The following discussion should be read in conjunction with the consolidated financial statements as of December 27, 2008 and December 29, 2007 and for each of the three years in the period ended December 27, 2008 and related notes thereto, which are included in this Form 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."

In the second quarter of 2008, we decided to divest our Handheld and Digital Television business units, which were previously part of our former Consumer Electronics segment. As a result, we classified them as discontinued operations in our financial statements. In 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. The following discussion is limited to our continuing operations, unless otherwise noted.

Introduction

We are a global semiconductor company with facilities around the world. We design, develop and offer primarily:

• x86 microprocessors, for the commercial and consumer markets, embedded microprocessors for commercial, commercial client and consumer markets and chipsets for desktop and notebook PCs, professional workstations and servers; and

• graphics, video and multimedia products for desktop and notebook PCs, including home media PCs, professional workstations and servers, and technology for game consoles.

In the Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, we will describe the general financial condition and the results of continuing operations for AMD and its consolidated subsidiaries, including a discussion of our results of operations for 2008 compared to 2007 and 2007 compared to 2006, an analysis of changes in our financial condition and a discussion of our contractual obligations and off-balance sheet arrangements. Our results of continuing operations include sales of graphics and chipset products from the effective date of the ATI acquisition on October 25, 2006 through December 27, 2008 in the following reportable segments: (i) Computing Solutions, which includes Chipsets and (ii) Graphics. We are not able to provide any comparative information for the Graphics segment prior to the ATI acquisition, since we did not previously participate in this market.

Overview

The credit market crisis and other macro-economic challenges currently affecting the global economy resulted in a number of challenges for AMD in 2008. In particular, due to the credit markets and the reduced leverage in the economy, both business and consumer spending decreased, including with respect to end-user products that incorporate our products. In particular, during the fourth quarter of 2008, which is typically our strongest quarter during the fiscal year, end user demand for PCs and servers decreased significantly. In turn, our customers sharply reduced orders for our products in order to balance their inventory levels to address end-customer demand. We believe this inventory correction trend will continue across the supply chain into at least the first half of 2009, particularly in connection with notebook PCs.

AMD net revenue for 2008 was $5.8 billion, a decrease of 1 percent compared to 2007 net revenue of $5.86 billion. Net revenue in 2008 included $191 million of process technology license revenue related to the sale of 200 millimeter equipment. Excluding this process technology license revenue, 2008 net revenue would have

declined 4 percent compared to 2007 due to lower average selling prices and unit volumes for our Computing Solutions segment. Although 2008 net revenue was approximately flat compared to 2007, net revenue for the fourth quarter of 2008 decreased 35 percent compared to the third quarter of 2008 and 33 percent compared to the fourth quarter of 2007. Excluding the $191 million process technology license revenue from the third quarter of 2008, net revenue for the fourth quarter of 2008 would have decreased 28 percent from the third quarter of 2008. The decline was primarily due to the global economic environment, which significantly affected demand during the fourth quarter of 2008. Although the fourth quarter results for our Graphics segment were not immune to the impact of the global economic recession, with net revenue for our Graphics segment declining by 30 percent in the fourth quarter of 2008 compared to the third quarter of 2008, net revenue for the Graphics segment increased by 17 percent compared to 2007. The increase in Graphics net revenue was primarily due to the successful introduction of ATI Radeon HD 4000 series of GPU products and a 76 percent increase in royalties received in connection with the sale of game console systems.

Gross margin, as a percentage of net revenue for 2008 was 40 percent, a 3 percent increase compared to 37 percent in 2007. During the fourth quarter of 2008 we experienced a large incremental write-down of inventory due to a weak economic outlook. This $227 million incremental inventory write-down negatively impacted gross margin in 2008 by 4 percentage points. Gross margin in 2008 was favorably impacted by 2 percentage points as a result of the process technology license revenue referenced above. Without the impact of the incremental write-down of inventory and the technology license revenue, 2008 gross margin would have increased 5 percentage points compared to 2007 primarily due to an improvement in fab utilization and reductions in manufacturing costs.

Our operating loss for 2008 was $2 billion compared to $2.3 billion in 2007. The reduction in the operating loss was primarily due to a $193 million gain on the sale of 200 millimeter equipment, which is included in the caption "Gain on sale of 200 millimeter equipment" in our 2008 consolidated statement of operations, and the $191 million of process technology license revenue referenced above. Without the impact of the above mentioned gain on tool sales and process technology license revenue, our 2008 operating loss would have been flat compared to 2007.

