsh environment-capable x86 architecture-based products. We design embedded connectivity devices toproducts address customer needs in non-PC markets where low power, Internet connectivity and/or low power processing is a priority.PC-adjacent markets. Typically theseour embedded processorsproducts are used in productsapplications that require high to moderate levels of performance where key features include low cost,

mobility, low power and small form factor.

Our Customers of our embedded microprocessor products include vendors in industrial controls, digital signage, point of sale/self-service kiosks, and casino gaming machines as well as enterprise class telecommunications, networking and storage systems.

The embedded market has moved from developing proprietary, custom designs to leveraging the AMD Geode^™ product family. AMD Geode microprocessors are 32-bit processors based on theindustry-standard x86 instruction set architecture. These processors integrate functionality sucharchitecture as processing, system logic, graphics, audioa way to reduce costs and video decompression onto one integrated device. We also offerspeed time to market. Emerging requirements for these systems include: very low power for small enclosures and 24x7 operation, support for Linux, Windows and other operating systems, and high-performance for increasingly sophisticated applications. Other requirements include advanced specifications for industrial temperatures, shock and vibration, and reliability.

Our embedded processors based on AMD64 technology, which consists of low-power versions of ourproducts include options from the AMD Opteron, AMD Athlon, AMD Turion, and AMD Sempron processor families; the ATI Radeon graphics processor family; and numerous AMD Opteron familieschipsets. These products are part of products. These low power products deliver the same performance as their corresponding full power parts while offering the added benefit of reduced power consumption and thermal output. These processors are configured specifically for demanding embedded applications traditionally served by custom silicon designs. We believe these processors also offer our customers the ability to leverage the AMD64 infrastructure. In addition, a distinguishing characteristic of our AMD64-based embedded processors is our AMD64 Longevity Program. The AMD64AMD Longevity Program, offers a select set of AMD64 processors withwhich provides for an extended standard availability period of five years. The extended availability period addresses the requirements of customers designing products for network, storage, blade and telecommunications servers; digital imaging; casino gaming and military and industrial controls systems. Such markets haveyears in order to support lengthy designdevelopment and qualification cycles and longerlong-term life spansof the system in the marketplace than typical mainstream computing products.market.

In 2007,June 2009, we also introduced two new embedded client products: the dual-core AMD Turion™ Neo X2 processor and the AMD Athlon™ Neo X2 processor. These processors deliver PC-caliber performance in a very low power envelope with an embedded integrated graphics chipset solution to beembedded-friendly ball grid array (BGA) package and are used in commercial clienttraditional embedded applications to address specialized needs within a variety of industries, including computer devices such as thin clients, single board computers, industrial controllers, digital signage,computing and thin client systems, as well as self-service kiosks, point of sale terminals, commercial value clients,machines and access devicesdigital signage. The BGA package helps alleviate potential reliability issues for systems that are deployed in rugged environments and has a low z-height that we designed to enable thin, compact enclosures.

In September 2009, we announced a new enterprise-class embedded platform based on the 45 nm Quad-Core AMD Opteron processor and the new AMD SR5690 chipset, allowing high-end embedded vendors to enable increased performance-per-watt for edge-of-network systems such as gatewaystelecom/datacom, storage, and access points.

Oursecurity servers, and routers and switches. This platform enables increased performance for virtualized and multi-threaded embedded processor products, from AMD Opteron to AMD Geode, exemplify our “x86 Everywhere” microprocessor strategy, which is our goal for utilizing the x86 instruction set architecture toapplications and advanced power a wide variety of devices in diverse places such as the home, office or car, in the supply chain, in storage networks, in the data center, and/or in global communications networks. We believe that when a greater number of devices are standardized with an x86-based platform, end-users can benefit from the ability to run their existing x86-based software on devices that interoperate with each other. This can accelerate and simplify the process of enabling faster, easier connectivity and data sharing between a wide range of products, from portable consumer electronics to PCs and servers. With our full range of embedded microprocessors, we are able to extend our x86-based product offerings to serve markets from embedded appliances to embedded server-class products.management features.

Chipset Market

The chipset sends data between the microprocessor and input, display and storage devices, such as the keyboard, mouse, monitor, hard drive and CD or DVD drive. Chipsets perform essential logic functions, such as balancing the performance of the system and removing bottlenecks. Chipsets also extend the graphics, audio, video and other capabilities of computer systems. Finally, chipsets control the access between the CPU and main memory. All desktop, notebook and server PCs incorporate a chipset. In many PCs, the chipset is integrated with additional functions such as a graphics processing unit, or GPU. A GPU is a semiconductor chip that increases the speed and complexity of image resolution and color definition that can be displayed on a graphical interface, thereby improving image resolution and color definition. An integrated chipset solution is commonly known as an IGP (integrated graphics processor) chipset. Chipsets whichthat do not integrate a graphics core are referred to as discrete chipsets. By eliminating the need for a discrete GPU, IGP chipsets offer a lower cost solution and in some circumstances can offer reduced power consumption or smaller system form factors. A majority of desktop and notebook PCs make use of IGP chipsets, while discrete chipsets are used in higher performance PCs and servers.

Chipset Products

Our portfolio of chipset products includes IGP and discrete chipsets targeting bothdesktop, notebook and embedded computing segments. In August 2009, we introduced the desktop and notebook PC segments. The AMD 690 family of IGP chipsets was introducedAMD-785G chipset for desktop PCs in February 2007 and for notebook PCs in March 2007. These products incorporate annotebooks with ATI Radeon^™ X1200 series graphics core and HD 4200 integrated graphics. Like their predecessors launched in 2008, these chipsets directly integrate support for the High Definition Multimedia Interface (HDMI) and Digital Visual Interface (DVI) digital display standards used in many flat panel monitors and HD televisions. We also offer a line of IGP chipsets which support Intel processors. We expect to continue shipments of our existing chipsets for Intel CPUs throughout 2008 and beyond to the extent there is demand for these products. However, we expect that sales of these products will continue to decline and will eventually cease.

In November 2007, we introduced the AMD 790FX chipset and several other AMD 7 series discrete chipsets as part of the AMD “Spider” platform. The AMD 790FX chipset provides support for our CrossFireX^™ multi-GPU technology, which allows several GPUs to work in unison to provide enhanced graphics performance, and is optimized for use with our new AMD Phenom quad-core processors.

Graphics Products

Graphics Market

The semiconductor graphics market addresses the need for visual processing in various computing and entertainment platforms such as desktop PCs, notebook PCs and workstations. Users of these products value a rich visual experience, particularly in the high-end enthusiast market where consumers seek out the fastest and highest performing visual processing products to deliver the most compelling and immersive gaming experiences. Moreover, for somemany consumers, the PC is evolving from a traditional data and communications processing machine to an entertainment platform. Visual realism and graphical display capabilities are key elements of product differentiation among various product platforms. This has led to the increasing creation and use of processing intensive multimedia content for PCs and to PC manufacturers creating more PCs designed for playing games, displaying photos and capturing TV and other multimedia content creating more PCs designed for playing games, viewing online videos, photo editing and managing digital content. In turn, the trend has contributed to the development of higher performance graphics solutions.

The primary product of a semiconductor graphics supplier is the GPU. The GPU off-loads the burden of graphics processing from the CPU. In this way, a dedicated graphics processorGPU and CPU work in tandem to increase overall speed and performance of the system. A graphics solution can be in the form of either a stand-alone graphics chip or an integrated chipset solution. Recently, toTo further improve graphics processing performance, semiconductor graphics suppliers have introduced multi-GPU technologies whichthat increase graphics processing speed by dividing graphics rendering and display capability among two or more graphics processors. At the same time that the visual experience is growing in importance, semiconductor graphics suppliers are recognizing the potential of leveraging the GPU’s computing capabilities to accelerate certain workloads.

Graphics Products

Our customers generally use our graphics to increase the speed of rendering images and to improve image resolution and color definition. Our products include 3D graphics and video and multimedia products developed for use in desktop and notebook PCs, including home media PCs, professional workstations and servers. With each of our graphics products, we provide drivers and supporting software packages that enable the effective use of these products under a variety of operating systems and applications. Our latest generation of graphics products and related software offer full support for the Microsoft^® Windows Vista7^® operating system. In addition to the Microsoft^® Windows^® family of operating systems, our graphics products support Apple’s Mac OS X, as well as Linux^®-based applications.

Heavy computational workloads have traditionally been processed on a CPU, but we believe that the industry is shifting to a new computing paradigm that relies more on the GPU or a combination of GPU and CPU. Stream technology or GPGPU (General Purpose GPU) refers to a set of advanced hardware and software technologies that enable AMD GPUs, working in concert with the computer system’s CPUs, to accelerate applications beyond traditional graphics and video processing by allowing the CPUs and GPUs to process information cooperatively. Heterogeneous computing enables PCs and servers to run computationally-intensive tasks more efficiently, providing a superior application experience to the end user. In addition, our latest generation of graphics products offers full support for the Microsoft DirectX^® 11 and OpenCL application programming interface standards which enable the handling of key multimedia tasks such as gaming programming and video. OpenCL is the widely adopted industry standard for running parallel tasks on CPUs and GPUs using the same code. As the only hardware provider in the industry designing and delivering both high-performance CPU and GPU technologies, AMD is also the only company providing a complete OpenCL development platform for the entire system.

Discrete Desktop Products.Graphics.    Our discrete GPUs for desktop PCs include the ATI Radeon HD 20005700 and 5800 series of products which we introduced in May 2007. This product family includes the ATI Radeon HD 2900 XT fortargeting the enthusiast segmentand performance segments of the desktop PC market and theas well as other ATI Radeon HD 2600Premium graphics series and the ATI Radeon HD 2400 series fortargeting the mainstream and value segments of the desktop PC market. The ATI Radeon 2000 series supports Microsoft DirectX^™ 10, a new 3D application performance interface, or API. The ATI Radeon HD 2600 and ATI Radeon HD 2400 incorporate the ATI Unified Video Decoder (UVD) which enables HD-DVD and Blu-ray^™ playback with low CPU and power utilization.segments. In September 2009, we

In November 2007, we

launched the ATI Radeon HD 38705850 and 5870 each with 1GB GDDR5 memory. With the ATI Radeon™ HD 3850, which introduced next generation features such as Microsoft DirectX^™10.1, PCI Express 2.05800 series of graphics cards, PC users can expand their computing experience with ATI Eyefinity multi-display technology and UVD in both models, to deliver enthusiast-level gaming performance at mainstream price-points. These products were also our first productsaccelerate their computing experience with ATI Stream technology. ATI Eyefinity is a technology that allows a game to be manufactured using 55-nanometer process technology,played seamlessly across multiple screens in a panoramic view with minimal distortion by allowing for smaller die size and lower power consumption. At this time, we also announced CrossFireX, our next-generation multi-GPU technology.

Although desktop PC manufacturers have tendedup to rely on IGP chipsets for graphics, we believe that discrete graphic solutions, which offer higher performance, will continuesix monitors to be connected to one graphics card. In November 2009, we released the preferred solution across desktop PC configurations and platforms designed for gaming enthusiasts, CAD professionals and animation as well as for application such as multimedia, photo and video editing and other graphic-intensive applications. In 2007,ATI Radeon™ HD 5970. Combined with the introductionAMD Phenom II processor and the AMD 7-series chipset, this GPU further bolsters the capability of the “Dragon” performance desktop platform.

With the availability of Microsoft^® Windows Vista^™7™ and Microsoft DirectX^™ 10, the emergence of high definition (HD)DirectX™ 11, HD video standards like HD-DVD and Blu-ray^™,Blu-ray™ and the introductionavailability of PCI Express 2.0, end users across the spectrum are realizing the importancegraphics capability is becoming an increasingly important aspect of graphics in a computer system. Accordingly, we believe that demand for discrete GPUs will continue to increase.

Discrete Notebook Products.Graphics.    Our discrete GPUs for the notebook PC market include the ATI Mobility Radeon HD 2000 series of products which we introduced in May 2007.    When selecting a graphics solution, key considerations for notebook PC manufacturers are visual performance, power consumption, form factor and cost.

In January 2009, we launched our next generation of graphics processors for notebooks, the ATI Mobility Radeon HD 4000 series of products. These products bring the power of desktop graphics to mobile users, allowing users to have life-like gaming experience, watch Blu-ray movies and play HD content with high visual fidelity while maintaining energy efficiency with ATI PowerPlay™ power management technology for long battery life. The ATI Mobility Radeon HD 4000 series support multi-GPU hybrid graphics, external graphics capabilities and Microsoft DirectX™ 10.1. This product line includes the ATI Mobility Radeon HD 2600 Series4800 series for performance notebook PCs andgaming enthusiasts, the ATI Mobility Radeon HD 23004600 for multimedia performance notebooks, the value notebooks. These GPUs incorporate UVD to enable HD-DVD and Blu-ray^™ playback with low CPU usage, and hence low system power. ATI Mobility Radeon HD 24004500 for mainstream notebooks and ATI Mobility Radeon HD 2600 both4300 for value and ultra-thin notebooks. These GPUs offer HDMI video and audio support, Microsoft DirectX^™ 10, while ATI Mobility Radeonreduce CPU utilization, extend battery life and improve the visual quality of HD 2300 supports Microsoft DirectX 9.video playback, such as from Blu-ray disc drives.

Home Media PC Products.Our home media PC products incorporate a wide variety of features for consumers that intend to use their PCs for multimedia applications. Our TV Wonder^™ products allow consumers to watch and record TV on their PC, listen to FM radio stations and watch DVD movies. Our latest generation of TV tuners incorporate ATI Theater^™ 600 Pro and ATI Theater 650 Pro technology to support advances in analog TV and digital TV reception. Our premium TV tuners such as ATI TV Wonder Digital Cable Tuner supports CableCARD technology to receive and view premium digital cable shows on the PC.

Workstation and Server Products.Professional Graphics.    Our products for the professional workstation market consist of our FireGL^™ATI FirePro™, ATI FireGL™ and FireMV^™FireMV™ product families. We designed our FirePro3D and ATI FireGL productsgraphics cards for demanding 3D applications such as computer-aided design and digital content creation, while wewith drivers specifically tuned for maximum stability and reliability across a wide range of software packages. We designed our ATI FirePro Multiview and FireMV multi-view 2D workstation cards for financial and corporate environments. We also provide products for the server market, where we leverage our graphics expertise and align our offerings to provide stability, video quality and bus architectures that our server customers desire. Through our ATI CrossFire

Consumer Electronics Products^TM Pro, we enable computer aided designers and digital content creators to connect two identical ATI FirePro™ 3D graphics cards with a flex cable connection that can boost performance of geometry-limited applications.

Consumer Electronics MarketFireStream Processors.

Video, graphics    We designed our AMD FireStream™ series of products to utilize the parallel processing power of the GPU for heavy floating point computations and media processors in consumer electronics products addressto better meet the need for enhancing the visual experience provided by devicesrequirements of various industries, such as mobile phones, digital TVsthe high-performance computing, scientific and game consoles. Consumers value entertainment and communications products that can deliver an engaging multimedia experience. Accordingly, semiconductor suppliers of video, graphics and media processors strive to deliver products that improve visual realism and allow manufacturers of mobile phones, digital TVs, game consoles and other consumer electronics devices the opportunity to differentiate their products.

Handheld Market.    The latest generation of handheld devices, particularly mobile phones, are driving demand for more advanced media and application processors. In recent years, mobile phones have transitioned towards color displays with higher resolutions that deliver a variety of multimedia features. Manufacturers are offering functionality such as built-in digital cameras and camcorders, MP3 audio playback, video playback, mobile-TV reception, 3D gaming, Internet web browsing, personal navigation and advanced user interfaces in an increasing percentage of mobile phones. The availability of these multiple functions increases the opportunity to supply media processors to mobile phone manufacturers.financial resources sectors.

Digital TV Market.    The market for digital TVs is growing, driven in part by the transition of terrestrial broadcast television transmissions from analog to digital in many different regions throughout the world. For example, on February 18, 2009, full power television stations in the United States will stop analog broadcasting and transition to digital broadcasting. This conversion is supported by a U.S. Federal Communications Commission mandate that required electronics manufacturers to include digital tuners in all new television sets by March 2007.

There is also a worldwide shift in the television industry from analog cathode ray tube, or CRT, displays to digital flat panel displays such as LCD and plasma. These flat panel displays are able to support larger screen sizes and higher resolutions. Producing the highest quality images on these advanced televisions is a key goal for television manufacturers. Video processor semiconductor solutions play an integral role in improving video image quality to enhance the user viewing experience.

Game Consoles.    Semiconductor graphics suppliers have leveraged their core visual and graphics processing technologies developed for the PC market by providing graphic solutions to game console manufacturers. In this market, semiconductor graphics suppliers work alongside game console manufacturers to enhance the visual experience for users of sophisticated video games.

Consumer Electronics Products

We continue to leverage our core technology, visual processing expertise and power management know-how to meet the needs of certain consumer electronics markets. We target three categories of the consumer electronics market: (i) handheld devices, including mobile phones; (ii) digital TVs; and (iii) game consoles.

Our products for consumer electronics devices include media processors used in handheld devices such as mobile phones and video processors used in digital TVs. We also license graphics core technologies to other

semiconductor manufacturers in the handheld industry. We receive royalties from game console manufacturers in connection with sales of systems that incorporate our graphics intellectual property and designs. With each of these products we provide drivers and supporting software that enable the effective use of these products by our customers.

Handheld Devices.    Our AMD Imageon^™ product line provides visual processing, high quality audio and power saving technologies. We offer products for each category of the mobile phone media processor market: entry level, feature phones, performance phones and fully enhanced multimedia and gaming phones.

In February 2007, we announced the AMD Imageon 2298, 2294 and 2192 media processors, offering ultra-fast, high-resolution image processing, DVD-quality video and high-definition audio for compelling mobile multimedia experiences.

Also in February 2007, we announced a new business focused on developing and licensing leading-edge graphics core technologies to semiconductor manufacturers throughout the handheld industry. To that end, we entered into graphics licensing agreements with manufacturers of handset chipsets and handset devices. The integration of our graphic core technologies will enable these customers to provide multimedia functionality combined with HD video and audio playback capabilities.

Digital TVs.    As television broadcasters in North America and other parts of the world transition their analog television signals to digital transmissions, we believe increased consumer interest in digital TV will spur demand for more advanced systems. Digital transmission standards provide significant advantages compared to analog standards, including greater picture clarity and resolution as well as opportunities for more channels, e-commerce and enhanced TV viewing.

We offer two groups of products that target two major silicon blocks inside an integrated digital TV: the digital video receiver and the decoder. An integrated digital TV is one where a digital receiver and digital video decoder are integrated inside the TV rather than externally, such as via a set top box. Our AMD Xilleon^™ and Theater product lines are used in integrated digital TVs to demodulate and decode digital broadcast signals. AMD Xilleon products also provide video, graphics and audio processing. The drivers and supporting software that we provide with our digital TV products allow deployment in multiple worldwide markets with either customer designed applications or AMD supplied Customer Application Ready Design (CARD) software applications.

Game Consoles.    We also leverage our core visual processing technology into the game console market. Ourmarket by providing customized GPUs process thefor graphics in the Microsoft^® Xbox 360^™,360™and Nintendo Wii and Nintendo GameCube videogame consoles.

Marketing and Sales

We sell our products through our direct sales force and through independent distributors and sales representatives in both domestic and international markets pursuant to non-exclusive agreements. Our sales arrangements generally operate on the basis of product forecasts provided by the particular customer, but do not

typically include any commitment or requirement for minimum product purchases. We primarily use binding purchase orders, sales order acknowledgments and contractual agreements as evidence of our sales arrangements. Our agreements typically contain standard terms and conditions covering matters such as payment terms, warranties and indemnities for issues specific to our products.

We generally warrant that microprocessor productsour microprocessors, GPUs, and chipsets sold to our customers will at the time of shipment,conform to our approved specifications and be free from defects in material and workmanship under normal use and materials and conform to our approved specifications.service for one year. Subject to certain exceptions, we generally offer a three-year limited warranty to end users for microprocessor products that are commonly referred to as “processors in a box,” a one-year limited warranty to direct purchasersbox” and for all other

microprocessor products that are commonly referred to as “tray” microprocessor products, and a one-year limited warranty to direct purchasers of embedded processorATI branded PC workstation products. We have also offered extended limited warranties to certain customers of “tray” microprocessor products and/or workstation graphics products who have written agreements with us and target their computer systems at the commercial and/or embedded markets.

We generally warrant that graphics, chipsets, and certain products for consumer electronics devices will conform to our approved specifications and be free from defects in material and workmanship under normal use and service for a period of one year, beginning on shipment of such products to our customers. We generally warrant that ATI-branded PC workstation products will conform to our approved specifications and be free from defects in material and workmanship under normal use and service for a period of three years, beginning on shipment of such products to our customers. Generally, our microprocessor and embedded processor customers may cancel orders 30 days prior to shipment without incurring a penalty. Under our standard terms and conditions, graphics and chipset customers may cancel orders by providing 30 days prior written notice to us without incurring a penalty, while customers of products for consumer electronic devices may cancel orders by providing 90 days prior advance notice to us without incurring a penalty.

