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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number 001-07882
 
amd-20210925_g1.jpg
ADVANCED MICRO DEVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware94-1692300
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

2485 Augustine Drive
Santa Clara, California 95054
(Address of principal executive offices)

(408) 749-4000
Registrant’s telephone number, including area code

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
 Name of each exchange on which registered
Common Stock, $0.01 par value
AMD
The Nasdaq Global Select Market
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 (the Exchange Act) 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 ☑ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes ☑    No ¨
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,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes    No ☑
Indicate the number of shares outstanding of the registrant’s common stock, $0.01 par value, as of October 22, 2021: 1,207,610,455


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INDEX
 
  Page No.
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PART I. FINANCIAL INFORMATION
 
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Advanced Micro Devices, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
 (In millions, except per share amounts)
Net revenue$4,313 $2,801 $11,608 $6,519 
Cost of sales2,227 1,571 6,105 3,623 
Gross profit2,086 1,230 5,503 2,896 
Research and development765 508 2,034 1,410 
Marketing, general and administrative376 273 1,036 687 
Licensing gain(3) (8) 
Operating income948 449 2,441 799 
Interest expense(7)(11)(26)(38)
Other income (expense), net62 (37)51 (32)
Income before income taxes and equity income 1,003 401 2,466 729 
Income tax provision82 12 284 22 
Equity income in investee2 1 6 2 
Net income$923 $390 $2,188 $709 
Earnings per share
Basic$0.76 $0.33 $1.80 $0.60 
Diluted$0.75 $0.32 $1.78 $0.59 
Shares used in per share calculation
Basic1,214 1,184 1,214 1,176 
Diluted1,230 1,215 1,231 1,208 
See accompanying notes.
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Advanced Micro Devices, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
 (In millions)
Net income $923 $390 $2,188 $709 
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on cash flow hedges(7)9 (17)5 
Total comprehensive income $916 $399 $2,171 $714 
See accompanying notes.
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Advanced Micro Devices, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 25,
2021
December 26,
2020
 (In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents$2,440 $1,595 
Short-term investments1,168 695 
Accounts receivable, net2,224 2,066 
Inventories1,902 1,399 
Receivables from related parties5 10 
Prepaid expenses and other current assets249 378 
Total current assets7,988 6,143 
Property and equipment, net717 641 
Operating lease right-of-use assets284 208 
Goodwill289 289 
Investment: equity method 69 63 
Deferred tax assets1,036 1,245 
Other non-current assets770 373 
Total assets$11,153 $8,962 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$1,048 $468 
Payables to related parties36 78 
Accrued liabilities2,048 1,796 
Short-term debt, net312  
Other current liabilities120 75 
Total current liabilities3,564 2,417 
Long-term debt, net1 330 
Long-term operating lease liabilities269 201 
Other long-term liabilities183 177 
Commitments and Contingencies (See Note 12)
Stockholders’ equity:
Capital stock:
Common stock, par value $0.01; shares authorized: 2,250; shares issued: 1,230 and 1,217; shares outstanding: 1,212 and 1,211
12 12 
Additional paid-in capital10,905 10,544 
Treasury stock, at cost (shares held: 18 and 6)
(1,356)(131)
Accumulated deficit(2,425)(4,605)
Accumulated other comprehensive income 17 
Total stockholders’ equity 7,136 5,837 
Total liabilities and stockholders’ equity $11,153 $8,962 

See accompanying notes.
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Advanced Micro Devices, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended
 September 25,
2021
September 26,
2020
 (In millions)
Cash flows from operating activities:
Net income$2,188 $709 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization289 222 
Stock-based compensation 267 195 
Amortization of debt discount and issuance costs4 12 
Amortization of operating lease right-of-use assets40 31 
Loss on debt conversion7 38 
Loss on sale or disposal of property and equipment19 28 
Deferred income taxes201 1 
(Gains) losses on equity investments, net(52)(1)
Other(6)12 
Changes in operating assets and liabilities:
Accounts receivable, net(158)(287)
Inventories(504)(310)
Receivables from related parties5 16 
Prepaid expenses and other assets(284)(172)
Payables to related parties(42)(98)
Accounts payable526 (232)
Accrued and other liabilities199 353 
Net cash provided by operating activities2,699 517 
Cash flows from investing activities:
Purchases of property and equipment(215)(220)
Purchases of short-term investments
(1,901)(530)
Proceeds from maturity of short-term investments
1,428 92 
Other2  
Net cash used in investing activities(686)(658)
Cash flows from financing activities:
Proceeds from short-term debt borrowing 200 
Repayment of short-term debt borrowing (200)
Proceeds from sales of common stock through employee equity plans55 45 
Repurchases of common stock(1,004) 
Common stock repurchases for tax withholding on employee equity plans
(219)(73)
Other (1)
Net cash used in financing activities(1,168)(29)
Net increase (decrease) in cash, cash equivalents, and restricted cash845 (170)
Cash, cash equivalents, and restricted cash at beginning of period1,595 1,470 
Cash, cash equivalents, and restricted cash at end of period$2,440 $1,300 
Supplemental cash flow information:
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid$74 $36 
Issuance of common stock to settle convertible debt$25 $156 
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Transfer of assets for acquisition of property and equipment$37 $57 
Non-cash activities for leases:
Operating lease right-of-use assets acquired by assuming related liabilities$128 $40 
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents$2,440 $1,296 
Restricted cash included in Prepaid expenses and other current assets 4 
Total cash, cash equivalents, and restricted cash$2,440 $1,300 
See accompanying notes.
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Advanced Micro Devices
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
(In millions)
Capital stock:
Common stock
Balance, beginning of period$12 $12 $12 $12 
Balance, end of period$12 $12 $12 $12 
Additional paid-in capital
Balance, beginning of period$10,795 $10,127 $10,544 $9,963 
Common stock issued under employee equity plans4 3 55 45 
Stock-based compensation99 76 267 195 
Issuance of common stock to settle convertible debt 156 25 156 
Issuance of common stock warrant7  14 3 
Balance, end of period$10,905 $10,362 $10,905 $10,362 
Treasury stock
Balance, beginning of period$(401)$(54)$(131)$(53)
Repurchases of common stock(750) (1,006) 
Common stock repurchases for tax withholding on employee equity plans
(205)(72)(219)(73)
Balance, end of period$(1,356)$(126)$(1,356)$(126)
Accumulated deficit:
Balance, beginning of period$(3,348)$(6,776)$(4,605)$(7,095)
Cumulative effect of adoption of accounting standard  (8)709 
Net income 923 390 2,188  
Balance, end of period$(2,425)$(6,386)$(2,425)$(6,386)
Accumulated other comprehensive income (loss):
Balance, beginning of period$7 $(4)$17 $ 
    Other comprehensive income (loss)(7)9 (17)5 
Balance, end of period$ $5 $ $5 
Total stockholders' equity$7,136 $3,867 $7,136 $3,867 
See accompanying notes.