In light of the current economic environment, one of our key priorities is to preserve cash. Our cash, cash equivalents and marketable securities as of December 27, 2008 were $1.1 billion compared to $1.9 billion at December 29, 2007. This decline in our cash, cash equivalents and marketable securities was primarily due to our significant losses. To that end, during 2008 we undertook, and plan to continue to undertake, a number of actions to decrease our expenses. For 2008 our capital expenditures decreased to $621 million compared to $1.7 billion in 2007. Moreover, in the second and fourth fiscal quarters of 2008 we implemented restructuring plans to reduce our expenses. The plans primarily involve the termination of employees, contract or program terminations and facility site consolidations and closures. In January 2009 we announced additional headcount reductions, primarily focused on our back-end manufacturing and sales, marketing, and general and administrative functions, and cost reduction activities including temporary salary reductions for employees in the United States and Canada and suspension of certain employee benefits. We also plan to reduce our manufacturing output in order to control our inventory levels.

Moreover, in the fourth quarter of 2008 and in January 2009, we divested our Digital Television business unit and certain assets related to our Handheld business unit, respectively. The aggregate cash consideration for these divestures was over $200 million, and the divestitures will allow us to focus on our core strategy of computing and graphics market opportunities. In addition, in October 2008 we entered into a Master Transaction Agreement with ATIC and WCH to form a manufacturing joint venture, The Foundry Company. Upon consummation of the transactions contemplated by the Master Transaction Agreement, we anticipate certain benefits to our business, including, on a consolidated basis, the infusion of approximately $2.2 billion of cash, of which approximately $800 million will be available for current working capital purposes and $1.4 billion will go to The Foundry Company to fund its operations, including capital expenditures and repayment of approximately $1.1 billion (as of December 27, 2008) of indebtedness, which we will transfer to The Foundry Company upon

consummation of the transactions. The Foundry Company will record $1 billion of the $1.4 billion as debt from the issuance of the Convertible Notes to ATIC and $400 million as equity from the issuance of securities to ATIC. Because we will consolidate the accounts of The Foundry Company after the consummation of the transactions contemplated by the Master Transaction Agreement, our consolidated balance sheet will present the $1.1 billion (as of December 27, 2008) of transferred indebtedness and the $1 billion of debt related to the issuance of the Convertible Notes as debt and the $400 million as non-controlling interest. However, The Foundry Company will have the obligation to repay the transferred indebtedness and the Convertible Notes. Also, future wafer manufacturing capital expenditures will be the responsibility of The Foundry Company, and after the consummation of the transactions, we will have the option but not the obligation to provide future funding to The Foundry Company. ATIC has committed to provide additional equity funding to The Foundry Company of at least $3.6 billion and up to $6.0 billion over the five years after the closing of the transaction.

In 2008 we also made progress towards improving our competitive position across both of our businesses. In November 2008 we launched our first 45-nanometer quad-core AMD Opteron processors, and we expect the transition to 45-nanometer process technology to be completed at Fab 36 by mid-2009. In 2008 and early 2009, we also introduced several new platform products such as our "Puma" and "Yukon" platforms for notebooks and our "Dragon" platform for desktop PCs. With respect to graphics products, we released the ATI Radeon HD 4000 series of products in June 2008. Despite the cost cutting efforts referenced above, one of our key priorities for 2009 is to continue to invest in research and development and to maintain the competitiveness of our product roadmap.

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.

Proposed Manufacturing Joint Venture

On October 6, 2008 we entered into a Master Transaction Agreement, which was further amended on December 5, 2008, with ATIC to form a manufacturing joint venture, The Foundry Company. We intend to contribute certain manufacturing-related assets and liabilities to The Foundry Company in exchange for securities of The Foundry Company consisting of one Class A Ordinary Share, Class A Preferred Shares and Class B Preferred Shares, and ATIC intends to contribute cash to The Foundry Company and pay cash to us in exchange for securities of The Foundry Company consisting of one Class A Ordinary Share, Class A Preferred Shares, Class B Preferred Shares and the Convertible Notes.

Although ATIC's Convertible Notes will not be convertible immediately upon consummation of the transactions contemplated by the Master Transaction Agreement, on an as converted to ordinary shares basis, we will own 34.2 percent of The Foundry Company and have a 50 percent voting interest in The Foundry Company while ATIC will own 65.8 percent of The Foundry Company and have a 50 percent voting interest in The Foundry Company.

