ADVANCED MICRO DEVICES INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements as of December 30, 2023 and December 31, 2022 and for each of the three years in the period ended December 30, 2023 and related notes, which are included in this Annual Report on Form 10-K as well as with the other sections of this Annual Report on Form 10-K, “Part II, Item 8: Financial Statements and Supplementary Data.” Introduction 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 2023 compared to 2022, an analysis of changes in our financial condition and a discussion of our off-balance sheet arrangements. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Overview During 2023 we successfully launched multiple leadership products across our business and made important progress on our artificial intelligence (AI) strategy. In Data Center, we launched several 4th Gen AMD EPYC™ processors, including our AMD EPYC 97x4 processors, formerly codenamed “Bergamo,” built with our “Zen 4c” architecture core and designed to deliver leadership cloud-native computing, and our AMD EPYC 8004 Series processors, formerly codenamed “Siena”, that bring the “Zen 4c” core into a purpose-built CPU. In addition, we announced the extension of our 3rd Gen AMD EPYC processor family with six new offerings to meet the needs of general IT and mainstream computing for businesses seeking to leverage the economics of established platforms. For our AI Data Center solutions, we announced the availability of the AMD Instinct™ MI300X accelerators that are designed to deliver leadership performance for generative AI workloads and high performance computing (HPC) applications. In addition, we unveiled the AMD Instinct MI300A APU, which integrate the CPU and GPU cores on a single package delivering an efficient platform while also providing the compute performance to accelerate training on the latest AI models. We enhanced the performance and features of our AMD RoCm™ software by releasing our latest AMD ROCm 6 open software platform for AI and HPC workloads. We expanded our Embedded processor portfolio with powerful, scalable offerings for a variety of embedded applications such as the AMD Ryzen™ Embedded 7000 Series processor family. We launched the AMD Versal™ Premium VP1902 adaptive SoC designed to help chipmakers streamline the verification of application-specific integrated circuits (SICs) and SoC designs, and we introduced the Spartan™ Ultrascale+™ FPGA ideal for cost-sensitive applications requiring low power and high I/O. We launched the AMD Alveo™ MA35D media accelerator to power live interactive streaming services at scale, as well as the AMD Alveo UL3524 accelerator card. We expanded our Zynq™ UltraScale™ RFSoC digital front-end portfolio with two additional devices to enable the expansion and deployment of 4G/5G radios where lower cost, power and spectrum-efficient radios are required to address increased wireless connectivity. For our adaptive System-on-Modules (SOMs), we announced the addition of AMD Kria™ K24 SOM and KD240 Drives Starter Kit which offer power-efficient compute in a small factor and target cost-sensitive industrial and commercial edge applications. We continued to expand our Client product portfolio by launching our Ryzen 7000 Series Mobile processors bringing the power of “Zen 4” and AMD RDNA 3 integrated graphics architecture to notebook users. We expanded our commercial portfolio with AMD Ryzen PRO 7000 Series Mobile processors to bring advanced and power efficient x86 processors to business notebooks and mobile workstations. We announced our Ryzen 7045HX3D gaming mobile processor with AMD 3D V-cache technology with leadership mobile gaming performance. We also introduced AMD Ryzen X3D desktop processors, the Ryzen 9 7900X3D and Ryzen 9 7950X3D processors with 3D V-Cache technology. For handheld PC gaming consoles, we introduced the AMD Ryzen Z1 and Z1 Extreme processors featuring RDNA 3 architecture based graphics, to bring portability and battery life to handled PC gaming consoles. 44 Table of Contents In Gaming, we introduced the AMD Radeon RX 7900M graphics for laptops, delivering desktop-class performance for gaming and content creation. We also introduced the new AMD Radeon™ PRO W7000 Series graphics, our first professional graphic cards built on advanced AMD chiplet design to deliver leadership performance and unique features: the AMD Radeon PRO W7600 and AMD Radeon PRO W7500. We designed these workstation graphics cards for mainstream professional workflows. We also unveiled the AMD Radeon RX 7800 XT and Radeon RX 7700 XT graphics cards optimized to deliver high-performance and high-refresh 1440p gaming experiences along with AMD FidelityFX™ Super Resolution 3 designed to offer performance boosts in supported games. We expanded our AI engagements with a broad set of data center customers during the year. In our Data Center GPU business, demand for our Data Center GPUs products was very strong as we had large hyperscaler customers committed to deploy our next generation AMD Instinct MI300 accelerators. Our AI strategy is focused on three areas: first, to deliver a broad portfolio and multigenerational roadmap of leadership