Analyst Conference Summary
conference date: October 16, 2008 @ 2:00 PM Pacific Time
Overview: Better than expected results led by resurgence in graphic chip revenues.
Special note: because of the effects of discontinued operations, one-time income based on sale of technology license revenue, and new plan to spin off manufacturing operations, investors should look carefully at all the data before reaching conclusions on the value of the company.
Basic data (GAAP):
Revenue from continuing operations of $1.776 billion, up 32% sequentially and 14% from year earlier, but this includes $0.191 billion in process technology license revenue.
Net income from continuing operations was $41 million, compared to a Q2 net loss of $269 million and a loss of $344 million year-earlier.
EPS (earnings per share) from continuing operations was $0.07, compared to loss of $0.44 in Q2 and loss of $0.62 year-earlier.
There is uncertainty due to economic situation, but expects Q4 revenue to be flat compared to Q3 revenues from continuing operations excluding technology license, or $1.6 billion. $280 million depreciation and amortization expense. $30 million amortization of acquired intangibles.
Reached goal of operational profitability and increased gross margin to 51%. Quad core microprocessor adoption was strong, with a 46% sequential increase in unit shipments. Turion notebook chips demand ramped. Continue to take actions to lower break-even point with target of $1.5 billion.
Including discontinued operations, GAAP net loss was $67 million of $0.11 per share. Loss from discontinued operations was $108 million.
There were no marketable securities impairment charges in the quarter. There was a $30 million amortization charge and a $9 million restructuring charge. Excluding those non-GAAP net income from continuing operations was $80 million.
But if you take the $191 million licensing revenue out, all those numbers go down. Non-GAAP gross margin, on that basis, was $714 million, or 45%. Improvement was due to operating efficiency and higher revenue.
Plans spin off of manufacturing operations to The Foundry Company, with an infusion of capital from Abu Dhabi. The new company will expand with a plant in New York State and will contract to manufacture semiconductor chips for companies besides AMD. (asset smart strategy)
Computing solutions segment revenue was $1,391 million, but that included the $191 million, so backing it out was $1.2 billion, up sequentially from $1.1 billion. Server revenue was up 9% sequentially. Quad core opteron processor sales ramped. Notebook processor units and revenues were up sequentially. Desktop units and revenues up with flat ASPs, with growing demand for business systems.
Graphics revenues were $385 million, up 55% sequentially from $248 million. Segment was profitable, with $47 million operating income.
Cash and equivalents ended at $1.34 billion, down from $1.57 billion in Q2.
Mubadala Development Corporation will increase its AMD stake to 19.3% of shares.
Many new products were introduced or ramped up in the quarter, notably Radeon HD 4000 series graphics cards.
Favorable impact of 45 nm technology just beginning to take effect.
Foundry Company will unleash the value of the Dresden fabs and technology. We have taken the leadership crown in graphics. Shanghai opterons launching in a few weeks will give us the best server platform in the business.
License agreement terms? Technology revenue is associated with sale of 200 mm tools last quarter, process technology was sold to same vendor. It is a unique event. It is not associated with IBM technology payments.
How much share did you gain in graphics? We clearly gained share, but it is too early to put a number on it. We expect continued share momentum in Q4, particularly with introduction of new notebook models.
Q4 guidance? Q4 is typically a strong quarter. We don't plan to lose share. Our guidance is cautious based on the macroeconomic environment.
Does flat guidance mean graphics growth, losses elsewhere? We are just being cautious. We expect to gain share in both GPU and CPU space, but it is hard to predict the number.
Climate in October? Consumer was soft in September in U.S. and Europe, even a little bit in China. The rest of the world was typical. Enterprise business has been weak all year, Q3 was about the same as Q2.
Did profitability go down in computing segment? No, if you back out the single gain in Q3 you should also back out the gain in Q2. Mix is always a challenge. In total we are feeling good about the progress we have made in all segments.
GPUs (graphics processors)? Our new products were significantly better than the competitors, so we were able to maintain our price points during the quarter, which is not typical. Margins resulted from good pricing and improved volume.
We are ramping 45nm Shanghai Opterons as we speak, this should give us better margins.
What is the P&L exit strategy for foundry business? At our option, when a capital call is made for the foundry business, we can either pay our fair share or turn over our shares. We will make that call based on factors at the time.
Shanghai systems shipping? We are shipping chips, you will see systems from OEMs this quarter. Desktop 45 nm will ship chips this quarter with systems shipping next quarter.
How much operating expense can you cut next quarter? G&A expenses should be cut with Foundry transaction. We should start 2009 with a $1.5 billion break even point.
Inventory levels? We had a little bit more inventory than we would like because of September softness. We are set to ramp up or down as necessary due to economic turbulence.
Enterprise market penetration? So far has been mainly through our server business. Client side has seen design wins in 2008, now we are working on helping our OEMs sell through their channels. In servers we did well in the 4 socket arena. Our customers are eager to get Shanghai systems into the market in Q4.
IBM participation in Foundry Company? Brings a strong foundry to the IBM ecosystem. I expect for relationship to grow stronger over time.
Demand patterns in quarter? Q4 market conditions so far are not very different from Q3, but does not have its usual strength. Inventories are not out of line.
Why did cash fall when you got the $191 million? Actually, the $191 cash came in earlier quarters, we just could not count it as revenue until this quarter.
Speed of 45 nm ramp? We will be fully converted by next summer. Margins should improve since ASPs won't go down (compared to 60nm) but costs will go down.
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Copyright 2007 William P. Meyers