Pursuant to the Master Transaction Agreement, we intend to issue 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 58,000,000 multiplied by the lesser of (i) the average of the closing prices of our common stock on the NYSE for the 20 trading days immediately prior to and including December 12, 2008 or (ii) the average of the closing prices of our common stock on the NYSE for the 20 trading days immediately prior to the closing date of the transactions contemplated by the Master Transaction Agreement. The warrants will be exercisable after the earlier of (i) public ground-breaking of a proposed Foundry Company manufacturing facility in up-state New York and (ii) 24 months from the date of issuance, and the warrants will have a ten year term.

For accounting purposes, we will consolidate the accounts of The Foundry Company as required by FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, An Interpretation of ARB No. 51. (FIN 46R). Based on the structure of the transaction, pursuant to the guidance in FIN 46R, The Foundry Company is a variable-interest entity, and we are deemed to be the primary beneficiary and are, therefore, required to consolidate the accounts of The Foundry Company. Upon the closing of the transaction, the accounts of The Foundry Company will include (i) the assets and liabilities contributed by us to The Foundry Company, recorded at their historical costs, in exchange for certain securities of The Foundry Company and (ii) the cash contributed by ATIC to The Foundry Company in exchange for certain securities of The Foundry Company. Upon consolidation, intercompany transactions and profits will be eliminated. Pursuant to the requirements of FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51, which we will be required to apply as of the beginning of fiscal 2009, ATIC's non-controlling interest, represented by its equity interests in The Foundry Company, will be presented outside of stockholders' equity on our consolidated balance sheet due to the right that ATIC has to put those securities back to us in the event of a change of control of AMD during the two years following the closing of the transactions. Our net income (loss) per common share will consist of its consolidated net income (loss), as adjusted for (i) the portion of The Foundry Company's earnings or losses attributable to ATIC, which will be based on ATIC's proportional ownership interest in The Foundry Company's Class A Preferred Shares, and (ii) the non-cash accretion of Class B Preferred Shares attributable to us, based on our proportional ownership interest of The Foundry Company's Class A Preferred Shares.

Under the Master Transaction Agreement, the cash consideration that WCH and ATIC will pay and the securities that they will receive are as follows:

• Cash to be paid by WCH to us for the purchase of 58 million shares of our common stock and warrants to purchase 35 million shares of our common stock: estimated to be $124 million, assuming a $2.15 per share price (which was the average of the closing prices per share of our common stock on the NYSE during the 20 trading days immediately prior to and including December 12, 2008);

• Cash to be paid by ATIC to The Foundry Company for 4% Class A Convertible Subordinated Notes of The Foundry Company, convertible into 201,810 Class A Preferred Shares: $202 million;

• Cash to be paid by ATIC to The Foundry Company for 11% Class B Convertible Subordinated Notes of The Foundry Company, convertible into 807,240 Class B Preferred Shares: $807 million;

• Cash to be paid by ATIC to The Foundry Company for 218,190 Class A Preferred Shares of The Foundry Company: $218 million;

• Cash to be paid by ATIC for 872,760 Class B Preferred Shares of The Foundry Company: $873 million, which includes $700 million paid to us for 700,000 Class B Preferred Shares of The Foundry Company. The Class B Preferred Shares are, by their terms, deemed to accrete in value at a rate of 12% per year, compounded semiannually. This accreted value will be taken into account upon certain distributions to the holders or upon conversion of the Class B Preferred Shares.

Upon closing of the transactions contemplated by the Master Transaction Agreement, AMD and ATIC will hold 1,090,950, or 83.3%, and 218,190, or 16.7%, respectively, of The Foundry Company Class A Preferred Shares and ATIC will own 100% of the Class B Preferred Shares and the Convertible Notes.

Beginning with the first fiscal quarter of 2009, we will have a separate reportable segment for The Foundry Company in our financial statement disclosures.

ATI Acquisition

On October 25, 2006, we completed the acquisition of all of the outstanding shares of ATI Technologies, a publicly held company headquartered in Markham, Ontario, Canada (the Acquisition) 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 allows us to deliver products that better fulfill the increasing demand for more integrated computing solutions. We included the operations of ATI in our consolidated financial statements beginning on October 25, 2006.

The aggregate consideration we paid for all outstanding ATI common shares consisted of approximately $4.3 billion of cash and 58 million shares of our common stock. In addition, we also issued options to purchase approximately 17.1 million shares of our common stock and approximately 2.2 million comparable AMD restricted stock units in exchange for outstanding ATI stock options and restricted stock units. The vested portion of these options and restricted stock units was valued at approximately $144 million. The unvested portion, valued at approximately $69 million, continues to be amortized as compensation expense over the remaining vesting periods of the assumed options. To finance a portion of the cash consideration paid, we borrowed $2.5 billion pursuant to a Credit Agreement with Morgan Stanley Senior Funding Inc. dated October 24, 2006 (October 2006 Term Loan). We repaid the October 2006 Term Loan in 2007. The total purchase price for ATI was $5.6 billion, including acquisition-related costs of $25 million.

