Advanced Micro Devices, Inc.
conference date: July 20, 2006
for quarter ending: July 2, 2006 (2nd quarter)
Overview: As anticipated, Intel's price cuts hurt AMD's revenues and earnings, but nowhere nearly as badly as they hurt Intel. No good news here; AMD needs to show it can stay ahead of Intel in chip technology and keep prices high enough to grow profits.
OpenIcon Additional Analysis: The forward-looking question in evaluating this stock is how much market share will it gain as new production comes online. How long will Intel give up profits to slow AMD's advance?
Revenues were $1.22 billion, down sequentially 8.7% but up 52.6% over the year-earlier quarter. GAAP earnings were $89 million or .18 per share, down 52% sequentially but up 785% from year-earlier.
Opteron (server chip) sales grew 26% sequentially and 141% over year-earlier quarter; the average price per processor rose slightly.
Gross margins dropped sequentially from 58.5% to 56.8% due to lower ASPs (average sales prices). Operating income was lower partly due to increased marketing expenses; R&D expense also rose.
The quarter was marked with design wins with Dell, Lenovo, Sun and others for Athlon, Opteron and Turion 64 X2.
$2.5 billion cash balance, down $100 million mainly due to investment in Fab 36.
Not much. The current quarter will see sequential revenue growth and seasonally strong for the 2nd half of 2006. Op ex will be flat 3rd quarter (because of 1 less week than this quarter). 2007 cap ex planned at $2.5 billion.
Believes "well on the way" to achieving goal of 30% of server processor market by end of year.
Manufacturing is going well, with expansions and upgrades on or ahead of schedule.
Desktop chip sales prices dropped and total microprocessors shipped dropped 4% sequentially.
Torrenza is under development, which will license out AMD technology to companies that want to make specialized chips or co-processors.
Sales were higher in China but offset by declines in North America.
Market is transforming: serving customer's flexible needs will lead to market dominance.
Committed to 50% of world population Internet-connected by 2015; partnering with Microsoft.
Will thrive amidst industry disruptions.
Walked away from some unprofitable business.
3rd quarter gross margins? Indicators are will improve.
Seasonality in 2nd half? Based on inputs from customers/partners. Environment will remain challenging in desktop. Units in mobile and server up with solid ASPs, harder to tell with desktop.
Desktop technology comparison with Intel over next 6 months? Strong trend of AMD platforms offered to market by partners. 4x4 platform likely to capture enthusiasts. More important is mainstream marketplace.
Client side (mobile and desktop)? Might have held or gained share in 2nd quarter, will have to see when numbers come out.
Wafer mix? Ramp of Fab 36 started end of 2005, will be completed end of 2007, pretty linear across quarters.
Revision F of Opteron coming out next month; part of reason to accelerate spending.
ASPs (chip prices) uncertain mainly because they don't know how desperate Intel is going to get.
Plans to build inventory in 3rd quarter in anticipation of 4th quarter demand.
Expect to walk away from unprofitable business? Yes, if that is the situation.
Fab 30 will be converted to new tool set in 2007. Charter (outsourcing) available to fill any gaps.
Could be 50,000 300mm wafers per month by end of 2008.
Intel and AMD both have record inventory; both saying gaining share; why should we not be worried? Situations are different; Intel is building aging inventory, AMD is building high-quality inventory. Customers have embraced idea of choice, really want and need AMD to be a major supplier.
Intel's plans to rebate to channel? Believes is a smokescreen; no fundamental change in price structure between OEMs and channel.
Price competition? AMD has always had price competition across its entire front; Intel only recently had to deal with competition against entire front. AMD thrives on competition. Achieved high gross margins at 90nm / 200mm; ramping up 60nm/300mm, which will help with gross margins even with pricing competition.
Not a lot of elasticity in market - Intel's price cuts did not expand market.
Very happy with Charter, has had very good yields and margins.
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