Analyst Conference Summary

Advanced Micro Devices, Inc.

conference date: October 27, 2011 @ 2:00 PM Pacific Time
for quarter ending: October 2, 2011 (third quarter, Q3)

I own AMD stock
Forward-looking statements

Before the Conference: AMD Preliminary Results Release, Sept. 28, 2011

Overview: Not as bad as expected. Demand for Fusion processors was greater than supply capabilities.

Basic data (GAAP):

Revenue was $1.69 billion, up 7% sequentially from $1.57 billion and up 4% from $1.62 billion in the year-earlier quarter.

Net income was $97 million, up 59% sequentially from $61 million and up over $200 million from the year-earlier $118 million loss.

EPS (earnings per share) were $0.13, up 62% sequentially from $0.08 and up $0.30 from negative $0.17 year-earlier.


Q4 revenue expected up from 1 to 5% sequentially. Operating expenses near $620 million.

Conference Highlights:

New CEO is encouraged, but much needs to be done. Since pre-announcement saw unanticipated sales strength in channels.

Mobile business segment revenue was up 35% sequentially due to strong adoption of Fusion APUs. Supply of the newest processors was restrained, limiting overall growth. Unit shipment and revenue growth to China and India was strong.

Non-GAAP numbers: Operating income $146 million. Net income $110 million. EPS $0.15, up sequentially from $0.09, but flat y/y. Adjusted EBITDA was $239 million.

45% gross margin, down 1% sequentially due to restricted supplies of higher margin chips.

Cash and equivalents balance ended at $1.86 billion. $150 million of 6% convertible notes were repurchased in the quarter, which will save $2 million per quarter in interest. Long term debt ended at $2.1 billion. Free cash flow was $131 million.

Supply challenges were at both 32 nm and older 45 nm nodes. AMD is taking action to more consistently deliver products on time. We are seeing improvements in yields but continue to take aggressive action with our foundry partners.

Computing Solutions segment (including mobile, desktop and server chips) revenue of $1.3 billion increased 6% sequentially and 5% from year-earlier. Sequential growth in mobile and server revenues was offset by declining desktop revenue due to constrained 45 nm supply. Chipset revenue saw y/y growth. Segment operating income was $149 million, up sequentially from $142 million but down y/y from $164 million. ASPs (prices per chip) increased sequentially. A, C and E series APUs saw broad adoption. FX bulldozer series launched with both desktop and server (opteron) processors, but late in the quarter. Server revenue was up 27% sequentially, largely from shipments for supercomputers. HP and Dell are releasing servers based on bulldozer opterons this quarter. The new server chips are tuned for cloud computing.

Mobile space (within Computing Solutions) saw record revenues and units shipped, and over 90% of shipments were APUs. AMD's worldwide share of $200 to $400 mobile computers is believed to have grown to over 28%. Gained share in key emerging markets. China microprocessor revenue grew 23% sequentially. Brazos (E series) shipments set another record, up 36% sequentially.

Graphics segment (radeon) revenue of $403 million was up 10% sequentially and 4% y/y, with Q3 being seasonally strong for add-in graphic cards. Discrete mobile graphics revenue drove y/y increase. Operting income was $12 million, up sequentially from negative $7 million and from $1 million year-earlier. ASPs increased.

Cost of goods sold was $934 million, leaving $756 million gross margin. Research and development expense was $361 million. Marketing, general and administrative expense $249 million. Amortization $8 million. Leaving operating income of $138 million. Interest expense net $39 million. Other expense $7 million. Income tax benefit $5 million.

Analyst day has been moved back to February 2, 2012.

9.6% ownership of GlobalFoundries remains and is excluded from AMD's results.


Gross margin recovery as yields improve, and ASPs? We had to make some 45 nm tradeoff decisions that hit us on cost of goods sold, plus the 32 nm restraint on higher margin products. Also graphic product was a higher share and has lower margins. We should recover gross margin by shipping a higher share of Llano (A series) product, and from increasing server revenue. We will still face a headwind with 45 nm supply because we continue to trade off capacity towards 32 nm. Q4 will also see 28 nm ramp up costs and a one-time 32 nm startup cost charge. All told we expect gross margin to be flat sequentially.

A key AMD driver will be execution. Customers really want our product sets, and want to invest more to grow with AMD. We have to spend more to increase our supply. We are making steady and clear progress working with GlobalFoundries and also IBM. Over a longer period of time yield improvements will result in margin improvements.

Did you lose any customers from being unable to supply them? No, but some customers felt some pain. In desktops we just need to move more wafers in that direction.

The good die contract with GlobalFoundries, why would that not divorce yields from margins? The contract we have is on 32 nm product. We don't have one on 45 nm. It is a downside protection when yields fall below a certain level.

Thailand flooding impact? Supply chains are rather efficient, so we don't see an impact in Q4, but there are a lot of factors.They want us to deliver more product, so our OEMs are not seeing a major impact for us.

Interest expense reduction? $2 million per quarter, starting with Q4.

Brazos and end of quarter strength? We saw strong APU uptake both in Brazos and Llano price bands. Customers are clearly reacting to that in the mobile segment. End of quarter strength was at retail, for Brazos, in emerging markets.

Challenges of new replacement Brazos production? Trinity will be the first follow up, on Llano, in 2012. We are balancing our risk profile for foundry partners. The buy in around Brazos from OEMs is very strong.

Our inventory is the best it has been in a long time partly because of the surprise end of quarter channel sell through.

We will ship significantly more 32 nm product in Q4 than we did in Q3. Lessons from 32 nm are helping us with 28 nm. We still are not producing enough product.

Can you quantify the yield trajectory for us? We can't disclose specific yields. Going into Q3 we were confident we could outperform the Brazos ramp. We did not achieve that, although we were on the same slope. The need for new tools that had to be qualified and steepness of the ramp gave us a lot of headaches. We not only lost product on each wafer, but did not get enough wafers out the door.

PC market overall health? Believes the PC market will continue to grow, largely due to emerging markets. A lot of the growth will be at the lower price points. Believes IDC projections are fair, but does depend on macroeconomic events.

Tablet market? Low power is a trend that is here to stay. We want to give customers what they need.

We don't have a launch date for Trinity, but it will be early in 2012.

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Copyright 2011 William P. Meyers