CPUs, GPUs and adaptive computing solutions for AI inference and training; second, to extend the open software platform we have established to enable our AI hardware to be deployed broadly and with ease; and third, expand the deep and collaborative engagements we have established across the ecosystems to accelerate deployments of AMD-based AI solutions at scale. To help execute our AI strategy and accelerate our AI business, we brought together multiple AI teams across AMD to execute our end-to-end AI hardware strategy and drive development of a comprehensive software ecosystem that will span our full product portfolio. We strengthened our AI software capabilities with strategic acquisitions during the year. In August 2023, we acquired Mipsology SAS, an AI software company to help develop the full AMD AI software stack and expand the open ecosystem of software tools, libraries and models. We further expanded our open AI software capabilities with the acquisition of Nod, Inc., an open AI software company, in October 2023. Nod, Inc.’s software technology helps accelerate the deployment of AI solutions optimized for AMD Instinct data center accelerators, Ryzen AI processors, EPYC processors, Versal SoCs and Radeon GPUs. Against the backdrop of a mixed demand environment, net revenue for 2023 was $22.7 billion, a decrease of 4% compared to 2022 net revenue of $23.6 billion. The decrease in net revenue was primarily due to a 25% decrease in Client segment revenue primarily due to lower processor sales and a 9% decrease in Gaming segment revenue primarily due to lower semi-custom product sales. This decrease was partially offset by a 17% increase in Embedded segment revenue primarily due to the inclusion of embedded product revenue from Xilinx, Inc. (Xilinx) for the full twelve months period in 2023, as compared to a partial period from February 14, 2022 (the Xilinx Acquisition Date) in the prior year period, and a 7% increase in Data Center segment revenue primarily driven by higher sales of AMD Instinct GPUs and 4th Gen AMD EPYC CPUs. Gross margin, as a percentage of net revenue for 2023, was 46%, compared to 45% in 2022. The increase in gross margin was primarily due to higher Embedded segment revenue and lower amortization of acquisition-related intangible assets, partially offset by lower Client segment revenue and product mix. Operating income for 2023 was $401 million compared to operating income of $1.3 billion for 2022. The decrease in operating income was primarily due to lower Client segment performance and increased R&D investments, partially offset by lower amortization of acquisition-related intangible assets. Net income for 2023 was $854 million compared to $1.3 billion in the prior year. The decrease in net income was primarily driven by lower operating income. Cash, cash equivalents and short-term investments as of December 30, 2023 were $5.8 billion, compared to $5.9 billion at the end of 2022. Our aggregate principal amount of total debt as of December 30, 2023 and December 31, 2022 was $2.5 billion. During the twelve months ended December 30, 2023, we returned a total of $985 million to shareholders through the repurchase of 9.7 million shares of common stock under our stock repurchase program. As of December 30, 2023, $5.6 billion remained available for future stock repurchases under this program. The repurchase program does not obligate us to acquire any common stock, has no termination date and may be suspended or discontinued at any time. 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. 45 Table of Contents Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenue, inventories, goodwill, long-lived and intangible assets, 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 the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult, subjective and complex judgments. Revenue Allowances. Revenue contracts with our customers include variable amounts which we evaluate under ASC 606-10-32-8 through 14 in order to determine the net amount of consideration to which we are entitled and which we recognize as revenue. We determine the net amount of consideration to which we are entitled by estimating the most likely amount of consideration we expect to receive from the customer after adjustments to the contract price for rights of return and rebates to our original equipment manufacturers (OEM) customers and rights of return, rebates and price protection on unsold merchandise to our distributor customers. We base our determination of necessary adjustments to the contract price by reference to actual historical activity and experience, including actual historical returns, rebates and credits issued to OEM and distributor customers adjusted, as applicable, to include adjustments, if any, for known events or current economic conditions, or both. Our estimates of necessary adjustments for distributor price incentives and price protection on unsold products held by distributors are based on actual historical incentives provided to distributor customers and known future price movements based on our internal and external market data analysis. Our estimates of necessary adjustments for OEM price incentives utilize, in