Analyst Conference Summary

conference date: January 21, 2010 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2009 (4th quarter)

Forward-looking statements

Overview: Strong revenue improvement, but still not in the black if you back out the $1.25 million payment from Intel.

Basic data (GAAP):

Revenue was $1.646 billion, up 18% sequentially from $1.40 billion, and up 42% from $1.162 billion in the year-earlier quarter. Revenue excludes the $1.25 million Intel settlement.

Net income was $1.178 billion, improved sequentially from a loss of $128 million, and up from a loss of $1.436 billion year-earlier. This includes the $1.25 billion settlement.

EPS (earnings per share) were $1.52, improved sequentially from negative $0.18, and up from negative $2.36 year-earlier. This includes the $1.25 billion settlement.

Guidance:

"AMD expects revenues to be down seasonally for the first quarter of 2010." Operating expenses around $550 million.

2010 guidance: gross margin 40 to 45%. SG&A at 14 to 17% of sales. $340 to $370 million depreciation and amortization. Capital expenditures of $120 million. Positive operating income and free cash flow.

Conference Highlights:

"We enter 2010 having completed the transition to a fabless business model, reached a historic antitrust settlement, and made significant progress strengthening our balance sheet." Pleased with progress on transformation to a profitable business. Customer and end-user response to our platforms was good. Our employees are excited by our prospects of winning and growing profits. Holiday sell-through was healthy.

Non-GAAP results refer to the Product Company only; GAAP results are for the operating company. Non-GAAP net income was $80 million, which excludes cash from the Intel settlement. Non-GAAP operating income was $169 million. Gross margin was 41%.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $282 million, up sequentially from $169 million, and excludes the Intel settlement. Gross margin was 45%, up sequentially from 42%. AMD Product Company non-GAAP gross margin was 41%.

ASPs increased.

AMD received $1.25 billion in cash from Intel through an agreement that included cross-license rights to patents and a set of fair business practices provisions. Short-term debt (due by 2012) was decreased by $1.4 billion to $485 million.

More than 2 million DirectX 11 compatible, Radeon HD 5000 series GPUs were shipped in the first three months after launch. NVIDIA has not yet released DirectX 11 capable cards.

Cash and equivalents balance ended at $1.8 billion. Long term debt and liabilities ended at $4.94 billion. Inventories ended at $567 million. Depreciation and amortization was $266 million, while capital expenses were $173 million. Stock-based compensation expense was $18 million.

Computing Solutions segment revenue was $1.214 billion, up sequentially from $1.069 billion, and up 39% from $873 million year-earlier. In servers adoption of 6 core Opteron "has been impressive, accounting for approximately 60% of server revenue and half our units." Server processor unit sales were up 21% sequentially. Notebook processor unit sales set a record; chipset units set a record.

Graphics segment revenue was $427 million, up sequentially from $306 million, and up 58% from $270 million year-earlier. Record discrete mobile units and gaming revenues.

Foundry segment revenue was $309 million, up sequentially from $256 million. But note that selling this comes from sales to other segments, so to total revenue is nulled.

Fusion component program is exceeding expectations. It secured over 100 partners.

Cost of sales was $911 million, leaving gross margin of $735 million. R&D expense was $432 million; marketing, general and admin expense $239 million, amortization $18 million. The legal settlement of $1.242 billion was entered as a credit against expenses, giving an operating income of $1.29 billion. Interest net expense was $116 million. Other income was $19 million. Income tax provision was $11 million. Loss from discontinued operations was $3 million.

GlobalFoundries has been deconsolidated, starting with Q1 2010. Our investment in Global Foundries will be reported on an equity basis. There may be a one-time non-cash impact (not necessarily a charge) in Q1.

Q&A:

ASP increase for GPU, and channel inventory? ASP benefit was driven by the ramp of the 40 nm DX 11 products. We don't see anything unhealthy about inventories downstream from us.

2010 as a whole, pricing strategy? We price with a mind to maximizing gross margin dollar volume. But there are a lot of moving parts, notably in emerging markets. We believe we will have a richer spread with OEMs, as now we are concentrated in value segments of market. We are also looking to drive a higher GPU attach rate.

Notebook design wins, relation to graphics? We have design win momentum, for example with the Lenovo announcement. Our strategy is around a consumer-driven usage model. More designs have discrete graphic attach capability, also more discrete graphics going out the door.

Enterprise refresh cycle this year? The big volume opportunity is consumer. SMB segment is bigger than enterprise segment, and we are targeting SMB, but should bleed over to enterprise because they represent good value.

More on deconsolidation charge? We will show a line, investment in GlobalFoundries. We won't release that or the gain/charge until we release Q1 results.

Graphics market share gains? A lot of our q/q growth was driven by notebooks, so clearly we gained share in that segment. We ship a lot of AMD cards when we introduce a new technology (DX 11); there was a lot of card revenue in the quarter. Anecdotal evidence is that GPU attach rates are going up, particularly on notebooks. Our professional graphics revenue is still small.

Response to NVIDIA rolling out Fermi? They have not launched anything yet. We have good OEM design wins; the OEMs see both company's road maps. Our entire lineup will be refreshed "in the second half of next year."

Server units did grow somewhat faster than other segments, but did not make a major contribution to improved margins. Fabless, 45 nm transition, and ASP improvements were more important.

We feel good about Opteron recapturing share in the 2 socket space with the launch of Magny-Cours, and that is 75% of the opportunity.

PC inventories look to be in good shape. We think 2010 will be a year of unit growth.

Interest expense for 2010? Will come down. We saw little benefit in Q4 numbers from changes.

Server market recovery in 2010? We were surprised at how robust demand was in Q4. We saw particular strength in HPC and cloud buildout. Predicting the enterprise refresh cycle is more difficult. Geographically, we saw signs of strength everywhere.

Were you constrained in graphics in the quarter? We were heavily constrained in the quarter. We could have done a lot more business if we had not been constrained. We are still constrained today despite some progress.

Q1 margin will be hurt by lower seasonality; possibly helped by lower production costs.

Inventory guidance? We have been building for graphics launch, but expect flat Q4 to Q1.

There was substantial 55 nm, DX 10 GPU revenue in Q4.

Seasonality means down 5% to 10% to Q1 from Q4.

Historic ASP trend is down. We hope for flat ASPs in 2010 as we take share in higher ends of markets.

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