Analyst Conference Summary

Advanced Micro Devices, Inc.

conference date: January 21, 2013 @ 2:30 PM Pacific Time
for quarter ending: December 28, 2013 (fourth quarter, Q4)

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Forward-looking statements

Overview: Revenue topped guidance range. Non-GAAP net income and EPS lower than GAAP; see below for details.

Basic data (GAAP):

Revenue was $1.59 billion, up 9% sequentially from $1.46 billion, and up 38% from $1.16 billion in the year-earlier quarter.

Net income was $89 million, up 85% sequentially from $48 million, and way up from a loss of $473 million year-earlier.

EPS (earnings per share) were $0.12, up 100% sequentially from $0.06 and reversing negative $0.63 year-earlier.


Revenue is expected to decrease 16%, plus or minus 3%, sequentially. Computing solutions down in line with normal seasonality; graphics solutions down off gaming console launch. 35% non-GAAP Gross Margin. Inventory flat. Cash and equivalents down to $1 billion.

Full year 2014 revenue expected to increase over 2013 revenue. $3 million taxes per quarter. Net income profitable for year. $150 million capital expense. Cash flow positive. Cash ending within $600 million to $1 billion target range.

Conference Highlights:

"Strong execution of our strategic transformation plan drove significant revenue growth and improved profitability in the fourth quarter," stated Rory Read, President and CEO. For 2014 the goal is to deliver revenue growth and profitability for the full year. Semi-custom and embedded business exceeded goal of 20% of revenue, and on track to exceed 50% of revenue by the end of 2015.

Operating income was $135 million GAAP, $91 million non-GAAP.

Non-GAAP results: net income $45 million, up 45% sequentially from $31 million and up from negative $102 million year-earlier. EPS of $0.06, up 50% sequentially from $0.04 and up from negative $0.14 year-earlier. Adjusted EBITDA was $165 million. The main differences with GAAP accounting were: elimination of the $48 million legal settlement; $50 million in depreciation and amortization; $24 million stock-based compensation; and $4 million amortization of acquired intangibles.

Gross margin was 35%, down 1% sequentially, mainly because of a lesser benefit from sale of previously reserved inventory, which was $7 million in Q4 but $19 million in Q3.

Computing Solutions segment revenue of $722 million decreased 9% sequentially from $790 million and 13% y/y due to decreased chipset and notebook unit shipments. Average Selling Price (ASP) increased both sequentially and y/y. But desktop revenues increased sequentially. Believes Kaveri will take market share in 2014. Reduced downstream notebook inventory while getting design wins for Kaveri notebooks.

Dense server business remains on track, with 64-bit ARM and x86 solutions due for introduction in 2014.

Graphics and Visual Solutions segment revenue of $865 million increased 29% sequentially from $671and 165% y/y driven by custom SoCs (for console games). GPU ASP increased both sequentially and y/y. More than seven million units of Microsoft and Sony next-generation gaming consoles were sold in less than 2 months. Semi-custom ramp was "flawless." Demand for R series chips increased GPU revenue sequentially; believes can gain share in 2014.

Kaveri desktop APUs are shipping, supporting HSA (Heterogeneous System Architecture), TrueAudio and the Mantle API. Lower power Kaveri APUs for notebooks and tablets will ship later in the year.

A new generation of discrete GPUs, Radeon R9, R7, and R5, were launched in the quarter. Professional FirePro graphics wins included inclusion in the new Mac Pro.

Cash and equivalents (including marketable securities) ended at $1.2 billion, flat sequentially from $1.2 billion. $364 million liability payable to GlobalFoundries. $2 billion long-term debt. Cash flow from operating activities was $21 million. Free cash flow was zero.

Cost of sales was $1,036 million, leaving gross profit of $553 million. Research and development expense was $293 million. Marketing, general and administrative expense $169 million. Amortization $4 million. Legal settlement gain 48 million. Total operating expense $418 million. Leaving an operating profit of $135 million. Interest and other expense was $46 million. Taxes $1 million.

"We are seeing some signs that part of the PC market may be stabilizing. We are planning for continued decreases, but are ready to take advantage of any upside."

Working on 2014 wafer supply agreement with GlobalFoundries. Completed payments owed from 2012.

Annual Results: Full 2013 revenue was $5.3 billion, down 2% y/y. Gross margin was 37%. Operating income was $103 million. Net income was negative $83 million and EPS was negative $0.11.


March quarter microprocessor ASPs? We have been working hard to improve the mix. We have a strong set of products, including Kaveri.

ARM strategy for servers? We believe the opportunity is definitely there, but we see it as a long-term ramp. We also want to use ARM in the embedded and semi-custom spaces.

Mullins and Beema versus Intel's Baytrails? We improved compute performance, and are overall well ahead of Baytrails.

Staggered console launch in Japan, effect on Q2? It is a five to seven year market. The first year is geographically scattered. Q4 was very strong. We expect Q1 to be strong as well, then a stronger H2, depending on the release of the most popular game titles.

We believe the PC market will continue to be down in 2014, but we believe we can pick up share in segments where we have been traditionally weak, like commercial notebook clients. Consumer notebook has been hard-hit by the tablet, but desktop and commercial notebooks have been more resilient. A8 and A10 moved up the stock. We focus on making each stand alone business profitable.

Drop in cash balance target, isn't that a negative? There were lower wafer purchases in Q4, but they are paid for in Q1. We paid the $200 million cash due to Globalfoundries in already in Q1. We closed a secured line of credit for $500 million, so our cash is more than adequate. We expect to be free cash flow positive for the year, which is our goal.

Seasonality? We see seasonality in-line in compute business in Q1. We lowered inventory in Q4.

PC subsegments, which are doing best? Windows XP expiration is driving some commercial sales; we have SKU's to address that. Component channel has done well. Entry level consumer notebooks, where we were strong, has been hard-hit by tablets.


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