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Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – The Company
Advanced Micro Devices, Inc. is a global semiconductor company. References herein to AMD or the Company mean Advanced Micro Devices, Inc. and its consolidated subsidiaries. AMD’s products include x86 microprocessors (CPUs), accelerated processing units which integrate microprocessors and graphics (APUs), discrete graphics processing units (GPUs), semi-custom System-on-Chip (SOC) products and chipsets for the PC, gaming, datacenter and embedded markets. In addition, AMD provides development services and sells or licenses portions of its intellectual property portfolio.
NOTE 2 – Basis of Presentation and Significant Accounting Policies
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of AMD have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the three and nine months ended September 25, 2021 shown in this report are not necessarily indicative of results to be expected for the full year ending December 25, 2021 or any other future period. In the opinion of the Company’s management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity. All such adjustments are of a normal, recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020. Certain prior period amounts have been reclassified to conform to the current period presentation.
The Company uses a 52 or 53 week fiscal year ending on the last Saturday in December. The three and nine months ended September 25, 2021 and September 26, 2020 each consisted of 13 weeks and 39 weeks, respectively.
Significant Accounting Policies. There have been no material changes to the Company’s significant accounting policies in Note 2 - Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
NOTE 3 – Supplemental Financial Statement Information
Short-term Investments
September 25,
2021
December 26,
2020
 (In millions)
Commercial paper$974 $295 
Time deposits194 400 
Total short-term investments$1,168 $695 
Accounts Receivable, net
As of September 25, 2021 and December 26, 2020, Accounts receivable, net included unbilled accounts receivable of $226 million and $123 million, respectively. Unbilled accounts receivables primarily represent work completed on development services and on custom products for which revenue has been recognized but not yet invoiced. All unbilled accounts receivable are expected to be billed and collected within 12 months.
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Inventories
September 25,
2021
December 26,
2020
 (In millions)
Raw materials$85 $93 
Work in process1,738 1,139 
Finished goods79 167 
Total inventories$1,902 $1,399 
Property and Equipment, net
September 25,
2021
December 26,
2020
 (In millions)
Leasehold improvements$187 $208 
Equipment1,410 1,209 
Construction in progress172 136 
Property and equipment, gross1,769 1,553 
Accumulated depreciation(1,052)(912)
Total property and equipment, net$717 $641 
Other Non-Current Assets
September 25,
2021
December 26,
2020
(In millions)
Software technology and licenses, net$203 $229 
Prepaid long-term supply agreements355  
Other212 144 
Total other non-current assets$770 $373 
Prepaid long-term supply agreements relate to payments made to vendors to secure long-term supply capacity.
Accrued Liabilities
September 25,
2021
December 26,
2020
 (In millions)
Accrued marketing programs and advertising expenses$907 $839 
Accrued compensation and benefits567 513 
Other accrued and current liabilities574 444 
Total accrued liabilities$2,048 $1,796 
Revenue
Revenue allocated to remaining performance obligations that were unsatisfied (or partially unsatisfied) as of September 25, 2021 was $241 million, which may include amounts received from customers but not yet earned and amounts that will be invoiced and recognized as revenue in future periods associated with any combination of development services, intellectual property (“IP”) licensing and product revenue. The Company expects to recognize $151 million of revenue allocated to remaining performance obligations in the next 12 months. The revenue allocated to remaining performance obligations does not include amounts which have an original expected duration of one year or less.
Revenue recognized over time associated with custom products and development services accounted for approximately 22% of the Company’s revenue for both the three and nine months ended September 25, 2021 and 25% and 15% for the three and nine months ended September 26, 2020, respectively.
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NOTE 4 – Related Parties — Equity Joint Ventures
ATMP Joint Ventures
The Company holds a 15% equity interest in two joint ventures (collectively, the ATMP JV) with affiliates of Tongfu Microelectronics Co., Ltd, a Chinese joint stock company. The Company has no obligation to fund the ATMP JV. The Company accounts for its equity interests in the ATMP JV under the equity method of accounting due to its significant influence over the ATMP JV.
The ATMP JV provides assembly, testing, marking and packaging services to the Company. The Company assists the ATMP JV in its management of certain raw material inventory. The purchases from and resales to the ATMP JV of inventory under the Company’s inventory management program are reported within purchases and resales with the ATMP JV and do not impact the Company’s condensed consolidated statements of operations.
The Company’s purchases from the ATMP JV during the three and nine months ended September 25, 2021 amounted to $259 million and $775 million, respectively. The Company’s purchases from the ATMP JV during the three and nine months ended September 26, 2020 amounted to $204 million and $559 million, respectively. As of September 25, 2021 and December 26, 2020, the amounts payable to the ATMP JV were $36 million and $78 million, respectively, and are included in Payables to related parties on the Company’s condensed consolidated balance sheets. The Company’s resales to the ATMP JV during the three and nine months ended September 25, 2021 amounted to $6 million and $25 million, respectively. The Company’s resales to the ATMP JV during the three and nine months ended September 26, 2020 amounted to $3 million and $18 million, respectively. As of September 25, 2021 and December 26, 2020, the Company’s receivables from the ATMP JV were $5 million and $10 million, respectively, and were included in Receivables from related parties on the Company’s condensed consolidated balance sheets.
During the three and nine months ended September 25, 2021, the Company recorded a gain of $2 million and $6 million in Equity income in investee on its condensed consolidated statements of operations, respectively. As of September 25, 2021 and December 26, 2020, the carrying value of the Company’s investment in the ATMP JV was $69 million and $63 million, respectively.
THATIC Joint Ventures
The Company holds equity interests in two joint ventures (collectively, the THATIC JV) with Higon Information Technology Co., Ltd. (THATIC), a third-party Chinese entity. As of both September 25, 2021 and December 26, 2020, the carrying value of the investment was zero.
In February 2016, the Company licensed certain of its intellectual property (Licensed IP) to the THATIC JV, payable over several years upon achievement of certain milestones. The Company also receives a royalty based on the sales of the THATIC JV’s products developed on the basis of such Licensed IP. The Company classifies Licensed IP and royalty income associated with the February 2016 agreement as Licensing gain within operating income. During the three and nine months ended September 25, 2021, the Company recognized $3 million and $8 million of licensing gain from royalty income under the agreement, respectively. As of both September 25, 2021 and December 26, 2020, the Company had no receivables from the THATIC JV.
