Analyst Conference Summary

conference date: April 19, 2012 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2011 (first quarter, Q1)

Forward-looking statements

Overview: Slightly disappointing revenue near top of prior guidance range. GAAP net income plunged on items greatly increasing cost of sales.

Basic data (GAAP):

Revenue was $1.59 billion, down 6% sequentially from $1.69 billion and down 2% from $1.61 billion in the year-earlier quarter.

Net income was negative $590 million, down sequentially from negative $177 million, and well down from positive $510 million year-earlier.

EPS (earnings per share) were negative $0.80, down sequentially from negative $0.24, and down from positive $0.71 year-earlier.

Guidance:

For Q2 2012 revenue is expected in increase sequentially from zero to 6%. Op ex $605 million.

Conference Highlights:

The big difference between GAAP and non-GAAP results was $703 million for a limited waiver of exclusivity from GlobalFoundries.

Non-GAAP results: net income was $92 million, down sequentially from $138 million but up from year-earlier $56 million. EPS was $0.12.

Other non-GAAP exclusions were: amortization of acquired intangibles, $1 million; restructuring $8 million; SeaMicro acquisition costs of $6 million, and a SeaMicro tax benefit of $36 million.

"A complete top-to-bottom introduction of new APU offerings, combined with ample product supply ... positions us to win and grow." Believes positioned to take advantage of high-growth markets. Revenue showed better than normal seasonality. Now has a steady supply of 32 nm products. Adoption of GPUs and APUs continue to accelerate. APUs are particularly strong in mainstream notebook segment. Had the best selling Best Buy sku in the quarter. Trinity should help this trend. A record number of AMD notebook designs will launch in Q2. Trinity will be broadly available for the back-to-school season and ultra-thin notebooks, at a mainstream price point.

SeaMicro acquisition sets the stage for expansion in the cloud market.

32 nm yields continue to improve.

Gross margins: GAAP 2% due to GlobalFoundries charge; non-GAAP 46%, flat sequentially.

Cash and equivalents balance $1.71 billion, down $201 million in the quarter. Spent $281 million cash for SeaMicro and $150 million for GlobalFoundries waver. Free cash flow was $67 million. Debt was flat at $2.02 billion. A $109 million inventory build largely related to production of Trinity for release in Q2.

Year-to-year comparisons may be skewed as there was one less week in 2012 than in 2011.

Computing Solutions segment revenue was $1.203 billion, down sequentially from $1.309 billion and nearly flat from year-earlier. ASPs (unit prices) decreased sequentially but were flat y/y. Improved Brazos notebook platform began shipments. Volume production of Trinity APUs is ramping for a Q2 (current quarter) introduction. In servers systems based on Opteron 3200 series were introduced. Server processor revenue decreased, but unit shipments grew, led by Bulldozer based Opterons.

Graphics segment revenue was $382 million, flat sequentially but down from $413 million year-earlier. Desktop ASPs improved, but units for both desktop and notebook decreased y/y. Full line of 7000 series Radeon 28nm GPUs became available in the quarter.

AMD transferred its remaining GlobalFoundries ownership interest in return for GF waiving the 28nm APU exclusivity agreement. It acquired SeaMicro, which makes Intel-based servers, to acquire disruptive high bandwidth microserver technology.

Cost of sales was $1.558 billion, including the GlobalFoundries charge. Leaving gross profit of $27 million. Research and development expense was $368 million. Marketing general and administrative expense was $230 million. Amortization $1 million. Restructuring $1 million. Leaving an operating loss of $580 million. Interest cost $41 million. Other expense $1 million. Income tax benefit $32 million.

Adjusted EBITDA was $215 million.

Q&A:

28 nm capacity issues? 28 nm is an important part of our business. We delivered on all customer commitments for 28 nm GPUs in Q1. We are monitoring the situation and believe we can deliver on plan, the only question would be reaching on the upside.

Server chip prices? We've had 3 consecutive quarters of momentum with Bulldozer. We saw some ASP impact from mix and particular deals. SeaMicro positions us to take advantage of dense computing opportunity. For clients our partners are very excited about APUs, so we could move up the price band stack.

OEMs in ultrathin market? With Trinity record number of design wins we can reach just about any thickness or design. Trinity has outstanding battery life and can be in ultrathin form factors in mainstream price segment. "I like how we are set up in this segment... We are excited about it."

Q2 gross margins? We have made good progress on 32 nm yield. Some product mix benefits we expected in Q2 came into Q1. In Q2 we expect further yield improvement and product mix improvement, but some headwinds from 28 nm products. On whole margins flat to slightly up.

Server market share? We want to build in this space consistently in the long term. We have made some good initial progress, but it is a step by step initiative. The key is solutions that serve the customers. SeaMicro fabric will dramatically lower power consumption and footprint.

Can you stay below $610 per quarter operating expense? Will be back end loaded for the year, so they will pick up in the second half, getting ready for 2013 launches.

Full year gross margins? Expects to continue to make progress in second half as yields improve, offset by 28 nm costs.

Gaming segment? We are seeing embedded market interest. We will introduce new products again in 2013 that should power gaming solutions.

Impact from hard drive shortages? The HDD supply chain is very resilient. After January the HDD situation has had no significant impacts except for higher pricing in some cases. So no particular further lift from improved HDD availability.

45 nm desktop chips? We are focused on recapturing desktop share. We need to continue to supply 45 nm while ramping up 32 nm chips. "I am not seeing anything from an execution standpoint that should hold us back."

Llano to Trinity transition? Brazos APU and Llano did very well in emerging markets. OEMs likes Brazos 2.0. We are not seeing any pause in sales during this transition. "OEM interest has never been stronger."

Windows 8 launch effect on second half? The general feel among big players is 2012 will be better than 2011, and we agree with that. But nothing like a hockey stick, just quarter over quarter growth.

Contribution from SeaMicro to revenue? Q2 growth rate is mainly organic growth. In Q2 in the past seasonality was negative 4%. SeaMicro revenue contribution to growth will be minor.

28 nm APUs will begin manufacturing at GlobalFoundries in Q2, will ramp in second half, for introduction in 2013.

Q2, graphics and computing both up? We are well positioned in graphics, and will make notebook-specific introductions in Q2. But discrete GPUs are under pressure from APUs. Will not say if GPU segment will be up in Q2.

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