addition to known pricing agreements, actual historical rebate attainment rates and estimates of future OEM rebate program attainment based on internal and external market data analysis. We offer incentive programs through cooperative advertising and marketing promotions. Where funds provided for such programs can be estimated, we recognize a reduction to revenue at the time the related revenue is recognized; otherwise, we recognize such reduction to revenue at the later of when: i) the related revenue transaction occurs; or ii) the program is offered. For transactions where we reimburse a customer for a portion of the customer’s cost to perform specific product advertising or marketing and promotional activities, such amounts are recognized as a reduction to revenue unless they qualify for expense recognition. We also provide limited product return rights to certain OEMs and to most distribution customers. These return rights are generally limited to a contractual percentage of the customer’s prior quarter shipments, although, from time to time we may approve additional product returns beyond the contractual arrangements based on the applicable facts and circumstances. In order to estimate adjustments to revenue to account for these returns, including product restocking rights provided to distributor and OEM customers, we utilize relevant, trended actual historical product return rate information gathered, adjusted for actual known information or events, as applicable. Overall, our estimates of adjustments to contract price due to variable consideration under our contracts with OEM and distributor customers, based on our assumptions and include adjustments, if any, for known events, have been materially consistent with actual results; however, these estimates are subject to management’s judgment and actual provisions could be different from our estimates and current provisions, resulting in future adjustments to our revenue and operating results. 46 Table of Contents Inventory Valuation. We value inventory at standard cost, adjusted to approximate the lower of actual cost or estimated net realizable value using assumptions about future demand and market conditions. Material assumptions we use to estimate necessary inventory carrying value adjustments can be unique to each product and are based on specific facts and circumstances. In determining excess or obsolescence reserves for products, we consider assumptions such as changes in business and economic conditions, other-than-temporary decreases in demand for our products, and changes in technology or customer requirements. In determining the lower of cost or net realizable value reserves, we consider assumptions such as recent historical sales activity and selling prices, as well as estimates of future selling prices. If in any period we anticipate a change in assumptions such as future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in cost of sales, resulting in a negative impact to our gross margin in that period. If in any period we are able to sell inventories that had been written down to a level below the ultimate realized selling price in a previous period, related revenue would be recorded with a lower or no offsetting charge to cost of sales resulting in a net benefit to our gross margin in that period. Overall, our estimates of inventory carrying value adjustments have been materially consistent with actual results. Goodwill. Goodwill is the excess of the aggregate of the consideration transferred over the identifiable assets acquired and liabilities assumed in connection with business combinations. Our reporting units are at the operating segment level. Our goodwill is contained within four reporting units: Data Center, Client, Gaming and Embedded. We perform our goodwill impairment analysis as of the first day of the fourth quarter of each year and, if certain events or circumstances indicate that an impairment loss may have been incurred, on a more frequent basis. The analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment, which occurs when the carrying value of a reporting unit exceeds its fair value. Significant judgment is required in estimating the fair value of our reporting units to determine if the fair values of those units exceed their carrying values and an impairment to goodwill is required when a quantitative goodwill impairment test is performed. We typically obtain the assistance of third-party valuation specialists to help in determining the fair value of our reporting units. Changes in operating plans or adverse changes in the business or in the macroeconomic environment in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of our reporting units’ goodwill. Based on our annual qualitative impairment test, we concluded it is not more likely than not that the fair value of each reporting unit exceeded its carrying amount. Long-Lived and Intangible Assets. Long-lived and intangible assets to be held and used are reviewed for impairment if indicators of potential impairment exist and at least annually for indefinite-lived intangible assets. Impairment indicators are reviewed on a quarterly basis. Assets are grouped and evaluated for impairment at the lowest level of identifiable cash flows. When indicators of impairment exist and assets are held for use, we estimate future undiscounted cash flows attributable to the related asset groups. