Analyst Conference Summary

conference date: July 19, 2012 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2011 (second quarter, Q2)

Forward-looking statements

Overview: A bad quarter.

Basic data (GAAP):

Revenue was $1.41 billion, down 11% sequentially from $1.59 billion and down 10% from $1.57 billion year-earlier.

Net income was $37 million, up sequentially from negative $590 million, but down 39% from $61 million year-earlier.

EPS (earnings per share) were $0.05, up sequentially from negative $0.80, but down 37.5% from $0.08 year-earlier.

Guidance:

Expects Q3 revenue to range from a sequential decline of 4% to a gain of 2%. $560 million operating expenses. Will try to keep inventory flat.

Conference Highlights:

Attributes the disaster to global economic weakness, particularly in China and Europe. "We expect headwinds will continue in the third quarter." But moving forward "confidently" to transform the business. Cut expenses to maintain margins.

Non-GAAP numbers: Operating income $86 million, down sequentially from $138 million and down from $114 million year-earlier. Net income $46 million, down 50% sequentially from $92 million and down 34% from $70 million year-earlier. Gross margin flat sequentially at 46%. EBITDA $173 million.

"Our recently launched Trinity APU continues to gain traction with customers."

Quarter started okay, but weakened as the quarter progressed. This was both in desktop and in notebook. Llano desktop had too much inventory. OEMs both limited inventories at retailers and in their own stocks. Mobile processor revenues were up y/y. No supply constraints. New Trinity notebook uptake went well. Believes AMD products still compete at compelling price points.

Cash and equivalents ended at $1.76 billion. $50 million cash payment to GlobalFoundries. Inventory $833 million, up quite a bit from $585 million, but is mostly new product. $2.02 billion in debt.

Computing Solutions segment revenue decreased 13% sequentially to $1.05 billion on weak sale to OEMs. Operating income was $82 million. Prices per unit decreased. Was awarded $12.6 million for research by Department of Energy. Server revenue was up y/y but down sequentially, and below expectations. Bulldozer has done well in HPC market, but needs better marketing to mainstream buyers. Believes dense server technology is an emerging opportunity for growth. The Brazos 2.0 APU has also been successfully introduced. Chipset revenue declined on lower average prices.

Graphic segment revenue was down sequentially 4% to $367 million but flat y/y. Operating income $31 million. Average prices were up y/y.

Believes PC industry may be resetting to a lower baseline. AMD hopes to operate in this environment and even increase profitability. Is now in a partnership with ARM for security solutions.

Cost of sales was $775 million, leaving gross profit of $638 million. R&D expenses $345 million, market general and administrative expense $212 million, amortization of acquired intangible assets $4 million. Leaving operating income of $77 million. Interest and other expense $46 million. Income tax credit $6 million.

Believes is ready to capitalize on the Windows 8 launch.

Q&A:

Channel mismatch, motherboards? Started in 2011 when we had the Llano shortage, so we targetted supply to the OEMs. The motherboards had been held a while. The when new Llano uptake in 2012 was not as high as expected because of pricing.

Notebook market share? We lost market share in Q2. In channel we are focussing to move forward. Our APU product set is strong, but we have to work with OEMs to keep them ramping. 6th quarter of leadership in under $499 notebooks using Brazos.

Debt reduction plans, August debt? We are very comfortable using cash from our balance sheet to pay off the debt. We are monitoring the debt markets for opportunities.

Can you retake server market share? Bulldozer Opterons had good uptake in HPC (high performance compute). We need to move to other segments where we have a performance advantage. The SeaMicro acquisition also gives us an opportunity in dense servers. That closed at end of Q1, integration has gone smoothly, and customers are positive, but it is a longer-term opportunity.

Trinity vs. Llano sales going forward? We already are building Trinity, but Llano will remain important through 2013.

Miss in desktops CPU or also graphics? Graphics was within seasonal history. The issue was mainly in desktop CPUs and APUs. Promotions need to be more focussed on sell out of channel.

Sandy Bridge, Ivy Bridge what happens when that rolls into the value segment? We are on the right strategy with APUs. It is the right differentiation. We will continue to deliver differentiated product, including at lower power levels. We continue to go thinner and lighter. We also are entering embedded areas with APUs.

Gross margin maintenance despite lower ASPs? We hit guidance of 46% on good product mix and improved yields and productivity. In Q3 we should see more productivity improvements and help from a larger share of Trinity, but lower gaming royalties and pricing pressure as we clear out channel inventory.

Does the channel just want to wait for Trinity at this point, neglecting Llano? Demand shortfall was driven by Llano. We need to manage the inventory and transition. Llano is still a good product. The focus will be on Llano sellout velocity and matching that to motherboards. This is against a background of reduced overall PC demand.

Full year guidance is 44 to 48% gross margin, and we are well within that range.

Lower demand effect on GlobalFoundry contract? GlobalFoundry has really improved their execution over the past few quarters. The commitment is just a 2012 commitment, not longer term. We are in discussions with foundry partners to manage the PC demand slowdown.

28 nm APU? We are already shipping 28 nm graphics chips, will ship 28 nm APUs in 2013.

We had offers for sales at poor prices at the end of the quarter and we decided not to pursue them. We believe it is mainly a consumer market phenomena. We believe the market will expand in the 2nd half, along with Windows 8 launch, but at a more muted level than we expected earlier.

Can't see how AMD could add a third foundry partner given its current size.

ARM processors as a low-end threat? In the client space ARM will be muted for some time. x86 continues to offer performance at reasonable price points. ARM client competition is for x86 at least 3 years away.

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