Purchase Price Allocation

The total purchase price was allocated to ATI's tangible and identifiable
intangible assets and liabilities based on their estimated fair values as of
October 24, 2006 as set forth below:



                                                       (In millions)
             Cash and marketable securities           $           500
             Accounts receivable                                  290
             Inventories                                          431
             Goodwill                                           3,217
             Developed product technology                         752
             Game console royalty agreement                       147
             Customer relationships                               257
             Trademarks and trade names                            62
             Customer backlog                                      36
             In-process research and development                  416
             Property, plant and equipment                        143
             Other assets                                          25
             Accounts payable and other liabilities              (631 )
             Reserves for exit costs                               (8 )
             Debt and capital lease obligations                   (31 )
             Deferred revenues                                     (2 )
             Total purchase price                     $         5,604

Management performed an analysis to determine the fair value of each tangible and identifiable intangible asset, including the portion of the purchase price 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 qualified as IPR&D represented those that had not reached technological feasibility and had no alternative future use at the time of the acquisition. These projects included development of next generation products for the Graphics segment and Chipsets business unit and the former Consumer Electronics segment. The estimated fair value of the projects for the Graphics segment and Chipsets business unit was approximately $193 million ($122 million for graphics products and $71 million for chipset products). The estimated fair value of the projects for the former Consumer

Electronics segment was approximately $223 million. Starting in the first quarter of 2007, in conjunction with the integration of ATI's operations, we began reporting operations related to its 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, 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 were based on estimates of the relevant market sizes and growth factors, expected trends 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 for ATI 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 14 percent to 15 percent.

Other Acquisition-Related Intangible Assets

Developed product technology consisted of products that had reached technological feasibility and included technology in ATI's discrete GPU products, integrated chipset products, handheld products, and digital TV products divisions. We initially expected the developed technology to have an average useful life of five years. However, as a result of the 2007 and 2008 impairment analysis discussed below, we shortened the estimated useful life of certain of these developed technology intangible assets to reflect their remaining useful lives. As of December 27, 2008, the developed product technology intangible assets had an estimated average remaining useful life of 12 months.

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 are 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. As a result of the 2007 and 2008 impairment analysis discussed below, we shortened the estimated useful life of certain of these customer relationship intangible assets to reflect their remaining useful lives. As of December 27, 2008, the customer relationship intangible assets had an estimated average remaining useful life of 21 months.

Trademarks and trade names had an estimated average useful life of seven years. As a result of the 2007 and 2008 impairment analysis discussed below, we have shortened the estimated useful life of certain of these trademarks and trade names intangible assets to reflect their remaining useful lives. As of December 27, 2008, the trademark and trade names intangible assets had an estimated average remaining useful life of 45 months.

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. As of December 27, 2008, all of these customer backlog intangible assets have been fully amortized.

We determined the fair value of other acquisition-related intangible assets using income approaches based on the most current financial forecast available 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 consideration of our estimated weighted average cost of capital and the estimated internal rate of return specific to the acquisition.

We based estimated useful lives for the other acquisition-related intangible assets on historical experience with technology life cycles, product roadmaps and our intended future use of the intangible assets. We are amortizing the acquisition-related intangible assets using the straight-line method over their estimated useful lives.

Integration

Concurrent with the acquisition, 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 $7 million. The costs associated with the closure of duplicate facilities totaled approximately $1 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 $1 million, $28 million and $32 million for the years ended December 27, 2008, December 29, 2007 and December 31, 2006, respectively, and they are included in the caption, "Amortization of acquired intangible assets and integration charges," on our consolidated statements of operations.

2007 Impairment

In the fourth quarter of 2007, pursuant to our accounting policy, we performed an annual impairment test of goodwill. As a result of this analysis, we concluded that the carrying amounts of goodwill included in our Graphics and former Consumer Electronics segments exceeded their implied fair values and recorded an impairment charge of approximately $1.26 billion, of which $913 million is included in the caption "Impairment of goodwill and acquired intangible assets" and $346 million is included in the caption "Income (loss) from discontinued operations, net of tax" in our 2007 consolidated statement of . . .