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conference date: April 19, 2007 @ 2:30 PM PT
for quarter ending: March 31, 2007 (1st quarter)
Overview: Blood on the floor, but AMD warned us a bit in advance. Read on to see details of how bad this quarter was. Lots of good analyst questions and answers (see below).
Basic data:
Revenue was $1.23 billion, down 30.5% sequentially from $1.7 billion and down 7% from $1.33 billion year earlier. Note this is despite the acquisition of ATI.
GAAP net loss was $611 million, compared to a net profit year-earlier but slightly better than the Q4 2006 loss. Non-GAAP loss was stated at $363 million, which is a $412 million sequential drop.
EPS was negative $1.11 per share.
$1.2 billion in ending cash.
Guidance:
Q2 2007 revenue expected at flat or slightly up. Normally seasonally down. Operating expenses $750 million, so little imparct from restructuring.
Conference Highlights:
First quarter was a strategic setback and totally unacceptable. We have to understand our problems and fix them. Challenges came from growing pains including mix and delivery issues with global OEMs and component distribution. Pricing pressures from competitor protecting their monopoly. Weaking consumer demand also hurt.
Plan is to grow the top line, change our cost structure, and execute flawlessly on our road map. Re-focussed marketing on demand generation. Cutting costs. Fab 38 conversion is being slowed. Limiting to critical hires. Will have lowered headcount at end of year. Discretionary expenses to be reduced at $100 million annual wait.
Mid 2008 will see start of ramp to 45nm technology.
Our customers want us to win.
ATI-related charges were $113 million or $0.21 per share. Employee stock-comp expense was $28 million or $0.05 per share. $23 million tax expense due to ATI purchase.
Customer relationships remain solid. Re-aligning business model, capital expenses and cost structure to return to profitability. Restructuring savings won't kick in until 2nd half.
Gross margin was 31 percent non-GAAP, way down from 40% in prior quarter. Resulted from lower unit sales, lower ASPs, and inclusion of ATI products that have lower margins.
Computing solutions segment revenues were $918 million and included a full quarter of ATI chipset revenue. That is a 38% sequential decline. ASPs declined in both desktops and mobile.
Graphics segment revenue was $197 million; previous quarter was partial.
Consumer electronics revenues fell to $118 million. Sequentially video processor unit shipments increased but handheld processor and game console revenues decreased.
Has plans to dispose of some assets including older equipment.
$937 million inventory up $123 million sequentially. Includes 65 nm microprocessor products.
Product introductions were reviewed.
Quarter was an inflection point in timing. Served to accelerate efforts to complete our work.
Q&A:
Inventory clearance? Still salable products. Will modestly adjust production plans to work off inventory over the year.
Barcelona timeline? Pre-production samples in Q1. In Q2 shipping production samples. Product release in Q3.
Guidance? New product introduction in graphics should contribute to better than usual seasonality.
Restructuring? 4 years ago we had only one product. Now we have multiple products in very different segments. Went from channel distribution to mainly OEM distribution during past 4 years. In IBM with joint development program, which reduces development cost.
Pricing going forward? Prices have stabilized a bit since the beginning of year. Mobile and server businesses are growing. But expect it to continue to be a complex and very competitive environment.
Gross margins? We are still in early stage of 65 nm. Quite a bit of shipments were 65 and now have 65 inventory. Believes will make quarterly progress on gross margins because of this.
ASP for servers, Barcelona launch? Server ASP went up in Q1. Arrival of Barcelona will help. But also looking to get back market share, so not exclusively wanting higher ASPs.
Q1 was good for design wins, will see those results later in year.
Had delivery problems in Q4 and Q1, having more inventory will help serve customers better.
Back off current pricing strategy? Pricing at value in market place. But now a platform company with increased focus on graphics.
Differentiation drivers? Excited about near term performance per watt and per square mm of silicon. Longer term will see graphics integrated with CPUs.
Barcelona in clients in Q3? Desktop variants of Barcelona in 2 core and 4 core form in Q3.
Mobile CPU? New 65 nm in first half of 2008.
Dresden grants? Over $200 million this year. Also over $200 million for tool sales.
Mobile ASPs? Marginally down in Q1. Mostly the problem was not ASPs in sequential revenue drop, but lower number of mobile, desktop, and server units.
45 nm? Starting production in Dresdent in 1st half of 2008 and shipping in volume in 2nd half.
Fab 30? Will remove 200 mm capacity at planned rate. Just will not put in 300 mm tools as quickly as previously planned.
Graphics? R600 line of products will restore our position in the market. Back to school market is mostly integrated graphics, R600 is discrete.
R&D increase in Q1? Because of ATI R&D first full quarter inside AMD.
Gain microprocessor share in Q2? Yes. We gained in Q3 and Q4. We had good design adoption in Q1, which should show up in market share in Q2, especially in mobile.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers
