Analyst Conference Summary

semiconductors
technology

conference date: May 1, 2017 @ 2:00 PM Pacific Time
for quarter ending: April 1, 2017 (first quarter, Q1)

Forward-looking statements

Overview: 18% y/y revenue growth, probably not enough to keep the stock price up, and of course negative earnings. Guidance not bad, but not as wonderful as enthusiasts for Ryzen might like. Hit midpoint of prior guidance for Q1.

Basic data (GAAP):

Revenue was $984 million, down 11% sequentially from $1.11 billion, but up 18% from $832 million in the year-earlier quarter.

Net income was negative $73 million, down sequentially from negative $51 million, and improved from negative $109 million year-earlier.

EPS (earnings per share) were negative $0.08, up sequentially from negative $0.06, and up from negative $0.14 year-earlier.

Guidance:

For Q2 2017, AMD expects revenue to increase approximately 17% sequentially, plus or minus 3%. The midpoint of guidance would result in Q2 2017 revenue increasing approximately 12% y/y. 33% non-GAAP gross margin. Inventory reduction.

Low double-digit % revenue increase now predicted for full year 2017.

[note: last year AMD had a very strong bump in Q2, up 23% sequentially, but off a lower base]

Conference Highlights:

CEO Lisa Su said, "We are positioned for solid revenue growth and margin expansion opportunities across the business in the year ahead as we bring innovation, performance, and choice to an expanding set of markets."

Non-GAAP results: net income negative $38 million, down sequentially from $8 million but up from negative $96 million year-earlier. EPS of negative $0.04, down sequentially from negative $0.01 and up from negative $0.12 year-earlier. Gross margin 34% . Stock based compensation was $23 million. $28 million Adjusted EBITDA.

GAAP gross margin was 34%, up sequentially from 32%.

Computing and Graphics segment revenue of $593 million was down 1% sequentially from $600 million and up 29% y/y, driven by higher GPU sales and ASPs. Operating loss was $15 million. Initial Ryzen revenue (just 1 month of, and mostly channel sales) helped offset the usual seasonal decrease in CPU sales. Ryzen also has better margins than APUs. Professional graphics sales also increased y/y.

Enterprise, Embedded and Semi-Custom segment revenue of $391 million was down 23% sequentially from $506 million and up 5% y/y. Operating income was $9 million and included an IP licensing gain. Higher server investments led to lower operating income y/y. The sequential decline is the seasonal decline in gaming console chip sales.

The Other segment showed an operating loss of $23 million.

In the quarter AMD released Ryzen 7, and in April Ryzen 5 desktop processors. The Naples server chip is planned for launch in Q2 2017, as are GPUs based on the Vega architecture. Recently Radeon RX 500 GPUs were introduced. Major OEMs will introduce Ryzen PCs in Q2.

Microsoft (MSFT) will introduce its Scorpio high-end gaming console using AMD chips for this holiday season.

In 2H will launch Ryzen for notebook computers.

Cash and equivalents (including marketable securities) ended at $943 million, down sequentially from $1.26 billion. Long-term debt was reduced to $1.41 billion sequentially from $1.44 billion. Cash Flow from operations was negative $299 million. Free cash flow was negative $322 million. Cash balance was down mainly from slow collections and a purposeful inventory build. Accounts receivable rose to $494 million, and inventory to $839 million.

GAAP cost of sales was $653 million, leaving gross profit of $331 million. Research and development expense was $266 million. Marketing, general and administrative expense $121 million. Licensing gain $27 million. Leaving an operating profit of negative $29 million. Interest expense $32 million. Other expense was $5 million. Tax benefit $5 million.

May 16 will be financial analyst day.

Q&A:

Ryzen desktop launch so far? We are very pleased with the launch, which was as expected. Feedback has been strong. The value proposition is strong. We saw some early motherboard shortages, but just for a couple of weeks. For Q2 we will have channel sales plus launches by major OEMs.

Margin guidance? We made progress y/y, given the mix, on the strength of Ryzen. Game consoles have the lowest margins and have lowest volumes in Q1, which is why we expect Q2 margins down sequentially, but up y/y.

Ryzen channel inventory? Adding 5 to 7, plus the semicustom ramp.

Inventory up sequentially, vs. guidance to flat? The semicustom product ramp was the main reason, and we also had a chance to buy wafers in advance of Q2 need.

Share count going forward? 939 on a basic basis. But if we become profitable will be inflated by the convertible bonds.

Capacity and yields for Ryzen? As expected for both 14 and 16 nm products.

Yield for high-ASP gaming processors? We are pleased, it is the mix that affects overall margins. We feel good about our cost structure.

Vega, will it be at Polaris price points? It is at price points above Polaris. It will be for gaming, professional graphics, and datacenter acceleration. Mainstream price points will be on Polaris.

Are you capitalizing your masks, or in op ex? Mask costs have gone up with the latest technology and are being capitalized and amortized; but were in COGS before. Margins should improve in 2H as new products launch. 7 nm masks are substantially more expensive than the 14 nm masks.

Naples timeline? We are pleased with performance and customer response. We will start with low volumes and ramp gradually. The server market has a long design-win to production cycle, but a couple of customers should announce in the next couple of quarters.

Naples is highly differentiated for certain workloads for cloud and HPC. We will reveal more in the next couple of months.

We only started selling Ryzen on March 2, and most went to distributors, and we only recognize revenue on a sell-out model. It will be a long time to transition to mostly selling Ryzen. We are please with the pricing we are commanding.

Excess GPU inventory in China concerns? We have not seen anything abnormal on the GPU side, just the usual seasonality, it looks like our inventory is normal to lean.

What is happening with the older CPU/APU products? We did not have a competing product in Ryzen 7 or 5. Legacy products will continue this year, which is in the model. Some go to specific geographies or older motherboards.

We have a long-term roadmap to continue to roll out new products to strengthen our position over time.

There was no supply constraint in the Ryzen introduction. OEMs typically launch in Q2 for back to school, that is what is happening.

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