Analyst Conference Summary

Advanced Micro Devices, Inc.

conference date: April 18, 2013 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2013 (first quarter, Q1)

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Forward-looking statements

Overview: At top of prior guidance range, but revenue decline continues and still pretty deep in the red.

Basic data (GAAP):

Revenue was $1.09 billion, down 6% sequentially from $1.16 billion and down 31% from $1.59 billion year-earlier.

Net income was negative $146 million, up sequentially from negative $473 million, and also up from negative $590 million year-earlier.

EPS (earnings per share) were negative $0.19, up sequentially from negative $0.63, and up from negative $0.80 year-earlier.


Q2 revenue is expected to change from negative 1% to positive 5% from Q1. Gross margin 39%. Operating expense $480 million. Inventory to grow for new product introductions.

Conference Highlights:

Emphasizing disciplined execution "in a difficult market." Restructuring basically completed. Will be "delivering a powerful new set of products that will accelerate our business in 2013." Made good progress on turnaround plan.

Focus will be on high-growth markets: dense server, ultra-low power, embedded, and semi-custom solutions. In these markets AMD intellectual property (IP) gives it a competitive advantage.

Gross margin was above guidance at 41% due to a benefit from sales of inventory (Llano products to an emerging market) that had previously been written down.

Non-GAAP numbers stated as: Net income negative $94 million, up sequentially from negative $102 million but down from positive $92 million year-earlier. EPS negative $0.13, up sequentially from negative $0.14. but down from positive $0.12 year-earlier. Adjusted EBITDA was $40 million.

Reminded us that Sony PS4 gaming console would include a customized AMD APU.

Elite A-Series Richland APUs began shipping in the quarter.

Computing solutions segment revenue decreased 9% sequentially and 38% y/y, on lower units across the board. Segment operating loss was $39 million. But ASPs increased sequentially. Still plans to gain market share in this segment. Has started volume shipments of Cabini and has a substantial number of design wins. Temash production is ramping. Many design wins are touched-enabled for Windows 8. Server chip revenue increased sequentially on higher ASPs for high-density processors. "The PC is far from dead." Over 300 million PCs are expected to ship annually for years.

Graphics segment revenue of $337 million was up 3% sequentially but deceased 12% y/y. Operating income was $16 million, with ASP up both sequentially and y/y. Workstation revenue hit a record. Mobile discrete market share expected to gain later in the year. Aims to be the gaming industry leader and de facto standard for developers. Game console royalty revenue was up due to a milestone payment.

Believes on track to deliver 20% of revenue from embedded and semi-custom chips, in particular game consoles. ASPs and margins will be at the high end of AMD's range.

Believes will reach "operating profitability" and free cash flow generation by the second half of 2013.

Cash and equivalents ended at $1.2 billion, flat sequentially. $164 million was generated by the sale and leaseback of the Austin campus. Completed limited exclusivity payments to GlobalFoundries with a $175 million payment, but will make another $40 million payment in Q2. $2.04 billion in debt, flat sequentially.

Cost of sales was $643 million, leaving gross profit of $445 million. Research and development expense was $312 million. Marketing, general and administrative expense $179 million. Amortization $5 million. Restructuring $47 million. Leaving an operating profit of negative $98 million. Interest and other expense was $46 million. Taxes $2 million.

Operating expense goal is $450 per quarter by end of year.


Operating expense Q2, Q3? Restructure is largely done, but it takes time for it to take effect, for instance moving to smaller spaces. Also cost of new product introductions should be reduced by Q3.

We think the market will shift into entry and mainstream price points, where AMD has strong new products. Temash beats the competition in both compute and graphics in its category.

Accounting for game console revenues, milestone payments? Milestone payments are based on volume of sales. We hit the first Nintendo milestone in Q1, which benefited margins. This is an example of reusing our IP in semicustom for gaming. This is a very important opportunity for us to diversify the portfolio.

Gaming console margins over time? We are only giving margin guidance for Q2. We will give further guidance later.

We think the Q2 PC market will continue to be choppy, but the second half will be better. We believe our new products will help gain market share in the second half. With an improved PC market and increased semicustom sales, we should do better in the second half, with profitable growth. Cash can be maintained at the $1.1 billion level through 2013.

$100 million of inventory was written down in Q3 2012. We sold $20 million in Q1, and are looking for opportunities to sell more.

Game console life cycle is typically five to seven years. There is also cloud gaming, which will play out over the next few years. Developers will now tune to our development cycle, creating a big opportunity.

Despite choppy PC market, OEMs are being aggressive in adopting new form factors. We think we'll see thin and light AMD based computers at the $299 and $399 price points. Windows 8 will build momentum as more form factors include touch. Our new products specifically targeted new form factors and price points, and even geographic regions.

SeaMicro? Q4 was strong, Q1 was sequentially lower. We see dense server being a strong business for us going forward.

Expects some cash burn in Q2, but will be able to "pull levers" to maintain cash balance.

Sell through issues on game consoles? Historical data indicates uptake, and we have good commercial relations with our partners.

Won't AMD be 2 process nodes behind Intel in 2014? Our value proposition is not based on process nodes but on end customer experience. Our heterogeneous architecture gives us an advantage. Kaveri will allow us to do natural user interfaces at very low power, which the competition can't do.

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Copyright 2013 William P. Meyers