We market and sell our microprocessor and embedded processor products under the AMD trademark. Our desktop PC product brands for microprocessors consist primarily ofare AMD Phenom, AMD Athlon and AMD Sempron processorSempron. Our Notebook PC brands for desktop PCs,microprocessors are AMD Turion, AMD Athlon and AMD Sempron. AMD Athlon processors and AMD Turion processors are sometimes marketed using the AMD Opteron processor“Neo” model designator. Our server and workstation brand for servers and workstations, themicroprocessors is AMD Turion mobile technology and AMD Sempron processor brands for notebook PCs. We also have the AMD LIVE!™ brand through which we promote our entertainment platform solutions for desktop and notebook PCs as well as film, broadcast and music professional artists that use AMD technology. Our product brands for our embedded processors consist of AMD Geode processors.Opteron. We also sell low-power versions of our AMD Opteron, AMD Athlon, AMD Turion and AMD Sempron processors as embedded processor solutions. We market and sell our chipsets under the AMD trademark. However, if the chipset contains an integrated graphics processor, this integrated processor is marketed under the ATI trademark.

With respect to our graphics and chipset products, we intend to continue toWe market and sell GPUs and graphics chipsets for the Intel platformconsumer and professional markets under the ATI trademark. Our product brands for professional markets are ATI FirePro, ATI FireGL and ATI FireMV. Our product brand for the consumer graphics market is ATI Radeon.

In September 2009, we announced the VISION Technology from AMD campaign. VISION Technology is designed to simplify the buying process for consumers by more clearly connecting our brand to the level of activities that consumers want to perform on the PC. VISION Technology contains three levels of increasingly rich PC system capabilities: VISION Basic; VISION Premium; and VISION Ultimate to reflect the different usage patterns of PC consumers, from digital consumption to content creation. For example, notebook PCs based on VISION Basic technology support activities such as watching movies, playing games, listening to music or surfing the Internet while notebooks based on VISION Premium technology enable HD movie content and higher quality gaming, and notebooks based on VISION Ultimate technology enable users to create rich HD content. In January 2010, we introduced VISION Pro Technology. Designed for business users, VISION Pro Technology extends the approach of VISION Technology to commercial PC platforms. We market and sell other GPUs, chipset products and our products for consumer electronics devices underlaunched the AMD trademark.first notebook PC models based on VISION Pro Technology in January 2010. Also, in the first quarter of 2010, we plan to introduce a fourth level, VISION Black, to enable the highest end capabilities sought by enthusiasts, primarily on desktop PCs.

We market our products through our direct marketing and co-marketing programs. Our direct marketing activities include print and Web-based advertising as well as consumer and trade events and other industry and consumer communications. We also sponsor the Scuderia Ferrari formula one racing team and we work with them to determine their needs and how our AMD64 technology can help support those needs. The goal of our sponsorships is to increase awareness of our brand and AMD64 technology.

In addition, we have cooperative advertising and marketing programs with customers or third parties, including market development programs, pursuant to which we may provide product information, training, marketing materials and funds. Under our marketing development programs, eligible customers can use market development funds as partial reimbursement for advertisements and marketing programs related to our products, subject to meeting defined criteria. CustomersOriginal Equipment Manufacturers, or OEM, customers may qualify for market development funds based on purchases of eligible products.

Customers

Our microprocessor customers consist primarily of OEMs, original design manufacturers, or ODMs, and third-party distributors in both domestic and international markets. ODMs provide design and/or manufacturing

services to branded and unbranded private label resellers and OEMs. Our graphics products customers include the foregoing as well as add-in-board manufacturers, or AIB manufacturers.

Customers of our chipset products consist of PC OEMs, often through ODMs or other contract manufacturers who build the OEM motherboards, as well as desktop motherboard manufacturers who incorporate chipsets into their channel motherboards.

Customers of our products for consumer electronic devices consist primarily of OEMs and ODMs.

Our sales and marketing teams work closely with our customers to define product features, performance and timing of new products so that the products we are developing meet the needs of our customers. We also employ application engineers to assist our customers in designing, testing and qualifying system designs that incorporate our products in order to assist in optimizing product compatibility. We believe that our commitment to customer service and design support improves our customers’ time-to-market and fosters relationships that encourage customers to use the next generation of our products.

Original Equipment Manufacturers

We focus on three types of OEMs: multi-nationals, selected regional accounts and target market customers. Large multi-nationals and regional accounts are our core OEM customers. Our OEM customers include numerous foreign and domestic manufacturers of servers and workstations, desktop and notebook PCs, and PC motherboards and consumer electronics products such as mobile phones and digital TVs.motherboards. Under our standard terms and conditions, OEMs do not have a right to return our products other than pursuant to the standard limited warranty.

In 2007,2009, Hewlett-Packard Company accounted for more than 10 percent of our consolidated net revenues. Sales to Hewlett-Packard consisted primarily of products from our Computing Solutions segment. In addition, one handset manufacturerFive customers, including Hewlett-Packard, accounted for more than 30approximately 56 percent of the net revenue attributable to our Consumer Electronics segment and one game console provider accounted for a significant portion of revenue attributable to our Consumer ElectronicsComputing Solutions segment. Moreover, threeIn addition, five customers accounted for more than 35approximately 52 percent of the net revenue attributable to our Graphics segment. A loss of any of these customers could have a material adverse effect on our business.

Third-Party Distributors

Our authorized distributors resell to sub-distributors and mid-sized and smaller OEMs and ODMs. Typically, distributors handle a wide variety of products, including those that compete with our products. Distributors typically maintain an inventory of our products. In most instances, our agreements with distributors protect their inventory of our products against price reductions and provide return rights with respect to any product that we have removed from our price book that is not more than twelve months older than the manufacturing code date. In addition, some agreements with our distributors may contain standard stock rotation provisions permitting limited levels of product returns.

AIB Manufacturers and System Integrators

We strive to establish and broaden our relationships with add-in-board manufacturers, or AIB manufacturers. We offer component-level graphics and chipset products to AIB manufacturers who in turn build and sell board-level products using our technology to system integrators, or SIs, and at retail. We also worksell directly withto our SI customers. SIs typically sell from positions of regional or product-based strength in the market. They usually operate on short design cycles and can respond quickly with new technologies. SIs often use discrete graphics solutions as a means to differentiate their products and add value to their customers.

Competition

Generally, the IC industry is intensely competitive. Products typically compete on product quality, power consumption, reliability, speed,performance, size (or form factor), cost, selling price, adherence to industry standards,

software and hardware compatibility and stability, brand recognition, timely product introductions and availability. Technological advances in the industry result in frequent product introductions, regular price reductions, short product life cycles and increased product capabilities that may result in significant performance

improvements. Our ability to compete depends on our ability to develop, introduce and sell new products or enhanced versions of existing products on a timely basis and at competitive prices, while reducing our manufacturing costs.

Competition in the Microprocessor Market

Intel Corporation has dominated the market for microprocessors for many years. Intel’s market power and significant financial resources enable it to market its products aggressively, to target our customers and our channel partners with special incentives and to discipline customers who do business with us. These aggressive activities have in the past and are likely in the future to result in lower unit sales and a lower average selling pricesprice for our products, and adversely affect our margins and profitability.

Intel exerts substantial influence over computer manufacturers and their channels of distribution through various brand and marketing programs. Because of its dominant position in the microprocessor market, Intel has been able to control x86 microprocessor and computer system standards and to dictate the type of products the microprocessor market requires of us. Intel also dominates the computer system platform, which includes core logic chipsets, integrated graphics chips, motherboards and other components necessary to assemble a computer system. As a result, OEMs that purchase microprocessors for computer systems are highly dependent on Intel, less innovative on their own and, in some cases, are essentially distributors of Intel technology. Additionally, Intel is able to drive de facto standards for x86 microprocessors that could cause us and other companies to have delayed access to such standards.

As long as Intel remains in this dominant position, we may be materially adversely affected by Intel’s:

Intel exerts substantial influence over computer manufacturers and their channels of distribution through various brand and marketing programs. Because of its dominant position in the microprocessor market, Intel has been able to control x86 microprocessor and computer system standards and to dictate the type of products the microprocessor market requires of Intel’s competitors. Intel also dominates the computer system platform, which includes core logic chipsets, graphics chips, motherboards and other components necessary to assemble a computer system. As a result, OEMs that purchase microprocessors for computer systems are highly dependent on Intel, less innovative on their own and, to a large extent, are distributors of Intel technology. Additionally, Intel is able to drive de facto standards for x86 microprocessors that could cause us and other companies to have delayed access to such standards.

We expect Intel to maintain its dominant position in the microprocessor market and to continue to invest heavily in marketing, research and development, new manufacturing facilities and other technology companies. Intel has substantially greater financial resources than we do and accordingly spends substantially greater amounts on research and development and production capacity than we do. We expect Intel to maintain its dominant position and to continue to invest heavily in marketing, research and development, new manufacturing facilities and other technology companies. To the extent Intel manufactures a significantly larger portion of its microprocessor products using more advanced process technologies, or introduces competitive new products into the market before we do, we may be more vulnerable to Intel’s aggressive marketing and pricing strategies for microprocessor products. For example, Intel is transitioning to 32 nm process technology before us. Using more advanced process technology can contribute to lower product manufacturing costs and improve a product’s performance and power efficiency. We expect intense competition from Intel to continue.

CompetitionIn November 2009, Intel and AMD announced a comprehensive agreement to end all outstanding legal disputes between the companies, including antitrust litigation and patent cross license disputes. Under terms of the agreement, AMD and Intel obtain patent rights from a new 5-year cross license agreement, Intel and AMD

gave up any claims of breach from the previous license agreement, and Intel paid us $1.25 billion. Intel has also agreed to abide by a set of business practice provisions. As a result, we dropped all pending litigation including the case in U.S. District Court in Delaware and two cases pending in Japan. We also withdrew all of our regulatory complaints worldwide. See “Item 3—Legal Proceedings” for more information.

Other potential competitors include ARM Ltd., whose product offerings are used in the Embedded Processor Market

With respectmobile and embedded electronics market as relatively low cost and small microprocessors, and also in form factors that offer an alternative to our embedded processors, our principal competitors are Freescale Semiconductor, Inc., Intel Corporation, NEC Corporation, Toshiba Corporation, Broadcom Corporation, Raza Microelectronics, Inc., Applied Micro Circuits Corporation, Marvell Technology Group Ltd.mainstream PCs such as netbooks and VIA Technologies, Inc. We expect competition in the market for these devices to increase as our principal competitors focus more resources on developing low-power embedded processor solutions.tablets.

Competition in the Chipset Market

In the chipset market, our competitors include suppliers of integrated graphics chipsets. PC manufacturers are increasingly choosing to use integrated chipsets, particularly for notebook computers, over discrete GPUs because integrated chipsets can cost significantly less than discrete GPUs while offering acceptable graphics performance for most mainstream PC users. Intel Corporation manufactures and sells integrated graphics chipsets bundled with their microprocessors and is a dominant competitor in this market. Should

Competition in the Graphics Market

In the graphics market, our competitors include integrated graphics and discrete graphics suppliers. Intel manufactures and sells integrated graphics chipsets bundled with their microprocessors and is a dominant competitor with respect to this portion of our business. Intel could leverage its dominance in the microprocessor market andto sell its integrated chipsets. Moreover, computer manufacturers are increasingly using integrated graphics chipsets, itparticularly for notebooks, because they cost less than traditional discrete graphics components while offering reasonably good graphics performance for most mainstream PCs.

Intel could take actions that place our discrete GPUs and integrated chipsets at a competitive disadvantage such as giving one or more of our competitors in the graphics market, for example,such as Nvidia Corporation, preferential access to its proprietary graphics interface or other useful information.

Competition in the Graphics Market

In the graphics market, our competitors include discrete graphics suppliers. Intel has stated that it intends to re-enter the discrete GPU market. This could shrink the total available market for certain of our discrete GPUs.

Other than Intel, our principal competitor is Nvidia Corporation and to a lesser extent, Matrox Electronic Systems Ltd., Silicon Integrated Systems Corp. and Via Technologies, Inc. Along with AMD, Nvidia Corporation is the dominant player in discrete graphics solutions. Other competitors include a number of smaller companies, which may have greater flexibility to address specific market needs, but lesser financial resources to do so, especially as we believe that the growing complexity of visual processors and the associated research and development costs represent an increasingly high barrier to entry in this market.

Competition in the Consumer Electronics Market

In the semiconductor market for consumer electronics products we have different competitors in each of our product categories. With respect to our products for handheld devices, we have three primary categories of competitors: vendors of baseband processors, vendors of applications processors and vendors of media co-processors. The baseband processor provides the basic voice and communication processing functionality in mobile phones. For certain value categories of the market, baseband processor vendors are integrating the multimedia processing required for feature-rich mobile phones. Baseband processor vendors incorporating this basic level of graphics processing include MediaTek Inc., Agere Systems Inc., Broadcom Corporation, Freescale Semiconductor Inc., Infineon Technologies AG, NXP Semiconductors, Qualcomm Incorporated and Texas Instruments Incorporated. Another category of competitor, application processor vendors, target manufacturers of high-end feature and smart phones whose products require large amounts of general purpose processing capability as well as multimedia processing. These vendors include Freescale Semiconductor Inc., Marvell Technology Group Ltd., Nvidia Corporation, Qualcomm Incorporated, Samsung Electronics Co., Ltd., STMicroelectronics N.V. and Texas Instruments Incorporated. The third category of competitor provides dedicated processors to drive a high level of multimedia functionality. This approach is most comparable to our strategy, and our competitors in this category include Core Logic Incorporated, Telechips Inc., MTEK Vision Co. Ltd., Nvidia Corporation, Renesas Technology Corp and Imagination Technologies Ltd.

With respect to our products for digital TVs, our primary competitors include Broadcom Corporation, MediaTek Inc., Trident Microsystems, NEC Corporation, NXP Semiconductors and STMicroelectronics N.V., as well as in-house semiconductor development divisions at companies such as LG Electronics, Inc., Matsushita Electric Industrial Co., Ltd., Samsung and Toshiba Corporation. In the new panel processor market, we compete with Micronas USA, Inc., NXP Semiconductors, Toshiba Corporation, Trident Microsystems, MediaTek Inc., Pixelworks Inc. and in-house development divisions of Samsung Electronics Co., Ltd. and Sony.

In the game console category, we compete primarily against Nvidia Corporation. Other competitors include Intel Corporation and IBM.

We license graphics core technologies to other semiconductor manufacturers in the handheld industry. Our primary competitors in this area are Imagination Technologies Ltd. and ARM Inc.

Research and Development

We focus our microprocessor research and development activities on improving and enhancing both product design and system and manufacturing process development.technology. One main area of focus is on delivering the next generation of microprocessors with improved system performance and performance-per-watt characteristics. We have devoted significant resources to product designFor example, we are focusing on improving the battery life of our microprocessors for notebook PCs and to developing and improving manufacturing process technologies and plan to continue to do so in the future. We also work with other industry leaders, public foundations, universities and industry consortia to conduct early stage research and development.

With respect to graphics and chipsets and productspower efficiency of our microprocessors for consumer electronics devices, our primary research and development objective is to develop products and technologies that meet the ever-changing demands of the PC and consumer electronics industries on a timely basis so as to meet market windows.servers. We are also focusing on delivering a range of low power integrated platforms to serve key markets, including commercial clients, mobile computing, and gaming and media computing. We believe that these integrated platforms will bring customers improved system stability, better time-to-market and increased performance and energy efficiency. Longer-term, our research and development efforts are focused on developing monolithic silicon solutions for specialized uses that are comprisedimplementing our vision of microprocessors, graphics processorsheterogeneous computing and video processors.the accelerated computing architecture in support of AMD Fusion. This includes greater system level integration of the CPU and GPU. We also work with other industry leaders on process

technology, software and other functional intellectual property such as wired and wireless networking, and we work with others in the industry, public foundations, universities and industry consortia to conduct early stage research and development.

Our research and development expenses for 2007, 2006, and 2005 were approximately $1.8 billion, $1.2 billion and $1.1 billion, respectively. Research and development expenses for 2006 and 2007 included ATI’s(including GF research and development expenses from October 25, 2006 through December 29, 2007.expenses) for 2009, 2008, and 2007 were approximately $1.7 billion, $1.8 billion and $1.8 billion. For more information, see Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or MD&A.

We conduct product and system research and development activities for our microprocessor products in the United States with additional design and development engineering teams located in Canada, India, Germany, Singapore, China, Japan, Malaysia, Taiwan and India.Taiwan.

We conduct ourPrior to the formation of GF in March 2009, we conducted microprocessor manufacturing process development activities primarily through oura joint development agreement with IBM. Under this agreement,Joint Development Agreement or JDA, we jointly developconducted development activities on new process technologies, including 45-nanometer, 32-nanometer, 22-nanometer45 nm, 32 nm, 22 nm and certain other advanced technologies, to be implemented on silicon wafers. Our relationship also includesincluded laboratory-based research of emerging technologies such as new transistor, interconnect, lithography and die-to-package connection technologies. We paypaid fees to IBM for joint development projects. The actual amounts we pay to IBM are dependent upon the number of partners, including usprojects and IBM, engaged in related development projects under the agreement. In addition, we agreed to pay IBM specified royalties upon the occurrence of specified events, including in the event that we sublicensesublicensed the jointly developed process technologies to specified third parties or if we bumpbumped wafers for a third party. Bumping wafers is one of the final stages of the manufacturing process in which wafers are prepared for assembly and test. The JDA was assigned to GF in March 2009. For more information on the fees paid or payable to IBM, see “Part II, Item 7, MD&A—Contractual Cash Obligations and Guarantees—Unconditional Obligations—Purchase Commitments,Obligations.” and “Part I, Item 1A, Risk Factors.” We cannot be certain that our substantial investments in research and development will lead to timely improvements in product designs or technology used to manufacture our products or that we will have sufficient resources to invest in the level of research and development that is required to remain competitive.

Under the agreement, our joint development relationship continues through December 31, 2011. Our agreement with IBM may be extended further by the mutual agreement of the parties and can also be terminated immediately by either party if the other party permanently ceases doing business, becomes bankrupt or insolvent, liquidates or undergoes a change of control or can be terminated by either party upon 30 days written notice upon a failure of the other party to perform a material obligation thereunder. Under our agreement, research and development takes place in IBM’s Watson Research Center in Yorktown Heights, N.Y., the Center for Semiconductor Research at Albany NanoTech, and at IBM’s 300-millimeter manufacturing facility in East Fishkill, N.Y.

We conduct research and development activities for our graphics products, chipset products and products for consumer electronics devices at design centers located throughout the world, including in the United States, Canada, India, Finland and China. Due to the rapid pace of technological change in the graphics industry, our strategy is to focus on developing the newest generation of products that meet market and customer requirements on a timely basis so as to meet each market window.

Manufacturing, Assembly and Test Facilities

We own and operate fiveIn March 2009, upon consummation of the GF manufacturing facilities,joint venture, we began to purchase substantially all of which two are microprocessor wafer fabrication facilities and three are microprocessor assembly and test facilities. We developed an approach to manufacturing called Automated Precision Manufacturing, or APM. APM comprises a suite of automation, optimization and real-time data analysis technologies which automate the way decisions are made within our fabrication facilities. We use APM during volume manufacturing and process technology transitions, and believe APM enables greater efficiency, higher baseline yields, better speed binning and faster yield learning. We have complemented APM with a program called ADVANCE, which is based on “Lean” manufacturing principles (originating principally from the automotive industry), and helps to identify and institutionalize efficiency and productivity gains.

During 2007, our microprocessor manufacturing was conducted atwafers from GF pursuant to the terms of a Wafer Supply Agreement. We can also use Chartered Semiconductor’s Singapore facilities described(currently, jointly managed and operated with GF) as a second source for certain of our quarterly microprocessor product wafer requirements. In addition, once GF develops certain specific qualified processes for bulk silicon wafers, we agreed to purchase from GF, where competitive, specified percentages of our GPU requirements, which percentage is expected to increase over a five-year period. We agreed not to sell, transfer or dispose of all or substantially all of our assets related to GPU products and related technology to any third party without GF’s consent, unless the transferee agrees to be bound by the terms of the Wafer Supply Agreement, including its minimum purchase obligations, where competitive, with respect to GPU products. We currently compensate GF on a cost-plus basis. After the initial start-up period, we will provide rolling, binding forecasts to GF. After reviewing forecasts provided by us, as agreed by the parties, GF will allocate capacity sufficient to produce our microprocessor product volumes as set forth in the chart below. These facilities arebinding forecasts. GF agreed to use commercially reasonable efforts to fill any capacity allocated to but unutilized by us with production for third parties so as to offset and reduce our fixed cost reimbursement obligations to GF; provided that such efforts will not be required if there exists any unutilized capacity that has not been allocated to us. At our request, GF will also provide sort services to us on a product-by-product basis.

