Analyst Conference Summary

conference date: January 24, 2012 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2011 (fourth quarter, Q4)

Forward-looking statements

Overview: Missed prior guidance, but better than expected given Thailand flooding. Major differences between GAAP and non-GAAP results.

Basic data (GAAP):

Revenue was $1.69 billion, flat sequentially from $1.69 billion and up 2% from $1.65 billion in the year-earlier quarter.

Net income was negative $177 million, down sequentially from $97 million and down from $106 million year-earlier.

EPS (earnings per share) were negative $0.24, down sequentially from $0.13 and down from positive $0.14 year-earlier.

Guidance:

For Q1 2012 revenues down 5% to 11% sequentially. Operating expenses $590 million. Gross margin 45%.

Conference Highlights:

Non-GAAP numbers stated as: Operating income $172 million, up sequentially from $146 million and up from $141 million year-earlier. Net income $138 million, up sequentially from $110 million and from $106 million year-earlier. EPS $0.19, up sequentially from $0.15 million and up from $0.14 million year-earlier. $260 million EBITDA.

GAAP numbers include an impairment of investment of $209 million, $98 million for restructuring, and other smaller charges. Hence the unusually large difference between GAAP and Non-GAAP numbers.

2011 was used to position the company for the future, but "we have more work to do."

Annual notebook chip revenue was a record, including over 30 million APUs.

Server business now has two consecutive quarters of strong growth.

Gross margin was 46%, up 1% from Q3.

Cash and equivalents balance ended at $1.91 billion, up $57 million sequentially. $187 million cash flow from operations. Free cash flow was $100 million. Debt ended at $2.0 billion after $50 million of repurchases.

Computing Solutions segment revenue was $1.31 billion, up 2% sequentially and 7% y/y. Operating income for the segment was $165 million. ASPs (prices) were up sequentially but flat y/y. Bulldozer Opteron 6200 series was launched and drove growth and market share gains. A-series notebook and desktop APUs introduced. Gained notebook share for the year. Customer adoption of APU was particularly strong in China. More APU design wins are coming in for 2012, including for Trinity APUs.

Graphics segment revenue was $382 million, down 5% sequentially and 10% y/y due to declining mobile GPU shipments and weak desktop add-in board demand. Game Console GPU revenue was seasonally up. Operating income $27 million, down from $68 million year-earlier. But ASPs up both sequentially and y/y. HD 7000 series launched in December, is first 28nm GPU in industry.

Restructuring savings will be reinvested "to fund initiatives designed to accelerate AMD's strategies for lower power, emerging markets, and cloud."

AMD now owns 8.8% of GlobalFoundries, which was the source of the impairment charge.

32nm yield and performance have improved markedly in Q3 and Q4.

Revenue was hurt in Q4 by lower than expected GPU demand and 45nm desktop processor manufacturing issue. Expect 45nm production to rebound in Q1.

The path forward for AMD is clear so the focus is on execution. Analyst Day on February 2 will go more into technology strategy for 2012.

Q&A:

Q1 guidance, hard drive Thailand flooding issue? APU customer acceptance is strong. At end of Q4 saw pressure in terms of hard disk shortages, but more with graphic chip shipments. We think the PC supply chain will recover quickly. Working hard for third quarter of server growth, working with OEM partners. Overall that leaves Q1 revenue decline around normal seasonality.

Q1 will see the usual headwinds for falling off of game console chip sales. Tailwinds would be from improved 32nm yields and supplies.

32nm yields able to meet current demand? Llano deliveries up 80% in the quarter and now makes up 60% of mobile cpu revenue. There is still more customer interest so we need to continue to make progress in production even in Q1.

New Intel server platform, impact of? We believe HP and Dell 6200 based launches will keep our momentum up. Of course our share position is modest, so we have a long build ahead of us.

$200 million GlobalFoundries impairment? This is due to the current accounting rules, so we calculated our investment is now worth $270 million. It has nothing to do with our yields.

Ultra thin notebooks? Movement to thin and light is nothing new. Trinity APU is ahead on design wins, it can support 17mm thick notebooks with great graphics and power consumption at a mainstream price.

In servers we hope to continue to introduce disruptive designs that can handle specialized workloads. Our customers are telling us we are designing to what they really need.

ARM architecture and Windows 8 vs. Brazos? Windows 8 will be an important launch. APUs will participate. ARM just got 32 bit, but Windows (and AMD) is already at 64 bits. We need to deliver strong battery life and quick startup to compete going forward.

Desktop chip constraints? Desktop is still important for us. We are getting more Llano yield, which can also be for desktop. We should have more desktop supply in Q1.

The consensus is that 2012 demand will be better than 2011, with the second half being stronger within the year.

We believe an inflection point in 2012 could hurt Intel worse than AMD because we can hit price points that they can't because of their capital investments. We are fabless now, but our fab partners are investing heavily.

We do not expect to be supply constrained in the first quarter.

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