Analyst Conference Summary

conference date: July 21, 2011 @ 2:00 PM Pacific Time
for quarter ending: July 2, 2011 (second quarter, Q2)

Forward-looking statements

Overview: Lousy results. Guidance is for better Q3.

Basic data (GAAP):

Revenue was $1.57 billion, down 2% sequentially from $1.61 billion, and down 5% from $1.65 billion year-earlier.

Net income was $61 million, down 88% sequentially from $510 million, but up from negative $43 million year-earlier

EPS (earnings per share) were $0.08, down 88% sequentially from $0.68, but up from negative $0.06 year-earlier.

Guidance:

For Q3, revenue to increase 8 to 12% sequentially. Operating expenses about $625 million, up mainly due to timing of expense recognition.

Conference Highlights:

Poor showing was despite that "AMD brought to market the most competitive client offering in our history, reinforcing our position as a design and innovation powerhouse."

Non-GAAP Q2 2011 results: Operating income $114 million. Net income $70 million, up 25% sequentially from $56 million, but down 16% from $83 million year-earlier. EPS $0.09, up sequentially from $0.08, but down from $0.11 year-earlier. $205 million EBITDA.

Still no CEO picked. Management is executing well in the interim.

Gross margin (non-GAAP) was 46%. Expenses were less than expected.

Cash and equivalents ended at $1.86 billion. $160 million cash increase, mainly from cash from operations. $642 million inventory, slightly down sequentially. $2.2 billion long-term debt remains. $143 non-GAAP free cash flow.

Sequentially higher mobile microprocessor revenue was offset by lower desktop and server revenue in the Computing Solutions segment. ASPs (prices per unit) were down, but mobile ASPs were up. Many new products in the Fusion line were launched. The first tablets based on AMD APUs were launched. Brazos for thin light notebooks has been an unqualified hit. Llano ramp will outpace the Brazos ramp. Sell through is excellent. Lenovo ThinkPad sales indicate penetration of commercial (non-consumer) market. Trinity, for release in 2012, has already been demonstrated; it will bring performance computing to notebooks. Tablet roadmap has been accelerated. $1.2 billion CS segment revenue; $142 million operating income.

Server business will see Bulldozer ship this quarter (Q3). Customer excitement is high; all major customers will introduce Bulldozer models this year.

Graphics segment revenue dropped 11% sequentially and 17% from year-earlier, due mainly to lower unit shipments. Nintendo announced AMD would provide graphics for the Wii U gaming system. 28 nm family already has working silicon; will get to market by end of 2011. $367 million revenue, down due to fewer discrete mobile chip sales.

GAAP cost of sales was $854 million, leaving a gross margin of $720 million or 46%. Research and development expense was $367 million. Marketing, general and administrative expense was $239 million. Amortization $9 million. Leaving operating income of $105 million. Net interest expense was $45 million, other income $4 million. Income tax provision $3 million.

In 2013 an optimized tablet APU will be introduced that will "redefine what users expect from a tablet." APUs are not just a CPU plus GPU, but will allow for a revolution in System on Chip, targeted heterogeneous computing. Talked about possible ARM based processors.

Q&A:

Guidance growth, where will we see it? We have been cautious about PC growth expectations. Momentum from new product launches shows demand in market for Llano, that is what drives guidance growth for Q3.

Intel at 22nm next year? We get good support from GlobalFoundries and TSMC. Our move to 28 nm has been very successful. That will lead in the graphics segment. All of our products, including GPUs and APUs, will be based on bulk silicon technology at 28 nm.

Server launch expectations? Enterprise server business is slow to change, but "we think we will see" material improvement in Q4.

Legacy products still a majority of notebook revenues? We are making a rapid transition. In Q3 will over half will be Llano or Brazos. In Q4 legacy will fade quickly. ASPs should improve as a result.

Board is very pleased with the CEO candidates they are interviewing. We hope to have a new CEO soon, but will not set a timeline for an announcement.

Where can gross margin go in the future? All three new products are margin accretive, but for different reasons. Brazos is accretive from cost position. In Llano it is from better pricing, playing in SKUs where we have not been before. Bulldozer is because server margins are traditionally higher. We see margins beyond 50% eventually, expect them to go up in 2nd half.

We expect to gain market share based on the products we have launched, in the second half of year. We are also focused on profitability, not just market share.

Bulldozer ramp? It will be in several products. Interlagos for servers, Zambezi for high end desktop. Trinity fusion will ship in 2012. We are seeing very good acceptance from OEMs in the server and desktop segments.

We don't see tablets as cannibalization. We have a roadmap for the tablet market. Windows 8 will be the critical inflection point.

Are you expecting Brazos shipments to be down in Q3. We shipped 3 million Brazos in Q1, we do not expect a decline in Brazos. We expect Llano in Q3 to exceed Brazos in Q1.

Margin growth in Q3? 1%.

Interlagos end customers? Key change is focus on performance within power envelopes. Since it drops into MagnyCores sockets, the reception should be good.

In the past when AMD has done well, we have seen price aggression from Intel. What are you seeing now? It has always been a competitive market. The strength of our products will bring our plans to fruition. ARM is still in early stages, does not expect much impact in 2012.

Graphics business in Q3? Now that Llano is out there with discrete level graphics incorporated, which does eliminate need for separate discrete GPU. However, the competing platform does need and additional, discrete GPU, so the net is flat. The sequential decline in graphics units was mainly seasonal.

ARM vs. x86? Compatibility with existing software helps, but the main thing is hardware capability with low power requirements.

Trinity will be a 32 nm product, not 28 nm.

In Q3 expenses will include 28 nm transition and sales to introduce new server chips.

Geographic uptake? No significant patterns, in terms of changes from CPUs to APUs, except some new markets due to price points Brazos can hit.

Global channel inventories? They appear to be lean. The supply chain is managed very efficiently.

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