The Wafer Supply Agreement terminates no later than February 2024. The Wafer Supply Agreement may also be terminated if and when a business plan deadlock with GF exists and ATIC elects to enter into a transition period pursuant to the cornerstoneFunding Agreement. GF agreed to use commercially reasonable efforts to assist us to transition the supply of products to another provider and continue to fulfill purchase orders for up to two years following the termination or expiration of the Wafer Supply Agreement. During the transition period, pricing for microprocessor products will remain as set forth in the Wafer Supply Agreement, but our flexible capacity growth plan, which focuses on bringing the right amount of capacity online at the right time through ongoing, incremental increases in total output.purchase commitments to GF will no longer apply.

Our microprocessors are not availabledesigned to manufacturefunction with motherboards and chipsets designed to work with Intel microprocessors. If we are unable to secure sufficient support for our microprocessor products wefrom designers and manufacturers of motherboards, our business would be materially adversely affected. If the designers, manufacturers and suppliers of motherboards and other components decrease their support for our product offerings, our business could be materially adversely affected.

Our microprocessorFailure to achieve expected manufacturing operations depend upon obtaining deliveries of equipment and adequate supplies of materials on a timely basis. We purchase equipment and materials from a number of suppliers. From time to time, suppliers may extend lead times, limit supply to us or increase prices due to capacity constraints or other factors. Because the equipment that we purchase is complex, it is difficult for us to substitute one supplier for another or one piece of equipment for another. Certain raw materials we use in manufacturing our microprocessor products or that are used in the manufacture of our graphics products are available only from a limited number of suppliers.

For example, we are largely dependent on one supplieryields for our silicon-on-insulator (SOI) wafers that we useproducts could negatively impact our financial results.

Semiconductor manufacturing yields are a function of both product design and process technology, which is typically proprietary to the manufacturer, and low yields can result from either design or process technology

failures. GF is responsible for developing manufacturing process technologies used to manufacture our microprocessor products and other third-party foundries are responsible for the process technologies used to manufacture our graphics and chipset products. We are also dependent on key chemicals from a limited number of suppliers and rely on a limited number of foreign companies to supply the majority of certain types of integrated circuit packages for our microprocessor products. Similarly, certain non-proprietary materials or components such as memory, PCBs, substrates and capacitors used in the manufacture of our graphics products are currently available from only a limited number of sources and are often subject to rapid changes in price and availability. Interruption of supply or increased demand in the industry could cause shortages and price increases in various essential materials. If we are unable to procure certain of these materials, we may have to reduce our manufacturing operations. Such a reduction has in the past and could in the future have a material adverse effect on us.

Industry overcapacity could cause us to under-utilize our microprocessor manufacturing facilities and have a material adverse effect on us.

Both we and our competitor, Intel, have added significant capacity in recent years, both by expanding capacity at wafer fabrication facilities and by transitioning to more advanced manufacturing technologies. In the past, capacity additions sometimes exceeded demand requirements leading to oversupply situations and downturns in the industry. Fluctuations in the growth rate of industry capacity relative to the growth rate in demand for our products contribute to cyclicality in the semiconductor market, which may in the future put pressure on our average selling prices and materially adversely affect us.

It is difficult to predict future growth or decline in the markets we serve, making it very difficult to estimate requirements for production capacity. If our target markets do not grow as we anticipate, we may under-utilize our manufacturing facilities, which may result in write-downs or write-offs of inventories and losses on products for which demand is lower than we anticipate.

In addition, during periods of industry overcapacity, customers do not generally order products as far in advance of the scheduled shipment date as they do during periods when our industry is operating closer to capacity, which can exacerbate the difficulty in forecasting capacity requirements. Many of our costs are fixed. Accordingly, during periods in which we under-utilize our manufacturing facilities as a result of reduced demand for certain of our products, our costs cannot be reduced in proportion to the reduced revenues for such a period. When this occurs, our operating results are materially adversely affected. If the demand for our microprocessor products is not consistent with our increased expectations, we may under-utilize our manufacturing facilitiescertain that GF or we may not fully utilize the reserved capacity at Chartered’s foundry. This may have a material adverse effect on us.

Unless we maintain manufacturing efficiency, our future profitability could be materially adversely affected.

Manufacturing our microprocessor products involves highly complex processes that require advanced equipment. Our manufacturing efficiency is an important factor in our profitability, and we cannot be sure that weother third-party foundries will be able to maintaindevelop, obtain or increase our manufacturing efficiency to the same extent as our competitors. We continually modify manufacturing processes and transition to more advanced manufacturingsuccessfully implement leading-edge process technologies in an effortneeded to improve yields and product performance and decrease costs. We may fail to achieve acceptable yieldsmanufacture future generations of our products profitably or experience product delivery delays ason a result of, among other things, capacity constraints, delays in the developmenttimely basis or implementation ofthat our competitors will not develop new process technologies, changes in our process technologies, upgradesproducts or expansion of existing facilities, or impurities or other difficulties in the manufacturing process. Any decrease in manufacturing yields could result in an increase in our per unit costs or force us to allocate our reduced product supply among our customers, which could potentially harm our customer relationships, reputation, revenue and gross profit.

Improving our microprocessor manufacturing efficiency in future periods is dependent on our ability to:

processes earlier. During periods when wefoundries are implementing new process technologies, their manufacturing facilities may not be fully productive. A substantial delay in the technology transitions to smaller process technologies could have a material adverse effect on us, particularly if our competitors transition to more cost effective technologies earlier

thantechnologies. Moreover, if foundries experience manufacturing inefficiencies, we do. Our results of operations would also be adversely affected by the increase in fixed costs and operating expenses if revenues do not increase proportionately.

Similarly, the operating results of our graphics and consumer electronics businesses are dependent upon achieving planned semiconductor manufacturing yields. Our graphics and chipset products and products for consumer electronics devices are manufactured at independent foundries, but we have the responsibility for product design and the design and performance of the tooling required for manufacturing. Semiconductor manufacturing yields are a function of both product design and process technology, which is typically proprietarymay fail to the manufacturer, and low yields can result from either design or process technology failures. In addition, yield problems require cooperation by and communication between us and the manufacturer and sometimes the customer as well. The offshore location of our principal manufacturers compounds these risks, due to the increased effort and time required to identify, communicate and resolve manufacturing yield problems. We cannot assure you that we or our foundries will identify and fix problems in a timely manner, and achieve acceptable yields or experience product delivery delays. Any decrease in manufacturing yields in the future. Our inability, in cooperation with our independent foundries, to achieve planned production yields for these products could have a material adverse effect on us. In particular, failure to reach planned production yields over time could result in an increase in the per unit costs or force us not having sufficientto allocate our reduced product supply to meet demand and/or higher production costsamong our customers, which could potentially harm our customer relationships, reputation and lower gross margins. This could materially adversely affect us.

The accounting method for convertible debt securities with net share settlement, like the 6.00% Notes, will be subject to change.

In September 2007, the Financial Accounting Standards Board, or FASB, exposed for comment a proposed FASB Staff Position (FSP) No.APB 14-a, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (including partial cash settlement). This proposed FSP would change the accounting for certain convertible debt instruments, including our 6.00% Notes. Under the proposed new rules, for convertible debt instruments that may be settled entirely or partially in cash upon conversion, an entity should separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The effect of the proposed new rules for our 6.00% Notes is that the equity component would be included in the paid-in-capital portion of stockholders’ equity on our balance sheet and the value of the equity component would be treated as an original issue discount for purposes of accounting for the debt component of the 6.00% Notes. Higher interest expense would result by recognizing accretion of the discounted carrying value of the 6.00% Notes to their face amount as interest expense over the term of the 6.00% Notes. If issued as proposed, the final FSP would provide final guidance effective for the fiscal years beginning after December 15, 2007, would not permit early application, and would be applied retrospectively to all periods presented.

In November 2007, the FASB announced it expects to begin its redeliberations of the proposed FSP in January 2008. Therefore, it is unlikely that the proposed effective date for fiscal years beginning after December 15, 2007 will be retained.

We cannot predict the exact accounting treatment that will be imposed (which may differ from the foregoing description) or when any change will be finally implemented. However, if the final FSP is issued as exposed, we expect to have higher interest expense starting in the period of adoption due to the interest expense accretion and, if the retrospective application provisions of the proposed FSP are retained in the final FSP, our prior period interest expense associated with the 6.00% Notes would be higher than previously reported interest expense due to retrospective application.

Conversion of the 5.75% Notes and 6.00% Notes may dilute the ownership interest of our existing stockholders.

The conversion of some or all of the 5.75% Notes and the 6.00% Notes may dilute the ownership interests of our existing stockholders. Although the capped call transaction that we entered into in connection with the issuance of the 6.00% Notes is expected to reduce potential dilution upon conversion of the 6.00% Notes, the

conversion of the 6.00% Notes could still have a dilutive effect on our earnings per share to the extent that the price of our common stock exceeds $42.12, which is the cap price of the capped call. Similarly, the conversion of the 5.75% Notes could have a dilutive effect on our earnings per share to the extent that the price of our common stock exceeds $20.13, the conversion price of the 5.75% Notes. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion of the 5.75% Notes or 6.00% Notes into cash and shares of our common stock could depress the price of our common stock.

The capped call transaction may affect the value of our common stock.

We entered into a capped call transaction in connection with the issuance of the 6.00% Notes. The capped call transaction is expected to reduce the potential dilution upon conversion of the 6.00% Notes in the event that the market value per share of our common stock at the time of exercise, as measured under the terms of the capped call transaction, is greater than the strike price of the capped call transaction, which corresponds to the initial conversion price of the 6.00% Notes and is subject to certain adjustments similar to those contained in the 6.00% Notes. If, however, the market value per share of our common stock exceeds the cap price of the capped call transaction, as measured under the terms of the capped call transaction, the dilution mitigation under the capped call transaction will be limited, which means that there would be dilution to the extent that the then market value per share of our common stock exceeds the cap price of the capped call transaction. In connection with hedging the capped call transaction, the counterparty or its affiliates: may enter into or unwind various derivatives and/or purchase or sell our common stock in secondary market transactions (and are likely to do so during any observation period related to the conversion of the 6.00% Notes). These activities could have the effect of decreasing the price of our common stock during any observation period related to a conversion of the 6.00% Notes. The counterparty or its affiliates are likely to modify their hedge positions in relation to the capped call transaction from time to time prior to conversion or maturity of the 6.00% Notes by purchasing and selling our common stock, other of our securities, or other instruments they may wish to use in connection with such hedging. In particular, such hedging modifications are likely to occur during any observation period related to a conversion of the 6.00% Notes, which may have a negative effect on the value of the consideration received upon conversion of the 6.00% Notes. In addition, we intend to exercise options we hold under the capped call transaction whenever the 6.00% Notes are converted. In order to unwind its hedge positions with respect to those exercised options, the counterparty or affiliates thereof expect to sell our common stock in secondary market transactions or unwind various derivative transactions with respect to our common stock during the observation period, if any, for the converted 6.00% Notes. If we elect to cash-settle the capped call transaction, which we are permitted to do subject to certain conditions, it is likely the counterparty or its affiliates will sell an even greater number of shares. The effect, if any, of these transactions and activities on the market price of our common stock or the 6.00% Notes will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of our common stock and the value of the 6.00% Notes.financial results.

If we lose Microsoft Corporation’s support for our products, our ability to sell our products could be materially adversely affected.

Our ability to innovate beyond the x86 instruction set controlled by Intel depends partially on Microsoft designing and developing its operating systems to run on or support our microprocessor products. If Microsoft does not continue to design and develop its operating systems so that they work with our x86 instruction sets, independent software providers may forego designing their software applications to take advantage of our innovations and customers may not purchase PCs with our microprocessors. In addition, software drivers sold with our products are certified by Microsoft. If Microsoft did not certify a driver, or if we otherwise fail to retain the support of Microsoft, our ability to market our products would be materially adversely affected.

If we do not fully realize the anticipated benefits of our GF manufacturing joint venture, our business could be adversely impacted.

We anticipate realizing certain benefits to our business from the GF joint venture, including a more variable cost model and the ability to take advantage, as a shareholder of GF, of the shift by integrated device manufacturers to a fabless business model. We cannot assure you that our relationship with GF and ATIC will result in the full realization of these or any other benefits.

The recent instability of the financial markets may adversely impact our business and operating results.

There is continued concern over the instability of the financial markets and their influence on the global economy. As a result, our current or potential future customers may experience cash flow problems and as a result may modify, delay or cancel plans to purchase our products. Additionally, if our customers are not successful in generating sufficient revenue or are unable to secure financing, they may not be able to pay, or may delay payment of, accounts receivable that they owe us. Any inability of our current or potential future customers to pay us for our products may adversely affect our earnings and cash flow. Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impacting our ability to manufacture our products. For example, in 2009, Qimonda AG, a supplier of memory for our graphics products, commenced insolvency proceedings. In addition, economic conditions may make it more difficult for us to raise funds through borrowings or private or public sales of debt or equity securities. If global economic conditions deteriorate further or do not show improvement, we may experience material adverse impacts to our business and operating results.

If we cannot generate sufficient revenues and operating cash flow or obtain external financing, we may face a cash shortfall and be unable to make all of our planned investments in research and development.

Although we make substantial investments in research and development, we cannot be certain that we will be able to develop, obtain or successfully implement new products and technologies on a timely basis. Our

ability to fund research and development expenditures depends on generating sufficient cash flow from operations and the availability of external financing, if necessary. Our research and development expenditures, together with ongoing operating expenses, will be a substantial drain on our cash flow and may decrease our cash balances. If new competitors, technological advances by existing competitors or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses would increase. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, our operating results could decline.

We regularly assess markets for external financing opportunities, including debt and equity financing. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms. The health of the credit markets may adversely impact our ability to obtain financing when needed. In addition, downgrades from credit rating agencies such as Moody’s or Standard & Poor’s, which we experienced during the second quarter of 2009, may adversely impact our ability to get external financing or the terms of such financing. Credit agency downgrades may also impact relationships with our suppliers, who may limit our credit lines. Our inability to obtain needed financing or to generate sufficient cash from operations may require us to abandon projects or curtail planned investments in research and development. If we curtail planned investments in research and development or abandon projects, our products may fail to remain competitive and we would be materially adversely affected.

We have a substantial amount of indebtedness which could adversely affect our financial position and prevent us from implementing our strategy or fulfilling our contractual obligations.

We currently have a substantial amount of indebtedness. Our debt and capital lease obligations as of December 26, 2009 were $4.7 billion, of which $2.0 billion represented GF obligations.

Our substantial indebtedness may:

We may not be able to generate sufficient cash to service our debt obligations.

Our ability to make payments on and to refinance our debt will depend on our financial and operating performance, which may fluctuate significantly from quarter to quarter, and is subject to prevailing economic conditions and financial, business and other factors, many of which are beyond our control. We cannot assure you that we will be able to generate sufficient cash flow or that we will be able to borrow funds in amounts sufficient to enable us to service our debt or to meet our working capital requirements. If we are not able to generate sufficient cash flow from operations or to borrow sufficient funds to service our debt, we may be required to sell assets or equity, reduce expenditures, refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you that we will be able to refinance our debt, sell assets or equity or borrow more funds on terms acceptable to us, if at all.

Our debt instruments impose restrictions on us that may adversely affect our ability to operate our business.

The indenture governing our 8.125% Senior Notes due 2017 (8.125% Notes) contains various covenants which limit our ability to:

In addition, the guarantee agreement related to the euro 700 Million Term Loan Facility Agreement for AMD Fab 36 Limited Liability Company & Co. KG (Fab 36 Term Loan Agreement) that we transferred to GF contains restrictive covenants that require us to maintain specified financial ratios when group consolidated cash (including GF cash and cash equivalents) is below specified amounts. Our ability to satisfy these financial ratios and tests can be affected by events beyond our control. We cannot assure you that we will meet those requirements. A breach of any of these financial ratios or tests could result in a default under the Fab 36 Term Loan Agreement.

The agreements governing our borrowing arrangements contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. For example, the occurrence of a default with respect to any indebtedness or any failure to repay debt when due in an amount in excess of $50 million would cause a cross default under the indentures governing our 8.125% Notes, 5.75% Convertible Senior Notes due 2012 (5.75% Notes) and the 6.00% Convertible Senior Notes due 2015 (6.00% Notes). The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable. If the note holders or the trustee under the indentures governing our 8.125% Notes, 5.75% Notes or 6.00% Notes accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay those borrowings and our other indebtedness.

In the event of a change of control, we may not be able to repurchase our outstanding debt as required by the applicable indentures, which would result in a default under the indentures.

Upon a change of control, we will be required to offer to repurchase all of the 8.125% Notes then outstanding at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, up to, but excluding, the repurchase date. Moreover, the indentures governing our 5.75% Notes and 6.00% Notes require us to offer to repurchase these securities upon certain change of control events. As of December 26, 2009, the aggregate outstanding principal amount of the outstanding 8.125% Notes, 5.75% Notes and 6.00% Notes was $2.8 billion. Future debt agreements may contain similar provisions. We may not have the financial resources to repurchase our indebtedness.

If we are unable to complycontinue to implement our cost cutting efforts, our business could be materially adversely affected.

In 2008 and the first quarter of 2009, we took a number of actions to decrease our expenses. For example, in the second and fourth fiscal quarters of 2008, we implemented restructuring plans to reduce our expenses. The

restructuring charges for the restructuring plans implemented during 2008 represent primarily severance and costs related to the continuation of certain employee benefits in connection with the covenantstermination of employees, contract or program termination costs, asset impairments and exit costs for facility site consolidations and closures. If our restructuring activities are not effectively managed, we may experience unanticipated effects causing harm to our business and customer relationships.

The loss of a significant customer may have a material adverse effect on us.

Collectively, our top five customers accounted for approximately 50 percent of our net revenue in 2009. We expect that a small number of customers will continue to account for a substantial part of revenues of our microprocessor and graphics businesses in the subsidy grant documentsfuture. During 2009, five customers accounted for approximately 56 percent of the net revenue of our Computing Solutions segment and five customers accounted for approximately 52 percent of the net revenue of our Graphics segment. If one of our top microprocessor or graphics business customers decided to stop buying our products, or if one of these customers were to materially reduce its operations or its demand for our products, we would be materially adversely affected.

The semiconductor industry is highly cyclical and has experienced severe downturns that we receive frommaterially adversely affected, and may in the State of Saxony, the Federal Republic of Germany and/or the European Union for Fab 30, Fab 36 or other research and development projects we may undertake in Germany, we may forfeit or have to repay our subsidies, which couldfuture materially adversely affect, our business.

The semiconductor industry is highly cyclical and has experienced significant downturns, often in conjunction with constant and rapid technological change, wide fluctuations in supply and demand, continuous new product introductions, price erosion and declines in general economic conditions. The current uncertainty in global economic conditions has also impacted the semiconductor market as consumers and businesses have deferred purchases, which negatively impacted demand for our products in 2009. Our financial performance has been, and may in the future be, negatively affected by these downturns. We incurred substantial losses in recent downturns, due to:

If the current downturn in the semiconductor industry does not improve, we will be materially adversely affected.

The demand for our products depends in part on continued growth in the industries and geographies into which they are sold. Fluctuations in demand for our products or a market decline in any of these industries or geographies would have a material adverse effect on our results of operations.

Our business is dependent upon the market for desktop and notebook PCs and servers. In 2009 and 2008, a significant portion of our Computing Solutions revenue was related to desktop PCs. Industry-wide fluctuations in the computer marketplace have materially adversely affected us in the past, are currently affecting us and may materially adversely affect us in the future. Recently, as a result of macroeconomic challenges currently affecting the global economy, end user demand for PCs and servers decreased significantly. Although end-user PC demand stabilized in the second half of 2009, end-customers continue to demand value-priced products and spending by enterprises has not rebounded to pre-recession levels. In addition, form factors have steadily shifted from desktop PCs to notebook PCs over the past three years, and we expect that this trajectory will continue.

The growth of our business is also dependent on continued demand for our products from high-growth global markets. If demand from these markets is below our expectations, sales of our products may decrease, which could have a material adverse effect on us.

The markets in which our products are sold are highly competitive.

The markets in which our products are sold are very competitive, and delivering the latest and best products to market on a timely basis is critical to achieving revenue growth. We expect competition to intensify due to rapid technological changes, frequent product introductions and aggressive pricing by competitors. We believe that the main factors that determine our product competitiveness are timely product introductions, product quality, power consumption, reliability, selling price, speed, size (or form factor), cost, adherence to industry standards, software and hardware compatibility and stability and brand.