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the asset group or based on appraisals. Income Taxes . In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes. We regularly assess the likelihood that we will be able to recover our deferred tax assets. Unless recovery is considered more-likely-than-not (a probability level of more than 50%), we will record a charge to income tax expense in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable or maintain the valuation allowance recorded in prior periods. When considering all available evidence, if we determine it is more-likely-than-not we will realize our deferred tax assets, we will reverse some or all of the existing valuation allowance, which would result in a credit to income tax expense and the establishment of an asset in the period of reversal. In determining the need to establish or maintain a valuation allowance, we consider the four sources of jurisdictional taxable income: (i) carryback of net operating losses to prior years; (ii) future reversals of existing taxable temporary differences; (iii) viable and prudent tax planning strategies; and (iv) future taxable income exclusive of reversing temporary differences and carryforwards. 47 Table of Contents Through the end of 2023, we continue to maintain a valuation allowance of approximately $2.1 billion 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 allowances are maintained due to a lack of sufficient sources of future taxable income. In addition, the calculation of our tax liabilities involves addressing uncertainties in the application of complex, multi-jurisdictional tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing authorities. Results of Operations Additional information on our reportable segments is contained in Note 4 – Segment Reporting of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K). 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 these trends. The following table provides a summary of net revenue and operating income (loss) by segment for 2023 and 2022: Year Ended December 30, 2023 December 31, 2022 (In millions) Net revenue: Data Center $ 6,496 $ 6,043 Client 4,651 6,201 Gaming 6,212 6,805 Embedded 5,321 4,552 Total net revenue $ 22,680 $ 23,601 Operating income (loss): Data Center $ 1,267 $ 1,848 Client (46) 1,190 Gaming 971 953 Embedded 2,628 2,252 All Other (4,419) (4,979) Total operating income $ 401 $ 1,264 Data Center Data Center net revenue of $6.5 billion in 2023 increased by 7%, compared to net revenue of $6.0 billion in 2022. The increase was primarily driven by higher sales of AMD Instinct GPUs and 4th Gen AMD EPYC CPUs. Data Center operating income was $1.3 billion in 2023, compared to operating income of $1.8 billion in 2022. The decrease in operating income was primarily due to product mix and higher research and development (R&D) investment. Client Client net revenue of $4.7 billion in 2023 decreased by 25%, compared to net revenue of $6.2 billion in 2022, primarily due to lower sales of Ryzen mobile and desktop processors, resulting from a 16% decrease in average selling price and a 12% decrease in unit shipments. Lower Ryzen processor sales were due to weak PC market conditions and inventory correction across the PC supply chain that impacted the first half of 2023. Client operating loss was $46 million in 2023, compared to operating income of $1.2 billion in 2022. The decrease in operating income was primarily due to lower revenue. 48 Table of Contents Gaming Gaming net revenue of $6.2 billion in 2023 decreased by 9%, compared to net revenue of $6.8 billion in 2022. The decrease in net revenue was primarily due to lower semi-custom product revenue. Gaming operating income was $971 million in 2023, compared to operating income of $953 million in 2022. The increase in operating income was primarily driven by product mix, partially offset by higher R&D investment. Embedded Embedded net revenue of $5.3 billion in 2023 increased by 17%, compared to net revenue of $4.6 billion in 2022. The increase in net revenue was primarily driven by the inclusion of embedded product revenue from Xilinx, Inc. (Xilinx) for the full twelve months period in 2023, as compared to a partial period from February 14, 2022 (the Xilinx Acquisition Date) in the prior year period. Embedded operating income was $2.6 billion in 2023, compared to operating income of $2.3 billion in 2022. The increase in operating income was primarily driven by the inclusion of Xilinx for the full twelve months period as compared to a partial period from the Xilinx Acquisition Date in the prior year period. All Other All Other operating loss of $4.4 billion in 2023 primarily consisted of $2.8 billion of amortization of acquisition-related intangibles, $1.4 billion of stock-based compensation expense, and $258 million of acquisition-related and other costs. All Other operating loss of $5.0 billion in 2022 primarily consisted of $3.5 billion of amortization of acquisition-related