In June 2019, the Bureau of Industry and Security of the United States Department of Commerce added certain Chinese entities to the Entity List, including THATIC and the THATIC JV. The Company is complying with U.S. law pertaining to the Entity List designation.
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NOTE 5 – Debt and Revolving Credit Facility
Debt
The Company’s total debt as of September 25, 2021 and December 26, 2020 consisted of the following:
September 25,
2021
December 26,
2020
(In millions)
7.50% Senior Notes Due August 2022 (7.50% Notes)
$312 $312 
2.125% Convertible Senior Notes Due 2026 (2.125% Notes)
1 26 
Total debt (principal amount)313 338 
Unamortized debt discount and issuance costs (8)
Total debt (net)313 330 
Less: short-term debt(312) 
Total long-term debt$1 $330 
During the nine months ended September 25, 2021, holders of the 2.125% Notes converted $25 million principal amount of notes in exchange for approximately 3 million shares of the Company’s common stock at the conversion price of $8.00 per share. The Company recorded a loss of $7 million from these conversions in Other income (expense), net on its condensed consolidated statements of operations.
Revolving Credit Facility
The Company is party to a $500 million unsecured revolving credit facility (the Revolving Credit Facility), including a $50 million swingline sub-facility and a $75 million sublimit for letters of credit pursuant to a credit agreement with a syndicate of banks. The Revolving Credit Facility expires in June 2024. Borrowings under the Revolving Credit Facility bear interest at either the LIBOR rate or the base rate at the Company’s option (in each case, as customarily defined) plus an applicable margin. As of September 25, 2021, there were no borrowings outstanding under the Revolving Credit Facility and the Company was in compliance with all required covenants. As of September 25, 2021, the Company had $14 million of letters of credit outstanding under the Revolving Credit Facility.
NOTE 6 – Financial Instruments
Fair Value Measurements
Financial Instruments Recorded at Fair Value on a Recurring Basis
September 25, 2021December 26, 2020
Level 2(1)
Level 2(1)
Short-term investments(in millions)
Commercial paper$974 $295 
Time deposits194 400 
Total$1,168 $695 
(1)Level 2 fair value estimates are based on quoted prices for identical or comparable instruments in markets that are not active, comparable instruments in active markets or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
During the three months ended September 25, 2021, the Company recognized a $60 million gain, in Other income (expense), due to an increase in the fair value of an equity investment. This equity investment is classified as Level 1 as it is valued using quoted prices for identical instruments in active markets. As of September 25, 2021, the fair value of this equity investment, included in Other non-current assets on the consolidated balance sheet, was $63 million.
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Financial Instruments Not Recorded at Fair Value
The Company carries its financial instruments at fair value except for its debt. The carrying amounts and estimated fair values of the Company’s debt are as follows:
 September 25, 2021December 26, 2020
 Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
 (In millions)
Short-term debt, net$312 $332 $ $ 
Long-term debt, net1 15 330 642 
The estimated fair value of the Company’s debt is based on Level 2 inputs of quoted prices for the Company’s debt and comparable instruments in inactive markets. The estimated fair value of the 2.125% Notes takes into account the current value of the Company’s stock price compared to the initial conversion price of approximately $8.00 per share of common stock.
The fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing terms.
Hedging Transactions and Derivative Financial Instruments
Foreign Currency Forward Contracts Designated as Accounting Hedges
The Company enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate risk related to future forecasted transactions denominated in currencies other than the U.S. Dollar. These contracts generally mature within 18 months and are designated as accounting hedges. As of September 25, 2021 and December 26, 2020, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $888 million and $501 million, respectively. The fair value of these contracts was not material as of September 25, 2021 and December 26, 2020.
Foreign Currency Forward Contracts Not Designated as Accounting Hedges
The Company also enters into foreign currency forward contracts to reduce the short-term effects of foreign currency fluctuations on certain receivables or payables denominated in currencies other than the U.S. Dollar. These forward contracts generally mature within 3 months and are not designated as accounting hedges. As of September 25, 2021 and December 26, 2020, the notional value of these outstanding contracts was $403 million and $254 million, respectively. The fair value of these contracts was not material as of September 25, 2021 and December 26, 2020.
NOTE 7 – Accumulated Other Comprehensive Income (Loss)
The table below summarizes the changes in accumulated other comprehensive income (loss):
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
Gains (losses) on cash flow hedges:(In millions)
Beginning balance$7 $(4)$17 $ 
Net unrealized gains (losses) arising during the period(6)11 6 (1)
Net (gains) losses reclassified into income during the period(4)(2)(23)6 
Tax effect3    
Total other comprehensive income (loss)(7)9 (17)5 
Ending balance$ $5 $ $5 
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NOTE 8 – Earnings Per Share
The following table sets forth the components of basic and diluted earnings per share:
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
(In millions, except per share amounts)
Numerator
Net income for basic earnings per share$923 $390 $2,188 $709 
Effect of potentially dilutive shares:
        Interest expense related to the 2.125% Notes 1  4 
Net income for diluted earnings per share$923 $391 $2,188 $713 
Denominator
Basic weighted average shares1,214 1,184 1,214 1,176 
Effect of potentially dilutive shares:
        Employee equity plans and warrants16 20 17 21 
        2.125% Notes 11  11 
Diluted weighted average shares1,230 1,215 1,231 1,208 
Earnings per share:
Basic$0.76 $0.33 $1.80 $0.60 
Diluted$0.75 $0.32 $1.78 $0.59 
NOTE 9 – Common Stock and Employee Equity Plans
Common Stock
Shares of common stock outstanding were as follows:
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
(In millions)
Balance, beginning of period1,213 1,174 1,211 1,170 
Common stock issued under employee equity plans, net of tax withholding6 9 8 13 
Common stock repurchases for tax withholding on equity awards (1) (1)
Issuance of common stock to settle convertible debt 20 3 20 
Repurchases of common stock(7) (10) 
Balance, end of period1,212 1,202 1,212 1,202 
Stock Repurchase Program
In May 2021, the Company’s Board of Directors approved a stock repurchase program authorizing up to $4 billion of repurchases of the Company’s outstanding common stock (the Repurchase Program). During the three and nine months ended September 25, 2021, the Company repurchased 7.2 million and 10.4 million shares of its common stock under the Repurchase Program for $750 million and $1 billion, respectively. As of September 25, 2021, $3 billion remains available for future stock repurchases under this program. The Repurchase Program does not obligate the Company to acquire any common stock, has no termination date and may be suspended or discontinued at any time.
