Advanced Micro Devices, Inc.
conference date: October 18, 2006
for quarter ending: September 30, 2006 (3nd quarter)
Overview: Continued sequential growth and greatly improved earnings as price war with Intel eases.
Revenues of $1.33 billion were up 9% sequentially and up 32% from Q3 2005.
Net income was up $134 million, resulting in EPS of 27 cents (includes 2 cents for employee-based stock compensation). This was up 50% both sequentially and annually.
Gross margins dropped to 51.4%, down 5.4% from prior quarter.
Cash and equivalents at end of quarter were 2.36 billion, down .18 billion sequentially.
Year over year comparisons do not include memory products due to Spansion spin off.
No specific guidance but expects this Q4 to be seasonally strong with a sequential sales increase. (Excludes ATI acquisition.) Cap Ex of $700 million. Tax rate down.
Reiterated prior announcements such as: AMD ATI combination expected to be completed in October; Dell launched AMD-based desktop computers; many other customers brought out new AMD-based systems; new Opteron family was released.
Microprocessor shipments grew 18% sequentially and 34% annually. Turion demand especially strong (record mobile shipments with improved ASP (prices)). Record Opteron sales. But desktop shipment revenue was flat, with larger quantities offset by lower prices. Transition from DDR to DDR2 based memory products was successful.
65nm shipments will begin this quarter. Near full 65nm converstion by summer 2007. Factory ramps proceeding as planned. 45nm will be available by mid 2008. Both will improve cost structure, which will help the desktop segment in particular.
Global anti-trust examination of competitor (Intel) has cheered customers.
Next core will be launched in 2007 with both dual and quad core.
Optimistic both short and long term.
$425 million in capital expenditures as Fab 36 continues build-out.
$60 million inventory build, yet turnover declined by ten days, preparing for 4th Q sales.
AMD Live surpassed the competition in US retail sales. Vista, which is 64 bit, will really help sales.
Server business revenue growth? Mobile products grew over 50% sequentially. Grew sequentially in server space (less than 10%, would not specify).
Gross margin fall? Mostly desktop pricing issue.
Gross margin going forward? 3Q had transitional expenses and loss of efficiency because of surprising demand in mobile chips. Move to 300mm wafers and 65nm tech should lower costs and increase margins. Chip prices are difficult to forecast. Admitted to likely 2% gross margin gain in Q4 if everything goes as planned.
Server competitor claims to have gained share? Facing more competition right now in 2-processor catagory.
Desktop strategy? Will serve demand and expects will grow in commercial (v. consumer) segment of market. Product portfolios of customers are broadening. Mobile enterprise (Turion) has proven to be a strong competitor.
Capacity (both Intel and AMD are building)? AMDs capacity plans are based on steadily gaining market share with shift to OEMs and enterprise space. Makes plans based on 3 year outlooks provided by AMD customers.
Inventory build exactly of type you wanted? Most was for Q4 sales. There was a mix problem in Q3, but did not affect inventory. Seasonal pattern is to drain inventories in Q4, but due to growing demand, inventory may even grow this Q4.
Plans to grow units abut 35% in 2007 based on customer demand.
Long term gross margin target is 55 to 60% range.
Customers did not anticipate high mobile demand as consumers shifted from desktops to notebooks.
Q4 seasonality? Typically about 10%.
Adding design centers, hiring engineers.
Manufacturing details? Fab 36 is at 10K per month of 300 mm. Fab 30 is still 200mm. Does not want to give details on Charter. In Q2 2007 will start taking 200mm of Fab 30 down, then will rebuild as 300mm and renamed as Fab 38. 200 mm tools are mostly fully depreciated already. New York state is still in plan. Overall effect is to increase output steadily throughout 2007.
How bid is OEM business? More than 50% of current business; approaching a stable mix.
Capital Expenditure? Cap Ex will be $2.5 billion in 2007.
Price wars? Will compete in segments. AMD has always faced price competition; competitor not used to price competition in certain segments.
Staged inventory for OEMs? Won't have to increase inventory in Q4 for that, but OEMs do like AMD to be ready with product.
Gamer market? AMD had sequential growth in Q3, despite hype from competitor. AMD will release a game-specific product release in a few weeks.
Server competition? Competitor still shipping obsolete products and its road map is unclear.
Ramping of debt and depreciation? Believes should work to plan and regrets competitor dumped obsolete products on markets in Q2, driving down prices and earnings. More concerned with long-term than short-term investors.
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