Analyst Conference Summary
conference date: October 18, 2007 @ 2:00 PM Pacific Time
Overview: Zoomed past expectations, but still not back to profitability. Did reach positive cash flow.
Revenues were $1.63 billion, up 18% from $1.38 billion in Q2 and up 22% from $1.33 billion year-earlier.
Net loss was $226 million, better than the net loss of $457 million in Q2 but a reversal from a net income of $121 million year-earlier.
EPS (earnings per share) were negative $0.71. Again improved from Q2 but a reversal from positive earnings year-earlier.
Q4 should see normal seasonal gains. Operating expenses are expected to be up 6% driven by investments in process technology. $290 million depreciation and amortization. $300 million capital expense. Expect continued improvement in gross margins.
Encouraged by Q3 results and made progress on all key goals.
ATI acquisition costs and Spansion impairment costs had a negative $120 million impact ($0.22 per share).
A record number of processors were sold through the distribution channel. Quad-core Opterons began shipping in quarter but did not impact revenues. Graphics revenues increased 29% sequentially largely due to Radeon HD 2000 series graphics processors.
Gross margin was 41%, up from 33% in Q2, but down from 51% year-earlier. Improvement resulted from larger number of units shipped and better mix.
Computer solutions segment had $1.3 billion in revenue, up 17% sequentially. Microprocessor revenue increased 19%; unit shipments increased 16%. Mobile processor units grew 41% sequentially and 68% year over year, to an all time record, with sequential revenue growth of 43%. Loss in segment was $112 million.
Quad-core Opteron production ramp was slower than expected, but demand is high and new Opteron chips should be widely available by the middle of this quarter. Expects to sell hundreds of thousands of quad-core chips in Q4.
Graphics revenues were $252 million, up 29% sequentially. Design wins were strong.
Consumer electronics revenues were $97 million, up 14%.
During the quarter $1.5 billion convertible debt offering and cash were used to pay off the $1.7 billion loan used to acquire ATI.
AMD 690 chip sets are being widely adopted. Spider platform for gaming enthusiasts to launch in November.
Fab 36 yields and output doing well. On schedule to shut down Fab 30 this quarter to transition it to 300 mm silicon. Now doing a good job with supply chain and inventories. Keeping operating expenses in check. 65 nm transition in Fab 36 completed. 45 nm to ramp in Q2 2008 (so is catching up with Intel).
Cash flow from operations was $223 million. Adjusted EBIDA was $60 million. Cash and equivalent ended at $1.53 billion. Sold portion of Spansion and some tools for $200 million.
$839 million ending inventory, down $53 million sequentially. Inventory is new designs, not legacy chips.
Customers want more products that match their needs. Now showing benefits of ATI acquisition for serving key customers. Phenom quad-core desktop processors coming soon.
Have a bold and substantive plan for asset-lite strategy. Will not reveal details until plan is in place.
Quad core Opteron shipments? Shipped tens of thousands in Q3, but that did not have a material contribution. Overall server business in Q3 was roughly flat with Q2.
Gross margins going forward? With new products and seasonality, we expect improvement.
Path to profitability? Need to approach $2 billion per quarter. Will not cut our way to make profitability happen. We have a shot at breaking even in Q4.
2.5 GigaHertz Barcelona (quad-core) shipment? Middle of this quarter. Not changed.
ASPs (Average sale prices)? Improved in both notebook and desktop, but declined in server space. Our notebooks are mostly in consumer space.
Double booking of orders? We had a lot of sell-through in Q3, inventory is low, so we don't feel there is any overbooking at all.
My math shows you hitting profitability in Q4? It is possible.
Graphics? We feel very good because of OEM design wins that should kick in starting in Q4 but more so in Q1 2008.
45nm? We are building 45nm processors as we speak. Ramping production quantities in first half of 2008.
Inventories? Despite our maximum production effort we expect them to be drawn down in Q4.
GPU market in Q4? Actually, GPU market is typically down in Q4, but we still hope to grow this segment's revenues. Ramp of new products completed in Q2, so Q3 was a full quarter for selling them.
Pricing outlook? We did not see a qualitative change in competition from Q2 to Q3, and we expect no change in Q4.
Concerns for Q4 are spotty shortages of plastic, display shortages, and battery factory fire in Japan could limit PC production. But demand is strong, particularly in emerging regions.
Penryn impact? Customers and end-users say there is a lot of demand for Barcellona quad core processors.
Savings versus prediction of 6% cost increase in Q4? We are saving in general, but spending on 45nm change and 300 mm silicon.
What does Q4 seasonality really mean? That we will see growth roughly in proportion to market growth.
ASP increase color? Resulted from a modest mix improvement and some selectivity on our part in deals. Phenom products will be in price points that we don't participate in today, and expect to sell at those price points. Quad-core Opteron goal will be to gain market share.
Market share? Don't have all data, but appears we gained in mobile segment, stayed even in desktop and lost a bit in the server segment.
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Copyright 2007 William P. Meyers