intangibles, $1.1 billion of stock-based compensation expense and $452 million of acquisition-related and other costs. Comparison of Gross Margin, Expenses, Licensing Gain, Interest Expense, Other Income (expense) and Income Taxes The following is a summary of certain consolidated statement of operations data for 2023 and 2022: December 30, 2023 December 31, 2022 (In millions, except for percentages) Net revenue $ 22,680 $ 23,601 Cost of sales 11,278 11,550 Amortization of acquisition-related intangibles 942 1,448 Gross profit 10,460 10,603 Gross margin 46 % 45 % Research and development 5,872 5,005 Marketing, general and administrative 2,352 2,336 Amortization of acquisition-related intangibles 1,869 2,100 Licensing gain (34) (102) Interest expense (106) (88) Other income (expense), net 197 8 Income tax (benefit) (346) (122) Gross Margin Gross margin as a percentage of net revenue was 46% in 2023 compared to 45% in 2022. The increase in gross margin was primarily driven by higher Embedded segment revenue and lower amortization of acquisition-related intangible assets, partially offset by lower Client segment revenue and product mix. Expenses Research and Development Expenses Research and development expenses of $5.9 billion in 2023 increased by $867 million, or 17%, compared to $5.0 billion in 2022. The increase was primarily due to higher employee-related costs due to an increase in headcount to support increased investment in AI. 49 Table of Contents Marketing, General and Administrative Expenses Marketing, general and administrative expenses of $2.4 billion in 2023 increased by $16 million, or 1%, compared to $2.3 billion in 2022. The increase was primarily due to an increase in employee-related costs. Amortization of Acquisition-Related Intangibles Amortization of acquisition-related intangibles of $2.8 billion for 2023 decreased by $737 million, or 21%, compared to $3.5 billion in 2022. The decrease was primarily due to certain acquisition-related intangibles being fully amortized in the first half of the current fiscal year. Licensing Gain We recognized $34 million of licensing gain from royalty income and $102 million of licensing gain from milestone achievement and 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, in 2023 and 2022, respectively. Interest Expense Interest expense of $106 million in 2023 increased by $18 million compared to $88 million in 2022, primarily due to interest expense from our 3.924% Senior Notes Due 2032 (3.924% Notes) and our 4.393% Senior Notes Due 2052 (4.393% Notes) that were issued in June 2022. Other Income (expense), net Other income (expense), net is primarily comprised of interest income from short-term investments, changes in valuation of equity investments and foreign currency transaction gains and losses. Other income (expense), net was $197 million in 2023 compared to $8 million of Other income, net in 2022. The change was primarily due to an increase in interest income driven by rising interest rates. Income Tax Benefit We recorded an income tax benefit of $346 million and $122 million in 2023 and 2022, respectively, representing effective tax rates of (68%) and (10%), respectively. The increase in income tax benefit in 2023 was primarily due to the lower pre-tax income coupled with a $185 million foreign-derived intangible income tax benefit and $169 million of research and development tax credits. Global Minimum Tax The OECD is continuing discussions surrounding fundamental changes in allocation of profits among tax jurisdictions in which companies do business, as well as the implementation of a global minimum tax (namely the “Pillar One” and “Pillar Two” proposals). The Council of the European Union has adopted the global corporate 15% minimum tax as provided for in Pillar Two and has directed EU member states to implement legislation enacting Pillar Two. Many countries, including non-EU member states, have implemented laws based on Pillar Two proposals, with effective dates starting in 2024. Although many countries have already introduced Pillar Two legislation applicable to the Company effective in 2024, certain jurisdictions in which we operate have not adopted corresponding legislation to date. The impact associated with Pillar Two will be accounted for as period costs. We continue to evaluate the impact of proposed and enacted legislative changes to our effective tax rate and cash flows as new guidance becomes available. International Sales International sales as a percentage of net revenue were 65% in 2023 and 66% in 2022. 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 are denominated in U.S. dollars. 