Typically, after a product is introduced, costs and the average selling price normally decrease over time as production efficiency improves, and successive generations of products are developed and introduced for sale. Recently, as a result of the credit market crisis and other macroeconomic challenges currently affecting the global economy, end user demand for PCs and servers decreased significantly. Although end-user PC demand stabilized in the second half of 2009, consumers are focusing more on the price of PCs as a key factor in their buying decision. In turn, OEMs have applied pressure on semiconductor suppliers to reduce component prices, which has materially adversely affected the average selling price.

We receive capital investment grantsexpect that competition will continue to be intense in these markets and allowancesour competitors’ products may be less costly, provide better performance or include additional features that render our products uncompetitive. For example, Intel is transitioning to 32 nm process technology before us. Using a more advanced process technology can contribute to lower product manufacturing costs and improve a product’s performance and power efficiency. Some competitors may have greater access or rights to companion technologies, including interface, processor and memory technical information. Competitive pressures could adversely impact the demand for our products, which could harm our revenue and gross margin.

Our operating results are subject to quarterly and seasonal sales patterns.

A substantial portion of our quarterly sales have historically been made in the last month of the quarter. This uneven sales pattern makes prediction of revenues for each financial period difficult and increases the risk of unanticipated variations in quarterly results and financial condition. In addition, our operating results tend to vary seasonally. For example, demand in the retail sector of the PC market is often stronger during the fourth quarter as a result of the winter holiday season and weaker in the first quarter. European sales are often weaker during the summer months. Many of the factors that create and affect seasonal trends are beyond our control.

If essential equipment or materials are not available to manufacture our products, we could be materially adversely affected.

Our operations depend upon obtaining deliveries of adequate supplies of materials on a timely basis. We purchase equipment and materials from the Statea number of Saxony and the Federal Republic of Germany for Fab 36. We have also received capital investment grants and allowances as well as interest subsidies from these governmental entities for Fab 30.suppliers. From time to time, we also apply for and obtain subsidies from the State of Saxony, the Federal Republic of Germany and the European Union for certain research and development projects. The subsidy grant documents typically contain covenants that must be complied with, and noncompliance with the conditionssuppliers may extend lead times, limit supply to us or increase prices due to capacity constraints or other factors. Because some of the grants, allowances and subsidies could resultmaterials that we purchase are complex, it is difficult for us to substitute one supplier for another. Certain raw materials that are used in the forfeituremanufacture of allour products are available only from a limited number of suppliers.

For example, the manufacturing of our microprocessor products is largely dependent on one supplier of our silicon-on-insulator (SOI) wafers. We are also dependent on key chemicals from a limited number of suppliers and rely on a limited number of foreign companies to supply the majority of certain types of integrated circuit packages for our microprocessor products. Similarly, certain non-proprietary materials or components such as memory, PCBs, substrates and capacitors used in the manufacture of our graphics products are currently available from only a portionlimited number of any future amountssources and are often subject to be received, as well asrapid changes in price and availability. Interruption of supply or increased demand in the repaymentindustry could cause shortages and price increases in various essential materials. The macroeconomic challenges affecting the global economy may impact our key suppliers who may reduce their output and become insolvent which may adversely impact our ability to procure key

materials. For example, in 2009, Qimonda AG, a supplier of all or a portion of amounts received to date.memory for our graphics products commenced insolvency proceedings. If we are unable to comply with anyprocure certain of the covenants in the grant documents,these materials, or our foundries are unable to procure materials for manufacturing our products, we couldwould be materially adversely affected.

Our issuance to WCH of warrants to purchase 35,000,000 shares of our common stock, if and when exercised by WCH, will dilute the ownership interests of our existing stockholders, and the conversion of the remainder of our 5.75% Notes and 6.00% Notes may dilute the ownership interest of our existing stockholders.

The warrants issued to WCH became exercisable in July 2009. Any issuance by us of additional shares to WCH upon exercise of the warrants will dilute the ownership interests of our existing stockholders. Any sales in the public market by WCH of any shares owned by WCH could adversely affect prevailing market prices of our common stock, and the anticipated exercise by WCH of the warrants we issued to WCH could depress the price of our common stock.

Moreover, the conversion of our remaining 5.75% Notes and 6.00% Notes may dilute the ownership interests of our existing stockholders. The conversion of the 5.75% Notes and the 6.00% Notes could have a dilutive effect on our earnings per share to the extent that the price of our common stock exceeds the conversion price of the 5.75% Notes and 6.00% Notes. Any sales in the public market of our common stock issuable upon conversion of the 5.75% Notes or 6.00% Notes could adversely affect prevailing market prices of our common stock. In addition, the conversion of the 5.75% Notes or 6.00% Notes into cash and shares of our common stock could depress the price of our common stock.

If our products are not compatible with some or all industry-standard software and hardware, we could be materially adversely affected.

Our products may not be fully compatible with some or all industry-standard software and hardware. Further, we may be unsuccessful in correcting any such compatibility problems in a timely manner. If our customers are unable to achieve compatibility with software or hardware after our products are shipped in volume, we could be materially adversely affected. In addition, the mere announcement of an incompatibility problem relating to our products could have a material adverse effect on us.

Costs related to defective products could have a material adverse effect on us.

Products as complex as those we offer may contain defects or failures when first introduced or when new versions or enhancements to existing products are released. We cannot assure you that, despite our testing procedures, errors will not be found in new products or releases after commencement of commercial shipments in the future, which could result in loss of or delay in market acceptance of our products, material recall and replacement costs, delay in recognition or loss of revenues, writing down the inventory of defective products, the diversion of the attention of our engineering personnel from product development efforts, defending against litigation related to defective products or related property damage or personal injury, and damage to our reputation in the industry and could adversely affect our relationships with our customers. In addition, we may have difficulty identifying the end customers of the defective products in the field. As a result, we could incur substantial costs to implement modifications to correct defects. Any of these problems could materially adversely affect us.

In addition, because we sell directly to consumers, weWe could be subject to potential product liability claims if one of our products causes, or merely appears to have caused, an injury. Claims may be made by consumers or others selling our products, and we may be subject to claims against us even if an alleged injury is due to the actions of others. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business.

Our receipt of royalty revenues is dependent upon being designed into third-party products and the success of third-partythose products.

Our graphics technology for the game console marketconsoles is being used in the Nintendo GameCube, Nintendo Wii and Microsoft^® Xbox 360™360 game consoles. The only revenues that we receive from these technology platformsproducts are in the form of non-recurring engineering revenues,fees charged for design and development services, as well as royalties paid to us by Nintendo and Microsoft based upon the market success of their products. Accordingly, ourMicrosoft. Our royalty revenues will beare directly related to the sales of these products. We anticipate royaltiesproducts and reflective of their success in the market. If Nintendo or Microsoft does not include our graphics technology in future years resultinggenerations of their game consoles, our revenues from our agreements with Nintendo and Microsoft. However,royalties would decline significantly. Moreover, we have no control over the marketing efforts of Nintendo and Microsoft and

we cannot assure youmake any assurances that sales of those products will achieve expected levels in the current or future fiscal years. Consequently, the revenues from royalties expected by us from these technology platformsproducts may not be fully realized, and our operating results may be adversely affected.

Our entry into consumer markets is subject to a number of uncertainties.

We sell products for the consumer electronics market, including for digital TVs and color mobile phones. There are a significant number of competitors targeting this market. In addition, as the telecommunications, cable and consumer electronics industries and their suppliers undergo a period of convergence, we expect that competition will increase in these markets. Our ability to succeed in these consumer markets is subject to a number of uncertainties, including acceptance of our graphics and multimedia processors, the development of new technologies sufficient to meet market demand, the need to develop customer relationships, different sales strategies and channels, new and different industry standards from those in the PC market and changing strategic alliances. We cannot assure you that we will be able to successfully compete in this market. If we are unable to successfully introduce products and compete in this market, we could be materially adversely affected.

Our inability to continue to attract and retain qualified personnel may hinder our product development programs.

Our future success depends upon the continued service of numerous qualified engineering, manufacturing, marketing, sales and executive personnel. If we are not able to continue to attract, retain and motivate qualified personnel necessary for our business, the progress of our product development programs could be hindered, and we could be materially adversely affected.

If we fail to maintain the efficiency of our supply chain as we respond to increases or changes in customer demand for our products, our business could be materially adversely affected.

Our ability to meet customer demand for our products depends, in part, on our ability to deliver the products our customers want on a timely basis. Accordingly, we rely on our supply chain for the manufacturing, distribution and fulfillment of our products. As we continue to grow our business, acquire new OEM customers and strengthen relationships with existing OEM customers, the efficiency of our supply chain will become increasingly important because OEMs tend to have specific requirements for particular products, and specific time-frames in which they require delivery of these products.

We outsource to third parties certain supply-chain logistics functions, including physical distributionportions of our products,product distribution and transportation management, and co-source some information technology services.

We rely on a third-party providerproviders to deliveroperate our regional product distribution centers and to manage the transportation of our work-in-process and finished products among our facilities and to our customers and to distribute materials for some of our manufacturing facilities.customers. In addition, we rely on a third party in Indiaparties to provide certain information technology services to us, including helpdesk support, desktop application services, business and software support applications, server and storage administration, data center operations, database administration, and voice, video and remote access. Our relationships with these providers are governed by fixed term contracts. We cannot guarantee that these providers will fulfill their respective responsibilities in a timely manner in accordance with the contract terms, in which case our internal operations and the distribution of our products to our customers and the distribution of materials for some facilities could be materially adversely affected. Also, we cannot guarantee that our contracts with these third-party providers will be renewed, in which case we would have to transition these functions in-house or secure new providers, which could have a material adverse effect on us. In addition, we decided to outsource or co-source these functions to third parties primarily to lower our operating expenses and to create a more variable cost structure. However,us if the costs related to administration, communication and coordination of these third-party providers are greater than we expect, then we willtransition is not realize our anticipated cost savings.executed appropriately.

Uncertainties involving the ordering and shipment of and payment for, our products could materially adversely affect us.

We typically sell our products pursuant to individual purchase orders. We generally do not have long-term supply arrangements with our customers or minimum purchase requirements.requirements except that orders generally must be for standard pack quantities. Generally, our customers may cancel orders more than 30 days prior to shipment without incurring a significant penalty, while customers of products for consumer electronics devices may cancel orders by providing 90 days prior advance notice.fees. We base our inventory levels on customers’ estimates of demand for their

products, which may not accurately predict the quantity or type of our products that our customers will want in the future or ultimately end up purchasing. For example, customers who are concerned about potential supply shortages may “double order” products by ordering more product from us

than they ultimately need. Subsequently, these customers could cancel all or a portion of these orders when they realize they have sufficient supply. This behavior would increase our uncertainty regarding demand for our products and could materially adversely affect us. With respect to our graphics products, we do not have any commitment or requirements for minimum product purchases in our sales agreement with AIB customers, upon whom we rely to manufacture, market and sell our desktop GPUs. These sales are subject to uncertainty because demand by our AIBs can be unpredictable and susceptible to price competition. Our ability to forecast demand is even further complicated when we sell to OEMs indirectly through distributors, as our forecasts for demand are then based on estimates provided by multiple parties. Moreover, PC and consumer markets are characterized by short product lifecycles, which can lead to rapid obsolescence and price erosion. In addition, our customers may change their inventory practices on short notice for any reason. We may build inventories during periods of anticipated growth, and the cancellation or deferral of product orders the return of previously sold products or overproduction due to failure of anticipated orders to materialize, could result in excess or obsolete inventory, which could result in write-downs of inventory and an adverse effect on profit margins. Factors that may result in excess or obsolete inventory, which could result in write-downs of the value of our inventory, a reduction in the average selling prices,price, and/or a reduction in our gross margin include:

Because market conditions are uncertain, these and other factors could materially adversely affect us.

Our reliance on third-party distributors subjects us to certain risks.

We market and sell our products directly and through third-party distributors pursuant to agreements that can generally be terminated for convenience by either party upon prior notice to the other party. These agreements are non-exclusive and permit our distributors to offer our competitors’ products. Our third party distributors have been a significant factor in our ability to increase sales of our products in certain high growth international markets. Accordingly, weWe are dependent on our distributors to supplement our direct marketing and sales efforts. If any significant distributor or a substantial number of our distributors terminated their relationship with us or decided to market our competitors’ products over our products, our ability to bring our products to market would be impacted and we would be materially adversely affected.

Additionally, distributors typically maintain an inventory of our products. In most instances, our agreements with distributors protect their inventory of our products against price reductions, as well as provide return rights for any product that we have removed from our price book and that is not more than twelve months older than the manufacturing code date. Some agreements with our distributors also contain standard stock rotation provisions permitting limited levels of product returns. We defer the gross margins on our sales to distributors, resulting from both our deferral of revenue and related product costs, until the applicable products are re-sold by the distributors. However, in the event of an unexpecteda significant decline in the price of our products, the price protection rights we offer to our distributors would materially adversely affect us because our revenue would decline.

Failures in the global credit markets have impacted and may continue to impact the liquidity of our auction rate securities.

As of December 26, 2009, the par value of all our auction rate securities, or ARS, was $165 million with an estimated fair value of $159 million. As of December 26, 2009, our investments in ARS included approximately $58 million of student loan ARS and $34 million of municipal and corporate ARS. The uncertainties in the credit markets have affected all of our ARS and auctions for these securities have failed to settle on their respective settlement dates. The auctions failed because there was insufficient demand for these securities. A failed auction does not represent a default by the issuer of the ARS. For each unsuccessful action, the interest rate is reset based on a formula set forth in each security, which is generally higher than the current market unless subject to an interest rate cap. When auctions for these securities fail, the investments may not be readily convertible to cash until a future auction of these investments is successful, a buyer is found outside of the auction process, the issuers of the ARS establish a different form of financing to replace these securities or redeem them, or final

payment is due according to contractual maturities (currently, ranging from 17 to 42 years for our ARS). Although we have had some limited redemptions since the failed auctions began, the liquidity of these investments has been impacted.

While we believe that the current illiquidity of these investments is temporary, we cannot predict with certainty when liquidity in the ARS market will return. If this market illiquidity continues or worsens, we may be required to record additional impairment charges with respect to these investments in the future, which could adversely impact our results of operations.

As of December 26, 2009, we owned $69 million par value of ARS that we purchased from UBS prior to February 13, 2008. From June 30, 2010 through July 2, 2012, we have the right, but not the obligation, to sell, at par, these ARS to UBS. During the course of our exercise period with respect to the UBS ARS, UBS may not have financial resources to satisfy its financial obligations. In the event UBS cannot satisfy its financial obligations, we would no longer have the certainty as to the liquidity of these ARS.

Our operations in foreign countries are subject to political and economic risks and our worldwide operations are subject to natural disasters, which could have a material adverse effect on us.

We maintain operations around the world, including in the United States, Canada, Europe and Asia. For example,We rely on GF for substantially all of our wafer fabrication capacity for microprocessors ismicroprocessors. Currently, GF manufactures our products in facilities that are located in Germany. Nearly all product assembly and final testing of our microprocessor products is performed at manufacturing facilities in China,

Malaysia and Singapore. In addition, our graphics and chipset products and products for consumer electronics devices are manufactured, assembled and tested by independent third parties in the Asia-Pacific region and inventory related to those products is stored there, particularly in Taiwan. We also have international sales operations and as part of our business strategy, we are continuing to seek expansion of product sales in high growth markets. Our internationalInternational sales as a percentagepercent of our total consolidatednet revenue waswere 87 percent for 2009. We expect that international sales will continue to be a significant portion of total sales in 2007, and China was one of our largest and fastest growing markets.the foreseeable future.

The political and economic risks associated with our operations in foreign countries include, without limitation:

In addition, our worldwide operations could be subject to natural disasters such as earthquakes that disrupt manufacturing or other operations. For example, our Silicon Valley operations are located near major earthquake fault lines in California. Any conflict or uncertainty in the countries in which we operate, including public health

or safety, natural disasters or general economic factors, could have a material adverse effect on our business. Any of the above risks, should they occur, could result in an increase in the cost of components, production delays, general business interruptions, delays from difficulties in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, potentially longer payment cycles, potentially increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on us.

Worldwide economic and political conditions may adversely affect demand for our products.

Worldwide economic conditions may adversely affect demand for our products. For example, China’s economy has been growing at a fast pace overAlso, the past several years, and China was one of our largest and fastest growing markets. A decline in economic conditions in China could lead to declining worldwide economic conditions. If economic conditions decline, whether in China or worldwide, we could be materially adversely affected.

The occurrence and threat of terrorist attacks and the consequences of sustained military action in the Middle East have in the past, and may in the future, adversely affect demand for our products. Terrorist attacks may negatively affect our operations, directly or indirectly, and such attacks or related armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Furthermore, these attacks may make travel and the transportation of our products more difficult and more expensive, which could materially adversely affect us.

The United States has been and may continue to be involved in armed conflicts that could have a further impact on our sales and our supply chain. Political and economic instability in some regions of the world may also result and could negatively impact our business. The consequences of armed conflicts are unpredictable and we may not be able to foresee events that could have a material adverse effect on us.

Recently, there has been widespread concern over the instability of the credit markets and the current credit market conditions on the economy. If the economy weakens or slips into recession, our business, financial condition and results of operations could be materially adversely affected.

More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the United States economy and worldwide financial markets. Any of these occurrences could have a material adverse effect on us and also may result in volatility of the market price for our securities.

Unfavorable currency exchange rate fluctuations could continue to adversely affect us.

We have costs, assets and liabilities that are denominated in foreign currencies, primarily the euro and the Canadian dollar. For example, some fixed asset purchases and certain expenses of our German subsidiaries, AMD Saxony and AMD Fab 36 KG, are denominated in euros while sales of products are denominated in U.S. dollars. Additionally, as a result of our acquisition of ATI in October 2006, some of our expenses and debt are denominated in Canadian dollars. As a consequence, movements in exchange rates could cause our foreign currency denominated expenses to increase as a percentage of revenue, affecting our profitability and cash flows. TheIn the past, the value of the U.S. dollar has fallen significantly, leading to increasingly unfavorable currency exchange rates on foreign denominated expenses. Whenever we believe appropriate, we hedge a portion of our short-term foreign currency exposure to protect against fluctuations in currency exchange rates. We determine our total foreign currency exposure using projections of long-term expenditures for items such as payroll and equipment and materials used in manufacturing. We cannot assure you that these activities will be effective in reducing foreign exchange rate exposure. Failure to do so could have an adverse effect on our business, financial condition, results of operations and cash flow.

In addition, the majority of our product sales are denominated in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the local currency can cause increases or decreases in the cost of our products in the local currency of such customers. An appreciation of the U.S. dollar relative to the local currency could reduce sales of our products.

Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.

We market and sell our products directly to OEMs and through authorized third-party distributors. From time to time, our products are diverted from our authorized distribution channels and are sold on the “gray market.” Gray market products entering the market result in shadow inventory that is not visible to us, thus making it difficult to forecast demand accurately. Also, when gray market products enter the market, we and our distribution channel compete with these heavily discounted gray market products, which adversely affectaffects demand for our products.products and negatively impact our margins. In addition, our inability to control gray market activities could result in

customer satisfaction issues because any time products are purchased outside our authorized distribution channel there is a risk that our customers are buying counterfeit or substandard products, including products that may have been altered, mishandled or damaged, or used products represented as new. Our inability to control sales of our products on the gray market could have a material adverse effect on us.

If we cannot adequately protect our technology or other intellectual property in the United States and abroad, through patents, copyrights, trade secrets, trademarks and other measures, we may lose a competitive advantage and incur significant expenses.

We rely on a combination of protections provided by contracts, including confidentiality and nondisclosure agreements, copyrights, patents, trademarks and common law rights, such as trade secrets, to protect our intellectual property. However, we cannot assure you that we will be able to adequately protect our technology or other intellectual property from third partythird-party infringement or from misappropriation in the United States and abroad. Any patent licensed by us or issued to us could be challenged, invalidated or circumvented or rights

granted thereunderthere under may not provide a competitive advantage to us. Furthermore, patent applications that we file may not result in issuance of a patent or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property on a worldwide basis in a cost-effective manner. In jurisdictions where foreign laws provide less intellectual property protection than afforded in the United States and abroad, our technology or other intellectual property may be compromised, and we would be materially adversely affected.

We are party to litigation including intellectual property litigation, and may become a party to other claims or litigation that could cause us to incur substantial costs or pay substantial damages or prohibit us from selling our products.

From time to time we are a defendant or plaintiff in various legal actions. For example, our indirect wholly-owned subsidiary, ATI, is party to a consumer class action, among other litigation matters. Additionally, in November 2006 we received a subpoena for documents and information in connection with the U.S. Department of Justice’s criminal investigation into potential antitrust violations related to graphics processing units and cards. In addition, AMD and our subsidiaries, ATI, AMD US Finance, Inc. and 1252986 Alberta ULC are defendants in a consolidated action in which the plaintiffs are seeking to certify a class action to obtain injunctive relief and damages for alleged violations of federal antitrust law, and for alleged violations of certain state antitrust and consumer protection statutes, related to graphics processing units and cards. We also sell products to consumers, which could increase our exposure to consumer actions such as product liability claims. Litigation can involve complex factual and legal questions and its outcome is uncertain. Any claim that is successfully asserted against us may cause us to pay substantial damages.