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Stock-based Compensation
Stock-based compensation expense was as follows: 
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
(In millions)
Cost of sales$2 $1 $4 $5 
Research and development63 48 171 122 
Marketing, general and administrative34 27 92 68 
Total stock-based compensation expense before income taxes99 76 267 195 
Income tax benefit(16) (43) 
Total stock-based compensation expense after income taxes$83 $76 $224 $195 
NOTE 10 – Income Taxes
The Company recorded an income tax provision of $82 million and $284 million for the three and nine months ended September 25, 2021, representing effective tax rates of 8.2% and 11.5%, respectively. The Company recorded an income tax provision of $12 million and $22 million for the three and nine months ended September 26, 2020, representing effective tax rates of 3.0% for both periods.
The increase in income tax expense and effective tax rate was due to significantly higher income in the United States in the current period, partially offset by the foreign-derived intangible income benefit, research and development tax credits, and excess tax benefit for stock-based compensation. The lower income tax expense and effective tax rate for the prior year period were due to a full valuation allowance against deferred tax assets in the United States during 2020, a significant portion of which was released by the Company in the fourth quarter of 2020.
The Company’s effective tax rate for the three and nine months ended September 25, 2021 and the three and nine months ended September 26, 2020 was lower than the United States federal statutory rate primarily due to the tax benefits recognized for the three and nine months ended September 25, 2021 discussed above and due to the maintenance of a full valuation allowance against deferred tax assets in the United States during the three and nine months ended September 26, 2020.
As of September 25, 2021, the Company continues to maintain a valuation allowance for certain federal, state, and foreign tax attributes. The federal valuation allowance maintained is due to limitations under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated loss rules. Certain state and foreign valuation allowance maintained is due to a lack of sufficient sources of taxable income.
NOTE 11 – Segment Reporting
Management, including the Chief Operating Decision Maker, who is the Company’s Chief Executive Officer, reviews and assesses operating performance using segment net revenue and operating income (loss). These performance measures include the allocation of expenses to the operating segments based on management’s judgment. The Company has the following two reportable segments:
the Computing and Graphics segment, which primarily includes desktop and notebook microprocessors, accelerated processing units that integrate microprocessors and graphics, chipsets, discrete graphics processing units (GPUs), data center and professional GPUs and development services. From time to time, the Company may also sell or license portions of its IP portfolio.
the Enterprise, Embedded and Semi-Custom segment, which primarily includes server and embedded processors, semi-custom System-on-Chip (SoC) products, development services and technology for game consoles. From time to time, the Company may also sell or license portions of its IP portfolio.
In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment. This category primarily includes certain expenses and credits that are not allocated to any of the
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reportable segments because management does not consider these expenses and credits in evaluating the performance of the reportable segments. This category primarily includes employee stock-based compensation expense and acquisition-related costs.
The following table provides a summary of net revenue and operating income by segment: 
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
(In millions)
Net revenue:
Computing and Graphics$2,398 $1,667 $6,748 $4,472 
Enterprise, Embedded and Semi-Custom1,915 1,134 4,860 2,047 
Total net revenue$4,313 $2,801 $11,608 $6,519 
Operating income (loss): 
Computing and Graphics$513 $384 $1,524 $846 
Enterprise, Embedded and Semi-Custom542 141 1,217 148 
All Other (1)
(107)(76)(300)(195)
Total operating income$948 $449 $2,441 $799 
(1)
For the three and nine months ended September 25, 2021, all other operating losses included $99 million and $267 million of stock-based compensation expense and $8 million and $33 million of acquisition-related costs, respectively.
For the three and nine months ended September 26, 2020, all other operating losses were related to stock-based compensation expense.
NOTE 12 – Commitments and Contingencies
Commitments
The Company’s purchase commitments primarily include the Company’s obligations to purchase wafers and substrates from third parties and future payments related to certain software and technology licenses and IP licenses.
Total future unconditional purchase commitments as of September 25, 2021 were as follows:
Year(In millions)
Remainder of 2021$2,162 
20222,477 
2023728 
2024658 
2025153 
2026 and thereafter388 
Total unconditional purchase commitments$6,566 
Contingencies
Quarterhill Inc. Litigation
On July 2, 2018, three entities named Aquila Innovations, Inc. (Aquila), Collabo Innovations, Inc. (Collabo), and Polaris Innovations, Ltd. (Polaris), filed separate patent infringement complaints against the Company in the United States District Court for the Western District of Texas. Aquila alleges that the Company infringes two patents (6,239,614 and 6,895,519) relating to power management; Collabo alleges that the Company infringes one patent (7,930,575) related to power management; and Polaris alleges that the Company infringes two patents (6,728,144 and 8,117,526) relating to control or use of dynamic random-access memory, or DRAM. Each of the three complaints seeks unspecified monetary damages, interest, fees, expenses, and costs against the Company; Aquila and Collabo also seek enhanced damages. Aquila, Collabo, and Polaris each appear to be related to a patent
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assertion entity named Quarterhill Inc. (formerly WiLAN Inc.). On May 14, 2020, at the request of Polaris, the Court dismissed all claims related to one of the two patents in suite in the Polaris case. On June 10, 2020, the Court granted AMD’s motions to stay the Polaris and Aquila cases pending the completion of inter partes review of each of the patents-in-suit in those cases by the Patent Trial and Appeal Board. On February 22, 2021, February 26, 2021, and March 10, 2021, the Patent Trial and Appeal Board issued final written decisions in inter partes reviews invalidating all asserted claims of the remaining Polaris and Aquila patents. On May 10, 2021, Aquila filed a notice of appeal to the Court of Appeals for the Federal Circuit for the IPR decision regarding U.S. Patent No. 6,895,519. On April 30, 2021, Polaris filed a notice of appeal to the Court of Appeals for the Federal Circuit for the IPR decision regarding U.S. Patent No. 8,117,526. On May 14, 2021, AMD filed a notice of cross-appeal to the Court of Appeals for the Federal Circuit for the IPR decision regarding U.S. Patent No. 8,117,526. Appellate briefing is underway.
Monterey Research Litigation
On November 15, 2019, Monterey Research, LLC filed a patent infringement complaint against the Company in the United States District Court for the District of Delaware (Case. No. 1:19-cv-02149). Monterey Research alleges that the Company infringes six U.S. patents: 6,534,805 (related to SRAM cell design); 6,629,226 (related to read interface protocols); 6,651,134 (related to memory devices); 6,765,407 (related to programmable digital circuits); 6,961,807 (related to integrated circuits and associated memory systems); and 8,373,455 (related to output buffer circuits). Monterey Research seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs, and injunctive relief against the Company. On January 22, 2020, the Company filed a motion to dismiss part of Monterey Research’s complaint. On February 5, 2020, Monterey Research filed an amended complaint. On February 19, 2020, the Company filed a renewed motion to dismiss part of Monterey Research’s complaint. On October 13, 2020, the Court granted in part, and denied in part, the Company’s renewed motion to dismiss. On October 27, 2020, the Company filed its answer to Monterey’s complaint and also filed counterclaims based on Monterey’s breach of the parties’ pre-suit non-disclosure agreement. On December 1, 2020, Monterey filed a motion to dismiss the Company’s counterclaims. On January 5, 2021, the Court granted the Company’s motion to stay the litigation pending inter partes review of the patents-in-suit by the Patent Trial and Appeals Board.
