Analyst Conference Summary

semiconductors
technology

conference date: October 15, 2015 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2015 (third quarter, Q3)

Forward-looking statements

Overview: Revenue exceeded guidance! But still way down y/y. Also not profitable, even non-GAAP, even at this level. But $65 million of loss was due to an inventory write-down on older APUs. Large cash infusion expected in 2016 from a new deal (see below).

Basic data (GAAP):

Revenue was $1.06 billion, up 12.5% sequentially from $942 million, and down 26% from $1.43 billion in the year-earlier quarter.

Net income was negative $197 million, down sequentially from negative $181 million, and down from positive $17 million year-earlier.

EPS (earnings per share) were negative $0.25, down sequentially from negative $0.23, and down from positive $0.02 year-earlier.

Guidance:

For Q4 revenue is expected to decrease between 7% and 13% sequentially. Non-GAAP gross margin 30%. Cash ending at about $750 million.

Conference Highlights:

Yet more corporate restructuring ahead. Also announced a deal with Nantong Fujitsu Microelectronics for a joint Assembly & Test venture. AMD will have 15% ownership. AMD will get $371 million in cash, but the net will be $320 million after taxes & etc. Should close in first half of 2016 and should have no effect on P&L.

FinFET based products have been taped out and should be sampling in 2016.

The sequential revenue increase was due to solid seasonal increases in semi-custom, desktop and GPU sales. The y/y decline was mainly from the Computing and Graphics segment.

Overall PC demand remains muted, with older Windows 8 computers still in inventory.

Non-GAAP results: net income negative $136 million, down sequentially from negative $131 million and down from $41 million year-earlier. EPS of negative $0.17, flat sequentially from negative $0.17 and down from positive $0.05 year-earlier. Gross margin 23% down from 28% sequentially. Adjusted EBITDA was negative $55 million.

GAAP gross margin was 23%, down sequentially from 25%, largely due to the $65 million inventory write-down.

Computing and Graphics segment revenue of $424 million, up 12% sequentially and down 46% y/y. Operating loss was $181 million. The $65 million inventory write-down was in this segment. Average selling price (ASP) decreased on lower notebook processors ASP. But GPU ASP was flat sequentially and up y/y. Sequential revenue increase was largely from desktop and GPU sales.

Enterprise, Embedded and Semi-Custom segment revenue of $637 million was up 13% sequentially and down 2% y/y. Operating income was $84 million. Main growth driver was game console chips. Expects additional semi-custom design wins to begin shipping in the second half of 2016.

The Other segment showed an operating loss of $61 million.

During the quarter ended AMD ramped the first GPUs using HBM, die-stacked high-bandwidth memory, as well as a full family of new Radeon R7 and R9 graphics cards. New APU variants ready for Windows 10 were also introduced. Also the Radeon R9 Nano graphics card.

Launched the AMD Pro A-Series with HP, which is reporting accelerated demand for AMD based systems.

Announced Fujitsu Futro series are powered by G-series SOCs.

AMD is also looking to raise money from its extensive patent portfolio.

Cash and equivalents (including marketable securities) ended at $755 million, down $74 million sequentially from $829 million. $69 million was used to pay interest. Debt was $2.26 billion, flat sequentially. Cash flow used in operations was $59 million. Capital expense was $25 million.

No debt should come due before 2019, and interest is now at a reduced rate. Because of the debt structure, cash use is higher in quarters 1 and 3 compared to 2 and 4.

Again renegotiating the Globalfoundries wafer purchase agreement.

GAAP cost of sales was $822 million, leaving gross profit of $239 million. Research and development expense was $241 million. Marketing, general and administrative expense $108 million. Amortization $0 million. Restructuring $48 million. Leaving an operating profit of negative $158 million. Interest and other expense was $39 million. Tax $0 million.

AMD employee headcount ended at , down sequentially from 9,469 and down from year-earlier. Expects to reduce by another 5%.

Q&A:

Semicustom business sequential guidance drop? It was a strong Q3 on a unit basis. Our customers ramped prior to the holidays. Overall the second half demand appears to be as expected, but accelerated into Q3.

Assembly test agreement, is there a supply agreement with it? We intend to use this facility, but we have flexibility to use other facilities too. It is a 5 year agreement.

Will packaging costs increase when the deal closes? We expect it to be cost neutral, so no impact on margins. In addition we should need to spend less on capital expense.

Value of IP? We plan to monetize our 10,000 patents. It includes foundational patents in processors, graphics, and semiconductor processing. We could license, or partner, or even sell pieces of the portfolio.

12% computing and graphics growth in quarter? It was more graphics than computing, but both grew. We expect further growth in this segment in Q4.

Zen roadmap, personnel? Zen is on schedule, will be available in 2016. The architecture team is in place. We are extemely committed to high performance x86 CPUs, with Mark Papermaster leading the team. It is "our number one priority for the company."

Xilinx with Qualcomm on ARM server acceleration? Believes ARM has a place in the datacenter. Adoption has been slow. Seattle production shipments will begin in Q4, but will be modest.

Zen performance, yield? We had a 40% IPC increased performance target, we have that. We have taped out. So far, so good.

HBM to competitors? It is done jointly with several OSATs. They are not part of the JV with Fujitsu.

Graphics mix in Q4? We have a solid offering in the enthusiast segment now, but it is too early to predict Q4 ASPs.

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