With respect to intellectual property litigation, from time to time, we have been notified, or third parties may bring or have brought actions against us, based on allegations that we are infringing the intellectual property rights of others. If any such claims are asserted against us, we may seek to obtain a license under the third party’s intellectual property rights. We cannot assure you that we will be able to obtain all of the necessary licenses on satisfactory terms, if at all. In the event that we cannot obtain a license, these parties may file lawsuits against us seeking damages (potentially up to and including treble damages) or an injunction against the sale of our products that incorporate allegedly infringed intellectual property or against the operation of our business as presently conducted, which could result in our having to stop the sale of some of our products or to increase the costs of selling some of our products or could damage our reputation. The award of damages, including material royalty payments, or the entry of an injunction against the manufacture and sale of some or all of our products, would have a material adverse effect on us. We could decide, in the alternative, to redesign our products or to resort to litigation to challenge such claims. Such challenges could be extremely expensive and time-consuming regardless of their merit, cause delays in product release or shipment, and could have a material adverse effect on us. We cannot assure you that litigation related to our intellectual property rights or the intellectual property rights of others can always be avoided or successfully concluded.

Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations, which could have a material adverse effect on us.

We are conducting an internal investigation into matters associated with recently announced allegations of trading in our stock on the basis of confidential information.

We are conducting an internal investigation into recent allegations that an unnamed “AMD executive” provided confidential information about us to a person who has been charged by federal authorities with trading in our stock on the basis of that confidential information. To date, we have not been and, to our knowledge, none of our current or former executives or employees have been, charged or otherwise identified as targets or subjects in connection with ongoing proceedings or investigations relating to this matter. At this time, we cannot give any assurances as to the outcome of our investigation or whether any facts that may be discovered will be damaging to our business, results of operations or reputation.

We are subject to a variety of environmental laws that could result in liabilities.

Our operations and properties arehave in the past and continue to be subject to various United States and foreign environmental laws and regulations, including those relating to materials used in our products and manufacturing processes, discharge of pollutants into the environment, the treatment, transport, storage and disposal of solid and hazardous wastes, and remediation of contamination. These laws and regulations require us to obtain permits for our operations, including the discharge of air pollutants and wastewater. Although our management systems are designed to maintain compliance, we cannot assure you that we have been or will be at all times in complete compliance with

such laws, regulations and permits. If we violate or fail to comply with any of them, a range of consequences could result, including fines, suspension of production, alteration of manufacturing processes, import/export restrictions, sales limitations, criminal and civil liabilities or other sanctions. We could also be held liable for any and all consequences arising out of exposure to hazardous materials used, stored, released, disposed of by us or located at or under our facilities or other environmental or natural resource damage.

Certain environmental laws, including the U.S. Comprehensive, Environmental Response, Compensation and Liability Act of 1980, or the Superfund Act, impose strict, joint and several liability on current and previous owners or operators of real property for the cost of removal or remediation of hazardous substances and impose liability for damages to natural resources. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances. These environmental laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated. Such persons can be responsible for cleanup costs even if they never owned or operated the contaminated facility. We have been named as a responsible party on Superfund clean-up orders for three sites in Sunnyvale, California. Although we have not yet been, we could be named a potentially responsible party at other Superfund or contaminated sites in the future. In addition, contamination that has not yet been identified could exist at our other facilities.

Environmental laws are complex, change frequently and have tended to become more stringent over time. For example, the European Union (EU) and China are two among a growing number of jurisdictions that have enacted in recent years restrictions on the use of lead, among other chemicals, in electronic products. These regulations affect semiconductor packaging. There is a risk that the cost, quality and manufacturing yields of lead-free products may be less favorable compared to lead-based products or that the transition to lead-free products may produce sudden changes in demand, which may result in excess inventory. Other regulatory requirements potentially affecting our back-end manufacturing processes and the design and marketing of our products are in development throughout the world. In addition, the EU is considering market entry requirements for computers based on the ENERGY STAR specification (Version 5.0) as well as additional limits. The proposed requirements, which have not yet been finalized by the EU Commission, could potentially be approved and implemented as early as the fourth quarter of 2011. If such requirements are implemented in the proposed time frame and to the proposed specification there is the potential for certain of our microprocessor, chipset and GPU products, as incorporated in desktop and mobile PCs, being excluded from the EU market. While we have budgeted for foreseeable associated expenditures, we cannot assure you that future environmental legal

requirements will not become more stringent or costly in the future. Therefore, we cannot assure you that our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past and future releases of, or exposure to, hazardous substances will not have a material adverse effect on us.

Our worldwide operations could be subject to natural disasters and other business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses.

All of our wafer fabrication capacity for microprocessors is located in Germany. Nearly all product assembly and final testing of our microprocessor products is performed at manufacturing facilities in China, Malaysia and Singapore. The independent foundries we use to manufacture our graphics and chipset products and products for consumer electronics devices are located in the Asia-Pacific region and inventory is stored there, particularly in Taiwan. Many of our assembly, testing and packaging suppliers for our graphics products are also located in southern Taiwan. On September 22, 1999, Taiwan suffered a major earthquake that measured 7.6 on the Richter scale and disrupted the operations of these manufacturing suppliers and contributed to a temporary shortage of graphics processors. Additional earthquakes, fires or other occurrences that disrupt our manufacturing suppliers may occur in the future. To the extent that the supply from our independent foundries or suppliers is interrupted for a prolonged period of time or terminated for any reason, we may not have sufficient time to replace our supply of products manufactured by those foundries.

Moreover, our corporate headquarters are located near major earthquake fault lines in California. In the event of a major earthquake, or other natural or manmade disaster, we could experience loss of life of our employees, destruction of facilities or business interruptions, any of which could materially adversely affect us.

Our business is subject to potential tax liabilities.

We are subject to income taxes in the United States, Canada and other foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, we cannot assure you that the final determination of any tax audits and litigation will not be materially different from that which is reflected in historical income tax provisions and accruals. Should additional taxes be assessed as a result of an audit or litigation, there could be a material effect on our cash, goodwill recorded as a result of our acquisition of ATI, income tax provision and net income in the period or periods for which that determination is made.

For example, the Canadian Revenue Agency, or CRA, is auditing ATI for the years 2000—2004 with respect to transactions between ATI and its subsidiaries. The audit has been completed and is currently in the review process. We could be subject to significant tax liability as well as a loss of certain tax credits and other tax attributes as a result of the CRA audit.

We have not received any written comments that were issued morenot less than 180 days before December 29, 2007,26, 2009, the end of the fiscal year covered by this report, from the Securities and Exchange Commission staff regarding our periodic or current reports under the Securities Exchange Act of 1934 that remain unresolved.

At December 29, 2007,26, 2009, we owned principal research and development, engineering, manufacturing, warehouse and administrative facilities located in the United States, Canada, China, Germany, Singapore and Malaysia. These facilities totaled approximately 3.62.4 million square feet. Of this amount, 2.2 million square feet were located in Dresden, Germany and were used primarily for wafer fabrication, research and development, and administrative offices.

Our main facility with respect to our graphics and chipset products and products for consumer electronics devices is located in Markham, Ontario, Canada. This facility consists of approximately 240,000 square feet of office and research and development space. We have a 50 percent interest in the joint venture company that owns this facility. We occupy fivetwo other facilities in Markham, Ontario that comprise over 265,000215,000 square feet, including approximately 65,000 square-feet of manufacturing and warehouse space. We also currently own and operate three microprocessor assembly and test facilities comprising an aggregate of approximately 1 million square feet. Our current microprocessor assembly and test facilities are located in Malaysia, Singapore and China and are described in further detail in the “Manufacturing, Assembly and Test Facilities,” above.

In some cases, we lease all or a portion of the land on which our facilities are located. We lease approximately 218,000 square feet of land in Singapore and 270,000422,000 square feet of land in Suzhou, China for our microprocessor assembly and test facilities. In addition, Fab 30 and Fab 36 are located on approximately 9.7 million square feet of land. Of this amount, Fab 36 owns approximately 5.4 million square feet, and both the facility and the land are encumbered by a lien securing the obligations of AMD Fab 36 KG, the entity that owns the Fab 36 assets, under its EUR 700 Million Term Loan Facility Agreement with a consortium of banks in connection with the Fab 36 project (Fab 36 Loan Agreements). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Fab 36 Term Loan and Guarantee and Fab 36 Partnership Agreements.”

As of December 29, 2007,26, 2009, we also leased approximately 3.13.2 million square feet of space for engineering, manufacturing, warehouse and administrative use, including a number of smaller regional sales offices located in commercial centers near customers, principally in the United States, Latin America, Europe and Asia. These leases expire at varying dates through 2018.

We also have approximately 185,000325,000 square feet of building space that is currently vacant. We continue to have lease obligations with respect to this space that expire at various dates through 2011.2012. We are actively marketing this space for sublease. Spansion Inc. leases approximately 71,000 square feet from us.

We are also in the process of building a new campus for design and administrative functions on approximately 58 acres in Austin, Texas. The campus will consist of approximately 825,000 square feet and is concentrated to approximately 33 of the available 58 acres. We expect that the new Austin campus will be fully occupied by mid-2008.

We currently do not anticipate difficulty in either retaining occupancy of any of our facilities through lease renewals prior to expiration or through month-to-month occupancy, or replacing them with equivalent facilities.

We believe that our existing facilities are suitable and adequate for our present purposes, and that, except as discussed above, the productive capacity of such facilities is substantially being utilized or we have plans to utilize it.

In connection with the consummation of the GF manufacturing joint venture transaction in March 2009, we transferred approximately 2.3 million square feet of engineering, manufacturing, warehouse and administrative facilities in the United States and Germany to GF. In addition, GF is in the process of constructing a new 1.3 million square foot manufacturing facility in Saratoga County, New York.

In addition to ordinary routine litigation incidental to the business, AMD or its indirectly wholly-owned subsidiary, ATI, wereis party to the following material legal proceedings. The outcome of any litigation is uncertain, and, should any of thesethe actions or proceedings against uswhere we are a defendant be successful, we may be subject to significant damages awards which could have a material adverse effect on our financial condition.

AMD and AMDISS v. Intel Corporation and Intel Kabushiki Kaisha, Civil Action No. 05-441, in the United States District Court for the District of Delaware.

On June 27, 2005, AMDwe filed an antitrust complaint against Intel Corporation and Intel Kabushiki Kaisha, collectively “Intel,” in the United States District Court for the District of Delaware under Section 2 of the Sherman Antitrust Act, Sections 4 and 16 of the Clayton Act, and the California Business and Professions Code. The complaint alleges that Intel has unlawfully maintained a monopoly in the x86 microprocessor market by engaging in anti-competitive financial and exclusionary business practices that in effect limit Intel’s customers’ ability and/or incentive to deal with AMD.us.

On November 11, 2009, we entered into a comprehensive settlement agreement with Intel. Pursuant to the settlement agreement, Intel paid us $1.25 billion in December 2009. The complaint alleges anti-competitivesettlement agreement also includes mutual releases of all claims between us and Intel, including specified claims under the existing cross license agreements between the parties. With respect to claims regarding Intel’s business practices, including:

AMD has requested the following findings and remedies:

violation of California Business & Professions Code § 17045, and treble damages for AMD’s resulting lost profits in an amount to be proven at trial;

Intel filed its answer on September 1, 2005. On September 26, 2006, (c) any attempt by us to transfer our rights or obligations under the United States District Court for the District of Delaware granted the motion of Intel Corporation to dismiss foreign conduct claims. The effect of that decision was clarified by the Court’s January 12, 2007 adoption of the Special Master’s decision on our motion to compel foreign conduct discovery. As a result of these two decisions, we will be permitted to introduce evidence of Intel’s exclusionary practices wherever they occur, including practices foreclosing AMD from foreign customers or in foreign market segments. However, the court’s ruling limits our damages to lost salessettlement agreement, except as expressly provided in the United Statessettlement agreement. In addition, in connection with the settlement, we entered into a cross license agreement. See “Business—Intellectual Property and lost sales abroad that would have originated from the United States. The Court also set an immovable trial date of April 27, 2009. The discovery process is ongoing.

Other Related Proceedings

On June 30, 2005, our Japanese subsidiary, AMD Japan K.K., or AMD Japan, filed an action in Japan against Intel Corporation’s Japanese subsidiary, Intel Kabushiki Kaisha, or Intel K.K., in the Tokyo High Court and the Tokyo District Court for damages arising from violations of Japan’s Antimonopoly Act.

Through its suit in the Tokyo High Court, AMD Japan seeks $50 million in damages, following on the Japan Fair Trade Commission’s (JFTC) findings in its March 8, 2005 Recommendation, or the JFTC Recommendation, that Intel K.K. committed violations of Japan’s Antimonopoly Act. The JFTC Recommendation concluded that Intel K.K. interfered with AMD Japan’s business activities by providing large amounts of funds to five Japanese PC manufacturers (NEC, Fujitsu, Toshiba, Sony, and Hitachi) on the condition that they refuse to purchase AMD’s microprocessors. The suit alleges that as a result of these illegal acts, AMD Japan suffered serious damages, losing all of its sales of microprocessors to Toshiba, Sony, and Hitachi, while sales of microprocessors to NEC and Fujitsu also fell precipitously.

Through its suit in the Tokyo District Court, AMD Japan seeks $55 million in damages for various anticompetitive acts in addition to those covered in the scope of the JFTC Recommendation. The suit alleges that these anticompetitive acts also had the effect of interfering with AMD Japan’s right to engage in normal business and marketing activities.Licensing.”

U.S. Consumer Class Action Lawsuits

In February and March 2006, two consumer class actions were filed in the United States District Court for the Northern District of California against ATI and three of its subsidiaries. The complaints allege that ATI had misrepresented its graphics cards as being “HDCP ready” when they were not, and on that basis alleged violations of state consumer protection statutes, breach of express and implied warranty, negligent misrepresentation, and unjust enrichment. On April 18, 2006, the Court entered an order consolidating the two actions. On June 19, 2006, plaintiffs filed a consolidated complaint, alleging violations of California’s consumer protection laws, breach of express warranty, and unjust enrichment. On June 21, 2006, a third consumer class action that was filed in the United States District Court for the Western District of Tennessee in May 2006

alleging claims that are substantially the same was transferred to the Northern District of California, and on

July 31, 2006, that case was also consolidated into the consolidated action pending in the Northern District of California. ATI filed an answer to the consolidated complaint on August 7, 2006. On January 30, 2009, ATI, on behalf of itself, AMD, and, ATI Technologies Systems Corp., ATI Research Silicon Valley Inc., and ATI Research, Inc. (all former indirect-subsidiaries of AMD) (collectively “ATI”), executed a settlement agreement relating to the claims of a proposed settlement class of all persons who, while residing in the United States, purchased, for their own personal use and not for resale, certain graphics cards specified in the settlement agreement, during the period from January 1, 2003 to March 31, 2006. The settlement agreement was approved by the court. The case was dismissed with prejudice. In exchange for a dismissal of all claims related to the lawsuit, the settlement agreement required ATI to pay $4,000,000 in cash and to make available for distribution to class members certain new graphics cards, based on the number of authorized claims. ATI is not obligated under the settlement agreement to pay attorneys’ fees, costs, or make any other payments in connection with the settlement. The Court held a final approval hearing on August 31, 2009, and entered its order granting final approval of the settlement on September 28, 2007,11, 2009, disposing of all claims raised by the putative class in the lawsuit against ATI. AMD has made all required cash payments, including a final payment of approximately $1.8 million to charitable organizations approved by the court based on the number of authorized claims, and has delivered graphics cards as required to the class administrator, fulfilling all requirements under the settlement agreement.

AMD v. Samsung Electronics Co. et al

On February 19, 2008, AMD and ATI filed a complaint against Samsung Electronics Co., Ltd. (Samsung) and related Samsung entities alleging infringement of six AMD patents. The complaint was amended in May 2008 to add a seventh patent and also to add two additional Samsung entities as defendants to the suit. The case is filed in U.S. District Court, Northern District of California. The AMD patents generally relate to semiconductors, semiconductor memory, and related products. We are seeking damages and injunctive relief. Samsung filed an answer and counterclaims on May 15, 2008, alleging infringement by AMD and/or ATI of six Samsung patents. The Samsung patents generally relate to semiconductor fabrication and design. Samsung is seeking damages and injunctive relief. We filed our answer to Samsung’s counterclaims on August 1, 2008.

On March 19, 2009, Samsung filed a motion for partial summary judgment, arguing that one of the seven patents asserted by AMD was invalid. On June 24, 2009 the Court entered andenied Samsung’s motion for partial summary judgment. The Court issued its claims construction order denying Plaintiff’s Motion for Class Certification without prejudice, granting plaintiffs additional time to conduct class discovery and granting plaintiffs certain fees and costs.on September 17, 2009. The discovery processscheduled trial date is ongoing.January 24, 2011.

Department of Justice SubpoenaOPTi v. AMD.

On November 29,16, 2006, AMD receivedOPTi filed a subpoena for documents and information in connection with the U.S. Department of Justice, or DOJ, criminal investigation into potential antitrust violations related to graphics processing units and cards, with a focus on the business that AMD acquired from ATI on October 26, 2006. AMD entered the graphics processor business following our acquisition of ATI on October 25, 2006. The DOJ has not made any specific allegationscomplaint against AMD or ATI. AMD is cooperating with the investigation.

GPU Class Actions

Currently over fifty related antitrust actions have been filed against AMD, ATI and Nvidia Corporation, all of which were consolidated and transferred to the Northern District of California in the actionIn re Graphics Processing Units Antitrust Litigation including twenty-eight actions in the Northern District of California, eleven in the Central District of California, two in Massachusetts, one in the Western District of Wisconsin, three in South Carolina, one in Vermont, one in Kansas, two in the District of Columbia, one in the Eastern District of New York, oneTexas, alleging infringement of three patents. The patents relate to predictive snooping. AMD filed its answer and asserted counterclaims on December 7, 2006. OPTi has dropped its claims relating to two of the patents. The trial relating to the third patent is currently in process. OPTi is seeking damages and injunctive relief. We intend to vigorously defend ourselves in this matter, but can give no assurances as to the outcome.

OPTi v. AMD et al.

On July 6, 2007, AMD was served with a complaint filed by OPTi against AMD and several additional defendants in the Eastern District of Arkansas, oneTexas, alleging infringement of two patents. The patents relate to bus technology. The trial is set for August 2, 2010. OPTi is seeking damages and injunctive relief. We intend to vigorously defend ourselves in South Dakota, one in the Middle District of Tennessee and one in the Eastern District of Tennessee. Accordingthis matter, but can give no assurances as to the complaints, plaintiffs filed each of the actions after reading press reports that AMD and Nvidia had received subpoenas from the U.S. Department of Justice Antitrust Division in connection with the DOJ’s investigation into potential antitrust violations related to graphics processing units and cards. All of the actions appear to allege that the defendants conspired to fix, raise, maintain, or stabilize the prices of graphics processing units and cards in violation of federal antitrust law and/or state antitrust law. Further, each of the complaints is styled as a putative class action and alleges a class of plaintiffs (either indirect or direct purchasers) who purportedly suffered injury as a result of the defendants’ alleged conduct. Class plaintiffs (direct and indirect) filed amended consolidated complaints in June 2007. The amended consolidated complaints proposed a class period from December 2002 to the present. On September 27, 2007, the court issued an order granting in part and denying in part defendants’ motion to dismiss. Pursuant to the court’s order, plaintiffs filed motions to amend their complaints on October 11, 2007, and defendants filed oppositions to plaintiffs’ motions on October 18, 2007. On November 7, 2007, the court granted plaintiffs’ motion in part and denied it in part and ordered plaintiffs immediately to file their amended complaints in conformity with the court's order. On November 7 and November 8, 2007, plaintiffs (indirect and direct purchasers) filed their amended complaints. In addition to AMD and ATI, the amended complaints named AMD US Finance, Inc. and 1252986 Alberta ULC as defendants. On November 27 and 28, 2007, the defendants filed their answers to the indirect and direct purchasers’ amended complaints. The discovery process in ongoing. The court has scheduled a jury trial to begin on January 12, 2009.outcome.

Environmental Matters

We are named as a responsible party on Superfund clean-up orders for three sites in Sunnyvale, California that are on the National Priorities List. Since 1981, we have discovered hazardous material releases to the groundwater from former underground tanks and proceeded to investigate and conduct remediation at these three sites. The chemicals released into the groundwater were commonly used in the semiconductor industry in the United States in the wafer fabrication process prior to 1979.

In 1991, we received Final Site Clean-up Requirements Orders from the California Regional Water Quality Control Board relating to the three sites. We have entered into settlement agreements with other responsible

parties on two of the orders. During the term of such agreements other parties have agreed to assume most of the foreseeable costs as well as the primary role in conducting remediation activities under the orders. We remain responsible for additional costs beyond the scope of the agreements as well as all remaining costs in the event that the other parties do not fulfill their obligations under the settlement agreements.

