Analyst Conference Summary


Advanced Micro Devices, Inc.

conference date: October 16, 2014 @ 2:30 PM Pacific Time
for quarter ending: September 30, 2014 (third quarter, Q3)

I own AMD stock
Forward-looking statements

Overview: Continues to get good traction in custom SoCs, but losing ground in PC chips.

Basic data (GAAP):

Revenue was $1.43 billion, down nearly 1% sequentially from $1.44 billion, and down 2% from $1.46 billion in the year-earlier quarter.

Net income was $17 million, well up sequentially from negative $36 million, but down from $48 million year-earlier.

EPS (earnings per share) were $0.02, sequentially from negative $0.05, but from $0.06 year-earlier.


Q4 revenue down 10% to 16% sequentially. Free cash flow positive.

Conference Highlights:

Announced yet another restructuring plan. Enterprise, Embedded and Semi-Custom segment did well, but as expected the Computing and Graphics segment was challenged. Fifth sequential quarter of non-GAAP profitability. Note the two segments are rearranged again.

Non-GAAP results: net income $20 million, up 18% sequentially from $17 million but down 35% from $31 million year-earlier. EPS of $0.03, up sequentially from $0.02 but down from $0.04 year-earlier. Adjusted EBITDA was $133 million, sequentially from $137 million. The main exclusions from GAAP accounting were: $ million loss on debt redemption and $ million amortization of acquired intangibles.

GAAP gross margin was 35%, flat sequentially from 35%.

Computing and Graphics segment revenue of $781 million was down 6% sequentially from $828 million and down 16% from $925 million in the year-earlier quarter. Operating loss was $17 million. Decline was mainly in notebook processors and chipsets. Won a place for Radeon GPUs in a number of new iMac models announced by Apple today. Desktop APU and GPU was weak, particularly in China. But gained in professional graphics and commercial client design wins. Commercial APU revenue doubled sequentially.

Enterprise, Embedded and Semi-Custom segment revenue of $648 million up 6% sequentially from $613 million, and was up 21% from $536 million in the year-earlier quarter. Operating income was $108 million, up sequentially from $82 million, and up y/y from $92. Embedded revenue grew double-digits sequentially. Multiple new design wins. Demoed first ARM inclusive 64-bit SoC, with commercial systems expected to launch in 2015. Shipped a record number of chips for gaming consoles, but Q3 will be the peak for the year. Secured a record number of new design wins.

Announced two new semi-custom wins, each about $1 billion revenue over 3 years, but first revenue won't be until 2016. One is based on the 64-bit ARM semicustom design.

$27 million of revenue was from licensing technology.

Restructuring is to focus on profitable growth areas. Headcount will be reduced by 7%, and will reduce real estate footprint. Will result in a charge of $57 million in Q4, then another $13 million in the first half of 2015.

Cash and equivalents (including marketable securities) ended at $938 million, sequentially from $948 million. Inventory decreased $63 million to $897 million. $2.2 billion debt. Cash flow from operations $18 million. Free Cash flow was negative $11 million.

No debt now should come due before 2019, and interest is now at a reduced rate.

Cost of sales was $935 million, leaving gross profit of $494 million. Research and development expense was $278 million. Marketing, general and administrative expense $150 million. Amortization $3 million. Leaving an operating profit of $63 million. Interest and other expense was $43 million. Taxes $2 million.


Restructuring, what will be dropped? We have looked at all of our markets. We are protecting key engineering skills. We see ability to streamline on computing and graphics side.

Semicustom wins in 2016, what will happen in 2015? We will continue to focus on operational performance. The semi-custom wins are important long term. In traditional PC market we will focus on where we are more differentiated. The Apple win announced today shows how we can do in the graphics space.

Global Foundries obligation? We are on track. Our inventory is down.

Guidance to revenue decline for Q4, segment specifics? Given we just had a peak quarter in semi-custom, the sequential decline would be weighted to semi-custom. Not so much computing and graphics segment.

Computing business, how should we think of it, growth or decline? Our role is to strengthen this business, making it more profitable.

While revenue is down in the Computing and Graphics segment, the financial performance has improved in 2014.

Any cash into AMD from restructuring? Possibly, but will know better in 2015. We have to reduce headcount, then we can reduce real estate.

Any product line to be discontinued? Not discontinuing a particular product line at this time.

Intel's statement about normal seasonality, are you just losing market share? The market is segmented. Commercial market has been stronger than consumer. We are more exposed to emerging geographies, particularly China. Our segmentation is different from our competitor. Typically Q4 is a high sell-out quarter, but a low sell-down quarter.

Is Intel giving away chips for tablets affecting you? We are competing in the low end, but we are not going after business that is not profitable. We are making progress at the high end of the product stack.

Consumer graphics business, impact from competitions? We have made progress in segments of the graphics market. On the AIB channel it has been weak lately, after a strong Q1. Q4 is strong for graphics, but we are adjusting to the competitive environment. We believe the consumer graphics segment will be down overall, but with some parts up.

The restructuring this time around will be very targeted to protect long term growth. We are developing leadership IP that is used across both segments. The graphics and computing businesses are smaller than they used to be, so there is room to cut back on how we go to market, but R&D will be largely protected.

GPU inventory issues? Relative to AIBs, there has been some caution in Q3 due to new AMD and competitor's products. There is nothing unusual about price protections.

Are you see a marked decrease in game console builds in Q4? Are lead times are long, we are seeing nothing unusual, we are in line with customer demand.

We did see some used graphics cards in Q2 and Q3 from crypto-currency bump in Q1, but we don't think that is a factor at this point.

Process nodes, now that you will be 2 nodes behind? We are actively designing in FinFET, but we compete mainly on architecture. 2015 APUs will have added features and functions. FinFET will be an important node for us.

Gaming console business seasonality, and 2014 vs. 2015 units? Microsoft launched in China, this could be a solid holiday season. 1H is normally slower than 2H. We'll have to see how the holiday season goes.

Professional graphics market? We have seen some q/q growth in the channel. It is a longer sell cycle than consumer graphics. We are investing in growing that business. ISV certification are very important.

[silence - around 3:20. Could be at my end]

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Copyright 2014 William P. Meyers