revenue also includes development costs for license, service arrangements and stock-based compensation related to personnel associated with manufacturing.

 

 Gross margin is the percentage of gross profit to revenue.  Our gross margin was 35.4%, 34.3% and 45.6% for fiscal years 2010, 2009 and 2008, respectively.  Our gross margin is significantly impacted by the mix of products we sell and can vary in any period depending on that product mix.



Our strategy for improving our gross margin relies upon delivering competitive product offerings that allow us to maintain our market leadership position and expand our addressable markets, lowering our product costs by introducing product architectures that take advantage of smaller process geometries and improving our product mix.  We expect gross margin to be in the range of 44% to 45% during the first quarter of fiscal year 2011.



A discussion of our gross margin results for each of our operating segments is as follows:

 

 Fiscal Year 2010 vs. Fiscal Year 2009



Our gross margin increased to 35.4% in fiscal year 2010 from 34.3% for fiscal year 2009.  The improvement in gross margin was driven primarily by improved yields of our 55nm products, transition to 40nm products, as well as other manufacturing cost reductions, and more favorable product mix, particularly with increased sales of higher margin MCP products.  Furthermore, during the first quarter of fiscal year 2010 our gross margin benefited from the sell-through of inventory that had previously been written down in the fourth quarter of fiscal year 2009.  This did not have a significant impact on our gross margin for the remaining quarters in fiscal year 2010.  Offsetting these improvements, we recorded a charge to cost of revenue, net of insurance reimbursement in the amount of $95.9 million in fiscal year 2010 compared to $189.3 million in fiscal year 2009 related to weak die/packing material set that was used in certain versions of our previous generation chips.



GPU Business. The gross margin of our GPU Business decreased during fiscal year 2010 as compared to fiscal year 2009.  This decline resulted from lower ASPs in our mainstream desktop GPU products as well as in our notebook GPU products that we believe were driven by pricing pressures in the marketplace over the comparable period. These factors were further exacerbated in the first quarter of fiscal year 2010 as a result of losses we incurred selling certain older, transitioning products.  These decreases in gross margins were offset by improving yields of our 55nm products, a transition to 40nm products, and other manufacturing cost reductions achieved during fiscal year 2010, plus a net benefit arising from the sell-through of inventory during primarily the first half of fiscal year 2010 that had previously been written down in the fourth quarter of fiscal year 2009.



PSB. The gross margin of our PSB decreased during fiscal year 2010 as compared to fiscal year 2009.  This decrease was primarily due to a decline in ASPs caused primarily by pricing pressure resulting from the relatively slow recovery of corporate spending during fiscal year 2010 following the economic