To address anticipated future remediation costs under the orders, we have computed and recorded an estimated environmental liability of approximately $3.5$3 million in accordance with applicable accounting rules and have not recorded any potential insurance recoveries in determining the estimated costs of the cleanup. The progress of future remediation efforts cannot be predicted with certainty, and these costs may change. We believe that the potential liability, if any, in excess of amounts already accrued, will not have a material adverse effect on our financial condition or results of operations.

Other Matters

We are a defendant or plaintiff in various other actions that arose in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial condition or results of operations.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

PART II

Our common stock (symbol “AMD”) is listed on the New York Stock Exchange. On February 11, 2008,1, 2010, there were 7,8737,652 registered holders of our common stock. The following table sets forth on a per share basis the high and low intra-day sales prices on the New York Stock Exchange for our common stock for the periods indicated:

We have never paid any cash dividends on our common stock and have no present plans to do so. Under the terms of our Indenture for the 7.75%8.125% Notes dated October 29, 2004November 30, 2009 with Wells Fargo Bank, N.A., as Trustee, we are limited in our ability to pay cash dividends unless we obtain the written consent of the bondholders. Specifically, we are prohibited from paying cash dividends if the aggregate amount of dividends and other restricted payments made by us since entering into the indentureIndenture would exceed the sum of specified financial measures including fifty percent of consolidated net income as that term is defined in the indenture. In addition, our German subsidiaries, AMD Fab 36 LLC & Co. KG, AMD Fab 36 Holding GmbH and AMD Fab 36 Admin GmbH, are restricted by the terms of the Fab 36 Loan Agreement from paying cash dividends to us or providing loans or advances to us in certain circumstances without the prior written consent of the lenders.Indenture.

The information under the caption “Equity Compensation Plan Information,”Information” in our 2008 Proxy StatementPart III, Item 12 of this Annual Report on Form 10-K is incorporated herein by reference.

We have an ongoing authorization from the Board of Directors to repurchase up to $300 million worth of our common stock over a period of time to be determined by management. These repurchases may be made in the open market or in privately negotiated transactions from time to time in compliance with applicable rules and regulations, subject to market conditions, applicable legal requirements and other factors. We are not required to repurchase any particular amount of our common stock and the program may be suspended at any time at our discretion. During 2007,2009, we did not repurchase any of our equity securities pursuant to this Board authorized program.

In the fourth quarter of 2009, we repurchased $1.0 billion in aggregate principal amount of our outstanding 5.75% Notes for $993 million in cash.

Performance Graph

Comparison of Five-Year Cumulative Total Returns

Advanced Micro Devices, S&P 500 Index and S&P 500 Semiconductor Index

The following graph shows a five-year comparison of cumulative total return on our common stock, the S&P 500 Index and the S&P 500 Semiconductor Index from December 27, 200226, 2004 through December 29, 2007.26, 2009. The past performance of our common stock is no indication of future performance.

Comparison of Five Year Total Return

This graph was plotted using the following data:

ITEM 6.

SELECTED FINANCIAL DATA

Five Years Ended December 29, 200726, 2009

(In millions except per share amounts)

(4)

Consolidated statement of operations data for 2004 includes the results of operations for our former Memory Products segment for the entire year. Therefore, 2004Spansion. This amount is not fully comparable to 2005, during which Spansion’s results of operations were not consolidated with our results of operations for the last five days of the fiscal year, or to 2006 and 2007.

(5)

Consolidated statement of operations data for 2003 includes the results of operations of Spansion LLC from June 30, 2003, the date of its formation. Prior to this, Spansion LLC’s results of operations were reported as part of our former Memory Products segment. We formed Spansion LLC with Fujitsu Limited on June 30, 2003 by expanding an existing manufacturing joint venture that was formed in 1993 and in which we had an ownership interest of slightly less than 50 percent. Upon the formation of Spansion LLC, our ownership interest increased to 60 percent. From June 30, 2003 through December 20, 2005 we maintained our 60 percent ownership interest. Prior to June 30, 2003, we accounted for our interest in the manufacturing joint ventureincluded under the equity method. Therefore,caption “Other income (expense), net” in our consolidated statementstatements of operations data for 2003 is not comparable to 2004.

(6)	Represents a write off of in-process research and development in connection with the ATI acquisition.

(7)	Represents amortization of acquisition related intangible assets acquired in connection with the ATI acquisition and charges incurred to integrate the operations of ATI with our operations.

(8)(6)

Represents impairment charges recordedThe 2009 provision for income taxes was primarily due to write down the carrying valuea one-time loss of ATI-related goodwill and acquired intangible assets. See Part II, Item 7 “MD&A—ATI Acquisition.”deferred tax assets for German net operating loss carryovers upon transfer of our ownership interests in certain German subsidiaries to GF. The 2008 provision for income taxes primarily resulted from increases in net deferred tax liabilities in our German subsidiaries reduced by net current tax benefits in other jurisdictions.

(9)(7)

During the second quarter of 2008, we decided to divest the Digital Television business and classified it as discontinued operations. During the third quarter of 2008, we entered into an agreement with Broadcom to sell certain assets related to the Digital Television business unit. The increase in interest expense from $126sale transaction was completed on October 27, 2008 for $141.5 million in 2006and all periods have been recast to $367 million in 2007 consisted of interest on new outstanding debt, including our 6.00% Notes, 5.75% Notes, Fab 36 Term Loan and October 2006 Term Loan.conform to this presentation.

(10)(8)

Other income (expense), net, includes a charge of approximately $32 million associated with our exchange of $201 million of our 4.50% Convertible Senior Notes due 2007 for common stock and a charge of approximately $14 million in connection with our prepayment of amounts outstanding under a term loan agreement among our German subsidiary, AMD Fab 30 Limited Liability Company & Co. KG, and the lenders party thereto.

(11)

The 2009 noncontrolling interest amounts are primarily related to GF and represent the allocation of the operating results to ATIC, which, during 2009, was considered the noncontrolling partner of GF. The 2008, 2007, and 2006 and 2007 minoritynoncontrolling interest amounts represent the guaranteed rate of return of between 11 and 13 percent related to the limited partnership contributions that our former German subsidiary, AMD Fab 36 Limited Liability Company & Co. KG (AMD Fab 36 KG) received from theits unaffiliated partners (Fab 36 MinorityOwnership Interest); the. The 2005 and 2004 minoritynoncontrolling interest amount includes the Fab 36 MinorityOwnership Interest and Spansion related minority interest; the 2003 minority interest amount represents the Spansion related minority interest. Minority interest consists primarily of the elimination of Fujitsu Limited’s share of the income (loss) of Spansion LLC. Fujitsu Limited held a 40 percent minority ownership interest in Spansion LLC, prior to the IPO of Spansion Inc.held by Fujitsu.

(12)(9)

In 2005 we recorded a lossRepresents the guaranteed rate of $110return that ATIC earns on its ownership of GF Class B preferred stock.

(10)

Total assets increased $1,406 million from 2008 to 2009 primarily due to higher cash, cash equivalents and marketable securities due to the dilution in our ownership interest in Spansion from 60 percent to approximately 38 percentcash received, including GF cash, in connection with Spansion’s IPO. This represents the difference between Spansion’s book value per share before and after the IPO multiplied by the number of shares owned by us. In September 2007, as a result of our reduced ownership interest in, and loss of our ability to exercise significant influence over, Spansion, we ceased applying the equity method of accounting and began accounting for this investment as “available-for-sale” marketable securities under FASB Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities. Following our quarterly impairment review, we recorded impairment charges of approximately $111 million in 2007. See Note 4, Spansion Inc., in the Notes to the Consolidated Financial Statements.

(13)

The 2007 income tax provision primarily results from current foreign taxes reduced by the reversal of deferred U.S. taxes related to indefinite-lived goodwill, resulting from the goodwill impairment charge we recorded during the year, and recognition of previously unrecognized tax benefits for tax holidays.

(14)	The 2006 income tax provision primarily results from current foreign taxes, plus deferred U.S. tax related to indefinite-lived goodwill, and reduced by deferred foreign benefits from removing partconsummation of the valuation allowance on German net operating loss carryovers of Fab 36.

(15)

GF manufacturing joint venture transaction. Total assets decreased by $1.6 billion$3,878 million from 2007 to 2008 primarily due to the impairment of ATI acquisition-related goodwill and acquired intangible assets, lower cash, cash equivalents and marketable securities due to our significant losses, and the sale and impairment of assets associated with the divestiture of the Digital Television business unit in 2008. Total assets decreased $1,597 million from 2006 to 2007 primarily due to the impairment charge forof ATI acquisition-related goodwill and intangible assets. Total assets increased by $5.9 billion$5,859 million from 2005 to 2006 primarily as thea result of the acquisition of ATI.

ITEM 7.

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 29, 200726, 2009 and December 31, 200627, 2008 and for each of the three years in the period ended December 29, 200726, 2009 and related notes, thereto, which are included in this Form 10-K.10-K as well as with the other sections of this 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 with facilities around the world.that designs and sells microprocessors, chipsets and graphics processors. Within the global semiconductor industry, we offer primarily:

Prior to the closing of the IPO of Spansion Inc. on December 21, 2005, which is described in more detailIn March 2009, we formed GLOBALFOUNDRIES (GF), a manufacturing joint venture, with Advanced Technology Investment Company LLC (ATIC), and West Coast Hitech L.P. (WCH), acting through its general partner, West Coast Hitech G.P. Ltd. (See below we also manufactured and sold Flash memory devices through Spansion LLC, our former majority-owned subsidiary.for further discussion regarding GF).

In this section,MD&A, we will describe the general financial condition and the results of operations for AMDAdvanced Micro Devices, Inc. and its consolidated subsidiaries, including a discussion of our results of operations for 20072009 compared to 20062008 and 20062008 compared to 2005,2007, an analysis of changes in our financial condition and a discussion of our contractual obligations and off-balanceoff balance sheet arrangements. Our resultsFor accounting purposes, we were required to consolidate the accounts of operations include sales of graphics, video, multimediaGF and chipset products and products for consumer electronics devicesits consolidated subsidiaries from the effective date of the ATI acquisition on October 25, 2006March 2, 2009 through December 29, 200726, 2009. Accordingly, for this period, references in the following reportable segments: (i) Computing Solutions (including Chipsets), (ii) Graphicsthis Item 7 and (iii) Consumer Electronics. We are not able to provide any comparative information for the latter two segments prior to the ATI acquisition, since we did not participate in these markets. This MD&A should be read in conjunction with the other sections of this Form 10-K, including “Part I, Item 1: Business,” “Part II, Item 6: Selected Financial Data,” and “Part II, Item 8: Financial8 “Financial Statements and Supplementary Data.Data” to “us,” “our,” or “AMD” include the consolidated operating results of AMD and its consolidated subsidiaries and GF and its consolidated subsidiaries.

Overview

Fiscal 20072009 was a transformational year in which we emerged with a new business model focused on semiconductor design that leverages our technology portfolio of x86 microprocessor and graphics technologies. The credit market crisis and other macroeconomic challenges that affected the global economy in 2008 continued and contributed to a challenging yearbusiness environment for AMD. Our net revenue in 2007 of $6.0 billion increased six percent from net revenue of $5.6 billion in 2006. However, revenue increased because we included the operations of our Graphics and Consumer Electronics segments for the entire fiscal year rather than just nine weeks in 2006. Net revenue for our Computing Solutions segment decreased 12 percent due to lower average selling prices for our microprocessor products, which resulted from delays in the introduction and broad availability of our quad-core processors, aggressive pricing by our principal competitor and a higher concentration of sales of processors for desktop and notebook PCs in 2007. Correspondingly, gross margins in 2007 decreased compared to gross margins in 2006 as a result of lower average selling prices for our microprocessor products and increased manufacturing costsus during the first half of 2007. Furthermore, gross margins were adversely impacted2009. In particular, due to the consolidationcredit markets and the reduced leverage in the economy, both business and consumer spending, including with respect to end-user products that incorporate our products, was at depressed levels during the first half of ATI’s operations into ours2009. In light of the economic environment, one of our key priorities entering 2009 was to preserve cash and reduce operating expenses. To that end, in the first quarter of 2009 we continued to implement the cost reduction activities that we began in 2008 through additional headcount reductions, temporary salary reductions for employees in the full fiscal year in 2007United States and Canada and suspension of certain employee benefits. During 2009, we also decreased our capital expenditures to $466 million compared to nine weeks$621 million in 2006. Historically,2008 and reduced our manufacturing output in order to control our inventory levels. In March 2009, we formed GF, a manufacturing joint venture to which we contributed our front-end manufacturing assets, thereby significantly decreasing the ATI business had lower gross margins compared to AMD.cost-intensive burden of building and operating our own fabrication facilities.

Despite the challenges that we encountered during 2007, we made positive strides towards improving our performance. Although average selling prices for our microprocessor products declined in 2007 compared to 2006, they improved inIn the second half of 20072009, end user PC demand stabilized. During this time we delivered visually-rich platforms, higher-performance six-core server processors and industry-leading graphics products. In an improving global macroeconomic environment, we saw increased customer and end user demand for our

products, especially our six-core AMD Opteron processors for servers, which we introduced in June 2009 and our ATI Radeon 5000 series of GPUs, which we introduced in September 2009. We also settled the AMD-Intel litigation in November 2009, resulting in a new patent cross-licensing agreement, unprecedented ground-rules for fair competition in the microprocessor industry and a cash settlement of $1.25 billion for AMD. As economic conditions and our performance improved in the fourth quarter of 2009, we also restored salaries to pre-reduction levels, and in the first quarter of 2010, we will make a one-time payment to restore the full salary for the September through November 2009 period to all of our employees who participated in the salary reduction during that time.

Net revenue for 2009 was $5.4 billion, a decrease of 7 percent compared to 2008 net revenue of $5.8 billion. Net revenue in 2008 included $191 million of process technology license revenue related to the sale of 200 millimeter equipment. Excluding the favorable impact of this process technology license revenue, which we believe gives a more comparable view of net revenue, 2009 net revenue would have declined 4 percent compared to 2008 due to a 5 percent decrease in the net revenue of our Computing Solutions segment. The decrease in our Computing Solutions segment net revenue was due to a significant decrease in average selling price throughout 2009. Competitive market conditions and the macroeconomic challenges that affected the global economy during the first half of 2007 as2009 caused us to decrease the price of many of our Computing Solutions products and also contributed to a shift in our product mix improved

with the introductionto lower end microprocessors. However, buoyed by an improving economy and increasing demand for our products, net revenue of our AMD Opteron quad-core processorsComputing Solutions segment improved 39 percent in the fourth quarter of 2009 compared to the fourth quarter of 2008 and 14 percent compared to the third quarter of 2009 due to a significant increase in unit shipments.

Gross margin as a percentage of net revenue was 42 percent in 2009, a 2 percentage point increase compared to 40 percent in 2008. Gross margin in 2009 included a $171 million, or 3 percent, benefit related to the sale of inventory that had been written-down in the fourth quarter of 2008. Gross margin in 2008 included a $191 million, or 2 percent, favorable impact from process technology license revenue recorded in our Computing Solutions segment and a $227 million, or 4 percent, negative impact from an incremental write-down of inventory. Without the effect of the above events in 2009 and 2008, which we believe gives a more comparable view, gross margin would have been 39 percent in 2009 compared to 42 percent in 2008. Gross margin in the first half of 2009 was adversely impacted by depressed average selling price and the under-utilization of GF’s manufacturing facilities as a result of reduced demand for servers and AMD Phenom 9000 seriesour microprocessor products. However, the adverse impact of quad-core processors for desktop PCs. We also secured a new OEM customer, Toshiba Corporation. In the Graphics segment, we introduced the ATI Radeon HD 2000 and 3800 series of products. We also introduced the ATI Mobility Radeon HD series of products for notebook PCsthese factors on 2009 gross margin was partially mitigated by developments during the second half of 20072009, including improvements in utilization of GF’s manufacturing facilities and improvements in our unit costs primarily due to an increase in unit shipments of microprocessors that were able to secure a number of OEM design wins. These new product introductions favorably impacted average selling prices. In the second half of 2007, we also improved gross marginsmanufactured using 45 nm process technology.

Our operating income for 2009 was $664 million compared to an operating loss of $2.0 billion in 2008. In 2008, the first halfoperating loss included a $193 million gain on the sale of 2007 due to improved inventory management, manufacturing efficiencies200 millimeter equipment, $191 million of process technology license revenue and a richer product mix driven by the launch of new products. We also focused on improving the delivery of products across a diverse set of customers$1.1 billion in impairment charges and geographies on a timely basis and, as a result, we witnessed recovery of salescharges related to the distribution channel.

In 2007, we also undertook measures to improve our financial position. During the second quarterwrite-down of 2007, we issued $2.2 billion aggregate principal amount of 6.00% Notes and in the third quarter of 2007, we issued $1.5 billion aggregate principal amount of 5.75% Notes. We used a portion of the proceeds from the 6.00% Notes and all of the proceeds from the 5.75% Notes to repay in full the amount outstanding under the October 2006 term loan agreement with Morgan Stanley Senior Funding, Inc.assets. In the fourth quarter of 2007, we sold and issued 492009, operating income included $1,242 million sharesof income from the settlement of our common stocklitigation with Intel. Without the impact of these events, which we believe gives a more comparable view, our operating income would have improved $672 million due principally to a wholly owned subsidiary$437 million decrease in our research and development and marketing general and administrative expenses primarily due to the effect of Mubadala Development Company in exchange for net proceeds of $608 million. our cost reduction initiatives.

Our cash, cash equivalents and marketable securities as of December 26, 2009 were $2.7 billion compared to $1.1 billion at December 29, 2007 totaled $1.927, 2008. Of the $2.7 billion cash, cash equivalents and marketable securities, $904 million constituted GF cash and cash equivalents. This increase was primarily due to proceeds received upon the consummation of the GF manufacturing joint venture transaction in the first quarter of 2009, proceeds of $1.25 billion from the settlement of our debtlitigation with Intel and capital lease obligations totaled $5.3 billion.$440 million from the issuance of our 8.125% Notes, partially offset by approximately $1.8 billion in payments for the redemption and repurchase of our outstanding debt.

We

In 2009, we also made significant strides to implementprogress in improving our manufacturing capacity strategy.balance sheet by significantly reducing our debt. Without taking into account GF’s indebtedness, during 2009 we reduced our debt by approximately $1.2 billion. We converted Fab 36 to 65-nanometer process technology by mid-2007, as planned. We also expanded manufacturing capacity in Fab 36 and completed the addition ofenter 2010 with a new bumpbusiness model, compelling products and test facility. We initiatedstronger customer demand in an improved economic environment. In addition, beginning in the conversion of Fab 30 from a 200-millimeter to a 300-millimeter manufacturing facility. Fab 30 produced its final 200-millimeter wafer during the fourthfirst quarter of 2007. During 2007, Chartered Semiconductor continued to manufacture AMD64-based processors for us to support incremental demand.

We intend the discussion of our financial condition and results of operations that follows to provide information that2010, we will assist you in understanding our financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.

ATI Acquisition

On October 25, 2006, we completed the acquisition of all of the outstanding shares of ATI, a publicly held company headquartered in Markham, Ontario, Canada for a combination of cash and shares of our common stock. ATI was engaged in the design, manufacture and sale of innovative 3D graphics and digital media silicon solutions. We believe that the acquisition of ATI will allow us to deliver products that better fulfill the increasing demand for more integrated computing solutions. We includedno longer consolidate the operations of ATIGF. As a result, we expect that in the future, our consolidated financial statements beginningcost of sales will be higher and operating expenses will be lower. We also expect that interest expense will be significantly lower because we no longer consolidate GF’s indebtedness.

GLOBALFOUNDRIES

On March 2, 2009, we consummated the transactions contemplated by the Master Transaction Agreement among us, ATIC, and WCH, pursuant to which we formed GF. At the Closing, we contributed certain assets and liabilities to GF, including, among other things, shares of the groups of German subsidiaries owning our manufacturing facilities, certain manufacturing assets, real property, tangible personal property, employees, inventories, books and records, a portion of our patent portfolio, intellectual property and technology, rights under certain material contracts and authorizations necessary for GF to carry on October 25, 2006.

The aggregate consideration thatits business. In exchange we paid for all outstanding ATI common shares consistedreceived GF securities consisting of approximately $4.3one Class A Ordinary Share, 1,090,950 Class A Preferred Shares and 700,000 Class B Preferred Shares, and the assumption of certain liabilities by GF. ATIC contributed $1.4 billion of cash to GF in exchange for GF securities consisting of one Class A Ordinary Share, 218,190 Class A Preferred Shares, 172,760 Class B Preferred Shares, $202 million aggregate principal amount of 4% Class A Subordinated Convertible Notes (the Class A Notes) and 58$807 million sharesaggregate principal amount of our common stock. In addition,11% Class B Subordinated Convertible Notes (the Class B Notes), and transferred $700 million of cash to us in exchange for the transfer by us of 700,000 GF Class B Preferred Shares.