On August 12, 2021, Monterey filed two patent infringement complaints in the United States District Court for the Western District of Texas (Case. No. 6:21-cv-00839 and Case. No. 6:21-cv-00840). In the first complaint, Monterey alleges that the Company infringes two patents (8,694,776 and 9,767,303) related to memory controllers, three patents (8,572,297, 7,609,799, and 7,899,145) related to circuit designs, and one patent (6,979,640) related to semiconductor processing. In the second complaint, Monterey alleges that the Company infringes one patent (6,680,516) related to semiconductor processing. In both complaints, Monterey Research seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs, and injunctive relief against the Company. On October 22, 2021, Monterey Research filed an amended complaint in Case. No. 6:21-cv-00840 withdrawing its infringement claims for the ’776 and ’303 patents, and asserting an additional infringement claim for a patent related to circuit design (8,103,497).
City of Pontiac Police and Fire Retirement System Litigation
On September 29, 2020, the City of Pontiac Police and Fire Retirement System, an AMD shareholder, filed a shareholder derivative complaint (the “Complaint”) against AMD and the members of its Board of Directors (collectively, “Defendants”) in the United States District Court for the Northern District of California. See City of Pontiac Police and Fire Retirement System v. Caldwell, et al., No. 5:20-cv-6794 (N.D. Cal.). The Complaint alleges that Defendants breached their fiduciary duties, violated Section 14(a) of the Exchange Act of 1934, and were unjustly enriched by misrepresenting the Company’s commitment to diversity, particularly with respect to the composition of the membership of AMD’s Board of Directors and senior leadership team. On December 18, 2020, Defendants filed a motion to dismiss the Complaint. On February 12, 2021, Plaintiff filed an opposition to Defendants’ motion to dismiss, and on March 12, 2021, Defendants filed a reply brief in support of the motion to dismiss. On July 1, 2021, the Court granted Defendants’ motion to dismiss, without prejudice. On August 2, 2021, the parties filed a joint stipulation to dismiss the case with prejudice, and the court approved the joint stipulation on August 3, 2021.
Future Link Systems Litigation
On December 21, 2020, Future Link Systems, LLC filed a patent infringement complaint against the Company in the United States District Court for the Western District of Texas. Future Link Systems alleges that the Company infringes three U.S. patents: 7,983,888 (related to simulated PCI express circuitry); 6,363,466 (related to out of order data transactions); and 6,622,108 (related to interconnect testing). Future Link Systems seeks unspecified
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monetary damages, enhanced damages, interest, fees, expenses, costs, and injunctive relief against the Company. On March 22, 2021, the Company filed its answer to Future Link Systems’ complaint and also filed counterclaims based on Future Link Systems’ breach of the parties’ pre-suit non-disclosure agreement. On April 12, 2021, Future Link Systems filed its answer to the Company’s counterclaims. On October 12, 2021, the Court granted AMD’s motion to transfer the case to Austin, Texas. On October 14, 2021, the Court issued an order construing certain terms in the asserted patents.
Based upon information presently known to management, the Company believes that the potential liability of the above listed legal proceedings, if any, will not have a material adverse effect on its financial condition, cash flows or results of operations.
Other Legal Matters
The Company is a defendant or plaintiff in various actions that arose in the normal course of business. With respect to these matters, based on the management’s current knowledge, the Company believes that the amount or range of reasonably possible loss, if any, will not, either individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
NOTE 13 – Pending Acquisition
On October 26, 2020, the Company entered into an Agreement and Plan of Merger (the Merger Agreement), with Thrones Merger Sub, Inc., a wholly-owned subsidiary of the Company (Merger sub), and Xilinx, Inc. (Xilinx), whereby Merger Sub will merge with and into Xilinx (the Merger), with Xilinx surviving such Merger as a wholly-owned subsidiary of the Company. Under the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of common stock of Xilinx (Xilinx Common Stock) issued and outstanding immediately prior to the Effective Time (other than treasury shares and any shares of Xilinx Common Stock held directly by the Company or Merger Sub) will be converted into the right to receive 1.7234 fully paid and non-assessable shares of common stock of the Company and, if applicable, cash in lieu of fractional shares, subject to any applicable withholding. As of the signing of the Merger Agreement, the transaction was valued at $35 billion. The actual valuation of the transaction could differ significantly from the estimated amount due to movements in the price of the Company’s common stock, the number of shares of Xilinx common stock outstanding on the closing date of the Merger and other factors.
Under the Merger Agreement, the Company will be required to pay a termination fee to Xilinx equal to $1.5 billion if the Merger Agreement is terminated in certain circumstances, including if the Merger Agreement is terminated because the Company’s board of directors has changed its recommendation. The Company will be required to pay a termination fee equal to $1 billion if the Merger Agreement is terminated in certain circumstances related to the failure to obtain required regulatory approvals prior to October 26, 2021 (subject to automatic extension first to January 26, 2022 and then to April 26, 2022, in each case, to the extent the regulatory closing conditions remain outstanding).
On April 7, 2021, the Company’s and Xilinx’s stockholders voted to approve their respective proposals relating to the pending acquisition of Xilinx by the Company. Effective as of June 29, 2021, the United Kingdom’s Competition and Markets Authority, and effective as of June 30, 2021, the European Commission issued approvals of the Merger. The completion of the Merger remains subject to other closing conditions, including the receipt of certain approvals and clearances required under the competition laws of certain other foreign jurisdictions. The Merger is currently expected to occur by the end of calendar year 2021.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements in this report include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 speak only as of the date hereof or as of the dates indicated in the statements and 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,” “anticipates,” or the negative of these words and phrases, other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things: possible impact of future accounting rules on AMD’s condensed consolidated financial statements; demand for AMD’s products; the growth, change and competitive landscape of the markets in which AMD participates; international sales will continue to be a significant portion of total sales in the foreseeable future; that AMD’s cash, cash equivalents and short-term investment balances together with the availability under that certain revolving credit facility (the Revolving Credit Facility) made available to AMD and certain of its subsidiaries under the Credit Agreement, and our cash flows from operations will be sufficient to fund AMD’s operations including capital expenditures over the next 12 months; AMD’s ability to obtain sufficient external financing on favorable terms, or at all; AMD’s expectation that based on the information presently known to management, the potential liability related to AMD’s current litigation will not have a material adverse effect on its financial condition, cash flows or results of operations; anticipated ongoing and increased costs related to enhancing and implementing information security controls; all unbilled accounts receivables are expected to be billed and collected within 12 months; revenue allocated to remaining performance obligations that are unsatisfied which will be recognized over the next 12 months; a small number of customers will continue to account for a substantial part of AMD’s revenue in the future; and the acquisition of Xilinx, Inc. is currently expected to close by the end of calendar year 2021. For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see “Part II, Item 1A—Risk Factors” and the “Financial Condition” section set forth below, and such other risks and uncertainties as set forth 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.
