Rating Action: Moody’s upgrades Advanced Micro Devices to A3; outlook stableGlobal Credit Research – 14 Feb 2022NOTE: On February 15, 2022, the press release was corrected as follows: In the first sentence of the methodology paragraph of the press release, the publication date of the principal methodology was changed to September 2021. Revised release follows.New York, February 14, 2022 — Moody’s Investors Service (“Moody’s”) upgraded the senior unsecured rating of Advanced Micro Devices, Inc.’s (“AMD”) to A3 from Baa1 following final regulatory approval of the all-equity funded acquisition of Xilinx, Inc. (“Xilinx”) currently rated A3 stable. This concludes a review initiated in October 2020 and maintained after the upgrade of the senior unsecured rating to Baa1 in August 2021. The outlook is stable.The upgrade reflects Moody’s expectation that AMD revenue and profitability will continue to grow strongly while the Xilinx acquisition diversifies AMD’s revenue and earnings sources and broadens its portfolio outside of its core personal computer, server, and gaming end markets. Xilinx’s core markets of automotive, industrial, aerospace and defense as well as test, measurement and emulation have returned to and exceeded pre-COVID revenue levels, with accelerating growth over each of the last four quarters. These markets provide a resilient foundation for Xilinx and we expect double digit revenue growth in this area over the next year to over $4 billion. The deal also gives AMD greater opportunity to provide accelerated computing solutions in the increasingly important data center market, although widespread adoption of field programmable gate arrays in the datacenter is yet to be realized.Xilinx is the leader in the $6 billion programmable logic device (PLD) market where it has over 55% market share and competes mostly with just one other company (Altera, owned by Intel). PLD’s provide end users product design flexibility and time to market advantages over other semiconductor devices and there are high barriers to entry for new competitors. Xilinx benefits from broad geographic, customer and end market diversification and has generated positive free cash flow each year for more than a decade. Long product design and lifecycles and stable pricing contribute to strong profitability (low-to-mid 30% EBITDA margins) and stable operating performance through business cycles. Moody’s expects ongoing strong performance for Xilinx, with revenue of about $3.7 billion and $1.3 billion of EBITDA for the twelve months ended January 1, 2022.Upgrades:..Issuer: Advanced Micro Devices, Inc…..Senior Unsecured Regular Bond/Debenture, Upgraded to A3 from Baa1Outlook Actions:..Issuer: Advanced Micro Devices, Inc…..Outlook, Changed To Stable From Rating Under ReviewRATINGS RATIONALEAMD’s credit profile reflects the company’s strong performance and outlook, driven by continued design wins, market share gains, and an expanded set of product offerings and customers. With recent new product launches, Moody’s expects strong revenue growth in 2021 driven by new desktop, mobile, server, and graphics chips, and the continued strong sales of semi-custom revenue related to game consoles that launched in the second half of 2020. Additionally, already low leverage will continue to decline while the company’s liquidity profile remains excellent. AMD grew revenue by 68% in 2021 to $16.4 billion, led by continued strong growth in all product areas – desktop notebook, gaming, graphics, and server chips. For 2022, Moody’s projects over 30% revenue growth (excluding any contribution from Xilinx) to about $21.5 billion With higher average selling prices and compelling chip performance, AMD’s gross margins should expand to around 51% this year with EBITDA margins improving to 28% from 25% last year.Despite staging working capital and capacity investments to support strong revenue growth, we expect about $3.8 billion of free cash flow in 2022. Very low debt levels and improved performance will drive a further decline in already low leverage. Including Xilinx, Moody’s projects adjusted gross debt to EBITDA will approximate 0.3x in 2022 and free cash flow to gross adjusted debt will exceed 200%. While the ability to consistently execute product and technology transitions and withstand competition from strong competitors such as Intel and Nvidia remain key challenges, AMD has demonstrated steady and successful execution for several years.Over the last five years, AMD’s product roadmap execution has improved considerably with the company successfully launching multiple generations of commercial and consumer desktop processors, mobile processors, a new graphics lineup, and two generations of EPYC server processors. A decision in 2018 by one of AMD’s foundry partner (GlobalFoundries Inc.) to not pursue 7 nanometer technology means AMD will continue to increase its use of its other foundry partner, Taiwan Semiconductor Manufacturing Co Ltd (TSMC) for leading edge chip making. GlobalFoundries Inc. had historically manufactured most AMD’s CPUs.The use of TSMC for leading edge microprocessor production provides additional manufacturing roadmap certainty for AMD and its customers, which is a credit positive. AMD is currently in the market with leading edge 7-nanometer server processors and datacenter chips and gaining share with expanding profitability. With this product and manufacturing positioning, combined with Intel’s current manufacturing challenges, AMD is well positioned to increase its share of the profitable and growing server CPU market from its current level of about 19%, with the potential to exceed 25% over the next couple of years. Despite AMD’s solid operating prospects and Intel’s current challenges, Moody’s expects the company will continue to face stiff competition from strong and higher rated companies such as Intel as well as NIVIDIA Corporation.AMD maintains an excellent liquidity profile. As of December 2021, AMD had cash and short-term investments of $3.6 billion, well in excess of gross adjusted debt of $555 million. AMD has no debt maturities until $312 million comes due in August 2022. Given the improving cash flow generating outlook, access to a $500 million unsecured revolving credit facility that matures June 2024 and our expectations that management will maintain at least $1.5 billion of cash and short-term investments, Moody’s views the company’s liquidity profile as excellent.AMD has guaranteed the existing Xilinx debt (rated A3) and therefore there is no change to the Xilinx credit rating.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe rating could be upgraded if AMD is able to sustain solid business execution, grow revenue, increase market share, and improve profitability and free cash flow while maintaining conservative financial practices, including cash and liquid investments over $1.5 billion. The rating could be downgraded if AMD’s market position substantially weakens, profitability declines on a sustained basis or financial policies become more aggressive. Revenue declines due to uncompetitive products, declines in EBITDA margins to below 20%; cash flow after capital spending sustained below $1 billion, or a drop in cash and liquid investments to below $1 billion could pressure the ratings.The principal methodology used in this rating was Semiconductors published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287886. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Advanced Micro Devices, Inc. (AMD) is a fabless semiconductor company that specializes in microprocessors, graphics processing units and semi-custom and embedded processors. AMD reported revenue of $16.4 billion in fiscal 2021.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Richard J. Lane Senior Vice President Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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