At the Closing, we also issued options to WCH, for an aggregate purchase approximately 17.1price of $125 million, 58 million shares of our common stock and approximately 2.2warrants to purchase 35 million comparableshares of our common stock at an exercise price of $0.01 per share (the Warrants). The Warrants are currently exercisable and expire on March 2, 2019. The shares issuable under these Warrants have been included in our basic earnings per share calculation from the third quarter of 2009 when the Warrants became exercisable.

Under the Master Transaction Agreement, the cash consideration that WCH and ATIC paid and the securities that they received are as follows:

As of the Closing, AMD and ATIC owned 1,090,950, or 83.3 percent, and 218,190, or 16.7 percent, respectively, of Class A Preferred Shares, and ATIC owned 100 percent of the Class B Preferred Shares and 100 percent of the Class A Notes and Class B Notes.

In July 2009, ATIC contributed $260 million of cash to GF in exchange for outstanding ATI stock optionsGF securities consisting of $52 million aggregate principal amount of Class A Notes and restricted stock units.$208 million aggregate principal amount of Class B

Notes. We declined to participate in the funding request. As of December 26, 2009, on a fully converted to Ordinary Shares basis, we owned approximately 31.6 percent of GF and ATIC owned approximately 68.4 percent of GF.

In November 2009, upon the settlement of our litigation with Intel, and the execution of a patent cross-license agreement between us and Intel, a Reconciliation Event, was deemed to have occurred.

Class B Preferred Shares.    The vested portionClass B Preferred Shares rank senior in right of these optionspayment to all other classes or series of equity securities of GF for purposes of dividends, distributions and restricted stock units was valuedupon a liquidation, dissolution or winding up of GF (Liquidation Event). Each Class B Preferred Share is deemed to accrete in value at approximately $144 million. The unvested portion, valued at approximately $69 million, is being amortized to compensation expense over the options’ remaining vesting periods. To finance a portionrate of 12 percent per year, compounded semiannually, of the cash consideration paid, we borrowed $2.5 billion underinitial purchase price per such share. The accreted value accrues daily from the October 2006 Term Loan. This term loan was fully repaid in 2007 (See “Contractual Obligations”)Closing and is taken into account upon certain distributions to the holders of Class B Preferred Shares or upon conversion of the Class B Preferred Shares. Upon a Liquidation Event, each Class B Preferred Share will be entitled to receive, prior to any distribution to the holders of any other classes or series of equity securities, an amount equal to its accreted value. Each Class B Preferred Share is convertible, at the option of the holder thereof, into Class B Ordinary Shares at the then applicable Class B Conversion Rate. Each Class B Preferred Share will also automatically convert into Class B Ordinary Shares at the then applicable Class B Conversion Rate upon the earlier of (i) an initial public offering of GF (IPO) or (ii) a change of control transaction of GF. The initial Class B Conversion Rate is 100 Class B Ordinary Shares for each Class B Preferred Share, subject to customary anti-dilution adjustments. The Class B Preferred Shares currently vote on an as-converted basis with any outstanding Ordinary Shares, voting together as a single class, with respect to any question upon which holders of Ordinary Shares have the right to vote.

Class A Preferred Shares.    The totalClass A Preferred Shares rank senior in right of payment to the Ordinary Shares of GF and junior in right of payment to the Class B Preferred Shares for purposes of dividends, distributions and upon a Liquidation Event. The Class A Preferred Shares are not entitled to any dividend or pre-determined accretion in value. Upon a Liquidation Event, each Class A Preferred Share will be entitled to receive, after the distribution to the holders of the Class B Preferred Shares but prior to any distribution to the holders of Ordinary Shares, out of any remaining assets of GF, an amount equal to the initial purchase price per share of the Class A Preferred Shares. Each Class A Preferred Share is convertible, at the option of the holder, into Class B Ordinary Shares at the then applicable Class A Conversion Rate. Each Class A Preferred Share will also automatically convert into Class B Ordinary Shares at the then applicable Class A Conversion Rate upon the earlier of (i) an IPO or (ii) a change of control transaction of GF. The initial Class A Conversion Rate is 100 Class B Ordinary Shares for ATI was $5.6 billion, including acquisition-related costseach Class A Preferred Share, subject to customary anti-dilution adjustments. The Class A Preferred Shares currently vote on an as-converted basis with any outstanding Ordinary Shares, voting together as a single class, with respect to any question upon which holders of $25 million, and consisted of:Ordinary Shares have the right to vote.

Purchase Price AllocationClass A Subordinated Convertible Notes

.    The total purchase price was allocatedClass A Notes accrue interest at a rate of 4 percent per annum, compounded semiannually. Interest on the Class A Notes is payable semiannually in additional Class A Notes. The Class A Notes are the unsecured obligations of GF and rank subordinated in right of payment to ATI’s tangible and identifiable intangible assets and liabilitiesany current or future senior indebtedness of GF. The Class A Notes are not redeemable by GF without the note holder’s consent. The Class A Notes are convertible, in whole or in part, in multiples of $1,000, into GF Class A Preferred Shares at the option of the holder at any time prior to the close of business on the business day immediately preceding the maturity date based on their estimated fair values asthe conversion ratio in effect on the date of October 24, 2006 as set forth below:conversion. The Class A Notes mature on March 2, 2019; however they automatically convert into Class A Preferred Shares upon the earlier of (i) a GF IPO, (ii) certain change of control transactions of GF or (iii) the close of business on the business day immediately preceding the maturity date. As of December 26, 2009, the aggregate principal amount of Class A Notes was $254 million.

Class B Subordinated Convertible Notes.    The only item that may significantly impact goodwillClass B Notes accrue interest at a rate of 11 percent per annum, compounded semiannually. Interest on the Class B Notes is payable semiannually in additional Class B Notes. The Class B Notes are the resolutionunsecured obligations of certain ATI tax-related contingencies. ToGF and rank subordinated in right of payment to any

current or future senior indebtedness of GF. The Class B Notes are not redeemable by GF without the extent thatnote holder’s consent. The Class B Notes are convertible, in whole or in part, in multiples of $1,000, into GF Class B Preferred Shares at the actual amounts are different than the estimated amounts initially recorded, the difference will result in an adjustment to goodwill. Any other adjustments to amounts recorded from and after the completionoption of the acquisition will be recordedholder at any time prior to the close of business on the business day immediately preceding the maturity date at the conversion ratio in post-acquisition operating results.effect on the date of conversion. The Class B Notes mature on March 2, 2019; however they automatically convert into GF Class B Preferred Shares upon the earlier of (i) a GF IPO, (ii) certain change of control transactions of GF or (iii) the close of business on the business day immediately preceding the maturity date. As of December 26, 2009, the aggregate principal amount of Class B Notes was $1,015 million.

Management performed an analysisAMD, ATIC and GF are also parties to determine the fair valuea Shareholders’ Agreement, a Funding Agreement and a Wafer Supply Agreement, certain terms of each tangibleof which are summarized in Part I, Item 1—Business, above.

Based on the structure of the GF transaction and identifiable intangible asset, includingthe guidance on accounting for interests in variable interest entities during 2009, GF was deemed a variable-interest entity, and we were deemed to be the primary beneficiary. Therefore, we were required to consolidate the accounts of GF from March 2, 2009 through December 26, 2009. For this period, ATIC’s noncontrolling interest, represented by its equity interests in GF, is presented outside of stockholders’ equity in the consolidated balance sheet due to ATIC’s right to put those securities back to us in the event of a change of control of AMD during the two years following the Closing. Our net income (loss) attributable to common stockholders per share consists of consolidated net income (loss), as adjusted for (i) the portion of the purchase priceGF’s earnings or losses attributable to acquired in-process research and development projects.

In-Process Research and Development

Of the total purchase price, approximately $416 million was allocated to in-process research and development (IPR&D) and was expensed in the fourth quarter of 2006. Projects that qualify as IPR&D represent those that have not reached technological feasibility and had no alternative future use at the time of the acquisition. These projects include development of next generation GPU, chipset, handheld and digital TV products. As of the date of acquisition, the estimated fair value of the projects for the Graphics and Chipsets segment was approximately $193 million ($122 million for graphics products and $71 million for chipset products) and we expect to incur an aggregate of approximately $113 million ($86 million for graphics products and $27 million for chipset products) to complete these projects over the two-year period that commenced October 25, 2006. As of the date of the acquisition, the estimated fair value of the projects for the Consumer Electronics segment was approximately $223 million, and we expect to incur aggregate costs of approximately $102 million to complete these projects over the two-year period that commenced October 25, 2006. Starting in the first quarter of 2007, in conjunction with the integration of ATI’s operations, we reported operations related to our chipset products in our Computing Solutions segment.

The value assigned to IPR&D was determined using a discounted cash flow methodology, specifically an excess earnings approach,ATIC, which estimates value based upon the discounted value of future cash flows expected to be generated by the in-process projects, net of all contributory asset returns. The approach includes consideration of the importance of each project to the overall development plan and estimating costs to develop the purchased IPR&D into commercially viable products. The revenue estimates used to value the purchased IPR&D wereis based on estimates of the relevant market sizes and growth factors, expected trendsATIC’s proportional ownership interest in technology and the nature and expected timing of new product introductions by ATI and its competitors.

The discount rates applied to individual projects were selected after consideration of the overall estimated weighted average cost of capital and the discount rates applied to the valuation of the other assets acquired. Such weighted average cost of capital was adjusted to reflect the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, the percentage of completion of each project, anticipated market acceptance and penetration, market growth rates and risks related to the impact of potential changes in future target markets. In developing the estimated fair values, we used discount rates ranging from 14GF’s Class A Preferred Shares (16.7 percent to 15 percent.

The development of these technologies remains a risk due to the remaining efforts to achieve technical viability, rapidly changing customer markets, uncertain standards for new products, and significant competitive threats from our competitors. Failure to develop these technologies into commercially viable products and/or failure to bring them to market in a timely manner could result in a loss of market share, which could have a material adverse impact on our business and operating results, could negatively impact the return on investment that we expected at the time that the ATI acquisition was completed and may result in impairment charges.

The estimates used in valuing IPR&D were based upon assumptions believed to be reasonable but which are inherently uncertain, and as a result, actual results may differ from estimates.

The development efforts on these acquired projects have been ongoing and there have not been any significant changes in the original development plans as of December 29, 2007.

Other Acquisition Related Intangible Assets

Developed product technology consists of products that have reached technological feasibility26, 2009), and includes technology in ATI’s discrete GPU products, integrated chipset products, handheld products, and digital TV product divisions. We initially expected(ii) the developed technologynon-cash accretion on GF’s Class B Preferred Shares attributable to have an average useful life of five years. However, as discussed below, we have revised the estimate of the average useful life of the developed technology to be 50 months from the acquisition date.

Game console royalty agreements represent agreements existing as of October 24, 2006 with video game console manufacturers for the payment of royalties to ATI for intellectual property design work performed and were estimated to have an average useful life of five years.

Customer relationship intangibles represent ATI’s customer relationships existing as of October 24, 2006, and were estimated to have an average useful life of four years.

Trademarks and trade names have an estimated useful life of seven years.

Customer backlog represents customer orders existing as of October 24, 2006 that had not been delivered and were estimated to have a useful life of 14 months.

We determined the fair value of other acquisition-related intangible assets using income approachesus, based on the most current financial forecast availableproportional ownership interest of GF’s Class A Preferred Shares (83.3 percent as of October 24, 2006. The discount rates we used to discount net cash flows to their present values ranged from 12 percent to 15 percent. We determined these discount rates after considerationDecember 26, 2009).

On December 18, 2009, ATIC II, an affiliate of ATIC, acquired Chartered Semiconductor Manufacturing Ltd. (Chartered). On December 28, 2009, with our estimated weighted average cost of capitalconsent, ATIC II, Chartered and the estimated internal rate of return specific to the acquisition.

We based estimated useful livesGF entered into a Management and Operating Agreement (the MOA), which provides for the other acquisition-related intangible assetsjoint management and operation of GF and Chartered, thereby allowing GF and Chartered to share costs, take advantage of operating synergies and market wafer fabrication services on historical experience with technology life cycles, product roadmaps and our intended future usea collective basis. In order to allow for the signing of the intangible assets.

Integration

ConcurrentMOA on December 28, 2009 prior to obtaining any required regulatory approvals, we agreed to irrevocably waive rights under the Shareholders Agreement with respect to certain matters that require unanimous GF board approval. Additionally, if any such matters come before the acquisition,GF board, we implemented an integration plan which included the termination of some ATI employees, the relocation or transfer to other sites of other ATI employees and the closure of duplicate facilities. The costs associated with employee severance and relocation totaled approximately seven million. The costs associated with the closure of duplicate facilities totaled approximately one million. These costs were included as a component of net assets acquired. Additionally, the integration plan also included termination of some AMD employees, cancellation of some existing contractual obligations, and other costs to integrate the operations of the two companies. We incurred costs of approximately $28 million and $32 million for the years ended December 29, 2007 and December 31, 2006, respectively, and they are includedagreed that our designated GF directors will vote in the caption, “Amortizationsame manner as the majority of acquired intangible assets and integration charges,”ATIC-designated GF board members voting on our consolidated statements of operations.

2007 Impairment Analysis

In the fourth quarter of 2007, pursuant to our accounting policy, we performed the annual goodwill impairment analysis.any such matters. As a result of waiving these approval rights, as of December 28, 2009, for financial reporting purposes we no longer shared the control with ATIC over GF.

In June 2009, the FASB issued an amendment to improve financial reporting by enterprises involved with variable interest entities. This new guidance became effective for us beginning the first day of fiscal 2010. Under the new guidance, the investor who is deemed to both (i) have the power to direct the activities of the variable interest entity that most significantly impacts the variable interest entity’s economic performance and (ii) be exposed to losses and returns, will be the primary beneficiary who should then consolidate the variable interest entity. We evaluated whether the governance changes described above would, pursuant to the new guidance, affect our consolidation of GF. We considered the purpose and design of GF, the activities of GF that most significantly affect the economic performance of GF and the concept of “who has the power,” as contemplated by the new guidance. Based on the results of this analysis,evaluation and in light of the governance changes referenced above whereby we now only have protective rights relative to the operations of GF, we concluded that ATIC is the carrying amountsparty who has the power to direct the activities of goodwill assignedGF that most significantly impact GF’s performance and is, therefore, the primary beneficiary of GF. Accordingly, beginning fiscal 2010, we will deconsolidate GF and account for GF under the equity method of accounting. We will continue applying the equity method of accounting until we are deemed to our Graphics and Consumer Electronics segments exceeded their implied fair values and recorded an impairment lossno longer have the ability to significantly influence the operations of approximately $1.3 billion, which is included in the caption “Impairment of goodwill and acquired intangible assets” in our 2007 consolidated statement of operations. The impairment charge was determined by comparing the carrying value of goodwill assigned to specific reporting units within these segments as of October 1, 2007, with the implied fair value of the goodwill. We considered both the income and market approaches in determining the implied fair value of the goodwill, which requires estimates of future operating results and cash flows of each of the reporting units discounted using estimated discount rates ranging from 13.1 percent to 15.3 percent. The estimates of future operating results and cash flows were principally derived from our updated long-term financial forecast, which is developed as part of our strategic planning cycle conducted annually during the latter part of the third quarter. The decline in the implied fair value of the goodwill and resulting impairment charge was primarily driven by our updated long-term financial forecasts, which showed lower estimated near-term and longer-term profitability compared to estimates we developed at the time of the completion of the acquisition. This updated long-term financial forecast represents the best estimate that we have at this time and we believe that its underlying assumptions are reasonable. However, actual performance in theGF.

near-term and longer-term could be materially different from these forecasts, which could impact future estimates of fair value of our reporting units and may result in further impairment of goodwill.

The outcome of our goodwill impairment analysis also indicated that the carrying amount of certain acquisition-related intangible assets or asset groups may not be recoverable. Accordingly, we assessed the recoverability of the acquisition-related intangible assets or asset groups, as appropriate, by determining whether the unamortized balances could be recovered through their respective estimated undiscounted future net cash flows. We determined that certain of the acquisition-related developed product technology associated with our Graphics and Consumer Electronics segments was impaired primarily due to the revised lower revenue forecasts associated with products incorporating such developed product technology. We measured the amount of impairment by calculating the amount by which the carrying value of the assets exceeded their estimated fair values, which were based on projected discounted future net cash flows. As a result of this impairment analysis, we recorded an impairment charge of $349 million, which is included in the caption “Impairment of goodwill and acquired intangible assets” in our 2007 consolidated statements of operations. We also revised our estimate of the weighted average useful life of the developed product technology from 60 months to 50 months based on the revised cash flow forecasts.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, inventories, asset impairments, goodwill, business combination, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

We believe the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult, subjective and complex judgments.

Revenue Reserves.    We record a provision for estimated sales returns and allowances on product sales for estimated future price reductions and other customer incentives in the same period that the related revenues are recorded. We base these estimates on actual historical sales returns, allowances, historical price reductions, market activity, and other known or anticipated trends and factors. These estimates are subject to management’s judgment, and actual provisions could be different from our estimates and current provisions, resulting in future adjustments to our revenues and operating results.

Inventory Valuation.    At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand. These projections assist us in determining the carrying value of our inventory and are also used for near-term factory production planning. Generally, inventories on hand in excess of forecasted demand for the next six months are not valued. In addition, we write off inventories that are considered obsolete. We adjust the remaining specific inventory balances to approximate the lower of our standard manufacturing cost or market value. Among other factors, management considers forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net realizable value. If, in any period, we anticipate future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made. This would have a negative impact on our gross margin in that period. If in any period we are able to sell inventories that were not valued or that had been written off in a previous period, related revenues

would be recorded without any offsetting charge to cost of sales, resulting in a net benefit to our gross margin in that period.

Business Combinations.Goodwill.    In accordance with business combination accounting, we have allocatedGoodwill represents the excess of the purchase price of ATI to tangible and acquisition related intangible assets acquired, including in-process research and development, and liabilities assumed based on their estimated fair values. These valuations require us to make significant estimates and assumptions, especially with respect to acquisition related intangible assets.

We reviewover the acquisition related intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recovered.

We made estimates of fair value of the ATI assets acquirednet tangible and liabilities assumed using reasonable assumptions based on historical experience and information obtained from the management of the acquired company. Critical estimates in valuing certain of the acquisition relatedidentifiable intangible assets includedacquired. Goodwill amounts are not amortized, but were not limited to: future expected cash flows from the sale of products, expected costs to develop in-process research and development projects into commercially viable products and estimated cash flows from the projects when completed; the market’s awareness of the acquired company’s brand and the acquired company’s market position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio and discount rates. Unanticipated events may occur which may affect the accuracy or validity of such assumptions, estimates or actual results as evidenced by the impairment charges we recorded with respect to goodwill and intangible assets resulting from the ATI acquisition.

Goodwill.    As a result of the ATI acquisition, we recorded goodwill on our books.In accordance with FASB Statement No. 142,Goodwill and Other Intangible Assets(SFAS 142), werather are required to review goodwilltested for impairment at least annually, or more oftenfrequently if there are indicators of impairment present. We perform ourthe annual goodwill impairment analysis duringas of the first day of the fourth quarter of each fiscal year. The provisions of SFAS 142 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of each reporting unit to whichWe evaluate whether goodwill has been allocated to its carrying value. Ifimpaired at the reporting unit level by first determining whether the estimated fair value of the reporting unit exceeds theis less than its carrying value of the net assets assigned to that unit, goodwill is considered not impaired and, we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determineif so, by determining whether the implied fair value of goodwill within the reporting unit’s goodwill. Ifunit is less than the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.

Determining the number of reporting units and thevalue. Implied fair value of goodwill is determined by considering both the income and market approach. While market valuation data for comparable companies is gathered and analyzed, we believe that there has not been sufficient comparability between the peer groups and the specific reporting units to allow for the derivation of reliable indications of value using a reporting unitmarket approach. Therefore, we have ultimately employed the income approach which requires us to make judgmentsestimates of future operating results and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make judgments and assumptions in allocating assets and liabilities to each of our reporting units.

As a result of the annual goodwill impairment analysis, we were required to recognize a $1.3 billion goodwill impairment charge in our 2007 statement of operations related to three of our reporting units, in the Graphics and Consumer Electronics segments.discounted using estimated discount rates. The key assumptions usedwe use to determine the fair value of our reporting units included: (a)includes projected cash flow periods offlows for the next 10 years; (b) terminal values based upon terminal growth rates ranging from 3.0 percent to 7.0 percent;years and (c) discount rates ranging from 13.113 percent to 15.3 percent which were32 percent. Discount rates are based on our weighted average cost of capital, adjusted for the risks associated with the operations. A variance in the discount rate could have had a significant impact on the amount of the goodwill impairment charge recorded. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill, which totaled $1.9 billion at December 29, 2007. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of therecorded, if any.

economic environment on our customer base, or a material negative change in our relationships with significant customers.

