Analyst Conference Summary


Advanced Micro Devices, Inc.

conference date: April 17, 2014 @ 2:30 PM Pacific Time
for quarter ending: March 29, 2014 (first quarter, Q1)

I own AMD stock
Forward-looking statements

Overview: Beat guidance on revenue and had strong y/y revenue growth, GAAP net loss, non-GAAP net income.

Basic data (GAAP):

Revenue was $1.40 billion, down 12% sequentially from $1.59 billion, and up 28% from $1.09 billion in the year-earlier quarter.

Net income was negative $20 million, down sequentially from $89 million, but way up from negative $146 million year-earlier.

EPS (earnings per share) were negative $0.03, down sequentially from $0.12 but up from negative $0.19 year-earlier.


Q2 revenue expected to increase sequentially from Q1 by 0% to 6%. 35% gross margin. $435 million non-GAAP op ex. Slight increase in inventory. Cash & equivalents back to $1 billion.

Conference Highlights:

AMD is "well positioned to continue to grow profitably" said CEO Rory Read. Healthy demand for newest GPUs and gaming APUs helped beat high end of prior guidance as AMD executes and transforms its business. Believes 50% of revenue will come from high-growth markets by the end of 2015. Expects gaming console sales will ramp throughout 2014 and AMD will also add one or two other large volume semi-custom devices.

AMD hit all of its key milestones and commitments in the quarter.

AMD is fully committed to delivering profitability and revenue growth for 2014.

Results include a $4 million benefit from sale of previously written-down inventory.

Non-GAAP results: net income $12 million, down 73% sequentially from $45 million but up from negative $94 million year-earlier. EPS of $0.02, down 67% sequentially from $0.06 and up from negative $0.13 year-earlier. Adjusted EBITDA was $139 million. The main differences with GAAP accounting were: $50 million in depreciation and amortization; $23 million stock-based compensation; $14 million severance charges; and $3 million amortization of acquired intangibles.

Gross margin was 35% GAAP, flat sequentially.

Computing Solutions segment revenue of $663 million decreased 8% sequentially from $722 million and also down 12% from $751 million in the year-earlier quarter. Operating loss $3 million, improved both sequentially and y/y. Prices (ASP) were flat sequentially. ARM-based Opteron servers are expected to become generally available before the end of 2014. Current dense-server revenue (SeaMicro) continued to ramp. A8 and A10 APU units continue to ramp. But PC market remains challenging, but consumer softness may be being offset by a pickup in commercial sales. 7 to 10% decline overall expected in PC market this year, but AMD expects sequential unit growth through the rest of 2014.

Graphics and Visual Solutions segment revenue of $734 million decreased 15% sequentially from $865 million, but was up 118% from $337 million in the year-earlier quarter. Demand was strong for Radeon R7 and R9 families. Operating income was $91 million. Semi-custom chips (mostly for game consoles) were the drivers of the sequential revenue decline. GPU ASP increased sequentially and y/y. Mantle and deals with game developers are also adding to the momentum. Embedded Radeon program saw the E8860 GPU introduced in Q1 and is growing rapidly. Enthusiast graphics segment was strong. Expects to gain market share in discrete mobile GPUs.

Cash and equivalents (including marketable securities) ended at $982 million. $213 million liability payable to GlobalFoundries. $2.1 billion long-term debt. Cash flow from operating activities was negative $204 million. AMD made a $200 million payment to GlobalFoundries to complete payment on its 2012 wafer obligation debt. Cash is seen as close to the optimal level of $1.0 billion. The company issued $600 million in 6.75% notes due in 2019 and used that to pay off (some of the) notes due in 2015 and 2017.

Cost of sales was $910 million, leaving gross profit of $487 million. Research and development expense was $279 million. Marketing, general and administrative expense $156 million. Amortization $3 million. Total operating expense $438 million. Leaving an operating profit of $49 million. Interest and other expense was $67 million. Taxes $2 million.

The wafer supply agreement with GlobalFoundries was amended to reflect expectations of $1.2 billion in wafers in 2014.


PC market decline, cause for change in view? The commercial market has been stronger, perhaps from XP refresh, helped by overall economic environment. Pressure from tablets in consumer market will continue. AMD is diversifying to win in commercial segment as well as the desktop consumer segment.

ASPs, how affected by mix? We executed on improving our mix, with the Kaveri launch. In notebook we started to launch new products that will ship in volume in Q2.

Growth by segment? We continue to see momentum across growth businesses. We are also introducing products that position us to grow in the PC market.

Relation between console chip shipments and console sales? There was Q1 seasonality as expected. We have not seen inventory build up in the channel. We believe H2 will ramp from H1 with good console sell-through.

2014 proportion of semi-customer chips? We see a robust and interesting pipeline. We are on track to tackle the 1 to 2 major design wins this year. They are tailored opportunities across multiple segments, including mobile, enterprise and consumer.

Margin effects from expanding to 50% high-growth businesses? We are focused on lifting profitable revenue, but we don't have a target to announce.

Next generation products, moving to next process node (20nm)? We need to be at the leading edge of the technology road map. This year all products are at 28 nm. We are actively designing in 20nm, and then we will go to FinFet. We are confident about the competitiveness of our products, including our software stack, which plays a key role in our performance gains.

High end gaming cards missing from shelves? The graphics market was good for us in Q1, with strong demand for R9 and R7. Supply did not quite meet demand due to high demand. We expect to catch up with demand in Q2. It is not just BitCoin demand.

Intel tablet push subsidies? Low end tablets are very competitive, we are not going at that space. We are balancing profitability and market share with Mullins and Beema. We will be aggressive for entry level notebooks, with balanced profitability up the stack.

ARM dense server projected demand? Lots of customer interest in Seattle. The fabric is a long-term differentiator. AMD systems capabilities are driving customer engagement. Customers are looking for a differentiated edge.

GlobalFoundries game chips relative costs? Will see those chips this year, our margin guidance remains the same. We are already seeing some graphics chips from GF.

Intel competition in sub-$400 notebooks? It is a volatile piece of the market and pricing is aggressive. We want to manage the mix for both growth and profitability.

Application products for growth end-markets? They are large enough opportunities to justify semi-custom chips. Living room applications, some enterprise. Embedded can go into medical, industrial, signage, etc.

We took $250 million or so in shipments from GF in Q1, and the agreement is in line with our demand expectations.

Profession GPU business? Pro graphics is a growth opportunity for AMD. We are underrepresented, but we grew Q4 to Q1. The Apple MacPro win helped.

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Copyright 2014 William P. Meyers