AMD, the AMD Arrow logo, ATI, and the ATI logo, Athlon, EPYC, Radeon, Ryzen, Threadripper, AMD Instinct and combinations thereof, are trademarks of Advanced Micro Devices, Inc. Microsoft and Xbox One are trademarks or registered trademarks of Microsoft Corporation in the United States and 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. “Zen” is a code name for an AMD architecture and is not a product name.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report and our audited consolidated financial statements and related notes as of December 26, 2020 and December 28, 2019, and for each of the three years for the period ended December 26, 2020 as filed in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
Overview
We are a global semiconductor company. Our products include x86 microprocessors (CPUs), accelerated processing units which integrate microprocessors and graphics (APUs), discrete graphics processing units (GPUs) semi-custom System-on-Chip (SoC) products and chipsets for the PC, gaming, datacenter and embedded markets. In addition, we provide development services and sell or license portions of our intellectual property portfolio.
In this section, we will describe the general financial condition and the results of operations of Advanced Micro Devices, Inc. and its wholly-owned subsidiaries (collectively, “us,” “our” or “AMD”), including a discussion of our results of operations for the three and nine months ended September 25, 2021 compared to the prior year period, an analysis of changes in our financial condition and a discussion of our contractual obligations.
Net revenue for the three months ended September 25, 2021 was $4.3 billion, a 54% increase compared to the prior year period. The increase was due to a 44% increase in Computing and Graphics net revenue and a 69% increase in Enterprise, Embedded and Semi-Custom net revenue. The increase in Computing and Graphics segment net revenue was primarily due to higher sales of our client and graphics processors. The increase in
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Enterprise, Embedded and Semi-Custom net revenue was primarily due to higher sales volume of our server processors and semi-custom products.
Gross margin in the third quarter of 2021 improved compared to the third quarter of 2020. Gross margin for the three months ended September 25, 2021 was 48% compared to gross margin of 44% for the prior year period. The increase in gross margin was primarily driven by a richer mix of EPYC™, Ryzen™ and Radeon™ processor sales.
Our operating income for the three months ended September 25, 2021 was $948 million compared to operating income of $449 million for the prior year period. The increase in operating income was primarily driven by strong revenue growth which more than offset higher operating expenses.
Our net income for the three months ended September 25, 2021 was $923 million compared to net income of $390 million for the prior year period. The increase in net income was primarily driven by higher operating income, partially offset by a higher income tax provision.
Cash, cash equivalents and short-term investments as of September 25, 2021 were $3.6 billion, compared to $2.3 billion as of December 26, 2020. The principal amount of our outstanding debt obligations was $313 million and $338 million as of September 25, 2021 and December 26, 2020, respectively. During the three months ended September 25, 2021, we repurchased 7.2 million shares of our common stock under our share repurchase program for $750 million.
We saw strong demand across our business in the third quarter of 2021 and we are making strategic investments in our long-term supply chain capacity to support future revenue growth.
We continued to further our roadmap by introducing new products during the third quarter of 2021. In July 2021, we announced the AMD Radeon RX 6600 XT graphics card, designed to deliver high-framerate, high-fidelity and highly responsive 1080p gaming experience. In August 2021, we introduced the AMD Radeon Pro W6000X series GPUs for the Mac Pro, designed to power a wide variety of demanding professional applications and workloads, including 3D rendering, 8K video compositing, and color correction.
Although the current COVID-19 pandemic continues to impact our business operations and practices, we experienced limited financial disruption during the third quarter of 2021. We continue to focus on the health and safety of our employees during the COVID-19 pandemic. We monitor and take safety measures to protect our employees who are in the office and support those employees who work from home so that they can be productive. COVID-19 also continues to impact the global supply chain causing disruptions to service providers, logistics and the flow and availability of supplies and products.
As part of our strategy to establish AMD as the industry’s high performance computing leader, we announced in October 2020 that we entered into a definitive agreement to acquire Xilinx, Inc. in an all-stock transaction. The closing of the Merger is subject to customary conditions, including regulatory approval, and is currently expected to occur by the end of calendar year 2021.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.
Results of Operations
We report our financial performance based on the following two reportable segments: the Computing and Graphics segment and the Enterprise, Embedded and Semi-Custom segment.
Additional information on our reportable segments is contained in Note 11—Segment Reporting of the Notes to Condensed Consolidated Financial Statements (Part I, Financial Information of this Form 10-Q).
Our operating results tend to vary seasonally. Historically, our net revenue has been generally higher in the second half of the year than in the first half of the year, although market conditions and product transitions could impact this trend.
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The following table provides a summary of net revenue and operating income (loss) by segment:
Three Months EndedNine Months Ended
September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
(In millions)
Net revenue:
Computing and Graphics$2,398 $1,667 $6,748 $4,472 
Enterprise, Embedded and Semi-Custom1,915 1,134 4,860 2,047 
Total net revenue$4,313 $2,801 $11,608 $6,519 
Operating income (loss): 
Computing and Graphics$513 $384 $1,524 $846 
Enterprise, Embedded and Semi-Custom542 141 1,217 148 
All Other(107)(76)(300)(195)
Total operating income$948 $449 $2,441 $799 
Computing and Graphics

Computing and Graphics net revenue of $2.4 billion for the three months ended September 25, 2021 increased by 44%, compared to net revenue of $1.7 billion for the prior year period, primarily as a result of an 83% increase in average selling price, partially offset by a decrease in unit shipments of 23%. Computing and Graphics net revenue of $6.7 billion for the nine months ended September 25, 2021 increased by 51%, compared to net revenue of $4.5 billion for the prior year period, primarily as a result of a 56% increase in average selling price, partially offset by a decrease in unit shipments of 3%. The increase in average selling price for both periods was primarily driven by a richer mix of Ryzen, Radeon and AMD Instinct™ products. The decrease in unit shipments for both periods was primarily driven by a strategic focus on premium and higher end products in a tight supply environment.