50 Table of Contents FINANCIAL CONDITION Liquidity and Capital Resources As of December 30, 2023, our cash, cash equivalents and short-term investments were $5.8 billion compared to $5.9 billion as of December 31, 2022. The percentage of cash and cash equivalents held domestically was 77% as of December 30, 2023, and 73% as of December 31, 2022. Our operating, investing and financing cash flow activities for 2023 and 2022 were as follows: December 30, 2023 December 31, 2022 (In millions) Net cash provided by (used in): Operating activities $ 1,667 $ 3,565 Investing activities (1,423) 1,999 Financing activities (1,146) (3,264) Net increase (decrease) in cash and cash equivalents $ (902) $ 2,300 We have $3.0 billion available under an unsecured revolving credit agreement (Revolving Credit Agreement) that expires on April 29, 2027. No funds were drawn from this credit facility during the year ended December 30, 2023. We also have a commercial paper program to issue unsecured commercial paper notes up to a maximum principal amount outstanding, at any time, of $3.0 billion, with a maturity of up to 397 days from the date of issue. We did not issue any commercial paper during the year ended December 30, 2023. Our aggregate principal debt obligations were $2.5 billion as of December 30, 2023. Our 2.95% Notes with a principal amount of $750 million are due in June 2024. As of December 30, 2023, we had unconditional purchase commitments of approximately $4.6 billion, of which $3.9 billion are in fiscal year 2024. On an ongoing basis, we work with our suppliers on the timing of payments and deliveries of purchase commitments, taking into account business conditions. Our contractual obligations and purchase commitments relate primarily to our obligations to purchase wafers and substrates from third parties and future payments related to certain software and technology licenses and IP licenses. See Note 16 – Commitments and Guarantees. We believe our cash, cash equivalents, short-term investments and cash flows from operations along with our Revolving Credit Facility and commercial paper program will be sufficient to fund operations, including capital expenditures and purchase commitments, 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 consist primarily of cash collections from our customers, payments for inventory purchases and payments for employee-related expenditures. Net cash provided by operating activities was $1.7 billion in 2023, primarily due to our net income of $854 million in 2023, adjusted for non-cash adjustments of $3.9 billion and net cash outflows of $3.0 billion from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $1.3 billion increase in accounts receivable driven primarily by higher revenue in the last month of 2023 compared to the last month of 2022, and a $580 million increase in inventories driven primarily by build of advanced process nodes to support the ramp of new products. 51 Table of Contents Net cash provided by operating activities was $3.6 billion in 2022, primarily due to our net income of $1.3 billion in 2022, adjusted for non-cash adjustments of $4.1 billion and net cash outflows of $1.8 billion from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities included a $1.4 billion increase in inventories driven primarily by build of advanced process nodes to support the ramp of new products, a $1.1 billion increase in accounts receivable driven primarily by higher revenue in the fourth quarter of 2022 compared to the fourth quarter of 2021, and a $1.2 billion increase in prepaid expenses and other assets due primarily to prepayments under long-term supply agreements in 2022, offset by an $931 million increase in accounts payable primarily due to timing of payments to our suppliers, and a $546 million increase in accrued liabilities and other driven mainly by higher customer-related accruals. Investing Activities Net cash used in investing activities was $1.4 billion in 2023, which primarily consisted of cash used for purchases of short-term investments of $3.7 billion, $546 million for purchases of property and equipment, and cash used in acquisitions, net of cash acquired of $131 million, partially offset by proceeds from maturities of short-term investments of $2.7 billion and sale of short-term investments of $300 million. Net cash provided by investing activities was $2 billion in 2022, which primarily consisted of higher cash provided by maturities of short-term investments of $4.3 billion and cash acquired as part of the acquisition of Xilinx of $2.4 billion, partially offset by higher cash used for purchases of short-term investments of $2.7 billion, cash used in the acquisition of Pensando Systems Inc. (“Pensando”) of $1.5 billion and $450 million for purchases of property and equipment. Financing Activities Net cash used in financing activities was $1.1 billion in 2023, which primarily consisted of common stock repurchases of $985 million under the Repurchase Program and repurchases to cover tax withholding on employee equity plans of $427 million, partially offset by proceeds from the issuance of common stock under our employee equity plans of $268 million. Net cash used in financing activities was $3.3 billion in 2022, which primarily consisted of common stock repurchases of $3.7 billion under the Repurchase Program, higher repurchases to cover tax withholding on employee equity plans of $406 million and repayment of debt of $312 million, partially offset by proceeds from the issuance of debt of $991 million and higher proceeds from the issuance of common stock under our employee equity plans of $167 million. Off-Balance Sheet Arrangements As of December 30, 2023, we had no off-balance sheet arrangements. 52 Table of Contents