Impairment of Long-Lived Assets including Acquired Intangible Assets.    We consider quarterly whether indicators of impairment of long-lived assets and intangible assets are present. These indicators may include, but are not limited to, significant decreases in the market value of an asset and significant changes in the extent or manner in which an asset is used. If these or other indicators are present, we test for recoverability of the asset by determining whether the estimated undiscounted cash flows attributable to the assets in question are less than their carrying value. If less, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. Significant judgment is involved in estimating future cash flows and deriving the discount rate, which ranges from 18 percent to 30 percent, to apply to the estimated future cash flows, and in evaluating the results of appraisals or other valuation methods. If the asset determined to be impaired is to be held and used, we recognize an impairment loss through a charge to our operating results which also reduces the carrying basis of the related asset. The new carrying value of the related asset is depreciated or amortized over the remaining estimated useful life of the asset. We also must make subjective judgments regarding the remaining useful life of the asset. We may incur additional impairment losses in future periods if factors influencing our estimates of the undiscounted cash flows change. For assets held for sale, impairment losses are measured at the lower of the carrying amount of the assets or the fair value of the assets less costs to sell. For assets to be disposed of other than by sale, impairment losses are measured as their carrying amount less salvage value, if any, at the time the assets cease to be used.

Income Taxes.    In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a charge to income tax expense, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable. We consider past performance, future expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing jurisdiction. If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result.

Results of Operations

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist you in understanding our financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.

We review and assess operating performance using segment net revenues and operating income (loss) before interest, other income (expense), net, equity in net lossincome (loss) of Spansion Inc.investees and other, income taxes and minority interest.taxes. These performance measures include the allocation of expenses to the operating segments based on management’s judgment.

Prior to December 21, 2005, we had the following three reportable segments:

On December 21, 2005, Spansion completed its IPO. Following the IPO, our ownership interest in Spansion was reduced from 60 percent to approximately 38 percent of Spansion’s outstanding common stock. In

November 2006, we sold 21 million shares of Spansion’s Class A common stock in an underwritten public offering. As a result of this sale, as of December 31, 2006 we owned approximately 21 percent of Spansion’s outstanding common stock. During 2007, we further reduced our interest in Spansion by selling approximately 14 million additional shares of Spansion’s Class A common stock, leaving us with approximately 14 million shares, or a 10.4 percent ownership interest in Spansion’s outstanding common stock as of December 29, 2007.

As a result of Spansion’s IPO, our financial results of operations included Spansion’s financial results of operations as a consolidated subsidiary through December 20, 2005. From December 21, 2005, Spansion’s operating results and financial position were not consolidated as part of our financial results. Instead, we applied the equity method of accounting to reflect our share of Spansion’s net loss from December 21, 2005 through September 20, 2007. Under the equity method of accounting, our share of Spansion’s net loss impacts our net income (loss). On September 20, 2007, we changed the accounting for our investment in Spansion from the equity method to accounting for this investment as “available-for-sale” marketable securities pursuant to FASB Statement No. 115,Accounting for Certain Investments in Debt and Equitybecause we no longer had the ability to exercise significant influence over Spansion’s operations (see Note 4 of Notes to Consolidated Financial Statements). Effective September 20, 2007, we are required to mark the investment to its current market price and book an impairment charge to the investment through earnings if the loss related to the market price change is deemed to be other than temporary. Accordingly, our operating results for the years ended December 25, 2005, December 31, 2006, and December 29, 2007 related to our investment in Spansion are not fully comparable with each other.

Following Spansion’s IPO, from December 26, 2005 through October 24, 2006, we had two reportable segments:

As a result of the acquisition of ATI, effective October 25, 2006, we had the following four reportable segments:

Starting in the first quarter of 2007 through the first quarter of 2008, in conjunction with the integration of ATI’s operations into ours, we began reviewing and addressing operating performance using the following three reportable segments:

In the second quarter of 2008, we decided to divest our Handheld and Digital Television business units, which were previously part of the Consumer Electronics segment. As a result, we classified these business units as discontinued operations in our financial statements and began reviewing and assessing operating performance using the following reportable operating segments:

During the fourth quarter of 2008, we determined that, based on ongoing negotiations related to the divestiture of the Handheld business unit, the discontinued operations classification criteria for this business unit were no longer met. As a result we classified the results of the Handheld business unit back into continuing operations.

In the first quarter of 2009, as a result of the formation of GF, we began reviewing and assessing operating performance using the following reportable operating segments:

In addition to thethese reportable segments, we have an All Other category, which is not a reportable segment. This category includes certain expenses and credits that are not allocated to any of the operating segments

because we do not consider these expenses and credits in evaluating the performance of the operating segments. Following the ATI acquisition, we began includingSuch expenses are non-Foundry segment related expenses and include employee stock-based compensation expense, profit sharing expense, ATI acquisition-relatedrestructuring charges and integration charges andimpairment charges for goodwill and intangible asset impairmentassets. The income we recognized from our settlement agreement with Intel and the results of the Handheld business unit, which consist of revenue from sales of AMD Imageon media processors and other handheld products, are also reported in the All Other category. Also, this category included

Starting in the sale of Personal Internet Communicator (PIC) products from the thirdfirst quarter of 20052009, we also have an Intersegment Eliminations category, which is also not a reportable segment. This category includes intersegment eliminations for revenue, cost of sales and profits on inventory related to transactions between the Computing Solutions segment and the Foundry segment. Beginning in the first quarter of 2010, we will no longer report the Foundry segment and Intersegment Eliminations category due to the third quarterdeconsolidation of 2006, when the manufacturing of PIC products ceased.GF.

We use a 52- to 53-week fiscal year. Prior to December 31, 2006, our fiscal year ended on the last Sunday in December. Commencing in 2007, ourOur fiscal year ends on the last Saturday in December. The years ended December 29, 200726, 2009, December 27, 2008 and December 25, 200529, 2007 each included 52 weeks, and the year ended December 31, 2006 consisted of 53 weeks. References in this report to 2007, 20062009, 2008 and 2005 shall2007 refer to the fiscal year unless explicitly stated otherwise.

The following istable provides a summary of our net revenue and operating income (loss) by segment and income (loss) from continuing operations before income taxes for 2007, 20062009, 2008 and 2005. Prior period segment information has been reclassified to conform2007. Information specific to the current period’s presentation.Foundry segment and Intersegment Eliminations for periods prior to 2009 have not been recast to reflect the segment changes noted above because it is not practicable to do so. Accordingly, 2009 information is not comparable to prior period information.

Computing Solutions

Computing Solutions net revenue of $4.7$4.1 billion in 20072009 decreased by $665 million or 129 percent compared to net revenue of $5.4$4.6 billion in 2006 despite the inclusion of2008. In 2008, Computing Solutions net revenue included $191 million in revenue from the salelicensing of ATI chipsetscertain manufacturing process technology to a third party, which accounted for 4 percent of this total. Without the full fiscal year in 2007 as compared to only nine weeks in 2006. Neteffect of the process technology license revenue, Computing Solutions net revenue would have decreased 5 percent primarily as a result of a 3216 percent decrease in the average selling prices of products included in our Computing Solutions segment,price partially offset by a 3013 percent increase in unit shipments. The decrease in average selling prices wasprice decreased primarily caused bydue to a decrease in the average selling pricesprice of microprocessors, especially for notebook PCs, and a greater mix of chipsets, which typically have a lower average selling price. Competitive market conditions and the macroeconomic challenges that affected the global economy, especially in the first half of 2009, caused us to decrease the price of many of our Computing Solutions products, and also contributed to a shift in our product mix to lower end microprocessors. The increase in unit shipments was primarily attributable to an increase in demand for chipsets and microprocessors for notebooks. Chipset unit shipments increased, especially in the second half of 2009, as customers increasingly adopted AMD chipsets with our microprocessor products. Microprocessor average selling prices decreased due to both competitive market conditions and a higher concentration of sales of processors for desktop and notebook PCs in 2007, which generally carry lower average selling prices than our processors for servers. In particular, our competitor first offered quad-core multi-chip module processors for servers and desktop PCs in November 2006, and these products were available throughout 2007. We first introduced our quad-core products for servers in August 2007 and for desktop PCs in November 2007. However, we did not achieve significant volumeUnit shipments of these products in 2007, and sales of these products did not significantly contribute to 2007

revenue. In light of the timing of our quad-core product introductions and their lack of broad availability during 2007, we discounted the selling price of certain competing processor products. Unit shipments increased primarily due to the inclusion of ATI chipset sales, which accounted for 76 percent of the increase, and increased customer demand for our microprocessors for notebooks increased, especially in the fourth quarter of 2009, due to increased demand in the overall notebook PC market, as end users increasingly demanded notebook PCs which accounted for 24 percent of the increase. However, we did achieve record unit shipments in 2007 with respect to our microprocessor products.over desktop PCs.

Computing Solutions net revenue of $5.4$4.6 billion in 2006 increased $1.5 billion or 382008 decreased 3 percent compared to net revenue of $3.9$4.7 billion in 2005. Although 2006 included revenue from sales of ATI chipsets from October 25, 2006 through December 31, 2006, it was not material. Net revenue increased as a result of a 39 percent increase in unit shipments of products included in our2007. In 2008, Computing Solutions segment. The increasenet revenue included $191 million from the licensing of manufacturing process technology Without the effect of the process technology license revenue, Computing Solutions net revenue would have decreased by $334 million or 7 percent compared to 2007 due to a 4 percent decrease in unit shipments in 2006 was caused primarily by an increasethe average selling price and a 3 percent decrease in unit shipments of our microprocessor productsComputing Solutions products. The decrease in the average selling price was primarily due to increased demand for processors in each of the desktop, server and mobile categories. However, we believe that the challenge we experienced with the ability of our supply chain to keep up with the increased demand across a diverse set of customers and geographies and to deliver products on a timely basisdecrease in the second half of 2006 had an adverse impact onaverage selling price

for both our microprocessors and chipset products. Although our microprocessor unit shipments. Moreover, despite a richer product mix in 2006,improved, the average selling prices remained relatively flat in 2006 as compared to 2005. Higher microprocessor average selling prices in the first half of 2006 were offset by lower microprocessor average selling prices in the second half of 2006price for our microprocessors decreased due to competitive market conditions. Specifically, in the second half of 2006 aggressive pricing by our principal competitor in an attempt to regain market share adversely impacted our microprocessorThe average selling prices. Our competitor also launched its quad-core multi-chip module processorsprice for our chipsets decreased due to competitive pricing pressure and an unfavorable shift in November 2006, and since we did not offer quad-core products during this period, we discounted the selling price of certainour product mix toward older generation chipsets. Unit shipments decreased due to decreased shipments of our competing products duringmicroprocessors as a result of significantly lower end-user demand in the fourth quarter of 2008, which adversely impactedresulted in our microprocessor average selling prices, marginscustomers reducing or cancelling orders for our products in order to bring their inventory levels into balance to address end-user demand and profitability.the uncertain macroeconomic environment.

Computing Solutions operating income was $127 million in 2009 compared to an operating loss of $461 million in 2008. Operating results for 2009 are not comparable to operating results for 2008 because of the creation of the Foundry segment in the first quarter of 2009, which resulted in our reporting certain research and development and marketing, general and administrative expenses in the Foundry segment that we would previously have reported in the Computing Solutions segment. Operating loss in 2008 included a $193 million gain on the sale of 200 millimeter equipment and $191 million of process technology license revenue that did not occur in 2009.

Computing Solutions operating loss was $670$461 million in 20072008 compared to an operating incomeloss of $680$712 million in 2006.2007. The reduction in operating loss was primarily due to the $665recognition of the $191 million of process technology license revenue referenced above, a $193 million gain on the sale of 200 millimeter equipment that did not occur in 2007, a $168 million decrease in revenue described above,cost of sales, and a $307$97 million increasedecrease in manufacturingmarketing, general and administrative expenses partially offset by a $309$63 million increase in research and development expensesexpenses. Cost of sales decreased due to lower microprocessor unit volume and manufacturing cost reductions in 2008. The lower costs were partially offset by a $69$214 million increaseincremental write-down of inventory related to Computing Solutions products in marketing, general and administrative expenses.the fourth quarter of 2008. Research and development expenses increased and marketing, general and administrative expenses increaseddecreased for the reasons set forth under “Expenses,” below. Manufacturing expenses increased primarily due to increased volumes of microprocessors, a shift to higher-end microprocessors and the inclusion of ATI’s chipset business in the Computing Solutions segment for a full year in 2007, as opposed to only nine weeks in 2006.

Computing Solutions operating income of $680 million in 2006 increased by $94 million, or 16 percent, compared to operating income of $586 million in 2005. This increase was primarily due to a 38 percent increase in net revenue, partially offset by an increase in manufacturing expenses of $856 million, an increase in marketing, general and administrative expenses of $265 million and an increase in research and development expenses of $219 million. Manufacturing expenses increased primarily to support higher sales volume. Research and development expenses and marketing, general and administrative expenses increased for the reasons set forth under “Expenses,”“Expenses” below.

Graphics

Graphics net revenue and operating lossof $1.21 billion in 2007 were $903 million and $100 million, respectively. Graphics2009 increased 3 percent compared to net revenue of $1.17 billion in 2008. The increase was due to a 5 percent increase in revenue from the sale of GPU products partially offset by a 3 percent decrease in royalty revenue received in connection with sales of game console systems that incorporate our graphics technology. Revenue from the sale of GPU products increased due to an increase in GPU unit shipments partially offset by a decrease in GPU average selling price. GPU unit shipments increased primarily due to an increase in demand for our graphics products, especially our 40 nm ATI Radeon HD 5000 series of products, which we introduced in September 2009. We believe that the increase in GPU unit shipments was limited as a result of supply constraints with respect to our next generation GPUs. GPU average selling price decreased due to competitive pricing pressure and operating lossa shift in our product mix to more value-priced GPUs. However, the decline in GPU average selling price that we experienced during the first three quarters of 2009 was mitigated by improved GPU average selling price in the fourth quarter of 2009 primarily due to sales of our higher priced ATI Radeon HD 5000 series of products. Royalty revenue decreased primarily due to decreased demand for the periodlatest generation of October 25, 2006 through December 31, 2006 were $166 million and $27 million, respectively. The increasesgame consoles in revenue and operating losses were due to the inclusionlight of the operations attributable to the Graphics segment for the full yearmacroeconomic environment in 2007 compared to only nine weeks in 2006. We did not sell comparable products prior to the ATI acquisition. Graphics net revenue in the second half of 2007 increased 30 percent over the first half of 2009.

Graphics net revenue of $1.17 billion in 2008 increased 17 percent compared to 2007 revenue of $992 million. The increase was primarily due to a 12 percent increase in revenue from sales of GPU products and a 76 percent increase in royalty revenue from the sales of game consoles that incorporate our graphics technology. Revenue from the sales of GPU products increased due to an increase in unit shipments of GPUs while the GPU average selling price was approximately flat. GPU unit shipments increased in 2008 compared to 2007 due to demand for new products, including the successful introductionATI Radeon HD 4000 series of new products. From the first half of 2007 to the second half of 2007products which we introduced in June 2008. Although unit shipments increased by 19 percentin 2008 compared to 2007, we saw a significant decline in unit shipments in the fourth quarter of 2008 due to the weak macroeconomic environment and average selling pricesresulting decrease in demand. Royalty revenue increased by 9 percent.due to increased demand for the latest generation of game consoles.

Graphics operating income was $50 million in 2009 compared to operating income of $12 million 2008. The improvementincrease in operating results was primarily due to a $41 million increase in net revenue described above and a $29 million decrease in marketing, general and administrative expenses due to a reduction in discretionary spending. These decreases were partially offset by a $29 million increase in cost of sales because of higher GPU unit shipments.

Graphics operating income in 2008 was the primary driver that significantly narrowed the$12 million compared to an operating loss from the first half of 2007$39 million in 2007. The $51 million operating improvement was due to the second half of 2007. We did not sell comparable products prior to the ATI acquisition.

Consumer Electronics

Consumer Electronics netincrease in revenue and operating loss in 2007 were $408 million and $17 million, respectively. Consumer Electronics net revenue and operating income for the period from October 25, 2006 through December 31, 2006 were $120 million and $20 million, respectively.referenced above. The increase in revenue was duepartially offset by a $77 million increase in cost of sales because of higher GPU unit shipments and increased research and development and marketing, general and administrative expenses, which increased for the reasons set forth under “Expenses” below.

Foundry

Foundry net revenue was $1.1 billion in 2009. Foundry operating loss was $433 million in 2009. Prior to the inclusionfirst quarter of 2009, we did not have a Foundry segment and, therefore, the results of operations attributable to the Consumer Electronics segmentin 2009 for the full yearFoundry segment are not comparable to 2008.

All Other

All Other net revenue of $66 million in 2009 decreased 21 percent compared to $84 million in 2008. All Other net revenue decreased because we no longer develop new Handheld products, and we experienced reduced customer orders in 2009.

All Other net revenue of $84 million in 2008 decreased by $80 million or 49 percent compared to net revenue of $164 million in 2007 compared to only nine weeks in 2006. The 2007 operating loss resulted primarily from significantly lower unit shipments in the second quarter of 2007mainly due to decreased demand from a key OEM customer. This demand recovered moderately during the remainderone of the year. Consumer Electronics net revenue was flat in the second halfmajor customers of 2007 compared to the first half of 2007. A decrease in revenue from sales of products used in handheld devices was offset by an increase in revenue from royalties on game consoles. Due to the seasonal increase in royalties on game consoles in the second half of 2007, the operating loss for the first half of 2007 improved slightly to an operating profit for the second half of 2007. We did not sell comparable products prior to the ATI acquisition.

Memory Products

As a result of Spansion’s IPO in December 2005, we stopped manufacturing and selling memory products. Therefore, we did not have a Memory Products segment in 2006 and 2007.

All Other Category

We did not have any net revenue for the All Other category in 2007. All Other net revenue in 2006 decreased by $10 million from 2005, primarily because we had minimal revenue from sales of PIC products and customers returned previously sold PIC products. Effective as of the third quarter of 2006, we ceased production of PICour Handheld products.

All Other operating lossincome of $2.1 billion$968 million in 20072009 increased by $1.4$2.5 billion compared to an operating loss of $720 million$1.5 billion in 2006.2008. The increaseimprovement in operating lossresults was primarily attributable to ATI acquisition-related$1,242 million of income from the settlement of our litigation with Intel in the fourth quarter of 2009. Additionally, in 2008, we had a $1.1 billion impairment charges of $1.6 billion,charge, which included a goodwill write-down of $1.3$1.0 billion and a write-down of specific intangible assets of $349$130 million. There were no corresponding charges in 2009. The improvement was also impacted by a $67 million and an increase of $224 milliondecrease in amortization of acquired intangible assets partially offset bydue to the write-down of certain intangible assets in 2008 and a $25 million decrease in ATI integration charges of $453 million. Integration charges in 2006 included $416 million in expenses for acquired in-process research and development, which did not recur in 2007. See Part II, Item 7 “MD&A—ATI Acquisition.”restructuring charges.

All Other operating loss of $720 million$1.5 billion in 2006 increased2008 decreased by $677$53 million compared to an operating loss of $43 million$1.6 billion in 2005.2007. The increasedecrease in the operating loss was primarily attributable to a $124 million decrease in ATI acquisition-related charges and a $43 million decrease in impairment of $557goodwill and acquired intangible assets, partially offset by $90 million in restructuring charges and an increase$23 million of expenses in employee stock-based compensation expense and profit sharing expenseconnection with the formation of $104 million.GF in 2008. ATI acquisition-related charges included an in-process research and development write-off of $416 million,decreased in 2008 compared to 2007 due to a decrease in amortization expense of acquired intangible assets of $47$72 million, an $89 million decrease in the write down of acquisition-related intangible assets in 2008, a decrease of $27 million in integration charges, and the absence of a $25 million charge related to the cost of fair value adjustmentsadjustment of acquired inventory.

Intersegment Eliminations

Intersegment eliminations represent eliminations during consolidation in revenue and in cost of sales and profits on inventory between the Computing Solutions segment and the Foundry segment. For 2009, intersegment eliminations of revenue were $1.1 billion and intersegment eliminations of cost of sales and profits on inventory were $48 million. Beginning in the first quarter of 2010, we will no longer have intersegment eliminations due to acquired inventorythe deconsolidation of $62 million and a $32 million charge associated with the integration of ATI’s operations, which included termination of some AMD employees, cancellation of some existing contractual obligations and other costs that we incurred to integrate the operations of the two companies.GF.

Comparison of Gross Margin, Interest Income, Interest Expense, Other Income (Expense), Net, Income Taxes and Other Expenses

The following is a summary of certain consolidated statement of operations data for the years ended December 29, 2007, December 31, 2006,2009, 2008 and December 25, 2005:2007.