Computing and Graphics operating income was $513 million for the three months ended September 25, 2021, compared to operating income of $384 million for the prior year period. Computing and Graphics operating income was $1.5 billion for the nine months ended September 25, 2021, compared to operating income of $846 million for the prior year period. The increase in operating income for both periods was primarily due to higher revenue which more than offset higher operating expenses. Operating expenses increased for the reasons outlined under “Expenses” below.
Enterprise, Embedded and Semi-Custom
Enterprise, Embedded and Semi-Custom net revenue of $1.9 billion for the three months ended September 25, 2021 increased by 69%, compared to net revenue of $1.1 billion for the prior year period. Enterprise, Embedded and Semi-Custom net revenue of $4.9 billion for the nine months ended September 25, 2021 increased by 137%, compared to net revenue of $2.0 billion for the prior year period. The increase for both periods was primarily driven by higher sales of our EPYC server processors and semi-custom products.
Enterprise, Embedded and Semi-Custom operating income was $542 million for the three months ended September 25, 2021 compared to operating income of $141 million for the prior year period. Enterprise, Embedded and Semi-Custom operating income was $1.2 billion for the nine months ended September 25, 2021 compared to operating income of $148 million for the prior year period. The increase in operating income for both periods was driven by higher revenue and richer product mix, partially offset by higher operating expenses. Operating expenses increased for the reasons outlined under “Expenses” below.
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All Other
All Other operating loss of $107 million for the three months ended September 25, 2021 consisted of $99 million of stock-based compensation expense and $8 million of acquisition-related costs. All Other operating loss of $76 million for the prior year period consisted of stock-based compensation expense.
All Other operating loss of $300 million for the nine months ended September 25, 2021 consisted of $267 million of stock-based compensation expense and $33 million of acquisition-related costs. All Other operating loss of $195 million for the prior year period consisted of stock-based compensation expense.
International Sales
International sales as a percentage of net revenue were 67% and 72% for the three months ended September 25, 2021 and September 26, 2020, respectively. International sales as a percentage of net revenue were 72% and 77% for the nine months ended September 25, 2021 and September 26, 2020, respectively. We expect that international sales will continue to be a significant portion of total sales in the foreseeable future. Substantially all of our sales transactions were denominated in U.S. dollars.
Comparison of Gross Margin, Expenses, Licensing Gain, Interest Expense, Other Expense and Income Taxes
The following is a summary of certain condensed consolidated statement of operations data for the periods indicated: 
 Three Months EndedNine Months Ended
 September 25,
2021
September 26,
2020
September 25,
2021
September 26,
2020
 (In millions except for percentages)
Net revenue$4,313 $2,801 $11,608 $6,519 
Cost of sales2,227 1,571 6,105 3,623 
Gross profit2,086 1,230 5,503 2,896 
Gross margin48 %44 %47 %44 %
Research and development765 508 2,034 1,410 
Marketing, general and administrative376 273 1,036 687 
Licensing gain(3)— (8)— 
Interest expense(7)(11)(26)(38)
Other income (expense), net62 (37)51 (32)
Income tax provision82 12 284 22 
Equity income in investee
Gross Margin
Gross margin was 48% and 44% for the three months ended September 25, 2021 and September 26, 2020, respectively. Gross margin was 47% and 44% for the nine months ended September 25, 2021 and September 26, 2020, respectively. The increase for both periods was primarily driven by a richer mix of EPYC, Ryzen and Radeon processor sales.
Expenses
Research and Development Expenses
Research and development expenses of $765 million for the three months ended September 25, 2021 increased by $257 million, or 51%, compared to $508 million for the prior year period. Research and development expenses of $2.0 billion for the nine months ended June 26, 2021 increased by $624 million, or 44%, compared to $1.4 billion for the prior year period. The increase for both periods was primarily driven by an increase in product development costs in both the Computing and Graphics and Enterprise, Embedded and Semi-Custom segments due to an increase in headcount and higher annual employee incentives as a result of our improved financial performance.
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Marketing, General and Administrative Expenses
Marketing, general and administrative expenses of $376 million for the three months ended September 25, 2021 increased by $103 million, or 38%, compared to $273 million for the prior year period. Marketing, general and administrative expenses of $1.0 billion for the nine months ended September 25, 2021 increased by $349 million, or 51%, compared to $687 million for the prior year period. The increase for both periods was primarily due to an increase in go-to-market activities in both the Computing and Graphics and Enterprise, Embedded and Semi-Custom segments, and an increase in headcount and higher annual employee incentives driven by our improved financial performance. In addition, in connection with our pending acquisition of Xilinx, Inc., we incurred $8 million and $33 million of acquisition-related costs for the three and nine months ended September 25, 2021, respectively.
Licensing Gain
During the three and nine months ended September 25, 2021, we recognized $3 million and $8 million, respectively, of royalty income associated with the licensed IP to the THATIC JV, our two joint ventures with Higon Information Technology Co., Ltd., a third-party Chinese entity.
Interest Expense
Interest expense for the three months ended September 25, 2021 was $7 million compared to $11 million for the prior year period. Interest expense for the nine months ended September 25, 2021 was $26 million compared to $38 million for the prior year period. The decrease for both periods was due to lower debt balances as a result of conversions by the holders of our 2.125% Convertible Senior Notes due 2026.
Other Income (Expense), Net
Other income, net for the three months ended September 25, 2021, was $62 million compared to $37 million of Other expense, net for the prior year period. The change was primarily due to a $60 million gain from an increase in the fair value of an equity investment.
Other income, net was $51 million for the nine months ended September 25, 2021, compared to $32 million of Other expense, net for the prior year period. The change was primarily due to a $60 million gain from an increase in fair value of an equity investment and lower losses from conversion of our convertible debt of $31 million, partially offset by an impairment charge of $8 million associated with an equity investment in the first quarter of 2021.
Income Tax Provision
We recorded an income tax provision of $82 million and $12 million for the three months ended September 25, 2021 and September 26, 2020, representing effective tax rates of 8.2% and 3.0%, respectively. We recorded an income tax provision of $284 million and $22 million for the nine months ended September 25, 2021 and September 26, 2020, representing effective tax rates of 11.5% and 3.0%, respectively.
The increase in income tax expense and effective tax rate in the current year period was due to significantly higher income in the United States, partially offset by the foreign-derived intangible income benefit, research and development tax credits, and excess tax benefit for stock-based compensation. The lower income tax expense and effective tax rate for the prior year period was due to a full valuation allowance against deferred tax assets in the United States during 2020, a significant portion of which was released by us in the fourth quarter of 2020.
As of September 25, 2021, we continue to maintain a valuation allowance for certain federal, state, and foreign tax attributes. The federal valuation allowance maintained is due to limitations under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated loss rules. Certain state and foreign valuation allowance maintained is due to lack of sufficient sources of taxable income.
