Advanced Micro Devices, Inc.
conference date: April 12, 2006
for quarter ending: March 26, 2006 (1st quarter)
Overview: Solid first quarter beats normal seasonal weakness as AMD continues to gain market share against Intel due to its superior technologies. Conservative guidance for 2nd quarter mars perfection.
OpenIcon Additional Analysis: With technologically superior 64-bit chips and busses between multiple chips, the only thing preventing AMD from becoming the dominant player in this market is the inertia of corporate buyers and supply chains. The opening of a new factory (Fab 36) in Germany with mature yields already demonstrated allows them to meet growing demand. Their road plan will continue to keep them well ahead of Intel through 2007.
AMDs balance sheet is now much healthier than a year ago. With $2.6 billion in cash & equivalents, lower inventories, higher accounts receivable, and long-term debt decreasing from $1.3 to $0.6 billion, AMD is ready to increase market share.
Basic data: Revenues of 1.33 billion, net of $185 million or .38 per share. This is up (on comparable basis) from year-earlier $780 million revenues and a net loss. It is slightly down from the 4th quarter 2005. Average selling price and margins were well up from year-earlier and quarter-earlier.
Guidance: 2nd quarter 2005 revenues will be flat to slightly down from 1st quarter, but this would be a 65% increase from year-earlier. 2nd Q. operating expenses expected to increase 8%. 2006 capital expenditure will be $1.7 billion because of increased demand.
Conference Highlights: ASP (average sales price) increase shows AMD has become the premium brand; continues to lead in processing/watt. Yields from new Dresden factory are outstanding.
Record sales of Opteron server chips. Consumer sales seasonally down. Data center and blade server demand continues to increase. Design team has trippled in size since 2003, attracting world-class talent.
Q&A: Is R&D expected to be maintained at around 19%? Will build design team, but long term sales will increase and dilute percentage going forward.
Intel price cut effects in Q2? AMD hopes to maintain 55 to 60% margins; cannot predict Intel moves. What about improved availability of Intel chip sets? Does not seem to be affecting AMD demand. Intel is making "drastic price cuts on products people don't want to buy." [several analysts asked various questions about possibility of Intel trying to buy back market share with price cuts. AMD consistently answered that now that they have superior products they are not as subject to pricing pressure]
Promised 2nd half Intel improved products? Does expect competitive situation to tighten, but customers have seen both roadmaps and continue to switch to AMD, which has increased sales ability as well as technical lead.
Depreciation expense prediction for 2006? Current expectation is depreciation will increase quarter by quarter.
Growth? Fastest was for servers, then mobile, then desktop; but all grew. Opteron growth driven partly by purposefully cutting prices, resulting in lower ASP. March was stronger than January and February, but that is normal.
Hopes to reach 30% of market in 3 to 5 years. Optimistic based partly on systematic penetration of vertical enterprise markets with Opteron.
Inventory decline ramping up new factory? Just good managment - "lean process."
Expects 90% demand for Opteron by end of year to be dual-core; but will continue to produce single-core chips because will be some specialized long-term demand.
Mobile dual-core will launch this quarter.
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