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FINANCIAL CONDITION
Liquidity and Capital Resources    
As of September 25, 2021, our cash, cash equivalents and short-term investments were $3.6 billion, compared to $2.3 billion as of December 26, 2020. The percentage of cash, cash equivalents and short-term investments held domestically were 92% and 94% as of September 25, 2021 and December 26, 2020, respectively.
Our operating, investing and financing activities for the nine months ended September 25, 2021 compared to the prior year period are as described below:
 Nine Months Ended
 September 25,
2021
September 26,
2020
 (In millions)
Net cash provided by (used in):
Operating activities$2,699 $517 
Investing activities(686)(658)
Financing activities(1,168)(29)
Net increase (decrease) in cash, cash equivalents, and restricted cash$845 $(170)
Our principal debt obligations were $313 million and $338 million as of September 25, 2021 and December 26, 2020, respectively.
We believe our cash, cash equivalents and short-term investments along with our Revolving Credit Facility and cash flows from operations will be sufficient to fund current and long-term operations, including capital expenditures, over the next 12 months and beyond. We believe we will be able to access the capital markets should we require additional funds. However, we cannot assure that such funds will be available on favorable terms, or at all.
Operating Activities
Our working capital cash inflows and outflows from operations are primarily cash collections from our customers, payments for inventory purchases and payments for employee-related expenditures.
Net cash provided by operating activities was $2.7 billion in the nine months ended September 25, 2021, primarily due to our net income of $2.2 billion, adjusted for non-cash and non-operating charges of $769 million and net cash outflows of $258 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $504 million increase in inventories driven by an increase in product build in support of customer demand and a $284 million increase in prepaid expenses and other assets driven primarily by prepayments of long-term supply agreements, partially offset by a $526 million increase in accounts payable due to an increase in inventory purchases.
Net cash provided by operating activities was $517 million in the nine months ended September 26, 2020, primarily due to our net income of $709 million, adjusted for non-cash and non-operating charges of $538 million and net cash outflows of $730 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $287 million increase in accounts receivable driven primarily by higher revenue in the third quarter of 2020 compared to the fourth quarter of 2019, partially offset by higher collections due to better revenue linearity in the third quarter of 2020 compared to the fourth quarter of 2019, a $310 million increase in inventories driven by an increase in product build, and a $172 million increase in prepaid expenses and other assets primarily due to an increase in vendor credits.
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Investing Activities
Net cash used in investing activities was $686 million for the nine months ended September 25, 2021 which primarily consisted of $1.9 billion for purchases of short-term investments and $215 million for purchases of property and equipment, partially offset by $1.4 billion for maturities of short-term investments.
Net cash used in investing activities was $658 million for the nine months ended September 26, 2020, which primarily consisted of $530 million for purchases of short-term investments and $220 million for purchases of property and equipment, partially offset by $92 million for maturities of short-term investments.
Financing Activities
Net cash used in financing activities was $1.2 billion for the nine months ended September 25, 2021, which primarily consisted of common stock repurchases of $1.0 billion and repurchases for tax withholding on employee equity plans of $219 million, partially offset by a cash inflow of $55 million from issuance of common stock under our employee equity plans.
Net cash used in financing activities was $29 million for the nine months ended September 26, 2020, which primarily consisted of common stock repurchased for tax withholding on employee equity plans of $73 million, partially offset by proceeds from the issuance of common stock under our employee equity plans of $45 million. We borrowed $200 million short-term debt and paid off the balance during the nine months ended September 26, 2020.
Contractual Obligations
Other than the unconditional purchase commitments disclosed in Note 12—Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements, there were no significant changes outside the ordinary course of business in our contractual obligations from those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.

Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenue, inventories, goodwill 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, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.
Management believes there have been no significant changes for the three and nine months ended September 25, 2021 to the items that we disclosed as our critical accounting estimates in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to “Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
There have not been any material changes in interest rate risk, default risk or foreign exchange risk since December 26, 2020.

ITEM 4.CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports made under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of September 25, 2021, the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
There was no change in our internal controls over financial reporting for the three months ended September 25, 2021 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

For a discussion of our legal proceedings, refer to Note 12—Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q).

ITEM 1A.RISK FACTORS
The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations and financial results.
Economic and Strategic Risks
Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively on a level playing field.
Global economic and market uncertainty may adversely impact our business and operating results.
The loss of a significant customer may have a material adverse effect on us.
The ongoing novel coronavirus (COVID-19) pandemic could materially adversely affect our business, financial condition and results of operations.
The markets in which our products are sold are highly competitive.
The demand for our products depends in part on the market conditions in the industries into which they are sold. Fluctuations in demand for our products or a market decline in any of these industries could have a material adverse effect on our results of operations.
The semiconductor industry is highly cyclical and has experienced severe downturns that have materially adversely affected, and may continue to materially adversely affect, our business in the future.
Our operating results are subject to quarterly and seasonal sales patterns.
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.
Unfavorable currency exchange rate fluctuations could adversely affect us.
Operational and Technology Risks
We rely on third parties to manufacture our products, and if they are unable to do so on a timely basis in sufficient quantities and using competitive technologies, our business could be materially adversely affected.
If essential equipment, materials, substrates or manufacturing processes are not available to manufacture our products, we could be materially adversely affected.
Failure to achieve expected manufacturing yields for our products could negatively impact our financial results.
The success of our business is dependent upon our ability to introduce products on a timely basis with features and performance levels that provide value to our customers while supporting and coinciding with significant industry transitions.
Our revenue from our semi-custom SoC products is dependent upon our semi-custom SoC products being incorporated into customers’ products and the success of those products.
Our products may be subject to security vulnerabilities that could have a material adverse effect on us.
IT outages, data loss, data breaches and cyber-attacks could compromise our intellectual property or other sensitive information, be costly to remediate or cause significant damage to our business, reputation and operations.
Uncertainties involving the ordering and shipment of our products could materially adversely affect us.
Our ability to design and introduce new products in a timely manner is dependent upon third-party intellectual property.
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We depend on third-party companies for the design, manufacture and supply of motherboards, software, memory and other computer platform components to support our business.
If we lose Microsoft Corporation’s support for our products or other software vendors do not design and develop software to run on our products, our ability to sell our products could be materially adversely affected.
Our reliance on third-party distributors and add-in-board (AIB) partners subjects us to certain risks.
Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.
If our products are not compatible with some or all industry-standard software and hardware, we could be materially adversely affected.
Costs related to defective products could have a material adverse effect on us.
If we fail to maintain the efficiency of our supply chain as we respond to changes in customer demand for our products, our business could be materially adversely affected.
We ou